Hci Group Inc (HCI) 2026 Q2 法說會逐字稿

Good afternoon

And welcome to HCI Groups second quarter 2026 earnings call.

My name is Ali, and I will be your conference operator.

At this time, all participants will be in a 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 August 20th, 2026, starting later today.

The call is also being broadcast live via webcast and available via webcast replay until August 6th, 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.

Please proceed.

Thank you and good afternoon.

Welcome to HCI Group second 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 forwardl statements made pursuant to the Private Securities Litigation Reform Act of 1,995, words such as anticipate, estimate, expect, intend, plan, 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 in actual events.

These developments could have materially adverse effects on the company's business, financial condition, and results of operation.

HCI Group disclaims all obligations to update any forward-looking statements.

Now with that, I'll turn the call over to Mark Harmsworth, Chief Financial Officer.

Thanks, Natt.

Good afternoon and thank you for joining us on our second quarter earnings call.

This was another very strong quarter for the company.

Pre-tax income of more than $110 million was 18% higher than the same quarter last year, and year-to-date dollarsar was 16% higher than the 1st 6 months of last year.

When comparing with last year, remember that was a record year, and so far, this is an even better one.

Diluted earnings per share were $5.

$0.60, up from $5.

$0.18 in the second quarter last year.

And year-to-date diluted earnings per share were $11.

$0.05.

Gross premiums earned for the quarter grew by 6% from the second quarter last year, driven by policy growth, while average premium per policy remained flat.

Total revenue grew by 11%, driven by the premium growth as well as an increase in services revenue generated from new clients in Exio.

The loss ratio this quarter was 22%, just a touch higher than the first quarter, reflecting the normal seasonal trend.

Is well within the 20 to 25% range we've been discussing for some time now.

In terms of the combined ratio, we've indicated this should be in the 60 to 65% range absent any cat activity.

And the combined ratio this quarter of 61% was right in the range.

Let's turn to the balance sheet for a minute, which continues to strengthen, we have more than $2 billion in cash and investments, stockholder equity is over a billion dollars, the debt to cap ratio is less than 6% and book value per share is now $86.

$0.60.

As we discussed in our last call, while the growth in book value per share has been impressive, remember this does not include any unrealized gains on our ownership of Exxio or our real estate portfolio.

Fair value of Exxio and a real estate portfolio were added, pro forma book value per share would be over $150.

Over the last 36 months, our after-tax return on equity has been 35%.

In a period that includes 2 major hurricanes, Milton and Helene.

This is a very compelling return for an insurance company, and yet we trade at less than 1.2 times adjusted book.

This is the reason we've been buying back the stock.

As we announced a buyback plan in March under which we were authorized to purchase up to $80 million of stock, and we are pleased to say that we have completed that program.

We have fully utilized that authorization, buying back a total of 504,000 shares, representing about 4% of the outstanding shares of the company.

In terms of holding company liquidity, we have just over $160 million of liquidity at the HCI level, this does not include the 75 million shares we own of Exxio, which now trade publicly.

Wrapping up in the quarter, this has been another fantastic one for the company.

2025 was a record year for HCI, and the 1st 2 quarters of this year have been even better.

Revenue is growing, margins are expanding, we are generating record cash flows of minimum debt, minimal debt, we continue to generate superior returns on capital and we bought back 4% of the company, and with that, I'll hand it over to Karen.

Thank you, Mark, I think kerns are ideal.

In reality, market conditions are far more challenging, so the results Mark just discussed are even more impressive.

We have always been good at operating in all types of environments.

So it may be helpful to discuss some of the ways we have prepared to navigate through this market.

The first rule of managing through the soft part of the cycle is to preserve your own business, meaning keep attrition low by prioritizing your current enforced book.

How are we doing?

Our retention rates are consistently above 90%.

This success is due to focusing on the policy holder from day one, regardless of market conditions and not simply when the competitive environment gets more challenging.

2 ways to do this are by rate and policy coverage.

As for rates, HCI underwrites with a focus on what is an appropriate rate, both now and in the future.

We don't dramatically increase rates when the market is hard, which then reduces the need to chase rates down as the market softens.

