HCI (HCI) 12 Mar 212020 Q4 Earnings call transcript

Good afternoon, and welcome to HCI Group’s Fourth Quarter and Full Year 2020 Earnings Call. My name is John, and I will 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 would like to remind everyone that this conference call is being recorded and will be available for replay through April 11, 2021, starting later this evening. This call is also being broadcast live via webcast and available via webcast replay until March 11, 2022 on the Investor Information section of HCI Group’s website at www.hcigroup.com. to for conference HCI. like Swansiger, to now Relations Investor would turn over the Rachel I Rachel, proceed. please

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

back outlook Following remarks, Mark and for and quarter fourth of Paresh’s will XXXX, performance for opening full turn then to call the the ahead. review our Paresh year financial

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

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

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

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

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

Thank you, Rachel, welcome and everyone.

to today. As imagine, you a can have discuss we lot

year. they TypTap and in will two discuss I’m future further. to for for to quarter discuss I Mark to obviously Mark? our discuss right the results it How the the benefit over transactions. So, financial and major HCI going turn Afterwards,

diluted made made per shareholders. for superior a net and very HCI quarter, in In a hurricane level landfall in XX of after-tax Thanks, the share which and of record return $X.X every our breaking $X.XX. rate Paresh. income fourth of delivered were with States. activity United a XX money this quarter earnings was names storms, Despite XXXX season million the was active

over was And include earnings account For about and last share In of gross quota by In that ago. gross of share premiums deal. agreement up for of million Choice from booked year, gross XX% our same before of income were taking $X.XX. the net tremendous again, the the into full in were up growing. XX% not year, written premium XX%, does driven, last QX, $XX the in million started TypTap both premiums Homeowners In premiums the after-tax accelerated. couple XXXX, homeowners We the per years talking business. course, growth QX, from and written fourth Homeowners quarter. year. UPC were quarter up growth written TypTap, of were $XX.X This are a UPC success Choice diluted the quarter

this of unearned. as I May XXXX, I numbers clarify, to recorded not I’ve but year, For are that XX, Consolidated XXXX, the year. mentioned of and deal full of were the in XXXX, consolidated mentioned premiums quota in gross we end premiums up let December from in growth up share the $XX XX, force about the the is all written end of quickly deal up earlier. which the that couple XX%. gross XX% signed runs year from me announced, million a at were we written a did gross XX% include UPC earned times, last premiums premiums

a Real in division Our estate strong XXXX. year had

XX real has subsidiary, estate properties. Our been which Greenleaf building to estate has portfolio, diverse real a grown

portfolio sold book our and long-term cash Greenleaf a flow we year, included it, our been gain of million returns, we strong While strategy and in and always even the $XX our realized difference in This when unrealized not $XX operating has capital book Cypress positive properties that over has And Commons have million, is appraised after a value. value gain still selling value of between property. appreciation.

surplus, about comments capital. and few a reserves just Now

on strong from from assumed April. new As a of holding by needed. Choice resources, well surplus financial books Choice taking four we’ve England two position in growth insurance as the mission real times, states we we New if of holding two well surplus been back have because have companies, The capital on XXXX, XXXX many to that the steps its opportunities ended its its growth it in policies capitalized TypTap business, a Centerbridge in strategic from the advantage mentioned sets a us capitalized anchor Homeowners taken on and additional on drive company. company UPC share separately for without capitalize as by a has of HCI. company position owned own TypTap with strong but strong In to from funded trajectory. allowed accelerate The has will appreciation profitable being capital position, Homeowners growth growth

credit can time. tremendous the Our that the company it gives as an we the Fifth will the in inexpensive vehicle plan. holding capital future for renewed focus in with XXXX, of Third At deploy facility to our level, This Bank. realization company at be of us that source any is we access a

drawn as available. We speak, this have And $XX there on we nothing is facility. million

