HCI (HCI) Q1 2026 Earnings Call Transcript

Image source: The Motley Fool.

Date

Wednesday, May 6, 2026, at 4:45 p.m. ET

Call participants

• Chief Financial Officer — Mark Harmsworth
• President — Karin Coleman
• Chairman and Chief Executive Officer — Paresh Patel

Need a quote from a Motley Fool analyst? Email pr@fool.com

Takeaways

• Pretax income -- $115 million, representing a 15% increase.
• Diluted earnings per share -- $5.45, marking the highest first-quarter result in the company's history.
• Gross premiums earned -- Increased by just over 8% due to full impact of 2025 assumptions.
• Total revenue -- Grew by just over 12%, driven by significant growth in investment and other income.
• Other income -- Increase attributed to non-HCI business revenue from Exzeo and Griston.
• Loss ratio -- 20%, unchanged and indicating low claims and litigation frequency.
• Combined ratio -- 57%, in line with full-year 2025 and within the stated 60%, plus or minus 5% target.
• Stockholders' equity -- Exceeded $1 billion, doubling over the past year.
• Cash and fixed-term securities -- Just under $2 billion reported on the balance sheet.
• Book value per share -- Now almost $85.
• Debt-to-capital ratio -- 6%.
• Total surplus -- Increased by 22% to over $500 million.
• Gross leverage ratio -- Less than 2.5, providing capacity for further growth and capital flexibility.
• Share repurchase plan -- $80 million authorized in March; $37.5 million utilized for 239,000 shares as of end of April.
• Holding company liquidity -- Nearly $200 million, excluding Exzeo shareholdings.
• Exzeo ownership -- 75 million shares held; Exzeo is now publicly traded.
• Pro forma book value per share -- Nearly $145 if Exzeo and real estate portfolio fair values included.
• After-tax return on equity -- 35% reported.
• Share buybacks -- Currently purchasing shares at a rate that equates to roughly 2% of the company each quarter.
• Premiums in force -- $1.3 billion across four carriers.
• Tailrow -- Holds over $120 million of in-force premiums, with more than half of Citizens takeouts completed by this reciprocal exchange in 2025.
• Carrier profitability -- All four insurance carriers are profitable to date, with two reaching profitability within 12 to 15 months from inception.
• Licensed reinsurer -- Fortex Reinsurance, domiciled in the Cayman Islands, established as a second reinsurance company for added flexibility.
• Reinsurance placement -- June 1 program in final phase; management states, "current market conditions are continuing to improve."
• Average premium per policy -- Remained flat compared to a year ago across the portfolio.
• Return profile -- Five-quarter average EPS cited as over $5.60 per share.
• Exzeo valuation -- Described as $1.5 billion current valuation.
• New initiatives -- Surplus lines company and potential development of two to three Exzeo-like opportunities focused on other insurance lines or value chain segments.

Summary

Management indicated that pro forma book value per share, if including unrealized gains from Exzeo and real estate, would approach $145, suggesting the stock is priced near book value despite record profitability. HCI Group (NYSE:HCI) established Fortex Reinsurance to complement Claddaugh, further enhancing internal capacity and adaptability for reinsurance retention. Executives emphasized ongoing share repurchases of approximately 2% of outstanding shares per quarter, reinforcing the strategy of returning capital to shareholders. Premiums in force now reach $1.3 billion, and all four carriers are profitable, supported by stable average premiums and ongoing surplus growth. Management also confirmed the firm is exploring two or three new asset opportunities related to the insurance value chain beyond the core property business.

• Karin Coleman said, "the reinsurance market continues to softening," indicating a potentially favorable outlook for upcoming renewals.
• Mark Harmsworth stated, "think tripled quarter over quarter," attributing this directly to Exzeo's ramping contribution.
• Growth in surplus and low leverage was presented as allowing "additional security if there's a storm."
• Paresh Patel said, "We would like to do M&A the day after the storm as opposed to do an M&A the day before the storm," signaling capital deployment will depend on market timing and event-driven industry dislocation.

Industry glossary

• Combined ratio: A measure of underwriting profitability, calculated as the sum of loss and expense ratios; values below 100% indicate underwriting profit.
• Citizens takeouts: The process by which private insurers assume policies from Citizens Property Insurance Corporation, often to grow premium base in Florida markets.
• Surplus lines company: An insurer that writes coverage for risks not eligible with standard carriers, commonly used for high-risk or unconventional policyholders.
• Reciprocal exchange: A mutual insurance structure where policyholders exchange insurance contracts and share surplus or profits, typically managed by an attorney-in-fact.

