HCI - Earnings call transcript Q3 2019

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Operator

Good afternoon, and welcome to HCI Group’s Third Quarter 2019 Earnings Call. My name is Dadna, and I’ll be your conference operator this afternoon. At this time all participants will be in a 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 December 5, 2019, starting later this evening. The call is also being broadcast live via webcast and available via webcast replay until December 5, 2019, on the Investor Information section of HCI Group’s website at www.hcigroup.com.

to Vice call President like Mitchell, to now Senior HCI’s of would turn over the Kevin I Investor Relations. proceed. please Sir,

Kevin Mitchell

Thank and Financial Chief Officer. to Welcome Officer; and earnings today good our third Executive Paresh and Chief Harmsworth, are Chairman XXXX me call. HCI our Patel, Mark quarter With you, Group’s afternoon.

Paresh update then Following remarks; review will quarter business Mark Paresh’s call turn the of the nine operational first months our and for back outlook. to opening and XXXX financial and an performance for

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

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

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

effect developments business, risks HCI have of forward-looking results Group develop in with obligations filings update into company’s the or Exchange to are events, operations. any Securities uncertainties any financial statements. and actual conditions these Some and the the Commission. adverse uncertainties company’s identified material Should and on of these the risks could the disclaims all

to Paresh Chairman that, with our to I turn Now, Patel, would over like CEO. call Paresh? the and now

Paresh Patel

Thank you, Kevin, welcome and everyone.

Michael quarters, now the been Hurricane from share. some financial HCI I Irma last of highlights diluted the like generate the nine which exceptions XXXX, first around and would being Obviously, quarters earnings Before and we of two the Mark on the months has touch and in provides performance Hurricane profitable for quarter. hit. our with XX quarter in the per details to $X.XX XX of events

Also $X.XX of per share. common in July, we paid a dividend

year most as X%. of generally we a hurricane current quarter. of dividend. third had activity yield quarterly This And consecutive is peaks The XXth third in year. you quiet Our quarter nearly the know, every

Although without it’s making September, in Hurricane at of Florida Coast Dorian devastated the the East Bahamas landfall. good

estimated slight. were Our Dorian from losses

X% suspend However, a the despite suspension But as third quarter. about business quarter consolidated of had production the rapid until Florida, threat Dorian impacted we suspension we XXXX, technology do subsidiary. three insurance of written That over our reflecting of up gross business, weeks passed. TypTap Insurance were our hurricane premiums new the growth threatens when new always Company, the for driven the out

it give turn Mark over performance who our to who for walk now I’ll third through Harmsworth, that, Mark? will financial will CFO, quarter. With us the us the –

Mark Harmsworth

Thanks, Paresh.

adjusted $X.X a was were $XX.X basis income an on net diluted share million on basis was share an So, per $X.XX quarter net an for a Year-to-date, net GAAP and earnings million basis $X.X income $XX.X $X.XX. GAAP basis, a million Year-to-date $X.XX. basis. the adjusted basis. million per on the On on quarter earnings were GAAP on adjusted and $X.XX GAAP per were adjusted for income share was and diluted third earnings diluted and

Paresh million in TypTap. million The were than and premium from written has quarter by grew and $XX higher the this premiums previous been our another quarter, year second Gross growth trend written that about of $XX.X mentioned, higher growth, third story. TypTap premiums driven In million chapter than more X% the was continued year, third in the same as quarter, written has year-to-date. over in X% $XX wrote year-to-date. the This and quarter last quarter.