Policy holders want fairness and consistency, and we provide that.

As far as policy coverage is concerned, we are consistent in how we, how comprehensive we are, carriers limit coverages for policyholders when profitability is under pressure, we don't do that.

An example, we continue offering the broadest possible coverage on water damage, even when some in our industry choose to cap each event at $10,000 while this artificially improves the carrier's profitability in the near term, it can also negatively impact their ability to retain customers over the long-term.

Bottom line, HCI knows that the first rule of growth is making sure your current customers want to stay with you.

The second rule is to be opportunistic in the second quarter, we pivoted core, our condo owners' reciprocal exchange from writing commercial business to focusing on the residential market.

As a result, since April, we have seen significant month over month growth to the point we now believe it will be a good source of new business in the second half of 2026.

I would add it just last week we had one of our best weeks for new voluntary business, and this was done in the softening market.

Again, we believe that policy coverage is the differentiating factor for the rapid scaling we have seen so far.

We are also focused on the market we know best, Florida, understanding that expanding into other states that have different market characteristics can be challenging, especially at this point in the cycle, that said, we remain interested in California, given the obvious similarities it has with Florida, but timing and the longer-term rate environment will be crucial in our decision-making.

Also in the quarter, we completed our cat catastrophe insurance programs for the 2026-2027 treaty year.

We're very pleased with these new insurance programs, having purchased more coverage and better coverage while reducing our actual seeded premiums by over 10%.

This translates into more than $10 million of savings per quarter.

In short, we utilize one of the most important expense levering forward.

Continuing on the reinsurance front, you may remember in the second, in the 1st quarter we announced the creation of our second reinsurer, Vortex Re.

We quickly used fortex in the new programs we announced on June 1st, as well as for a new project of ours, digital tokenized reinsurance Security.

In mid June, we announced that 3 separate token offerings would be available that are structured to mirror parts of ForEx excessive loss programs, and by June 30th, those offerings were completed.

For HCI, one of the primary goals of this pilot project was to identify new ways to make catastrophe reinsurance as an asset class available to a wider market of investors, which could result in a more efficient reinsurance marketplace.

For placing and pricing specific types of risks.

I will close by simply saying that HCI is in its strongest financial position in our nine-year history, and we got here by having the vision to look to the future while we consistently are operating in the present.

Over the last 6 quarters, we have averaged $5.62 per quarter in EPS and almost $110 million in pre-tax income while rates have softened and competition has increased.

With that, let me turn it over to Parrish for some final thoughts.

Thanks Karen.

To recap what we just heard.

HCI is delivering consistently outstanding operating results in a softer market, and it's doing so while rolling out new products to offset attrition and return to organic policy growth.

This is being done even as we reduce our largest operating expense line item, reinsurance.

And we're doing it while improving all the quality components of the reinsurance programs for this coming year.

That's a pretty good start to 2026.

And let me add 22 quick things.

In July, we signed up GEICO to distribute our new product, and they have already started selling policies.

This is new business and a new relationship that is not reflected in the second quarter numbers, we will start to benefit from this in the 3rd quarter.

Additionally, our ability to rapidly ramp up this new business, both internally and with the help of our agents is a direct result of the speed and agility that exisch technology platform affords us on a daily basis.

So thanks to an opportunity mindset, hard work, and exit pioneering technology by the end of, and this is without any citizen assumptions, acquisitions, or entering new markets, which in all of itself is no small achievement.

And with that, I will turn the call over for questions.

(Operator Instructions) Our first question is coming from Mark Hughes with Trust Your Line is live.

Yeah, thank you, good afternoon.

Hey Mark.

Mark the, seated premiums in the third quarter, what should they be absolute terms or, ?

A ratio.

About 96 million.

969, okay.

And what does it mean, in terms of, rates, presumably you have to update your.

Filed rates in Florida for the new reinsurance agreement, what do you think that will mean in terms of blended impact on pricing?

Mark.

That's gotta take some time because now that this thing's in here, you go through the process of, going through the actuaries, they mark it all up, and then eventually it'll go into the next rate,

Filing that we do.

Which probably is going to be late this year, so it's going to be

It will get incorporated into our rate filing, but it's going to take a little while.

