HCI - Earnings call transcript Q1 2019

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Operator

Good afternoon, and welcome the HCI Group, Inc.

First Quarter 2019 Earnings Call. My name is Teddy, and I'll be your conference operator this afternoon. At this time all participants will be in listen-only mode.

Before we begin today's call, I'd like to remind everyone that this conference call is being recorded and will be available for replay through June 2, 2019, starting later this evening. website being until via the June section HCI also via and Investor is of replay webcast X, Group's call broadcast webcast live available Information The www.hcigroup.com. at XXXX, on HCI's like now Relations. call Kevin of turn I Senior would President to Vice over the to Mitchell, Investor Sir, please proceed.

Kevin Mitchell

Thank Chief Group's Officer; our Quarter Chairman Chief afternoon. Executive XXXX Financial are Earnings HCI good you, today Patel, to Call. Mark Paresh our Harmsworth, and Officer. and Welcome First With me and

financial our Paresh review for will update Mark remarks, opening the to Paresh's and quarter back and turn for performance then Following the operational business call outlook. an

Finally, the questions. Investor your website To visit of section webcast, our corporate please we will Information at access take hcigroup.com. today's

to questions listeners responses intended such expect, Private XXXX. Before forward-looking and presentation and as contain today's may Securities are remind of estimate, signify our words and pursuant would we Litigation the begin, I to to that Words statements. expressions anticipate, to statements like project similar forward-looking made to Act the and other plan Reform opportunity intend, take

guarantees future Forward-looking not rather risks and of to are results uncertainties. but and are statements subject conditions, various

update any turn With to of the to results Chairman Patel, over financial the these and statements. operations. develop HCI obligations these Group, forward-looking Exchange uncertainties and of identified filings and have Paresh CEO. to material all said, conditions or like call are disclaims could and the developments Some the business, I Inc. with into on Securities that Commission. in the now would Paresh? company's risks risks any events, Should company's uncertainties actual our the effect adverse

Paresh Patel

and Kevin, you, everyone. welcome, Thank

via know, experienced Coast of of Cape hailstorm late Broward East in the County on you March. Canaveral, many the As Florida

million. discuss Mark Our $X to in and in detail moment. were between this will a more this $X million permanent losses

and included unusual X storms strong out that year. This think might hail X storm or I'm we particular roofs these event. and hail calling only but as damage, every special get not typically but windows, about well, in to it are fences winds siding a Florida, causing You do as to

some Hurricane our first expect the for don't after Michael. a Moving results and of profitability quarter. on to highlights We

continued been quarter, profitable growth Also years. convertible X.X% share. through CFO, to paid acers consecutive last our quarterly our debt. our have the by quarter. who With And Capital, its lastly, turn it and X.X per Westshore District financial we walk will the XX ninth by Harmsworth, repaid Mark increased business of dividend like Greenleaf in now $XX quarters. property purchasing XX X is during in in that, Mark? our our to division, million of the for over Tampa. real This March, dividend increase in we estate We dividend, our our Board I'd to the quarterly $X.XX In XXth performance us of

Mark Harmsworth

from up the quarter-to-quarter we Paresh. March, of gain In our compared Net which quarter a year. quarter unrealized was Investment $X.X a positive provision, the reversed of was can earnings results income last unrealized as for million of the a a ultimate QX unrealized were on to is million QX were $X of vary of to from down. diluted a losses In County. Thanks, same million last Broward range issued million. ultimate in last booked our the $X.XX year. year, $XX.X from portfolio. negatively This million was storm. income, slightly the loss limited note, only last most which partnership significantly share per year, from the $X.X in was down estimate income $X.XX On by quarter best the These the of for hailstorm gain million we offset release March late cost $X of equity the QX, storm press by impacted impact giving $X financial

given last income of However, higher million first by the all assets. a with than quarter higher $X interest yield significantly income-producing on year, our

You We a the to which return from increase. tax year. might had policy expenses provision adopting, acquisition last premium are notice up explains that

be earned going and However, policy higher as a past slightly a the earned becomes of TypTap gross forward, our percentage premiums as of between acquisition written expenses will in XX.X% percentage XX.XX% bigger and premium.

look to at wanted talk growth. TypTap, and I about If take minute a you

book. have through we a gone our know, of Choice you in period contraction As Homeowners

growing the book. been the hand, On TypTap other we have

the had it growth the reveal flow to gross yet, in to year. impact to is in hasn't X get are the in start a TypTap premiums same to future. where should third, gross phases: higher premiums continuing written increase; soon consolidated previous first, force should should will gross build than earned second, results quarter This impact consolidated previous will growth get of cash a start of quarter the financials same a in the than While year; higher quarter positively TypTap quarter consolidated are we we premiums and numbers where on the and to material in its

growth next these XX of indicators within all the expect months. We

In XXXX, before not in of were XXXX, week. had the writing of of driven the premium. premiums large been that of growth business. quarter was have premiums In first $XXX,XXX consolidated to triple year, million grow end has force quarter TypTap fact, our impressive. It about mean? written homeowners were TypTap gross they April, QX, by have almost of a In we $X.X in that in first The trend. the Home much the in February. we we already reached we fourth part does written March the gross were new a were means In higher in What growth in month first. this technology-enabled In than started the

to We and are here, very growth encouraged by the we expect continue.