fourth expect it growth some happened premiums translate growth we would in start time. in that into will higher be premium and has increase we to a first the quarter-over-quarter We gross the to in are earned The time expect really and the This premium continue. in earned quarter. to here, about happen excited written

in on things In million some but announced could reinsurance assumes other statement. we if significant outpaced quarter. growth of did TypTap This per couple which that estimated in the of June, reinsurance income A premiums premiums we $XX growth program, our an our expectations, TypTap, the it new the In say TIV was increase mentioned. in because the the higher reinsurance this be of same extraordinary QX, has. a million as QX anticipated growth ceded for higher $XXX,XXX premiums are about Ceded of than just reflects TypTap. $XX adjustment than about reinsurance quarter. it should This

quarter partnership the expense income quarter Loss driven was year. in This by about fact $X.X about is unusually was by higher same was Net $X.X less income was high the million, last year. last largely than This QX year. investment million in third driven TypTap. largely last limited than that the

been that we to similar long-term conservative, While have the loss order ratio. expect Homeowners to and to loss a at to continue core be will of be reserve we build higher in reserves and ratio Choice,

right While slightly near expenses this it do. higher we term did this is drive may to think as thing the quarter, in this loss the

year by booked TypTap is by we $X Hurricane event had one-third most and the million. in of nine of higher year-to-date expense quarter. In loss about the mentioned explained Dorian reserve addition, Loss that balance as about the first is million in hail the about than above we a the this for first months of of $XX quarter last

If was new you’re full little quarter rate, consolidated tax income due low this the expect about go-forward X the January was With we was notice our Florida you Florida This corporate be closely, rate the is tax lowering tax and effective looking rate really to XX.X%. booked drop to a of income that this XX.X%. the the retroactive benefit so at might year-to-date QX. in rate, to

comparison on balance make I’ll comments movements. December the shows few press to Now XXXX, to XX, sheet, a a release those so

which debt down short-term course March. sold see up, The while Fixed the million were are in of First, some securities to debt. biggest securities used to will within were million pay down term investments, you of changes $XX in a matured and pay fund is the reduction some investments. which $XX

bonds and impact on new that back ultimate reserves Hurricane $XX.X Michael both January million. Irma balance reinsurance the in was in for the Hurricane increased loss corporate some also sheet, for We These earlier Reinsurance up. to happening the the million no in and are in reserves statement. capitalize $XXX We ultimate changes income to loss but year. increase the increased have on rates and the recoverable recoverable purchased

additional of million in paid million in $XXX Irma have and we As XX, have we September an $XXX reserves. about claims

driven the to above, however, mentioned of for CAT litigation largely increase loss up In adjustments down in daily stance. by cautious reserves overall the claims balance terms the a are reserve as open also continue take reserves open claims being we and sheet, is despite

Just on comments a capital management. few

you As we know, now per $X.XX are a share. paying dividend of

than the to in about actual paid cash it the is quarter higher drop. because was dividends this year X% last same were count the last share continues as year, While the

was we average of $XX.XX is of with which, approved XXXX, the Speaking just continue an just and back two $XX down under million September, the until of end of ago reduce execution outstanding from left X% X,XXX,XXX. the at program to bought the the a XXX,XXX The number of the plan diluted buyback continued the fully end have for million our and about share. will quarter shares year buyback of program we is as X,XXX,XXX. the ago count a outstanding. year. September There share of million end the over of This was price from XX% our authorized of we continues the shares $XX common at to years approximately at $X end shares The had

company Book final the note company of value which is liquidity, access in revolving $XX.XX, to the year. have $XX level credit as as $XX investments the well One at of the at was per September cash terms end of on facility. share X% the million we about up from and the million start available of holding holding

Paresh. And that, will turn back with to I it

Paresh Patel

Thanks, Mark.

see for QX our results, you successful was financial from quarter another As can HCI.

despite and new insurance increased year organically growing compared of Dorian, this, are business driven technology based gross pendency during at of to suspension a production our our Hurricane premiums ago. TypTap, TypTap We by written the subsidiary. primarily And four-fold profitably

year, we in force than that expect the the will TypTap million by end year. that premiums point, Thanksgiving. of more would surpass have of that Updating the by $XX number projected in Earlier TypTap we forecast have at this

clear. So, We rapidly despite investments can of standards. Dorian, there now schedule. grow month of and tendency value of ahead the we a now the This strict will is analytics technology underwriting maintaining while in be our underlines

ready for Instructions. the open with to appropriate provide we And please questions. the Operator, that, are call

