Earnings call transcript Q4 2022

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Operator

Good afternoon, and welcome to HCI Group's Fourth Quarter 2022 Earnings Call. My name is John, and I will be your conference operator. [Operator Instructions]

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 April 8, 2023, starting later today. The call is also being broadcast live via webcast and available via webcast replay until February 8, 2024 on the Investor Information section of HCI Group's website at www.hcigroup.com.

to Relations. call like Glover, to now Investor Gateway would turn over the Matt I proceed. please Matt,

Matt Glover

Thank you, today's good Harmsworth, HCI's Quarter Coleman, John, Chairman and Chief HCI's XXXX Group's to HCI's Executive and Earnings Fourth Chief HCI and Financial Call. Paresh Officer; Chief On Operating call Officer; Karin afternoon, is Mark everyone. Patel, Welcome Officer.

will and for the strategic of XXXX, then Following will performance update. Karin's fourth financial operational review our update, a Paresh Mark provide quarter

visit please website webcast, To Investor Information corporate today's access our of the at section www.hcigroup.com.

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

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

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

Karin? Now Officer. like Karin turn to I Coleman, with would that, Chief the call Operating to over

Karin Coleman

diluted everyone. earnings and last Matt, over the welcome, and Group million improvement HCI of per quarter, share quarter. reported of $X.XX and year you, last Thank an income fourth net $X.X for

our Hurricane Elliott. and factors: second, associated X Results XX.X% start to insurance with benefited our a gross first, Nicole from with XX.X%. ratio rate me costs insurance The prior Storm division. actions; includes loss Winter in Let our decline in subsidiaries

ample balance investment to and at nearly maintaining work over sheet our as QX put short over X% duration year liquidity. while Third, yields last we income tripled

over totaled Ian, Choice As and Homeowners Insurance for the Hurricane XX,XXX. TypTap claims just for received

in Ian, hurricane resources policyholders claims continue Mark expedite impacted the process. We leveraging remarks. by handling to detail and our support to his more technology provide will

On XA the in in cost social before property the market. legislature the addresses and of squarely inflation Senate litigation Bill legislative insurance rising December, the front, passed Florida which

Bill reduces items: main related eliminates X for X this substantial and May to assignment attorney abolishes law year changes to deadline governing build to claim. it law provisions provisions reporting that in claims policyholders Provisions includes landmark on of the property it Senate property of fee the in XD one-way of bill the passed benefits, claims The represent in Florida. this insurance litigation filing and a

in significant decisive we Florida. insurance effect. expect full DeSantis when costs take taking litigation to will changes property -- for the and XX%. to change a have seeing company, to Mark industry detail some our we Obviously, of the in company order level the of reduction We the experts loss market Governor Florida to improvement from legislature favorable challenges will we're the projecting the the in to vary impacts a take business, see stabilize on but action when commend expense heard XX%

more on Florida the to estate center shopping Century that our transactions to Cypress in properties $XX the we highlight Greenleaf moving the are in gross Now we investment Park in capitalize strength disclose real our Capital, right for estate contract of market. to ability in and these million. Similar sale retail of the sell our away XXXX property XXXX, subsidiary, proceeds will real X to our under of XX-K than

to transactions plan on provide next call. our detail We on more these

to share return shareholders capital a industry, through year Finally, on the difficult and our dividends word capital. for In continued repurchases. a to HCI

at $X.XX XXth we repurchased nearly our consecutive per an to share share. average at shares cost During of per and $XX shareholders paid X% the quarter, outstanding quarterly of dividend

actions balance the strength our our underscore to we shareholders. and These commitment the sheet have of

results. our turn on Now Mark, more provide over it will detail who to I'll financial

Mark Harmsworth

Karin. Thanks,

are claim this So loss half and to reasons was small helping to UPC fourth XX% as million about cost the ratio frequency the a of Even X income consolidated number Karin gain and claim the net -- expense these per $XXX,XXX the the in share. $X.X than income revaluation second second XX.X%, and Net the of half quarter Nicole of losses mentioned, of to of last includes book which the In quarter Winter was Storm million point related $X.XX $X.X declining. the been There Hurricane second year XXXX. with -- lead XXXX, has is for a loss includes lower sorry, quarter combined a included, or loss Elliott. of the ratio: of lowest than was First, less a fourth year. things number quarter lower frequency storm

level while is off. severity has to the per Second, claim premium average started going policy up,

the climbed first quarter of it to of much quarter changed severity second not then. the steadily since from XXXX While has XXXX,

litigation Third, has moderate. to started frequency

fourth the For in XXXX. litigation the quarter slightly, quarter down fourth frequency the only full frequency of was XXXX, year, of XX% was but litigation less than

are continue. downward Looking ratio ahead, that loss confident trajectory the of will we consolidated the