Any early estimates?

No, I actuaries work in mysterious ways.

Yeah, very good.

And I'm sorry if you, already mentioned the tailro,

Gross premiums written.

Pretty big number this quarter, what was going on there?

So some of that, a significant part of that, there's some of that is new business, Mark, but there's also, remember we did the,

The the takeout in Q4 last year they had some significant.

A lot of those policies came up for renewal and they wrote those in Q2, a little bit of new business there too, but that's, that was the biggest piece of that.

Yeah, okay, and then, how meaningful is that GEICO relationship, I think you said.

By the end of the year you see organic policy growth, GEICO presumably is a part of that, but sounds exciting, any way to size that up.

No, it's early days, we'll see how it goes, but I mean, I think by Karen's comments.

Core and the new product already doing fantastically well.

The GEICO relationship is an accelerates that that possibility, and the other thing about all of this stuff is there's been some industry press in the last couple of weeks about bundling and putting home and auto together.

?

You're kind of looking at core home, and Geico Auto.

So that bundling may have some, might, may find some traction, but

We'll keep you posted as things develop, yeah?

Sounds good, and then, if you could spend a minute or two on the pilot project, the token, initiative that you're talking about the.

Financial implications, operationally, how does that work?

Be interested to hear a little bit more on that.

Yeah.

So, Mark, we've

I will tell you two different things.

One is that we announced that we've told everybody what we're doing, and we're doing it on a very small scale.

Just to make sure that we've got every step of the of the process and regular approvals and everything else done.

So we're doing this in a, in the short-term, in a nonmaterial, and we've made great progress obviously because as Karen said in her prepared remarks, tokens have already been issued, etc.

Right?

So all that has occurred.

The

But in the short-term, it is not material to our numbers.

Having said that, in the long-term

If this works, it could create a whole new asset class from a tokenization perspective, but from an HCI perspective, it opens up a whole new market through which to secure, reinsurance, right?

So you can imagine a future world where you've got the regular rain shirts you can buy through Bermuda and London.

There's obviously a different market in the C bonds, which we don't participate in, but it's out there, and then this could be a whole third class, of places where you can buy rain shorts, and the 3 markets complement each other as opposed to directly compete, so this could be a

A huge improvement for the industry.

If we can get it to work all the way through, yeah.

That'd be more of that management model on your part?

No, from, I think from an HCI's perspective, it's like

And

Every year when we pay for insurance.

We generally do it through the

General market in Bermuda and London and lats shores, the classics, you could also

Place reinsurance through C bonds and things which I'm sure you've seen lots of people do.

Now you could have a third option of placing reinsurance, which would be through tokens.

We're trying to open up that third avenue.

And

That could be.

As revolutionary as C bonds when they first came along were right.

It was a very small piece of the market, it has grown to be quite a large thing, and it's not just one company specific, it could be industrywide, it could be a whole new, class, yeah, so we are pioneering all this stuff from an HCI perspective is just where to procure insurance from.

But it could be an asset class.

That could, that will require asset managers and everything else, yeah.

Yes, very good.

Appreciate it.

Okay.

Thank you.

As a reminder, ladies and gentlemen, if you do have questions, please press star 1 on your telephone keypad.

Our next question is coming from Michael Phillips with Oppenheimer, your line is Life.

Thanks, good afternoon, thanks for letting me in, you said that the Florida primary market is, pretty rational, recently, and, average rate average pricing is kind of remaining pretty firm, and maybe that's one of your

Focused areas of growth in the near term, I guess, kinda want to hear if that's still the case.

Yeah.

Michael, I don't want to put words in Karen's mouth, but I don't think she said the industry rates are flat, she was just talking about HCI.

Yeah, pretty stable rates for a, for the HCI group of carriers, right?

But there are lots of rate filings that are, yeah, you'll be reading, headlines that some people are reducing rates, but as I mentioned, we haven't been one of those that have chased rate up, over the last 3 or 4 years, so we don't see the need to significantly, adjust it down, so the stability in our rates is what I think is what has been very successful, as I mentioned, it's right and, policy language.

We TRY to be very consistent.