Operator

state with your Instructions] first question Thank from Our Securities. you [Operator JMP Please question. Matt sir. Carletti comes

Matt Carletti

Hey, afternoon. thanks, good

did to you frame maybe month-by-month able success getting questions. give TypTap, on little few that sources? of And you’re of that of want I Paresh, kind particular. over a we it in a are you’ve better build how best or you have it? also or then certain should been hoping within growth more think the quarters, Florida two, was where certain the of types be might finding there about geographies to traction, How works kind production however color the a picture Just

Paresh Patel

Okay.

to roaring that Dorian rapidly some And when we zero, it in hesitancy So, our in fourth and back to tends and future. haven’t in business business to have was the were business terms new there’s we best because standing week week at kind business TypTap, in – of cycles has binding in [ph] fall compared TypTap, cyclicality of business usually home more when the growing but I off quite obviously, slowdown last come mind a so week the some production that growth we start, cycles seen see approaching. our of quarter, far near but and before, every to performing from nearly week. will with business was

year trends if now $XX going in to be end are We’ve we we stated of to probably continue, and right had force goal which a of next looking million is the to get said, by about November, premium the very for $XXX trying million good.

from we from, like terms getting In where we get to business are it from. are places of it the would getting all we

So, we in a exception Choice, as with lot up very of writing that similar not business in the the portfolio is footprint we’re the panhandle. that a for the have coming one Homeowners

to and according end would we think the get plan in ahead $XX put everything or April, slightly had by this of to is going of said million we I So, to year. perspective, into actually the plan,

about weeks it XX away. So, was

four despite our weeks expectations. We ahead are an the business about setback sort you gives three-week performing because of is much idea Dorian schedule of going how on that, as be to ahead to of a of having

Matt Carletti

job lot a picture another some and there participating big differentiating of sure it’s looking you on, and clearly just profit, and think very and very out common of in and curious, sit doing guys tech, common it less One and themselves out we thing TypTap. that’s that’s that. is kind a Yes, your is is not. seems companies in here question, very figured some I And thoughts is of there insure thing helpful. then that something good have that TypTap as growth are One

So there worth headline out TypTap see I’m within getting you and valuation of curious the is you from metrics the some things what just when kind about think how of reported with that do of that, you are bunch, HCI? like think that

Paresh Patel

Okay.

income of Yes, eventually companies is are that Otherwise, a of it’s are basically is aware you’re the the entirely necessary. great other applied question. buying lot we valuation what focused growth, business. on metrics to but just So,

always insurance insure in – different word it. tech viewpoint still has insurance have taken the We that that

So, it has sense. to make insurance

to up. formula starting more then focus and on getting we scale So, the correct

lot later we’ll other that So, grow. starting we fruition to and then approached of which what now to making first tech and on. up, is We make have done, come about money and start seeing a scale have money as of we’re said folks with thing the reverse this first is worry

underlying the technology. – ascribed [ph] far valuation is let as the any which HCI value being loan TypTap to this As particularly within providing TypTap, clearly, think of Exzeo, Group, of is the I don’t

will But, in we our that these future some will down insure companies the to that the some that world someday hold some companies – have hope the valuation think two the of of The to because our I valuation should for of meet TypTap. eventually, things actually have to of to either companies, rise would are, to of have we where acknowledge promise tech come achieving approach to attain. they some these are of or

Matt Carletti

do Okay. handy? written And premiums, for Thank color. question you one my question, net kind quarterly numbers you for the quick that have Mark, of

Mark Harmsworth

$XX.XX Yes, million.

Matt Carletti

Congrats on much. very a nice going forward. Thank quarter you luck of guys. Best

Paresh Patel

Matt. Thanks, Yes.