XX% reduce to to expenses expect because AOB are As First, the our legislature Karin similar legislation XX% claims percentage. claims Florida further a as that has passed by mentioned, of total we loss drop claims, should follows:

Second, a average expect severity to AOB decline. claim non-AOB severity than an claims higher claim, because also the of we is

being the expect the is one-way to with more. fee by frequency we AOB legal lawsuit Third, statute and of drop or abolishment XX% unenforceable,

a while XX% decrease positive impact end of are the seen at wanted lower to business I In out. have to terms material also XX% a expense. modeling couple of loss are trends we expense that point expect that in of this There the range, we loss we've and overall impact to loss other on the a in showing on expense, models

as cash of interest this which capitalize over could of year. year, at they rates end we when were you income had combined last the most As see, million Xx had the investment so is what with year, in low, increase invested, in about have. we When we investments. can fixed driving rates, higher rates the interest $XX we of income income. kept end in fourth last At assets million investable was investment higher was quarter And it our $XXX

positive the business. the the and trend versus are policy Another because expenses. expenses last year, the is new in yet to XX% quarter up acquisition business, of from premiums fourth year lower this lower acquisition UPC related to lower renewals earned slightly of mix were costs policy commissions Gross quarter fourth

over balance couple wanted I a to to the Now move things of on sheet.

the no quarter. than course, Since of Ian it important. expected. impact statement, Hurricane the in We're time on claim third we've to adjusted the This, had storm we is right the at XX%. is income end know, more and of the comfortable Florida landed getting significantly down the development, you ultimate have then, As but of about by impact less about has the evaluate

the In terms of but there claims, get I was didn't loss that reserves. by ratio non-CAT mentioned decreasing we down,

fact, increasing we been have In them.

going as year than During it even year, the are significant the reserves. at This higher at the about have paid of higher was increased because end expense the XX% $XX we start. is loss loss are they down this were than losses early means that ratios reserves and loss million

ratio good underwriters position with a with surplus each over of Just of few our in We're RBC for a other both. XXX% things.

and cash holding have holding at our under of and credit million liquidity, investments we terms company Third. facility company and financial $XXX with In the just million levels of $XX Fifth

part the The and total year XX% fourth was $X.X combined the quarter. of bought that back our with buyback program share it, dollar back start the of or was we completed about the back offering, the our of bought in mentioned the the bought Karin total shares million as outstanding program shares under for the shares in of million that $XX amount year. convert year when over number at

per going you more So the Paresh. stock lead up. Loss beginning hand average year the And of Profitability is ago. that, share to year, own if the policy the in you of ratios is it you coming down. changes I'll than should of improving. a are XX% at own further improvement. premium company with Legislative HCI And did over to summary,

Paresh Patel

I then discuss a future. Mark. with you, Thank begin history the to and our reflection on want

we views. industry have We good of and what allocator doing to for capital being best was shareholders, counter record thought of track a seen it's if even

patiently we maintained at were position our example, large when For years. interest rates several cash lows for record

a our decisions seeing significant full in through in are over flow we the time. will Now short-term of deployed income. and We've treasures cash impact increase the investment