Full Conference Call Transcript

Mark Harmsworth: Thanks, Nat. Good afternoon, everyone, and thank you for taking the time to join us on our call today. This was another fantastic quarter. Pretax income grew by 15% from the same quarter last year to $115 million and diluted earnings per share were $5.45. This was the best first quarter ever for us as we continue to grow the top line, the bottom line and return on equity. Gross premiums earned grew by just over 8%, reflecting the full impact of the assumptions we completed in 2025. Total revenue grew by just over 12% as investment income and other income grew significantly. The increase in other income reflects revenue that Exzeo and Griston are generating, non-HCI business.

The loss ratio this quarter was 20%, about the same as the first quarter last year, reflecting continued low claims and litigation frequency. We've been talking about the combined ratio for a while now. With where the business is, we are targeting a combined ratio of 60%, plus or minus 5%. For the full year 2025, the combined ratio was about 57%, and it was 57% again this quarter, illustrating the quality of our underwriting and our operating efficiencies. Let's turn to the balance sheet for a minute. With growing earnings and prudent capital management, the balance sheet continues to strengthen. Stockholder equity has doubled over just the last year to over $1 billion.

We have just under $2 billion of cash and fixed-term securities. Book value per share is now almost $85 and the debt-to-cap ratio is only 6%. In addition to the strong consolidated balance sheet, the underwriters are stronger than ever. As I mentioned earlier, gross premiums are up by 8% or so, but total surplus has grown by 22% over the last year to well over $0.5 billion. The gross leverage ratio is now less than 2.5, leaving plenty of room for additional growth without the need for surplus -- for new capital, sorry, and gives us additional security if there's a storm. We also have significant surplus in Claddaugh, which gives us considerable flexibility in our upcoming reinsurance program.

As you know, we announced a buyback plan in March, under which we were authorized to purchase up to $80 million of stock, and we have been actively buying back shares under that plan. As of the end of March, we had used $17.5 million of the authorization, buying back approximately 110,000 shares. Since the end of the first quarter, we have continued buying back shares. And at the end of April, we were up to a cumulative total of 239,000 shares purchased and have used about $37.5 million of the $80 million. In terms of holding company liquidity, we have just under $200 million of liquidity at the HCI level.

This does not include the 75 million shares we own of Exzeo, which now trade publicly. Speaking of Exzeo, while our book value per share of almost $85 is impressive, I should mention that this does not include any unrealized gains on our ownership of Exzeo. If the fair value of Exzeo and our real estate portfolio were added, pro forma book value per share would be almost $145. This means that we are trading only about 10% above book value while generating record earnings and 35% after-tax return on equity. Wrapping up on the quarter, this has been another fantastic one for the company.

2025 was a record year for HCI and the first quarter of this year was even better. Revenue is growing, margins are expanding. We are generating record cash flows, have minimal debt and are generating superior returns on capital. And with that, I'll hand it over to Karin.

Karin Coleman: Thank you, Mark. We are very pleased with our start to 2026. We averaged more than $5.60 per share over the past 5 quarters and entered the second quarter with -- and we entered the second quarter with $1.3 billion in premiums in force spread across 4 carriers. It is important to point out that over half of our Citizens takeouts in 2025 were done by Tailrow, our second reciprocal exchange. Tailrow is now well positioned going forward with over $120 million of in-force premiums. All 4 of our carriers are now profitable inception to date, the last 2 having reached that milestone within a 12- to 15-month time span from inception.

I bring this up to underscore our company philosophy. When we make strategic decisions, we take actions with purpose and precision. Execution is critical in our line of work. In other words, starting an insurance carrier is not that challenging. Establishing a carrier that is profitable and in a relatively short period of time is much more difficult and takes experience, skill as well as some finesse.

With that in mind, I want to share that in the first quarter, we licensed a new reinsurance company, Fortex Reinsurance, domiciled in the Cayman Islands as a Class B insurer, making it our second reinsurance company and giving us even more flexibility to selectively retain risk and reduce the cost of third-party reinsurance. You may recall that our other reinsurer, Claddaugh is domiciled in Bermuda and has been very advantageous in our reinsurance placements. Speaking of reinsurance, HCI is in the final phase of the June 1 reinsurance placements. We won't announce any specific details until everything is finalized since current market conditions are continuing to improve.

As Mark noted, we announced the $80 million share repurchase authorization on March 3 and immediately entered the market on the 4. We're not shy about our view that shares of HCI offer great value at the current price. Consistently high return on equity, strong earnings generation, a track record of value creation and our technology platform, Exzeo, are all compelling reasons for this confidence. In addition to earnings generation and value creation, HCI offers longer-term optionality as well. Historically, we have taken advantage of market dislocation, acting quickly to deploy capital when opportunities present themselves. There will be an inflection point for our industry.