We’ve businesses been shares money that great our the since been reserve us. a where non-CAT of strong last buybacks are positions, to companies, stock the has one to an be stand. to you year of price, at our capital. it’s a plan XX% of we surplus began. made the back this just important average with in XXXX final liquidity bought At XXXX, tremendous of have of reserves a environment. good our reserves. will conservative reflecting end now, use force comment, X because We than which approach summary, reserving. are say higher, is it are an another on stock but continued year, at It’s but difficult and capital in was plan. for $XX the higher have of XX% important than And part end in always more know price As insurance million know, our two premiums

are bigger year opportunistic ability And continue a proven and have that, fronts. through turn acquisition capital it grow our on We we both I’ll We’ve XX% to to with ago. and organically the than Paresh. back to

was Thanks, for Mark. very most challenging Obviously, year XXXX a people.

we’ve hurricane results important However, Mark active with profitable despite as transactions. XXXX quarters. an we two begun indicated, delivered marked by all year and COVID, season and in four a

new Mark the states business company. us in premiums. to represents $XXX The we million First, states in with casualty UPC, earlier, of insurance property an is England agreement approximately and and as these known transition lines business mentioned four united reached as better annual personal

choice $XXX is transition taking plan to Our approximately the to of rest. TypTap with that homeowners business million

Second, two ago, approximately Insurance XX.XX% announced comprises of valuation of which as implies of Inc., for a Centerbridge a up acquired our tipped weeks TypTap received know, you many TypTap million $XXX TypTap we Centerbridge operations. and Partners. post-money investment insurance development that million. Group, investment software operations our approximately Centerbridge of from Exzeo $XXX

that’s that still reference, of XX% than HCI all of remember HCI today, and of For capitalization over TypTap. owns greater market the

seen to of other is announcement, valuation, undervalued. bring bridge has incentive out coverage think technology share HCI calculator, with TypTap Since We might insurance companies. agree. this on based you share you its being If press compared that a the would TypTap

insurance has on talk for insurance a drive is in market the a to on industry. profitable and thin more very there thin the and ongoing about TypTap the company very opportunity lack business business outcome a Historically, big coupled is of opportunity. good operated Now analytics leveraging to margins. innovation with consolidation a time And the data TypTap that, – recognized technology. by

with capture a Our look on over agents, than our margin happened premium going little data that $X with adequately, drive use And point large to the a house we help fewer solution overhead. automation TypTap evaluate gather have can risk us seconds a to scale that while that six Then allows us we We straightforward. claims per to quote. the the let’s to and all quite price active million XX of XXX averaged quote is for To to level risk inevitably in level. been problem occasional house home, the allowing what to developed yesterday. in furnish follow. has to us needed numbers every at Yesterday, almost policy algorithms proves sold each finally, expense this incremental enough It of technology day. minutes, policy underwriting generating single every automated gross a written each

TypTap average. average. basis, ratio attempt XXXX, already on the in performance. let’s stat of industry a that to materially about companies the to maven the industry higher reach talk improve and growth – as the Now loss XX% them much running was struggle ratios with Florida average. below below gross industry Other TypTap’s then improve loss about is

together. Now add things all of those

and markets organic scalability, looking are Xx one billion addressable in homeowners is a Florida, the years, the the two market the low acquisition over been growth have TypTap in which And costs, with We we model last $XXX of proven approximately AOB. already has proven customer successful total at U.S. nation. of toughest

as high a nationally. level be as have we We successful confidence very expand of that the markets of well we’ll

as SPAC initial TypTap, for we could have merger. we offering a which Finally, that note, or before, an on opportunities even exploring stated strategic include public are

appropriate with that, to open soon Operator, your progress. to more We provide And the that questions. call instructions. have will please on as things we’re the ready

Instructions] Matt live. Thank you. is from Matt, first And your your Carletti from [Operator line coming question is JMP.

