HCI Group, Inc. (HCI) Q3 2026 Earnings Call Transcript

Good afternoon, and welcome to the HCI Group's third quarter, 2026 earnings call. My name is John, and I'll be your conference operator today. At this time, all participants will be in listen-only mode. Before we begin today's call, I would like to remind everyone that this conference call is being recorded and will be available for replay through November 18, 2026, starting later today. The call is also being broadcast live via webcast. And available via Webcast Replay until November 4, 2027, on the Investor Information section of HCI Group's website at www.hcigroup.com. I would now like to turn the call over to Nat Otis, HCI Investor Relations. Nat, please proceed.

Thank you, and good afternoon. Welcome to HCI Group's third quarter 2026 earnings call. To access today's webcast, please visit the investor information section of our corporate website at www.hcigroup.com. Before we begin, I'd like to take the opportunity to remind our listeners that today's presentation and responses to questions may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimate, expect, intend, planned, and project, and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have materially adverse effects on the company's business, financial condition, and results of operations. HCI Group disclaims all obligations to update any forward-looking statements. Now, with that, I'll turn the call over to Karen Coleman, Chief Operating Officer.

Thanks, Nat. Good afternoon, and thank you for joining us for our third quarter earnings call. Before Mark provides our financial results, we would like to express our thoughts and support for all of those impacted by Hurricane Isaias, including our policyholders, employees, and communities affected by the storm. Isaias made landfall in Florida on October 9th as a Category 2 storm, fortunately weakening from a Category 3 before reaching shore. Today, HCI has received over 1,300 claims related to Isaias and have already distributed over 3,000 checks, and we continue to work closely with our policyholders as they repair their homes. With that, let me turn it over to Mark Harmsworth, our Chief Financial Officer, to go through this quarter's financial results.

Thanks, Karen. This was another very successful quarter for the company, with a low combined ratio, growing earnings, a very strong balance sheet, and strong returns in equity. Pre-tax income in the quarter was more than $116 million, up from $91 million in the same quarter last year. The alluded earnings per share were $6.45, up from $4.90 in the third quarter of last year, and up from $5.60 in the second quarter of this year. I've mentioned operational leverage and the earnings power of the company many times on these calls, and this is, again, very clear this quarter. Look at this quarter compared to the same quarter last year. Gross premiums earned are up 5%, but net income is up 27%. Why? Because investment income is up over 20%, reinsurance expenses are down, and expenses are growing slower than revenue. Now look at this quarter compared to the previous quarter of this year. Gross premiums earned are down slightly, but net income is up for the same reasons. When premiums are growing, earnings are growing faster, and when premiums are down, it doesn't mean that earnings are down. That is operational leverage and earnings power. Let's turn to the balance sheet for a minute, which continues to strengthen. We have over $2.1 billion in cash and investments. Stockholder equity is well over $1 billion. Debt-to-cap ratio is less than 6%, and book value per share is now over $90 and growing. As we discussed in our last call, while the growth in book value per share has been impressive, remember, this does not include the unrealized gains in our ownership of Exio or on our real estate portfolio. When these are included, pro forma book value per share is over $160. If you look at the larger population of public P&C companies, over the last three years, after-tax returns and equity averaged less than 15%. And yet they trade at two times book value per share. During that same three-year period, we, on the other hand, generated an after-tax rate of return well over 30%, and this was at a time when we experienced two major hurricanes. Despite that superior rate of return in equity, we are trading at a much lower multiple of adjusted book value per share. That's the reason we've bought back 4% of the company so far this year. In terms of holding company liquidity, we have over $150 million of liquidity at the HCI level, even after the $80 million buyback. Our insurance carriers have also never been stronger. We have over three-quarters of a billion dollars in surplus in our various insurance companies. Our ability to maintain a strong surplus position and still generate superior returns on equity shows the effectiveness of our capital strategy, which balances strong returns while having the financial strength to withstand major weather events and be there for our policyholders. One other note, Karen mentioned Hurricane Isaias in her opening remarks. As we explained in a press release recently, our net loss for this storm in the fourth quarter will be $15 million, and that number will not change even if the gross loss changes. Wrapping up in the quarter, it's been another fantastic one for the company. Revenue is growing. Margins are expanding. We're generating record cash flows, have minimal debt. We continue to generate superior returns on capital, and we've bought back 4% of the company. And with that, I'll hand it back to Karen.