In the meantime, we'll continue to serve our policyholders well, deliver strong operating results, return value to shareholders and look for additional ways to drive long-term growth in a measurable way. With that, let me turn it over to Paresh Patel for some final thoughts.

Paresh Patel: Thanks, Karin. Mark and Karin just spent a few minutes talking about where the company is at this time. Let me recap. Premiums are growing. Reinsurance is moving in the right direction. The investment portfolio is making money. The loss ratio is stable. We are generating record earnings and the balance sheet is strong and getting stronger. This is allowing us to do 2 things at the same time. Buy back a portion of the company every month and still strengthen the balance sheet. And why are we doing this? Because we want to invest in a company at a terrific valuation, and this is a company that we know everything about. Simply put, we are investing in ourselves.

At the current rate, we are buying back about 2% of the company every quarter. This means that every shareholder on this call will effectively own 2% more of the company at the end of every quarter than they did at the start. And we are doing this with only a portion of our earnings. With the rest of the earnings, we are further strengthening our balance sheet. This is planning for a better tomorrow because eventually an inflection point or an opportunity will come along. And when it does, we will have a very robust balance sheet that will allow us to execute quickly and with great ease.

But what do we do until that opportunity or inflection point comes along? Mark outlined the value creation that Exzeo represents to the HCI shareholders. We grew Exzeo from about an idea -- from just an idea to a $1.5 billion current valuation. And what we're doing is we're working on the next thing. We are looking at 2 or 3 things that have the potential to be the next Exzeo-like asset. We have the resources to nurture these things to their full potential. Outcomes are not always certain, but given our track record, I am very excited about the possibilities. So that is what we are working on while we are waiting for the inflection point.

And at the same time, we are acquiring valuable HCI shares. In summary, every day we come to work knowing our mission if things stay the same. We also know our mission and what we're going to do if conditions change. And finally, we are planting seeds for the long-term future. With that, I will turn it over for questions.

Operator: [Operator Instructions] And our first question will come from Matt Carletti from Citizens Capital.

Matthew Carletti: Either Paresh or Karin, I guess, maybe to start with a pretty simple one, which is just can you just update us on kind of how you see kind of the primary environment in Florida, not the reinsurance environment, but just kind of the primary environment for HCI and all its carriers?

Karin Coleman: Sure. For HCI, we see stability in our premiums as it relates to previous quarters, and we anticipate that stability will remain there going forward.

Matthew Carletti: Okay. Great. And then, Karin, you hit on starting a new reinsurer, which sounds like it's a captive kind of alongside kind of a new Claddaugh. I guess other than the domicile, why -- can you give us a little more color on why start a new reinsurer as opposed to just leveraging Claddaugh more?

Karin Coleman: Sure. So we have 4 carriers that we have, and we find that, that optionality really gives us an advantage through different market conditions. And so we feel that we have an opportunity to do something similar within the reinsurance space as well and maybe have some additional flexibility within those reinsurance carriers.

Matthew Carletti: Okay. Great. And then one last one, if I could, Paresh, you -- at the end of your comments there you kind of touched on looking at 2 or 3 possibly Exzeo-like opportunities. Can you give us any more color? In particular, I'm just curious, are they insurance related? Or obviously, HCI does more than just insurance, you've got real estate, you've got your hands in a few things. How should we think about it at a kind of 30,000-foot level?

Paresh Patel: Yes. Matt, we are leaving these conversations slightly vague because ideas come and go, but the things we're looking at are insurance related, but I don't mean like homeowners insurance in Florida. It's other lines of insurance and/or also other aspects of the insurance value chain. So it's quite a broad net we are casting because growth isn't all about just doing more of the same. It's also being able to do new things. So we are thinking about it in terms of what's going to be needed, what's going to be valuable a decade from now, yes.

Operator: Your next question is coming from Mark Hughes from Truist.

Mark Hughes: Mark, what was your combined ratio target? Someone sneezed just as you're giving the target. At least, [indiscernible] sound like reminding...

Mark Harmsworth: Yes, 60%, plus or minus 5%. And we were 57% in Q1, which was pretty much the same as it was in full year 2025.

Mark Hughes: And Karin, you talked about stable for HCI for, I think, premiums. Is that the entire stable of companies, the TypTap Homeowners Choice, et cetera? Or are you specifically referring to Homeowners Choice...?

Karin Coleman: I'm talking about the whole enterprise, yes.

Mark Hughes: Okay. And then with all that capital, are there opportunities these days for book rolls or M&A or is the industry just too profitable, nobody wants to transact when they're making decent profits?