growth, strict automation just can that through the policies technology kind isn't about achieved our growth, platform built Exzeo. by it However, available and profitable the efficiencies of about profitable be it's underwriting growth of through

for balance sheet the to a turning minute. Now

our notes, totaling settled few mentioned, at all XX, Paresh just position on of ways. convertible million. financial senior $XX under in change significant we've is As a March in maturity This X.XXX% in cash a our

to the of March. at of XX% XX% from last end year fell ratio end the debt-to-cap our at First,

Second, per our year million quarter. $X.X about interest by now million a dropped from expense $X.X

Third, has a outflows diluted interests coupon about by million approximately X,XXX,XXX Fourth, dropped count dropped share by fully year. $X.X for per cash shares.

of because happened Lastly, been. by of this $X.XX have per the late be what the Interest combination all quarter is it $X.XX things quarter about quarter. otherwise wasn't a in those fully earnings impacted to diluted from it the being paid expense should of of would share debt point much clarification. This per

not million, should down you where it expense call, of the claims the daily down other for the of has claims principally million, reserves Also, on XX% we million open X% Also about and loss for and hail the of end to the lower. daily no like However, On last if ultimate for earnings the -- of including the we on of the either this Hurricane $XXX at about ultimate our going side, of and normal some forward, Hurricanes reserves we somewhat $XX.XX $X.XX offset about during quarterly well quarter, for from both changes is are about claims reserves number been interest Irma Michael time. made in over made are of million for loss sheet, event. be and reserves Michael, by higher losses expense estimate disclosed end we are $XX estimates. $X those increased the both flood, open the number payments the March the million, March Irma have where December, at than for by new and have balance and

a -- $X.XXX and paid the dividend we XXXX. up the mentioned, from the points just that liquidity. paid of of couple XX in our capital as a quarter on $X.XX, Now up Paresh management fourth quarter, of In we

During per XX,XXX the for total an the share. quarter average $XX.XX we repurchased consideration $X,XXX,XXX of shares, of

real-estate repaying In the the still the terms of liquidity, after on facility, liquidity of cash the in business additional related provided notes, at our $X we acquisition million credit holding we well on west the holding $XX of as level $XX million which as by the convertible million and facility, about our revolving company to credit in investments a quarter. drew have company district

XX, The of about year Just shares the And X,XXX,XXX, quarter of few the fully ago. end number number others was on down was a diluted from common X% March outstanding XX,XXX,XXX. shares of outstanding things. at the

book Lastly, of was end as of share, March And XXXX. turn $XX.XX, it XX, value I'll at $XX.XX Paresh. per up the that, back to with from

Paresh Patel

Thank you, Mark.

let's profitability to is the our in But of quarter. up clear, first the stated, future growth insurance a be in TypTap. wake business Mark As returned

in have early Our TypTap writing pace. is and insurance is year is our since it Gross business began Exzeo. powered form technology subsidiary growing at rapid a software it premiums by doubled each that written accelerating. XXXX, subsidiary,

of we were were later, writing the now XXXX, gross $XXX,XXX February, are $XXX,XXX at written of end $XX of the at were $XXX,XXX April, months example, premium Two premiums per week. we For end about premium week. million margin. of the of month. about per million in With as which that the we stable about TypTap's end writing And $XXX same per that of And premium by XX%. of writing at X% dollars in very doing XX% million, and at keep around $XX of $XX it should million margin, at is grow year easily. a mind, margins premium the to be next premium a profit should over

bottom line the rather the numbers. instead top always, focus than As on we line

TypTap's operator, We forward coming about our power next technology. provide you it that, the We in in please quarter geo our the because the look and to excited thereafter. appropriate updating With the instructions. are growth quarter growth demonstrates of on

Operator

you. Thank

question-and-answer be is from from Please question. first Carletti proceed coming we'll Securities. question Our your with Now [Operator conducting today session. Matt JMP the Instructions]

Matt Carletti

to good seen sort Paresh, and -- you -- Would your start. of how it's remains matter? the what I to mind impact it'll sharing in recently on few the afternoon. think thoughts that step some be Hi just good passed questions implemented. a think it's been And reform a the you have? AOB There's direction