Operator

Okay.

state with question Please question. comes next Hughes Our from Bank. your Mark SunTrust

Mark Hughes

Thank afternoon. you. Good

Paresh Patel

Mark. afternoon, Good

Mark Harmsworth

Mark. Hey,

Mark Hughes

there. losses you’re you’re at or or how level? described those time ramping you how that conservative a On a you more When confident have being TypTap, set much perhaps you can as think long-term idea up know do on you’ll you’re good setting before losses normal

Paresh Patel

we’ve obviously. we’re as excited get it’s the And data it’s enough pretty but in that. – said, not around Homeowners Choice to terms of fairly to relative still your size, its It’s growth, about small arms just

got said I script, bit that As standards. same about be the in we’re expect of what lot where my Homeowners experience, underwriting a to little is, we’ve potentially we Choice rate a less, applying general

and loss and to that But like no to thing no will by it just think the have do up just the thing is, this of right – the phase higher I from to be important try reserves time, will different through but is the we be it feel to reason think think so think Choice. to So, we with there won’t is it but ratio. build I that some do most going that, that take growth reason Homeowners

Mark Hughes

much how more terms in cushion? of the quantify you putting Can you’re

Paresh Patel

In it...

Mark Harmsworth

Let that take one. me

Paresh Patel

Yes.

Mark Harmsworth

approach to when is term. these that fire becomes stabilize cushion key that’s premium there point how large difficult make in short in The put enough one being one. that that when out businesses to the out. conservative, in Two, TypTap because in that we’re Mark, million much that say we it disappear thing trying is are we cushion, $XXX would small

we’re So, there ahead are things. but that doing that this yet. three, we conservative of we’re on quite not And booking track,

improve. We’re we we will not running hope scale loss day this that some as ratio up the

bit taking there stance, We’re been and are more just little and a it’s numbers the posting from deteriorate case conservative a does something the actually ratio currently. already loss we in we miss

Mark Hughes

Understood.

measures day-to-day regulatory plaintiff litigation lawsuits, your attorneys have with to think, are the able thoughts, up, open back I non-storm understand had a around then share having started as with Are are of that, to reserves to going observations an your impact? might a mentioned us new down. they claims to I claims, they Michael. few your had you Irma that much any I You lot and give Could opening do recent target, changes about is the just and litigation guess, and they be the

Mark Harmsworth

of said – tell it litigation a lot we’ve changes material loss that have before, is a a questions, I impact there’s on mean, think it’s flow – I it’s think are early So, going I legislative I think as on and little to to reserves. whether those

are even In lot of of keep litigation order third terms year the by year the drives litigation I are the drops, the said of end is down down, are than down XX%, the open sort a And stance, and more litigation is from in the a about open are in quarter. down – sort claims to up the that of the third numbers, reserves that. because the the fact daily claims of significant still to more But quarter of yes, as end the end those the pretty from a the than – to open reserve of the of end script that lot of course, cautious of requirement. encouraged

Paresh Patel

stuff, of some What our the this across are cat and adding our on some not daily comments in is just we our seeing – is claims, – different Mark, something Mark’s right. speaking the and And Tri-County, to Okay. color. the book

in an improvement a in slightly offset area. seeing being increase area. Tri-County terms the of in lawsuits is lawsuits non-Tri-County by We in it are But

some but decisions because underwriting something several of going took lawsuit and So, Tri-County, the monitoring of seeing we reduction spreading is fever getting ago, forward. years we we by the beyond we area are as non-Tri-County lawsuits the pay-off of are to the are in number Tri-County, in the the watch

Mark Hughes

you at question the for find Do your do you find TypTap a could learning with it’s ease that business out or why distribution. to any leading mean, you I and where agents kind flesh characterize increasing Matt’s curve, perhaps a little. growth getting better, system use similar progressively of of is the see that convenience on would that you, you the working once out you more of is the they’re agents to way