which the the on I can evening. to in bit. ask, of is it? little how as least the or just to that’s start. the horizon do at you million center, obviously, And – it’s a kind I you onion a the afternoon more asking side of them that and XXXX, the why terms that put what with high-level discussions you thanks. go just And other the choose of you And had little back thinking around a to near-term to valuation forth, your mean into in bet into a so I yourself they Paresh, get got is, good But guys question kind that bit you and you they’re really, kind of it, of were kind of how of of TypTap? Hey, question $XXX if looking, wanted they’re guess, And in is Good XXXX how of cusp kind by I but by maybe on number number. of table? sense of

reference, is large very a organization. I Matt, Centerbridge for think

to billion sense like want I investment. think speak might million I under but my the minimum they’re for them, be don’t $XXX management. $XX is

enough. Fair

loss their other numbers Xx company now? get the said, peer right? like XXXX technology just It’s you and growing points to where and on that, doing world I that’s because average, scalable. yes. the you they ratio rapidly both tell in I We’re I results, of have our TypTap, the are would side industry here why And But everybody and group, fundamentally that XX a a you’re were struggles think below in they reduce know. what conversations, the I to think maybe why it in of And something growing that’s the the in is think When that, right? something. I you are to grasping, XXXX obviously and

got couple you. more boring TypTap end Very for XX/XX guys the well peg Centerbridge at surplus per investment? questions where much at the I a as so the good. of as the and quarter kind probably book of Mark, more value you before other share just Thank

It’s hey, So, Matt. Mark.

December. share, value of $XX.XX So, surplus? is your think at other And the question first question per end I TypTap was, book it was

XX, that include wouldn’t surplus, after Centerbridge, right? TypTap that? That and was – that December

at million $XX.X the So, the year. end of

a Wonderful. on again, very All and nice Thank much really with congrats right. Centerbridge. deal you

Thank you.

Thanks, Matt.

Okay.

line from from your coming Mark, Hughes Mark is question is Truist. Next live?

Yes. you. afternoon. Thank Good

afternoon, Good Mark.

about we Hello, Mark. the warrants? the value how And the Paresh. TypTap, million value for Hello, think about thinking $XXX of should

Mark. It’s

are audited we warrants and So obviously, we’ve But auditing as and accounting then purposes, for worth. we of valued a got to an to what by get well. got we’ve idea those think that professional get have those

But we’re the in $XX quickly be about in little as sort what I want. process right I have now. think say, those of work $XX a value range. the I that per as don’t because careful to Sometimes to things warrant you’d is a

earlier million a to – $XX bit of so warrants And about A together. couple add to just all a couple stock February XX, pick if that’s of the entered as of the sometime closing the you the there, an deal. was the of little little That’s LOI Obviously, just of midpoint color though. in date a which – January, we for that, that is bit into than lower. and

if the And that point the the than thing, order other for which $X kind the million, $XX on probably $X to less would So, a cost company. those in been we They’ve to warrant into million. as money, equity to us for would warrants. that write at of And were will have got it them too, go value come that. of raise and in is check execute million,

the when it the of and X% XX% total total together, all amount value put that So package, those help? you somewhere Does investment. of warrants, of the the between

you. year-end? choice Thank does. It at What at the Homeowners surplus was

me second. give one was Just million. It $XXX

your And XXXX? the of better industry. the – What the for then loss you industry suggest XX than gross would ratio points loss to ratio

at end the industries stat yellow Mark, the calculate we the for industries, all insurance of just which February. public the same a accounting thing. everybody so private is the this that Yes. of does each Most or way company, filed book,

We across is and comes parties. that loss whole do ratio. can and like out XX%, across TypTap’s of gross down losses, got it believe. for easily something sort very Basically, do XXXX. industry, the I third XX% of the everybody puts So loss gross the for there, when get number – in sort to a gross they they then be ratio about their industry, you to

stat basis. On a

basis. stat the of AEs know, we’re stat this you again, And multiple this, that’s is measure TypTap so about. but as a Insurance that, on a a On Company talking there’s measuring basis

but Yes. is may points, of level And XX share want of this much CAT you that losses? not to detail, the how out

maybe, X% big not that. would have Yes, a In XXXX, Yes. it number. about been of

that included a XX% presumes in. in a on to losses So fair it Yes, that some as we make basis it we well, Yes. gross CAT did one and because right? did comparison. But all has it

been it you the if did I that about – have So CAT. out would XX% take

So it. it’s that’s XX% think of about versus XX%, X% – I

Yes.