Paresh Patel

as early also to legislature during a obviously very lot it Governor outcome. this implemented by isn't made is approaches, it step. of what will exactly just time obviously, the people too But quite we're, effort have to session because DeSantis -- but happens I -- how X to the bill effort on have, it's appreciative is little let of hitting the positive quantitative of session. passed deadline and last a it's get July a everybody bit will lot yet, we the Matt, obviously, as tell still what Sure. yes. play a But The to and the it. who to but legislators out But need over is of sign legislation expected positive effect

Matt Carletti

just on upcoming on renewals, give the perspective holding yet. But I how your any that environment far? of complete you've know then from isn't the from kind you And so color and program the Okay. reinsurance and progress your seen just can

Paresh Patel

I behind overall is whole for the think placement is on compared to item the that previous schedule to the years. seems everybody industry reinsurance much agree

So done. I here early actually about it's May, and I'm program that is think

them back. In quote haven't fact their a of still lot got

We're, those or the other. a the the take all be to good is done it'll well, weeks, going as middle it's little X So but conversations while. obviously, in way of in news one

Matt Carletti

higher-level area, for Okay, And the any currently? do last acres one your plans think Westshore it acres mentioned -- question. I in great. bought Greenleaf X.X have guess, was opening you X.X I comments, you that then in

Paresh Patel

eye with second, a for properties that what as think usually to it be. the have -- don't to very we would at -- this I but, we an buy plans with obviously, future

it So possible trying before we say, -- are just again, months to few concrete ago, actually just see let's -- to make plans. bought harder I'd what's we having overall

Matt Carletti

Do the tuned. quick Mark. stay for premiums last written in And just handy? a I'll you number net Okay. have quarter

Mark Harmsworth

Sure. It's a Yes. $XX,XXX,XXX.

Matt Carletti

Best much. of year. very the for of rest Thanks Wonderful. the luck

Mark Harmsworth

Thanks Matt.

Operator

Thank you.

today coming Hughes question Mark is next from SunTrust. from Our

live. now is line Your

Mark Hughes

on you. the I thank the you Again, acquisition said didn't was what know get there? I it issue Yeah, cost, I'm The policy Good driver but afternoon. sorry, it.

Mark Harmsworth

was it There couple there. be is things a little Yes, to sure. bit. down a up of a expect you'd bit, It in

gross with all, not of it all directly of earned. premiums varies First

some mentioned, was had that a year, thing last that positive I that business, in generally just it's we that. we of was And up, the of because is quarter the it's $XXX,XXX year, And cost big TypTap factor flat. at higher. we parts of of we quarter what of had the and adjustment Mark, first the a is negative part -- -- quarter had adjustment a voluntary like it of the every estimate thing, we the first those premium then little something had of because we bit this probably return that's for true obviously in swing end year, acquisition and big a Some -- But are we or a a then -- for there. a as factors as and I grows the do And the And expense. that. guess,

And bit. earned so premium of drifting a is percentage gross as a that little up

sort really, of, things. of it's So those all

Mark Hughes

Then you're talk on is largely homeowners the still the about you Florida? the mix TypTap, think that Could making well. progress some there? I as

Paresh Patel

Sure.

TypTap So obviously the start at had really business. X.X-year point. off is X-year head or flood this business to business But the X-year -- taking in a start a head the homeowners homeowners

TypTap. or the within going think X is to or I it's X the much business That's the than in So probably X be -- we're larger quarter trajectory quarters, business within on. homeowner a quarter flood

Mark Hughes

in what higher, that seeing more cost know I if is -- the created the strength? what's the but what's a bit really good business? -- really elaborate And that where just the you could driving is what little What momentum in that? costs -- you're -- don't And the

Paresh Patel

simpler all also cetera. need, Having you given not with and market homeowners' than all the Well, NFIP everything initially which points we One The profitable. here. answer technology the It -- the and that it few much to insurance, things. else, slightly data ago, et to give said comes a it's a you built deployed of a I'm is -- the tough that, long more years is business much because product going we flood is a couple insurance.

to very which be we So risk select. careful,

-- technology and limit you're billion much over $XX pick playing -- need. up better; X found much now why more of of So the what then even it that a terms has market years, much all we much homeowners market, helped much a in homeowners, One, you of bigger to quicker, And complex backed tremendously grow. market, does the terms that's basically secondly, When larger, stresses all a to place. in in apply because off we share. few a secondly, takes what's the have competitors within part suddenly -- market And things: more have trying larger last

buying we it was standards, got in. only but we've you against all to yes. you week contribute, have, the think things I human makes without underwriting people the a take handful tuck-in every folks of day which those hands, most of huge to last all that give done don't So our an is XX that quality which shows policies, policy idea, And want we of a supporting of but technology, key that item But comes because was there had a a that, We quotes lot a where difference. of X,XXX

Mark Harmsworth

went first that -- And, in they about from premium Mark, a of numbers little so I million some on million. over remarks gross gave prepared tripled $X my TypTap written over these $X last consolidated to year, quarter

million $X the was new the from homeowners homeowner -- the product. that majority and of -- increase, that So of

Mark Hughes

you. very reserve Was Was the Thank there in quarter? any good. strengthening there --

Mark Harmsworth

reserves million. Yes. We -- $X we by increased actually about

total I remarks. how sort again, actually of they've of caution, Just bumped our out in we prepared reserve. my mentioned grown up

Just, to out watch environment. litigation of sort of, continuing caution the

So we -- increased actually, about yes $X by we million.