Paresh Patel: Mark, I would characterize it in the comments Karin made about the inflection points. There will be an inflection point. In terms of those kinds of things, we are now coming up on hurricane season. Would you want to expand through an acquisition coming into that? This is assuming it was Florida-based kind of thing. But it's those kinds of items that also sort of play out here. There will be a time, there will be an opportunity, right? But you have to time it at the right moment. And let me answer it in a different way. We would like to do M&A the day after the storm as opposed to do an M&A the day before the storm.

One creates a lot more headaches than the other one does, yes.

Mark Hughes: Yes. What is your posture around the reinsurance renewals? It sounds like you would be perhaps retaining more risk with the capital in Claddaugh and the Fortex. Is that a fair statement?

Paresh Patel: Yes. I think you'll see the nuances of all of this stuff when the reinsurance is placed.

Karin Coleman: Yes. We know the reinsurance market continues to softening. And so I don't know that we want to speculate on the final outcome at this point. But once we have that final -- we have the June 1 program finalized, we'll issue a press release most likely in a few weeks.

Mark Hughes: Okay. But I think you said it continues to soften. It sounds like you're saying here in recent weeks.

Karin Coleman: Yes. yes, that's why we're kind of in this position now.

Mark Hughes: Yes. I know Exzeo is going to have its own call. But as they execute, Mark, what does it do to the P&L, just the geography of the P&L, if they're going to be growing their business, what line items are going to be most affected here?

Mark Harmsworth: Well, the other income, a lot of their revenue will flow through -- on a consolidated basis will flow through that other income line. That's why I kind of highlighted that for this quarter. And of course, earnings and still 80%, 85% of that is flowing through to earnings per share. So -- but in terms of revenue as they grow, that other income line is the one that will really -- that's the one that you'll see go up. And it I think tripled quarter-over-quarter, and that's why I kind of pointed that out in my prepared remarks.

Mark Hughes: Okay. And so this is kind of the starting point, and it will presumably should go up from here as they execute.

Mark Harmsworth: Yes.

Operator: [Operator Instructions] our next question is coming from Michael Phillips from Oppenheimer.

Michael Phillips: Mark, I wanted to make sure I understand when you talk about the target combined ratio. The 57% this quarter, like you said, was kind of what you did in 2025. So when you say target, first off, you're referring to an accident year ex cat, correct?

Mark Harmsworth: Yes.

Michael Phillips: Okay. And also when you say target, are you thinking about kind of through a cycle longer term? Or are you referring to, hey, that's this year's target, maybe the next 18-month target? Or what kind of time frame do you mean when you say that?

Mark Harmsworth: Yes. I mean it's where we are now. I don't expect it to change significantly. I mean the thing that can move it a little bit is weather, obviously, right? But I think for us right now, that's a pretty good target for the next -- certainly for this year.

Michael Phillips: Okay. Okay. Good. That's what I meant. Just to be clear on my question. So no concerns on maybe pressure on that given where the rate environment is. There's lots of good things happening in Florida, but the rate environment is softening and so there's -- you don't foresee any pressure on that because of the rate environment?

Mark Harmsworth: Well, I think Karin talked about that. If you look at our average premium per policy at the end of Q1, you compare it to a year ago, it's pretty much flat. And as Karin -- across the book and as Karin suggested, we don't expect that to change considerably. So yes, I mean -- and obviously, we've taken that into account when we're talking about an estimated combined ratio. The big mover is the loss ratio.

Michael Phillips: Yes. Cool. And then maybe just last one, just changing gears. One of your new initiatives was the E&S company, the surplus lines company. Can you talk about that and kind of where you see that going in the near term? I think that just started pretty recently last quarter or so. So just any thoughts on where that is.

Paresh Patel: It continues making progress, right? One of the things we talked about using that for is maybe California or things of that nature. And California is a lovely place. Things continue to evolve over there. I think we just saw some headline the other day where 60 policyholders are suing their previous carriers for the losses in the California wildfires. All of these things sort of make you -- make sure that you do your homework and diligence before you step into that. So we're doing all those things, yes.

Michael Phillips: So is that 1 of the 2 or 3 things you refer to working on? Is that kind of in the past?

Paresh Patel: I don't think it is 1 of the 3 things we're talking about in the $1 billion category kind of thing. It's yet another something we're doing, just like Karin's new reinsurer of Fortex Re. It's just yet another something we're doing besides the $1 billion asset creation kind of things that we're talking about.

Operator: [Operator Instructions] And there are no questions in queue at this time. And this does conclude 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: 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 continued support as we embark on the next phase of our growth. Thank you, and talk to you soon.

Operator: Thank you. This concludes today's call. You may now disconnect. Thank you once again for your participation. Have a wonderful day.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has positions in and recommends HCI Group. The Motley Fool has a disclosure policy.