UPC, pattern? ratably use premium. you’ve pattern the earnings you that the change earn that call Or unearned Does and we quarters? presumably the Understood. do Okay. The it, million for earnings the just the, got $XXX over

better Yes. you at The about the about $XXX quota that, The think if looking right to it’s at we the would in the Paresh look way million, it mentioned – said that’s do X-K, you’re the I for way think rights. $XXX is as share, number. it I renewal million,

it. So, That’s at you ratably period. best that over look would just look the the to way at

what in million, $XXX pedantic it, is quota the now of you… force XX.X% about that’s be right To the share and that’s

For months. Yes. five

from months, so million June, January you’ll what that’s basis, on an you Starting five would doing through May. would in do For you – yes. be $XXX be amortizing annualized

Okay.

the of clear, $XXX be share XXX% is to to that right? and million, million, January is again, $XX.X then in goes June, it So million quota $XXX all May of through

Yes.

Okay.

as that books from are? here UPC, those with margin, you some then thoughts on the of and, anticipation trajectory initial presumably does dilution those what your I thought don’t know Your there what’s what anchor, know with I you And business But combined, books? loss was when ratio? due two take refine to of

if couple – a of you there. questions So,

just anchor we margin example, were think the did as about we as about much premiums talked that Obviously, If an that the had there. when deal. there lower book, you wasn’t

you year, look at XX% the got the of If of premium. we’ve policies, at the but end about it XX% the of about

So starting is that’s that time, starting to to margin improve. over –

bit little Choice that, But as the obviously to calls. initial starting the policies deal, So getting similar the those of as in a earlier higher. you’re renew ratios to Choice, ratios were has. loss think, I onto about talked are anchor in loss Homeowners Homeowners stages We as

take and of together, So those you – I’ll a blend look just you second. UPC out sort things for if forward if you look

blended XX% choice forward – together, end in looking in that probably that look of anchor. range, high maybe loss include ratio you at the XX% you anchor that is to little towards homeowners If when still and a bit that

help? So does that

It And include then does. in when UPC that? you

But might of you impact only consolidated the but think to is to if I be on don’t a Yes. it’s UPC the higher in impact a look a closer – somewhere at that material range. get overall basis, I about on mean XX% to it. ratio XX% bit it book, the loss on it’s us going little going have the

That’s very Yes. helpful.

merger. pretty were your You your this with transaction. saying you With of mentioned and up certainly you’re exploring options IPO striking or have come good process, word SPAC to a

that the you IPO near are or Here, aspirational timeframe? in XXXX, the something Is in process? mentioned conceivably XXXX Is the you that is SPAC something in is merger. Or that working on term? that more

us an way about thing we known is one offered wait up. Centerbridge always We these simple for answer we’re the calls right? we you to of or in And specs, kinds to don’t an that say a A And numbers fairly you’ve very will for years sense receive such phone deal of It moment. that. of when the that has And us a markets we occurs, over do we us, no, when see lot that when TypTap have are makes yes. opportunity. that opportunistic. is to the the partner the a announcement. a be Clearly, putting that number sort And priced is appropriately in of businesses been desirable inbound looking

can’t unusual I’ll that, but quarter was G&A remember might there’s matter, looked but this quarter, that a whether ask the than is the seasonality lower was have Understood. might this small there? we expected. in anything I influence

Mark. Yes. It’s

QX. expense been year, be than and gets Just expense the assumptions we’ve throughout up less about will expense trued what we bonus the to. And bonus in was accruing make then what actual bonus the

a there QX. in there’s reversal So

little So unusual. that’s bit a

good, you. thank Very

Okay.