Paresh Patel

Yes.

them four a they I get quickly really, can the this things, To and not put decision. has Maybe, that quicker in also what only number or into appetite underlying very Yes. that the an binding easy a the quotes But value a perspective, the And can and do but something agents. is, is extent do the of and know business become we’ve very we think, X%, do that go our for else. of the questions only like for underwriting but lots is agents an we that is core that it’s a No. than for for in you thousands organization, technology deployed. get quotes location most, answer are five efficiently, the if that huge do instantaneously. what had What the as of – we is that lets we it’s to at are which time X% quotes technology achieved we of given do they and agents week. almost anything we thing to very a translation, an us risk we efficiency can technology open lot

into walked of we’re starting become when not their agent yet, are they – become there – focused the insurer door, the of right. and see we but the go-to quite somebody as to we this, say value their So, we sort

And fans the technology. favorites. of are we’re big becoming So, becoming they

Mark Harmsworth

Yes.

Mark Hughes

Yes. Very Thank you. good.

Paresh Patel

you. Thank

Operator

KBW. Please you comes while with next And Christopher your from wait, questions. state our Instructions] Campbell question [Operator

Christopher Campbell

afternoon, gentlemen. hi, Yes. good

Paresh Patel

Good afternoon.

Mark Harmsworth

Chris. Hi,

Christopher Campbell

just first my of a numbers What the kind for are question, guess, one. reserve cats and the quarter? then the I Hey. development

Paresh Patel

think, gave cats the I Mark his prepared remarks. in

Mark Harmsworth

updated to number Irma the ultimate ultimate gave for $XX.X and gave we the numbers number for million, I number paid Irma. – Michael Irma in – Yes. the the for updated the the number the for then and for we I reserve

Christopher Campbell

about Okay. hitting cats net cats, I would was are your your hit the that the like net – numbers? that like thinking

Mark Harmsworth

the hit would income It statement.

Christopher Campbell

net the guys not quarter. Yes, this actual straight losses numbers, Yes. had you like that the loss, cat

Mark Harmsworth

Oh, there is. okay. I see, Oh,

Chris. thing So, so there the really, had, yes, is we only

about Sorry that.

Irma Michael So, we thinking and were about there.

So, the for up put Dorian, really we have only $X is Dorian. million thing we

Paresh Patel

that don’t caution. is of I think

Mark Harmsworth

that’s Yes. it. And

terms in on the of $X So, to in million cat losses there’s just Dorian. of – related loss the and reserves, that

sorry about Sorry, that.

Paresh Patel

Yes. us, I for it we’re kitty having think cat or our question And answering about QX of cat in quarter actually, trouble the as a was because well. heads, thinking a free

at just we’re it’s the come Dorian, have in, looking another just in office. that of So, claims the day number

Christopher Campbell

Okay. was Got And there it. then reserve this anything quarter? development,

Mark Harmsworth

we’ve the mean, I same Yes. been doing thing.

each we’ve each a something about it I development the mentioned booking think, we’re been $X.X end at of that. think the quarter, like we’ll at I of million Year-to-date, year. I’ve quarter, dollars million, reserve look in at couple that

in So, thing third we the in first that we did the same quarter the did quarters. two

no So, there. real change

Christopher Campbell

And how much that was Okay. in this quarter? then

Mark Harmsworth

was quarter $X million. This

Christopher Campbell

Okay.

more are it. I guys then down the than And – or the had are closed the claims claims litigation is down mentioned got that you than Great. Okay, open litigation like claims. then the think more think the I

Paresh Patel

Yes.