Yes, okay, thank you, and Karen, you mentioned, you made some comments about the core, I guess I want to hear your views on the condo market on commercial, you, yeah, I think you've mentioned, Core is going to be doing some residential condo, what does that mean for the commercial space and the kind of market that you can update us there, please.

Right, so in core when we entered, the market was, focused on the commercial residential, and we saw that that was softening very quickly and that's when we pivoted to now bring in an HO3 product into core, and we've been writing voluntary business there averaging about per month the last couple of months, about $6 million a month of new business in that HO3 product, so we pivoted very, successfully in that regard.

Okay, great, thank you very much.

Thank you.

As a reminder, ladies and gentlemen, if you do have any questions, please indicate so by pressing star 1 on your telephone keypad.

Our next question is coming from Ryan Tunis with Cantor, your line is Li.

Hey, thanks,

I guess first question just for Parrish, taking a step back.

I know you take a longer-term view.

How do you evaluate

Just like this quarter in general, good loss ratio.

Oh, Ros kind of chugging along, but it's kind of hard to interpret.

Like where the momentum's at, like.

How do you think about

Like how this quarter shows us what's going to happen over the next, say, year.

Thank you.

Ryan, welcome.

Tim.

The way I would characterize it.

Is, and I think some of the comments Mark made, etc.

This is like the sixth quarter in a row that we're over 100 million, the ROE is very strong.

We are in a position where just keeping this sequence going.

Quarter after quarter after quarter is having a huge impact.

In a positive way, so

We are not

Pressed into, we have to grow 20% a year or pick the number, but you get the idea, just the status quo is pretty accumulative.

For us.

So

We are

As Karen said in her comments, job one, keep what you already got.

Right, and job 2 is maneuver to what you need to based on what's going on, and what we're doing in that is

And I can tell you it's pretty impressive because the commercial business in core was shrinking because that business has really got soft in terms of rates and whatever one way to TRY and keep market share.

Karen and her team pivoted to to residential and started, in March.

Core had never written an HO3 policy.

And now it's producing 6 million a month, right, that is a very impressive, pivot.

To from a very soft market to picking up market share in something else.

And the fact that that's done kind of gives confidence.

In terms of extending the runway of what we're doing currently.

Obviously we also said sort of

Kind of nature of our nature, we don't like just maintaining the status quo.

So we are exploring the two new things.

One is the tokenized reinsurance which we gave, Karen gave a very good update on, and secondly, we still keep looking at California, but there's little things, nuances when you get into the detail, I think the rates in California change in October or something, I believe that some changes coming through, so we're trying to make sure we time our entry correctly.

So

Sim simply summarizing all of that.

The

The status quo is good.

We are taking active steps to extend status quo for as long as possible, and then we have a couple of initiatives, which are geared more towards a better long-term future.

So, yeah, that's the idea.

Chugging along and

And looking for opportunity, it's, thank you for that, and then just to follow-up, it looks like you guys burned through your authorization on the share repo.

I might be, but, yeah, I didn't see a new authorization, I'm just curious like what's going on with the repo.

And that's all for me.

And thanks for welcoming me.

Hey Ryan, it's Mark.

So, yeah, so we had, an $80 million authorization.

I think about 75 million of that was used by the end of the quarter.

And then the rest of it in the first week of July, so.

My my comments on my prepared remarks were that we completed that program, was completed, I think, on the 6th or 7th of July.

In terms of where it goes from here, see,

Parish mentioned

On our last call.

That, we thought one of the best investments out there was our stock.

I made some comments now about where we're at and where we're trading.

In terms of price to book and, given the.

Given the 35% return on equity and where we are, so I mean, we still think our stock is a great investment.

So do we like buybacks?

Yes.

We don't have anything active right now, but we'll, see the way the rest of the year plays out.

No, I do too, I'd get an authorization active though.

Thank you.

We'll convey your, we agree with the sentiment.

Thank you.

If there will be no final questions.

This will conclude our question-and-answer session.

I would now like to turn the call back over to Peresh Patel, who has a few closing remarks.

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

Thank you.

Thank you.

This will conclude today's call, and you may disconnect at this time, we thank you for your participation.