This Second, we leveraging our expansion. to premium terms in we XX executed TypTap done. in-force is ago. change years just continue TypTap is $XXX short X has of started, how saw from state to underwriting technology X million and business we geographic capital states. just in in in and grown raise that operating investment now May, million up and $XXX is an riding have to its attractive at will only and opening opportunity. premium is getting are on Last

both. both an company, And and And there of consistent our assets on new returns we future, selling opportunity us the any think, Greenleaf creating and the want the estate opportunity, this tremendous profitability track at holding deliver Because execute to now, real and of this, we arise. to strong tremendous to for trading have on looking and buying may gives record shareholders. build But amount the highlighted, flexibility do and value is company. liquidity we XXXX, to that as that parent is for in Karin

industry context a me was playing of now improved inflation, the Those it order was will simply, as actions the where lead trends. back fees rates well social one industry But lag on an bring where as the provide implementation. inflation and rate and elimination the are sound is look ago. because In opportunity. AOBs Putting catch-up some to through operational of in margins. at today to coming versus XXXX, is way because Let of it overlooked actual year the color. attorney's loss raising Florida

ratios. about X costs increase. were our year, were renewal, for ago, And we This It's highlighted, normal A to already we costs reinsurance expect reinsurance the there of concerns availability there a as loss upcoming increasing, and improvement seeing loss. reinsurance. year are in was June the Mark gross given some

G&A handle. a is inflation is costs due and which appears an And to something year in not it availability were ago, issue, to issue, tight market. just cost a fantastic. increasing can labor be However, operational that we A very this

to our investment year, is year income this have disciplined And stabilized. costs our investment our year. increasing versus last This managing those given portfolio, approach

has moment that combine us you years for improving for industry. all there The Florida, the over this insurance inputs the the more tailwinds when several Florida made So positioned of years, operating decisions have first several are with for in day. time the arrived. the in environment different we than these headwinds last And

with I And for provide Operator, instructions. open up that, please will questions.

Operator

question And with from Instructions] Hughes our [Operator comes first Mark Truist.

Mark Hughes

outlook, reinsurance the availability, that not seems On to talked folks to like cost. a XX% you but Any what say you have XX% do increases, about bit? way think? it's It up frame

Paresh Patel

thing, Sure Yes. Mark.

CAT also some paying be both limit the of To that you reinsurance will from XX% is little to into XX%. while much, fund. the that that think And expected this about reinsurance to dollar be is across of companies, XX% I not could going hurricane up a bit, but a put of it's question spend. to of purchased the go go perspective, Florida single rates up for it's every

layer Secondly, deferred the both TypTap and wrap underwriters, our of Homeowners from Choice last year. both

zero in XXXX cost. now those and they So be at come provided layers will

So tends us. to cost that for of down actually drag the reinsurance

on private with to of of a we some has section, reinsurance basis about, also the reinsurance Homeowners multiyear up the numbers you but fixed go large a The bottom talked which renewal placed terms. Choice, will and program market have

it So of alluded things, headline but be you've looking will these won't that given you're to yes, XX% at, XX% up, it all that yes, the go too.

Mark Hughes

program is private exposed adjustments? market the more of to much How

Paresh Patel

the Homeowners Choice very TypTap, of maybe yes. think, tower. number, Homeowners I'd say I have but X little Choice of I'm a market for out million doesn't similar living does, Well, a -- about deal that private a TypTap is [at] multiyear insurance, the $XXX benefit bit, limit little, $XXX here and of million

Mark Hughes

Yes.

Okay. Was in the there any quarter? reserve development

Mark Harmsworth

what It's that's pretty last Yes, it if there's at years. for full pretty the it's not pretty mean, of fourth to similar year, to done And some. what you we've quarter last something in the I it's it's the -- year, was consistently was year. that end similar at over -- of full year. look the similar couple it

So no there. significant real changes

Mark Hughes

What quarter year? it the was in fourth last

Mark Harmsworth

about I that, think XX%, similar this something it was XX.X% year. to XX%, like

Paresh Patel

it's But included the XX.X%. I think in

Mark Harmsworth

included all there. Yes, in course. of it's Yes. Yes,

Mark Hughes

that gain you income you And them? Yes. could those explain from then item mentioned Are of $XXX,XXX both Okay. remeasurement the And separate in the the separate? $X million statement.

Mark Harmsworth

same X Yes, at it's things sort time. the that there -- happened were of

to to to what that asset So how was there's we the we originally is by it. of liability UPC, owing the with also we reduced adjust liability And had happened dollars million a that that a couple that reduced It an because and valuation set size. certain up, an we're a And had was commissions for the expense. booked. on that contingent we asset X contingent pieces was then over

revenue That's the line. also X X see or is sort you liability up lines. went show and why $X down the that $XXX,XXX, comes of -- but So contingent another, they the asset million contingent offset down. in those and about And the different net the X in $XXX,XXX

Mark Hughes

Yes.