Thanks, Mark. As market conditions have softened, we've been focused on executing our long-term strategy. As we've mentioned in prior calls, this strategy is to keep attrition low, to have the agility to offer new products when prudent, to be efficient with operating expenses, and to have the discipline to patiently assess the market and deploy capital on opportunities that offer meaningful upside. Related to this strategy, in the quarter, gross written premiums were up 12% year over year as the new residential business at core continues its momentum. This business has more than doubled since last quarter and is now averaging over $8 million a month. Underwriting continues to be a strength of ours, and with Exio, not only do we benefit from its technology and automation, but its ongoing innovations also ensure that we will be at the forefront of our industry as AI transforms it. On the expense front, as Mark noted, we focused on cost management to further enhance our operating leverage. For reinsurance, which is our basic expense, we benefit when reinsurance rates soften, but also utilize a multi-tower strategy to help mitigate the potential for higher losses from any one storm. This strategy proved itself in the case of Hurricane Isaias. In addition, our sizable investment portfolio is another way we take advantage of market conditions to further strengthen the bottom line. Lastly, since managing catastrophe risk is a critical part of our business, let me leave you with this. When Hurricane Irma hit, it took 36 months for book value to recover after the storm. For Hurricane Ian, it took us 15 months to return book value to its pre-storm level. With Hurricanes Helene and Milton, it was three months. And now for Isaias, it will be just two weeks. Our strategy not only drives strong earnings in a softening market, It also demonstrates how durable these results are, even after factoring in the inevitable storm activity that comes with operating our business. With that, let me turn it over to Parrish for some final thoughts.

Thank you, Karen. What we believe sets us apart is our ability to proactively position ourselves for future market conditions. A few years ago, we understood that it was a good time to grow. So we went on a growth upswing to strengthen our top line, and we nearly doubled the size of the company. But for a little over a year now, we have known that top line growth will be more challenging going forward. As a result, 2026 has been about maintaining a stable level of business while focusing on operating leverage. In 2027, we will do the same while expanding EPS leverage through an even lower share count, and all the while, while benefiting every month from our strong investment portfolio. Finally, we see an abundance of capital-chasing premium in our space. We also note the rapid influence of AI and its ability to be utilized in many innovative ways. And we've always embraced disruption in the markets and emerging technologies. You will recall we started an insurance company when others were living in the space. We started a technology company long before InsureTech was a fad. So we are working on the next level of innovation in both insurance and the technology space and are looking forward to sharing those advances with you soon. And with that, I will turn the call over for questions.

Thank you. If you wish to ask a question during this time, simply press star 1 on your telephone keypad. And our first question comes from the line of Mark Hughes from Truist. Please go ahead.

Yeah, thank you. Good afternoon. Afternoon, Mark. Any changes in policy retention? I think you're talking about 26 and 27, using the core to offset normal underlying policy losses. Are you seeing any change in those retention numbers? The market seems like it's a little more competitive these days.

Not really. It's Mark. If you look at the retention over, say, the last... 12 months, or the attrition, let's say, is sort of 8%, 8.5%, somewhere in that range. And it's been fairly consistent throughout the year.

Okay. And then how should we think about the rate going into 2027? What is the influence of rate going to be on that book of business?

Well, we do anticipate that rates should lower a bit, which isn't unexpected given reforms and other factors over the past few years. So we'll be working on that.

And then, Parrish, the tokenized reinsurance, is there anything to be done around the 1-1 renewals, or is that a 6-1 event for you?

Good question. It's going to be a 6-1 event, because as you know, we are testing this thing through an entire cycle. The cycle will be over on 6-1, yeah? Next year.

Yeah, very good. And then anything on the GEICO relationship? I think it's been kind of deliberate here to fore. Anything different you're seeing there?

Well, our core business continues to grow. Last quarter, we noted that we were doing about $6 million a month in core, and that has now increased to $8 million a month. So that continues to be very positive.

Very good. Thank you.

Thanks, Mark.

Our next question comes from the line

of Michael Phillips from Oppenheimer. Please go ahead.

Yeah. Hi. Thanks. Good evening. I think last quarter, Parrish said something about possibly seeing organic policy growth by the end of the year. I guess I wanted to see if you saw any path towards that. Did anything happen this quarter for that, and is it still on track, do you think, by the end of the year?

Yeah. We have narrowed the gap down tremendously, and it's going to be a close-run race as to whether we see it by the end of the year, but we are planning on hopefully having it in the near future.

And Mike, it's Mark. Just the organic growth, just to go back to something Karen mentioned, we had said on the last call we were expecting about $6 million a month in written premium, and as Karen mentioned, that's been bigger than we thought in the $8 million range. So that's where that organic growth that Parrish is talking about is coming from, is in the core business line. It's been working really well.

Perfect. I'll click on that then, Mark, or anybody. Does the Geico partnership only flow through core, or is it other carriers from HCI as well?

I think it flows through a number of different carriers.

Okay. And then maybe just lastly, I guess on the expense side, you talked about leverage a lot. Acquisition expenses are pretty flat. Your operating expenses aren't big at all and are hardly moving. But I guess, how do we think of those, both components of those, particularly as core growth and scales?

Yeah, Mike, it's Mark. So you're asking about which expenses?

Yeah, the operating expense, you know, it's probably $6 million, but how does that move as core scales?

Yeah, if you look over the history of, say, the last six, eight quarters, that number doesn't really move that much. It's pretty flat. When it does grow, as I said in my earlier remarks, it grows slower than the revenue does. And, you know, the other thing is if you sort of wrap everything together and look at the combined ratio, you know, we've mentioned a combined ratio expectation in the sort of 60% to 65% range, and we've been at the low end of that for a significant amount of time. Actually, I think we're in the high 50s this quarter. So, you know, even as CORE is growing, those expenses are really not growing much. That's kind of what's creating that leverage that we talked about.