Mark Hughes

Thank you. great. Okay,

Operator

Thank you.

is coming question next [Indiscernible] KBW. Our from

is now live. line Your

Unidentified Analyst

-- this And the accident to follow-up Hi, Just quickly on Mark's events, just homeowners? did year about what adverse that was from? come good question afternoon this

Mark Harmsworth

to That's little you at ask accident of by end early a year. It's say the hearing the me it question can the year. out

Unidentified Analyst

decline. back to then the Okay. just coming premium And

the are was it to doing TypTap this there Do declines? you I curb homeowners but close premium grown you know is to quarter. persist, choice anything well, this? this expect has So X% to

Paresh Patel

is every We about has on several the gradually funny stuff, doubling it said year, the growth of contracting of point. key is focusing really any is homeowners this sort The answer not are is takeaway where the occur been right? structure the at contraction this homeowners overpower years And on for or growth large, year-over-year, is to that price might now getting this larger and million, side. from choice $XX so starting in its TypTap

Unidentified Analyst

Yes.

a choice acquisition mentioned, going the Mark for upwards. then you follow-up you for you And that the because premium And forward, from Okay. just the that's achieve? then, of something sort I is have a What cost to implication expenditures homeowners it TypTap, the driving want your expense little. is decline that Or target? on an think, that range there high ratio

Mark Harmsworth

The it. in I margin are small. growing is a about still as be similar to going high running it's homeowners from businesses. to fairily book are XX% TypTap is but The percentage margin, think I both low. it's pretax which numbers TypTap not fairly mean

think The mentioned what worth mentioning a future, we're that, going only foreseeable I I that's expenses, big but probably mentioned is real I've number. about, significant. the So anything acquisition in to don't not see policy thing

Paresh Patel

Fair. And -- is business that the look, the is TypTap that has the business that bigger turnkey. is or better this growing overall than margins takeaway similar from the growth

we're replacing business. So business and margin margin high low not

are or actually similar replacing margin We with better business.

Unidentified Analyst

I And proxy is the I rate insurance it. think going some rumors then to a on touched increases already XX% but Got seeing of competitors XX% little, your power. Okay. on around by there about think, Matt some

sort could you pricing? of if you are maybe wondering And in also, your give any power? was are expecting I if what of color making considering terms structure you changes some on of around So

Paresh Patel

And on all the -- heard have the of from that's I've in those rumors, people comment market. the rumors regarding too. I other

it obviously what a And it's as at next the to already X et earlier, our the be increase will not to up. said are, in the would be weeks. as grown rate as expect point done not, juncture -- Again, whether be, or pont. key rate This will good in cetera. a far it'll the I we're As reinsurance at this we where for negotiations

Unidentified Analyst

just follow-up just And finally that that then the the buying also And is a prohibit reforms, your regulator legislation offerings right does I do you out product thinking for seek AOB you this mean, you just once with -- think -- now? AOB? the pending have policies the Okay. on do forget, I the quick impact little a about And agencies? higher do one passed,

Paresh Patel

Okay.

in in a I at answer we pending don't questions increase rate the regulators with So reverse -- moment. the just me think have some let those order.

cetera. we am reason as, implemented, far pass restricts cetera, this As play of the the et will of things is, say, or the it speculate the don't OIR the sure out, because whatever not. it's That's legislation the the just part third And I it what say working through saying -- let's with of beside because part see your that et policy how I'd to AOB, is implemented by we're let we And why was policy is cost that. what question? got we we high offer,

Unidentified Analyst

changes, thinking reform AOB increases? about It's how you're rate

Paresh Patel

Yes.

It's for what sitting AOB going it's us. the for that. because loss are be anything and going will early change up, a little costs you at we were, at reinsurance numbers early there tell. should too hopefully, Again, necessarily have they with think too lot ratios become quotes, doesn't it looking bit I a down of to So waters But choppy right?

Operator

call Kevin this who turn now remarks. few question-and-answer Thank concludes this Mitchell, like you. to session. I closing the At would a time, our has back over to

Kevin Mitchell

we look forward from appreciation employees, On on the for agents our the express and our you policyholders. progress our support behalf to would We updating management to continuous shareholders, future. receive our most I our like of near in importantly, entire team,

HCI (HCI) 6 May 192019 Q1 Earnings call transcript