Okay.

do improve XX% XX% think will think does that you fully when in, improvement when When kind -- be? lower to do of When of that the implemented. a range. said modeling to You the But think you at mentioned fully -- that potential you're think? I for end you losses you kick

Mark Harmsworth

AOB, Well, say, XX%, little when improvement, years. So of right? we But of couple get to say talk think of it's obviously, to to of that a a to range, things are some potentially a years I for in low going take fully the you'll It the I it's because take end probably could transition, significant as see that through. hard these transition about XXXX. going example, couple mean, to

through about will had -- that, I the sort talked that continue and over think think of the ratios loss down book. coming before we will And that XXXX time. through XXXX I transition as that So

Mark Hughes

quarter, your on the growth enthusiasm see do the line? final here And you How then differently? you fourth more It stacking looks see up little like your that depending modulating the you about if were in presumably, question, growing me your XXXX, in restrained a growth, you're you see what correct it market. in top

Paresh Patel

have it's Mark, in there is at sort already question cost but said that we one moment. the similar is I we lot of in tailwinds headwind reinsurance. to more a do country a Look, And we the -- statements, that the what CAT headwinds, live of than the my prone

So of time given both but at in the we making right about way. the right are both sure growing, things, energized those we grow

right months the the some at it passed right because grow time. we've already to So deals in last few the wasn't deal

rise So executing and it's that they when on do, they yes. opportunities

Mark Harmsworth

Mark, it's Mark.

embedded X were number the Just you in thing to question down. in wanted think I premium add gross QX, your just is I referring to there. I which know written probably you there, in

Mark Hughes

that's Yes, right. Yes.

Mark Harmsworth

way part bit in that is share so that there quota agreements Yes, the are an a for. accounted of of there's the anomaly UPC

to quota is share premium the signed offset written So an the the you share, way in is booked the of year, unearned up the all quarter premium. we then gets premium quota the fourth UPC are book fourth agreement. those booked last unearned that you And of set when and

in was the as this you And fourth sort the year. book written premium $XX renews. of quarter see fourth quarter of million in So then the last is year that the just

have So you continued premiums argue better of And do written which look premium have premiums quarter-over-quarter. throughout out. way it, about you up that enforce, enforce sort that, a could year. at X% if factor grow to to you the is maybe And gross to

the a see by little you that sense? Does just that So UPC is that, drop impacted make in it that fourth thing. quarter

Mark Hughes

Yes.

Operator

Carletti [Operator next from question Instructions] Matt coming with The is JMP.

Matt Carletti

of putting timing. Mark that some years X do the lot kind like you in guard think kind and DTI the to run? Are reinsurance the together about really like? to? over all the XX% things combined of rate Mark, the do get And of, has of it talked kind look kind think talked put was think get -- to taking what Or we of what of where of ratios from about the about, guys models impact to costing try think more, terms the we you but magnitude a that. in say do of on kind inflation you I of of you been obviously, job as good of reforms talking world are we're about, a just and back doing I can up you that that -- and you When think the XX% long we If

Paresh Patel

Okay. Great question, Matt.

a the been bit things let careful do quarter. the try in that Mark's do And way, items. question X by I'll the in me of behalf it loss speak couple a So to little we've here. for provisioning answer doing very in and on quarter, When actually of we this we a

have the already though losses claim XXXX, data we this loss in even with set for money aside So come summer. example, QX for may in the

up put money now the seeing fast. They're are site. important. already the why coming QX, is are in we What that as that So we claims not cetera, becomes et And in dropping off. the

the doesn't can't in. If be then later that there in, lawsuit a would come on, come claim

from it cost. And claim So of but is fresh going quarter we each to the money improve frequency say to where down, that a to for is would frequency to also goes to as that through, going takes this the to know important down. to lead what it we lawsuit sort roll each for And go ultimately is it is some while quarter, we of forward. goes start reserve eventually have the

billion the importance we took pick insurance going better have expenses in the why here's with through number us of And the industry to of for thank right? to the got in you've is because private to $XX $XX your along a rest a give paid, But the we and outcome. But this billion solid question, reform, passing legislature industry bigger what the like, and is healthy all governor and reinsurance. [indiscernible]. between numbers done look now And the insurance which that was a

you year of a $X ago, if took So premium.