Christopher Campbell

you��re kind that of – frequency, up, loss is frequency – that are why on but lower then reserves you’re is rising, actually seeing of seeing inflation losses? if those is severity daily so why guess, I So, kind the down more more is

Paresh Patel

Mark conservative some being of way, was would growing on it I if development us said, now know that. don’t positions the because that of TypTap I think I characterize and

in is off claims other is open coming of The claims down because of dropped has the number it terms coming significantly. the of in, frequency part new of

have but going were coming of week, effect is see it’s down. So, if closing several months Number we in, that down. to for you eventually hypothetically, starting will an is Is effect. XX been suits going frequency open and has if only kind XX, come imagine we’re say, getting suits that of you to number off of come new a that suits is eventually the now tailing to the

Mark Harmsworth

Yes.

reported total lawsuits a we’re coming Paresh number coming A lit of So, mentioned, about open XX%, non-lit, coming number if than down on claims down, is number of is faster. getting claims claims number claims also closing mentioned, look you just is of The down. little as down is of that. and down lit a claims because I a that the basis, more we’re of because number is more as of and part than fewer is litigation probably a

the a reserves some that getting caution and related – to that up If are just development, your is you adverse of why truing litigation some question some to is of still is for of dropping, being prior are are lawsuits but trends sort increases bit, reserve cautious. and are opens years are dropping, strong. lot little just a dropping, overall the the very of Claims

Christopher Campbell

I’m to right, about this XX.X%, year Because takes, about quarter it Got think I’m it. the versus ratio loss thinking trying if just and And I’m right. like the to then up puts ago. was about XX.X% thinking a

would benefits TypTap, like thing growth like any it lawsuits, the be, sound then lower would only And the frequency only is of right. the severity the So, be doesn’t worse. in then the delta – getting right,

CATs loss a up. like that would I costs expect versus aren’t would are loss coming the should down deal, So, numbers the think coming And be those I if be big then what down. costs – frequency like

core where trying loss guess, going ratio I’m in to guide, So, I to back the should forward? way we expect and be a

Paresh Patel

was I first was in million, $X.X his million do the with to talked the hail in the bulk Mark with Chris, which do and think, to TypTap about remarks $XX quarter. prepared event of then

Mark Harmsworth

Yes.

look at it on look way, right. quarter, can you you either loss and if it year-to-date, at at Chris, or expense So, can look the you

come of, the you’re think sort what I core isn’t hey So, ratio dropping, loss getting is, right? at how

Christopher Campbell

seeing about the thinking is I’m of part book Yes. better lawsuit your bigger these trends.

Mark Harmsworth

Yes.

a of bit So, detail little first, then okay, a little and bigger bit picture. so a

that are we remarks. and in of prepared go them through, you in So, mentioned the there’s things a lot the numbers when

is million in So, looking got event about We’ve there is – got hail first $XX we’ve there year-to-date, if the Dorian. relates to quarter. TypTap, for $X you’re the that for there million there’s in about, some money

So, a things. to relates other of that amount significant money there really sort you’ve got in of

some lower core current to and year look If those loss the which is and you for loss you of of than back would expense last year-to-date, the that’s the out see, numbers for core is sort what expect expense happening. year,

Christopher Campbell

be Okay, Yes, at And repurchase it. mean, great. does one helpful. That’s over to that will your think that look share numbers, easier time? I’ll I one year-to-date I last like say growing the then TypTap, appetite just kind of you’re change as

Mark Harmsworth

is key capitalize money with I as of insurance capital, operations have things well. don’t three which to do capital making running we have It’s think things hurricanes. money, keep ago we that making other to interrelated, we despite item a do and number downstream our all had TypTap. we two weathered four million plenty are with $XX the and the any years having of into Since because not it

Paresh Patel

the thanks Well, answers. for Okay, perfect. all

Mark Harmsworth

Thank you.

Operator

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

Kevin Mitchell

the As agents, in most to our look future. near We for updating importantly, progress always support. shareholders, our you our continued on team, policyholders I’d their on of the forward to management employees, thank like behalf entire

HCI (HCI) 5 Nov 192019 Q3 Earnings call transcript