your Bill, is Partners. from Bill line question next from & Your is coming Broomall Dowling live.

lot think lot do of the Can report When matching, you the from we other maybe to are compare profitability out a you’re which a question discussion expect other is but sounds insure of get might and we tech, you thinking you. to a about little a TypTap profit. centered Great, line, how of in running talk big lot margin, a a write techs standpoint? like TypTap trying what you’re about pretty My there business. is loss you companies coming insure model to from your through. we differently hear from around bottom contribution about what on of thank about once versus is down favorable, But that terms a it how first thinking at that

The business at that’s is thinking $XXX on best X% kind earlier. It’s business. slight or totally breakeven $XXX if homeowners profit a there of national AOB, look X% the the But Bill. with collective about way – a I it’s look at U.S. billion this margins it’s basically or billion, that of Sure, said a basis. as on very you profitability

So market share end you that, not you’re get with to up very XX% if of just far. going

the that So just business. that’s nature of

a big on If you’re chunk going business. of that to take

you about You come ratio. and way whole loss company, the players have outcome should that of lot numbers and all margin figure things. insurance That, down expense to of kinds attention sort talked to agent much difference all everything contribution is different out one what generally of sort a the not of you a ratio. company you and the the say, controls. I people an and corporate two ratio. expense were But what loss is And paying tougher in is and material those a ratio that having. else loss And ratio commissions basically, obviously, overhead can the current make the The

toughest doing. thing who’s industry average, to run is and thing the what insurance computers, the is tell length points And time. For below amazing by average. company ratio is of an underwritten XX will Book the you loss is over that TypTap time improve the about industry anybody a for an

the trying favorable as about articulated to to about has talking that’s You do outcomes. you sending or then other XXXX the tell are TypTap your XXXX and only your industry has actually advantage nobody space and wow is a a There but it get in [ph]. of on in breakeven. which in what Most That’s XX-point shown ratio else can scale. have most side, the What can business, of the And people loss question TypTap talking to thing that It’s key but imagine leads the – outperform is given a this in really to have is is do. to done to else can over lot advantage. counsel man if disrupting TypTap has my everybody to competition, compete a very or me, insurance moon. you’ve already they is everybody general tends the not some the same the businesses, XX-point

and We safely, have sent picture. and brought a back a man to here’s moon the them

And you. just last that’s Thank helpful. my one. Perfect. Maybe

your sense in stands. I give customer your Could think might about talked you advantage and prepared that remarks, of costs that of on you for you acquisition us be where the where think side business? a

taken we’ll in can loss the do we’ve ratio explain Yes. – of Again, category, got I’ve savings. things some those we very in If advantage take XX% is a terms. what simple we

them that commissions policyholder agents. shared of is agency partners, pay competition, share we replacing us, materially are business the And take the And other that good. our Some lower we And rates who with with some us. by market with savings. above the place we the of we that charging our people with which the than business

them about rates. very TypTap end who on wealth because reinsurance years TypTap – If We build will also get actually So more any technology, talk share but in win-win-win asset-light this, do better And lower tell other a profit. which point. get policyholders a premiums we to have But we that this asset-heavy as five – our don’t never insurance bought it’s is company. CAT involved back or Putting but Florida, with any made to one make it we in There have commissions to send has being because TypTap. item. a cover losses. reinsurance, it at of people And are is which obviously, get all simple, for that had the fraction an you state, our I’ll we actually because is this and with our I reinsurers, buy TypTap offset we would old the winning We better numbers. losses we TypTap at of of who agents that. differently,

revolutionary. benefit from reinsurers our with that’s even being call TypTap, you associated So what

That’s there for my in Great. development reserve Mark. question, you. last And Was QX? any just helpful. Thank – development

No.

Great. Thank you very much.

Okay. Capital Ron The next Bobman please is coming from go question Returns. Ron from ahead.