Okay. Good deal. Thank you very much.

Our next question comes from the line of Matt Tarleti from Citizens Bank. Please go ahead.

Hey, thanks. Good afternoon. Mark, it looks like cash continues to be put to use, invested in investments. Can you talk a little bit about new money rate versus book yield and kind of what we should expect on the NII line?

Yeah, so I think Karen and Parrish both mentioned it. Investment income has been growing pretty significantly, and that's really being driven just by, you know, by cash flow. So we're generating about $75 million a quarter in, you know, positive cash flow, which, you know, at our current yield of 4% or so is generating about $3 million per year of incremental investment income. So that's been very positive. So investment income is continuing to grow just because of that increase in the sort of cash and fixed-term investments balances, the total. And we've also been sort of, you know, at different times, you know, increasing the amount that's invested in fixed-term securities over the last little while. I think the overall yield is about four and a quarter. On total invested balances of about, and that's, you know, obviously that's got the potential to go up, or it has been increasing. So we're, if you look into next year, sort of, we're benefiting from two things. One, the invested balances are going up, and two, we've got, you know, the potential for rates to go up a bit. But it's been a very good story for us.

Okay, great. And then maybe just one other one, if I could. Obviously, elections last night, and if I'm reading kind of Florida right, it seems like stability at the CFO office, so maybe end of a supermajority for the GOP. Any takeaways as it relates to kind of your core market, homeowner's insurance, good, bad, or otherwise, from kind of the changing landscape?

We don't see anything that's going to be impacting it here, especially in Florida. You know, we've always had good working relationships with the regulators, and things seem to be pretty business as usual at this point.

All right, great. Thank you.

Our next question comes from the line of Ryan Tunis from Cantor. Please go ahead.

Hey, thanks. Good evening. I guess first, just the start of the XCO earnings release, there's a quote from Paris saying, AI will reshape the insurance industry, not just in expense ratios, but in how coverage is bought and sold. I was curious, um... You know, how you'd expand on how that relates to HCI. Most of the discussion right now is around auto. You seem to think that could have an impact on home. So just looking for you to elaborate. Thanks.

Yes, look, very simply, AI is going to change things. I actually cited my remarks in here as well. And we've always been more focused, even as HCI, on where the world is going to as opposed to where it is currently. So if AI is going to reshape things, it's going to reshape homeowners in some interesting ways. And we are going to, luckily, having Exio. We will be at the cutting edge of this just as a normal byproduct of who we are. So the stuff you've heard about what AI might do to auto, I want to do that to home as well.

Interesting. And then I guess could the gross loss ratios continue to be pretty strong. I mean, could you just, given the rate environment, talk a little bit about, you know, where those are running now and what's a reasonable expectation perhaps in the 2027?

So, it's Mark. So, loss ratio, you know, it's been performing really well. We've said for some time now, expect the loss ratio in the 20% to 25% range. That's still the case. It can move around a little bit. We've been at the low end of that range now, continuously, for quite a while now. And, you know, I don't think I have anything really new to add to that. It's been it's pretty consistent. If you if you look at the loss ratio for the last for the first nine months of this year, it's exactly the same as the first nine months of last year, which is 21%. So we sort of continue to be at that low end of the range. And, you know, that's that's our expectation still going forward.

And I guess you noticing anything and. The data from a loss trend standpoint, whether it's frequency or severity, it's been unusual this year. Obviously, really good results, but I guess I'm a little surprised there hasn't been a little more deterioration toward that midpoint 2025.

No, no, I mean, we followed the trends pretty, you know, pretty carefully, obviously, and, and, and there was a. It was a significant change, you know, as the legislative changes rolled through, you know, a few years back. But since then, you know, there really hasn't been, there hasn't really been a lot of change in either frequency or severity. I mean, you have a little bit of inflation on the severity side, of course, with cost of materials, but that's, that's all sort of baked into that, that loss ratio range. But in terms of frequency and severity, It reset a few years back, and, you know, it can move around a bit quarter to quarter based on weather, but generally speaking, it's been very consistent for quite a while now.

And lastly, maybe I missed it, but do you guys have a gross loss estimate pick for Isaias?

Yeah, so we put a press release, a gross number. No, I mean, it's too early to give that number. We'll be putting that in our K. But I think the most important thing there is, you know, the net loss just because of how... If the reinsurance works for that event, the net loss that you're going to see in Q4 is $15 million. It doesn't really matter what the gross is. It's a little bit early to put a good number on that. Obviously, we have a pretty good idea, but it's too early to publish a number. We'll do that in the K, but I think the most important thing is that that doesn't change the net loss number, which is what flows through to the loss expenses in Q4.

That makes sense, please, guys.

Thank you.

As a reminder, if you have any questions or follow-up, please press star 1. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Paresh Patel, who has a few closing remarks. Paresh Patel, Chairman and CEO. Thank you.

On behalf of the entire management team, I would like to thank our shareholders, employees, agents, and most importantly, our policyholders for their ongoing and continued support. Thank you.

At this time, this concludes our question and answer session. This concludes today's call. You may now disconnect.