You're approximating I'm numbers probably looking at just and -- here.

don't ago, of So reasonably year to try $X but you reconcile took it's A accurate. pretty premium. them,

reinsurance. You spent about $X.XX $X.XX, on

a have may of because got $X.XX rates low. income You interest investment so were

You lead also et a around had $X.XX a losses. And attritional all margin then would policy costs, or which of $X.XX, corporate very -- we basically about X% say, acquisition yes. with overhead, non-CAT had you you of share cetera

thing this rate other Here's breaks go what's way of I'll the through. Because -- the as happening actually around. increases

corporate from roughly which to same. about is the going start the The $X.XX bottom. let's overhead, is So stay about

For comments, pass Mark's around legislation in likely to we've seen what losses of is the from earlier $X.XX. probably attritional $X.XX to because go maybe

go Now like But say, from $X.XX. the offsetting that, up. $X.XX they'll cost go will reinsurance up to

So they'll make going positioned, if $X.XX. making you're go investment of a about up $X.XX, there. your some had you instead But to pennies portfolio well

also all you're because to to. these So that item but add also get of rates going to in now a but where sum while, -- the pennies you was went are will make about happened Take to up, up, $X.XX biggest that's is premium.

increase and we so to create replenish a healthy surplus Florida needed therefore, that will And margins what and is your substantially, industry.

add So that to the to outcome, very, have a and keeps eventually terms will you positive to what And does yes? outcome. in very, steps excited is that that us margins, it as taken numbers very those lead been if up very that

Matt Carletti

about one. One very, could, it. to a easy helpful way just I Very think if Yes. other, quick very and

properties, think might give or $XX you of those you heard I transaction selling at today? book that gross Greenleaf can mentioned What X in And the think on I are of value an agreement million when proceeds. sell close? entering retail guidance carried any You terms to

Paresh Patel

subsequent XX-K our make we and everything. because in and Matt, Yes. everybody and wanted sure mentioned it's events look it XX-K to not reads our we

sold we we contract, that mentioned that's the to, at properties are number alluded they haven't why, as tend we when we because that it will but disclosure have not actually actually earnings in our yes. the -- And report have the to further and Karin So we hope them about to the we've X properties, everybody, only closed. call full want add up We transparent under -- X we And hands. next talk to will it yes? dollars

Operator

next The with Alexander Casey Instructions] [Operator comes Point. question from Compass

Casey Alexander

X A lot expected answered, expenses it that from improvement The in to but XX% do come really expenses I I of correctly. of been my the would apply state have understand Florida, questions only those question. have if loss

the as of be state what the TypTap would state book, outside forward that Florida, would as outside Florida? Florida percentage to you the to percentage that expect be your of coming from the look So state of you to expansion expecting you and losses from including opposed the of of come

Mark Harmsworth

It's Yes. Mark.

So yes, you're right.

XX% expense. so the on So or that we about the loss talked is Florida

that XX% rate be already ratio that about of is the we other seeing going are as to non-Florida. not even that starting drop XX% Florida affecting before so going is But are well, our frequency in the book So there's drops already on things the loss on to legislation.

think, XX% And from so full the when on XX% consolidated book we ratio things consolidated the -- at the that's drop talk Florida XX%, point, on drop loss us going of ratio, more into to is of down of when also will let's I you the the get on but book that that on to account of outside us, than get on, the I your loss other say, and that we're Florida, think the ratio loss -- XX% XX% even about XX% to looking -- that of to Florida. sort will those take will though, some

Operator

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

Paresh Patel

support. continued entire the like I management of thank would agents, and behalf to shareholders, policyholders our for team, importantly, On employees, most our Yes. their

to increasing our call, There this is a product earlier market. my comments. demand we insurance the importance health an and our for As of of I summarize end want realization

team forward benefit an on you progress of right the in We earnings with call. much. tremendous you to update all our to next execute opportunity. on in pieces on Thank front our have a opportunity this place to management very We look the us, and providing from have we

Operator

our question-and-answer This this this At concludes session. concludes today's call. time,

You may now disconnect.

HCI (HCI) 9 Mar 232022 Q4 Earnings call transcript