Thanks. a again with And on financing. milestone and congrats tremendous the progress TypTap’s

you’ve you’ve target – combined – I Or You’ve expectation weather in is Paresh, should of for mentioned sorry, I Is think target months? sort that as think a reasonable TypTap. of the sort past, right? it think a recollection I the And XX for and XX% complying my aspirational? next of

Ron, Hey Mark. it’s

I or think in is issue the policy year the we policy. customer of little the The right. are first because of probably acquisition is just growth sort the is where higher exactly a expense in acquisition about X% the bit

than But is year higher, likely the So combined and that be if a that. than bit ratio is less a to that lower possibly that. XX% where as then little in you’re out normalizes

answer a very already easily. what to doing different the XX% can a we’re basically and given we’ve to we business the additional putting decision into is the XX% calculated Ron, back we saying, achieve have grow that’s are business, more rapidly. seeing that made We what up, reinvest that let fashion. give same slightly we me What can – you we’re in combined from in numbers

of breakeven it So of basis. maximize a while we the at rate growth keeping to TypTap, are trying

Whenever So reinvesting foot out. we gas, we to accelerate will XX% that are of that to take the right growth. pop our XX%

in not seasonality we seeing, just Okay. Got that’s TypTap would a hopefully, that – isn’t million growth. that sequential that keep in I that, it line assumption, there’s to and think The you. $XX real did Is should QX. premiums top it? good

is except – November, we in is, yes. hurricane we to live season and are June from Florida, It

we So have Because that. to on right? some yes. we the we do as business, aware on less business And seasonality when to book we make decisions, are of more good take add to ultimately, take when underwriting we

it runs sounds and the is It United assumption of the UPC that Yes. Paresh, at you the that? those million million premium the come to policies? plus those that seems think organic $XXX this $XXX Am I I sort off from deal, meaningfully year TypTap of TypTap it going how a that share quota about like you’re remarks, you in mentioned number premiums incorporate that for and prepared surpass when to earmarked right me really over $XXX million how calendar growth

Absolutely. Yes.

We continue opportunities get advantages. to

surpassable a we tried to I’d is always target only way not double transaction, that the sort to have every So easily, year. because UPC the easily, attainable transaction. like size And of XXXX think TypTap the but in meaningful just of

giant Yes, a step it’s forward.

talk everything Thanks. of sort ago, questions. describe for more bit little Could about bit TypTap? about it on state Okay. mentioned, the how couple to And you’ve about then of a weeks That’s you lastly, far set of up could a it operational know Because you just a done separate. I as as you little call I that? me think, the deal

in being Yes. his running separately Sure. Absolutely. comments Look, to really Mark earlier capitalized independently. and almost about alluded TypTap

the Debris transaction San or and stayed everything independent Insurance Insurance done is public TypTap we’ve both either of that – now of part unaudited the for and being who of run, or with else. traded X-K the company every last Group its done TypTap in is have people the lot financials, the the the reason Group. other. probably Group we member operate made side seen two weeks. built with sheet Group by we’ve spans really, Effectively, what the myself. its a is and was is one a really, a as The only Everybody balance is And the filing HCI person that to So employed on person separate up own HCI else groups manage like

already that are path. from quarterly we’re Sarbanes financial come TypTap having end a controls it’s wonderful we it. things know public because walking and actively doing already like down And has we So, month built Oxley are governance. background, company closings Group that into a good Insurance

only order in own Group in to And sure Eric continue board boards. that. the the make separating own TypTap Insurance fundamentally name doing by represents has across boards. on extreme actually That’s HCI of Group as even it the what’s to more. that. its gentleman who trying We’ve members common had are of and we the So Hoffman, two and taken board companies The HCI TypTap Centerbridge on and has going. Chairman so, both its are the myself, We

and Okay. Tremendous. congrats. again Thanks

Thank you.

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

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

Thank concludes today our call. us This you joining for today’s presentation. for

You disconnect. may now