HCI Group, Inc. 2026 Q2 Earnings Call

Please proceed. Thank you. Good afternoon.

Welcome to HCI Group's second quarter 2026 earnings call. To access today's webcast, please visit the investor information section of our corporate website at hcigroup.com. Before we begin, I'd like to take the opportunity to remind our listeners that today's presentation and responses to questions may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimate, expect, intend, plan, and project, and other similar words and expressions, are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop in actual events, these developments could have materially adverse effects on the company's business, financial condition, and results of operation.

HCI Group disclaims all obligations to update any forward-looking statements. Now with that, I'll turn the call over to Mark Harmsworth, Chief Financial Officer.

Thanks, Nat. Good afternoon. Thank you for joining us on our second quarter earnings call. This was another very strong quarter for the company. Pre-tax income of more than $110 million was 18% higher than the same quarter last year. Year to date, pre-tax income of $226 million was 16% higher than the first six months of last year. When comparing with last year, remember that was a record year. So far, this is an even better one. Diluted earnings per share were $5.60, up from $5.18 in the second quarter last year. Year to date, diluted earnings per share were $11.05. Gross premiums earned for the quarter grew by 6% from the second quarter last year, driven by policy growth, while average premium per policy remained flat.

Total revenue grew by 11%, driven by the premium growth, as well as an increase in services revenue generated from new clients in Exzeo. The loss ratio this quarter was 22%, just a touch higher than the first quarter, reflecting the normal seasonal trend and is well within the 20%-25% range we've been discussing for some time now. In terms of the combined ratio, we've indicated this should be in the 60%-65% range, absent any cat activity, and the combined ratio this quarter of 61% was right in the range. Let's turn to the balance sheet for a minute, which continues to strengthen. We have more than $2 billion in cash and investments. Stockholder equity is over $1 billion. The debt-to-cap ratio is less than 6%, and book value per share is now $86.60.

As we discussed on our last call, while the growth in book value per share has been impressive, remember, this does not include any unrealized gains on our ownership of Exzeo or our real estate portfolio. If the fair value of Exzeo and our real estate portfolio were added, pro forma book value per share would be over $150. Over the last 36 months, our after-tax return on equity has been 35% in a period that includes two major hurricanes, Milton and Helene. This is a very compelling return for an insurance company, and yet we trade at less than 1.2 times adjusted book. This is the reason we've been buying back the stock. As you know, we announced a buyback plan in March under which we were authorized to purchase up to $80 million of stock, and we are pleased to say that we have completed that program.

We have fully utilized that authorization, buying back a total of 504,000 shares, representing about 4% of the outstanding shares of the company. In terms of holding company liquidity, we have just over $160 million of liquidity at the HCI level. This does not include the 75 million shares we own of Exzeo, which now trade publicly. Wrapping up in the quarter, this has been another fantastic one for the company. 2025 was a record year for HCI, and the first two quarters of this year have been even better. Revenue is growing, margins are expanding. We are generating record cash flows, have minimal debt. We continue to generate superior returns on capital, and we've bought back 4% of the company. With that, I'll hand it over to Karin.

Thank you, Mark. If you heard those results without any context, you might think current conditions are ideal. In reality, market conditions are far more challenging, so the results Mark just discussed are even more impressive. We have always been good at operating in all types of environments, so it may be helpful to discuss some of the ways we have prepared to navigate through this market. The first rule of managing through the soft part of the cycle is to preserve your own business, meaning keep attrition low by prioritizing your current in-force book. How are we doing? Our retention rates are consistently above 90%.

This success is due to focusing on the policyholder from day one, regardless of market conditions, and not simply when the competitive environment gets more challenging. Two ways to do this are by rate and policy coverage. As for rates, HCI underwrites with a focus on what is an appropriate rate, both now and in the future. We don't dramatically increase rates when the market is hard, which then reduces the need to chase rates down as the market softens. Policyholders want fairness and consistency, and we provide that. As far as policy coverage is concerned, we are consistent in how comprehensive we are. Some carriers limit coverages for policyholders when profitability is under pressure. We don't do that. As an example, we continue offering the broadest possible coverage on water damage, even when some in our industry choose to cap each event at $10,000.

While this artificially improves the carrier's profitability in the near term, it can also negatively impact their ability to retain customers over the long term. Bottom line, HCI knows that the first rule of growth is making sure your current customers want to stay with you. The second rule is to be opportunistic. In the second quarter, we pivoted CORE, our Condo Owners Reciprocal Exchange, from writing commercial business to focusing on the residential market. As a result, since April, we have seen significant month-over-month growth to the point we now believe it will be a good source of new business in the second half of 2026. I would add that just last week, we had one of our best weeks for new voluntary business, and this was done in a softening market.

Again, we believe that policy coverage is the differentiating factor for the rapid scaling we have seen so far. We are also focused on the market we know best, Florida, understanding that expanding into other states that have different market characteristics can be challenging, especially at this point in the cycle. That said, we remain interested in California, given the obvious similarities it has with Florida, but timing and the longer-term rate environment will be crucial in our decision-making. Also, in the quarter, we completed our catastrophe insurance programs for the 2026, 2027 treaty year. We're very pleased with these new reinsurance programs, having purchased more coverage and better coverage while reducing our actual ceded premiums by over 10%. This translates into more than $10 million of savings per quarter.

In short, we utilize one of the most important expense levers we have to improve both the top and bottom line going forward. Continuing on the reinsurance front, you may remember in the first quarter, we announced the creation of our second reinsurer, Fortex Re. We quickly used Fortex in the new programs we announced on June 1st, as well as for a new project of ours, digital tokenized reinsurance security. In mid-June, we announced that three separate token offerings would be available that are structured to mirror parts of Fortex's excess of loss programs. By June 30th, those offerings were completed.

For HCI, one of the primary goals of this pilot project was to identify new ways to make catastrophe reinsurance as an asset class available to a wider market of investors, which could result in a more efficient reinsurance marketplace for placing and pricing specific types of risk. I will close by simply saying that HCI is in its strongest financial position in our 19-year history, and we got here by having the vision to look to the future while we consistently are operating in the present. Over the last six quarters, we have averaged $5.62 per quarter in EPS and almost $110 million in pre-tax income while rates have softened and competition has increased. Let me turn it over to Paresh for some final thoughts.