• Pre-Tax Income: $76 million.

• Earnings Per Share (EPS): $4.24.

• Gross Premiums Earned: $264 million, a 45% increase from the same quarter last year.

• In-Force Premiums: Above $1 billion.

• Gross Loss Ratio: 29.7%, down from 34% in the same quarter last year.

• Dividend: $0.40 per share, marking the 55th consecutive quarterly dividend.

• Investment Income: Over $16 million, nearly double from the second quarter last year.

• Combined Ratio: Just under 68%, normalized to closer to 80%.

• Debt Reduction: Debt decreased by $70 million.

• Shareholder Equity Increase: $259 million.

• Book Value Per Share: Increased from $22 to $43.

• Debt-to-Capital Ratio: Dropped from 62% to 34%.

• Warning! GuruFocus has detected 1 Warning Sign with HCI.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• HCI Group Inc (NYSE:HCI) reported a significant increase in pre-tax income, reaching $76 million, with earnings per share of $4.24.

• Gross premiums earned increased by almost 45% to $264 million, driven by contributions from all insurance divisions.

• The company achieved a gross loss ratio of 29.7%, showing improvement in underwriting results.

• HCI Group Inc (NYSE:HCI) maintained its commitment to shareholders by paying a dividend of $0.40 per share, marking the 55th consecutive quarterly dividend.

• The company successfully completed its annual reinsurance program, securing reinsurance spend at approximately $92 million per quarter.

Negative Points

• Hurricane Debby posed a potential risk, although it was not expected to be a reinsurance event, it still required active management.

• The combined ratio, although improved, was slightly lower due to limited reinsurance and policy acquisition expenses for part of the quarter.

• There is increased competition for policy takeouts from Citizens, with over 400,000 policies requested by multiple carriers.

• The impact of potential catastrophic events remains a concern, with statutory retentions for Homeowners Choice and TypTap being $14 million and $9 million, respectively.

• The company's growth from voluntary policy writing is overshadowed by larger initiatives, such as policy takeouts from Citizens.

Q & A Highlights

Q: Given the growth from Citizens, what would the impact be if a major storm like Hurricane Ian occurred again? A: James Harmsworth, CFO, explained that if a storm like Ian occurred, there would be significant losses. Homeowners Choice has a statutory retention of about $14 million, and TypTap has about $9 million. Depending on the storm's location and which underwriter is affected, losses could range from $40 million to $45 million for TypTap. However, they have adequate reinsurance to cover claims beyond these retentions.

Q: With the upcoming policy assumptions in October, do you expect the acceptance rate to differ from last year? A: Paresh Patel, CEO, noted that the October takeout is more competitive with over 400,000 policies requested by multiple carriers. Despite this, they are optimistic about their opportunities and take-up rates. The outcome will depend on weather events over the summer.

Q: How has the gross loss ratio improved, and what is the impact of lower litigation in Florida? A: James Harmsworth, CFO, stated that claims frequency is down 25% to 30%, and litigation frequency is down 35% to 40%. This improvement is not solely due to weather but also due to lower claims frequency across the board.

Q: Can you expand on the retention rates for policies assumed from Citizens? A: Karin Coleman, COO, mentioned that they expected a 65% retention rate for the first year of policies coming over, but it is holding closer to 85%. This indicates strong retention when policies are offered for renewal.

Q: How does Citizens' rate increase affect your takeout strategy? A: Paresh Patel, CEO, indicated that the rate increase makes the takeout more competitive, but they expect similar numbers to last year. The increased competition is balanced by their effective strategy and technology.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.