HCI Group Q3 2026 Earnings Call Transcript

HCI Group (NYSE:HCI) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

HCI Group Inc reported a successful third quarter with a 27% increase in net income driven by a 20% rise in investment income and reduced reinsurance expenses.

The company highlighted its strong balance sheet, with over $2.1 billion in cash and investments and a debt-to-capital ratio of less than 6%.

HCI Group executed a share buyback of 4% of the company and highlighted its ability to maintain strong returns on equity despite recent hurricanes.

Gross written premiums were up 12% year-over-year, driven by the new residential business at Core, which is now averaging over $8 million a month.

The company emphasized the strategic use of AI through its Axio subsidiary to stay at the forefront of industry innovation.

Management reiterated a strong future outlook, focusing on operational leverage and maintaining stability in 2027, with expectations of continued EPS growth and investment income.

Despite market softening, HCI Group remains committed to its long-term strategy of low attrition, efficient operations, and capital deployment for meaningful opportunities.

Full Transcript

John (Operator)

Good afternoon and welcome to HCI Group’s third quarter 2026 earnings call. My name is John and I will be your conference operator today. At this time, all participants will be in 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 November 18, 2026 starting later today. The call is also being broadcast live via webcast and available via webcast replay until November 4, 2027 on the Investor Information section of HCI Group’s website at www.hcigroup.com. I would now like to turn the call over to Nat Otis, HCI Investor Relations. Nat, please proceed.

Nat Otis (Investor Relations)

Thank you, and good afternoon. Welcome to HCI Group’s third quarter 2026 earnings call. To access today’s webcast, please visit the Investor Information section of our corporate website at www.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 into actual events, these developments could have materially adverse effects on the Company’s business, financial condition and results of operations. HCI Group disclaims all obligations to update any forward-looking statements. Now, with that, I’ll turn the call over to Karin Coleman, Chief Operating Officer.

Karin Coleman (Chief Operating Officer)

Thanks, Nat. Good afternoon, and thank you for joining us for our third quarter earnings call. Before Mark provides our financial results, we would like to express our thoughts and support for all of those impacted by Hurricane Isaias, including our policyholders, employees and communities affected by the storm. Isaias made landfall in Florida on October 9th as a Category 2 storm, fortunately weakening from a Category 3 before reaching shore. To date, HCI has received over 1,300 claims related to Isaias and has already distributed over 3,000 checks, and we continue to work closely with our policyholders as they repair their homes.

With that, let me turn it over to James Mark Harmsworth, our Chief Financial Officer, to go through this quarter’s financial results.

James Mark Harmsworth (Chief Financial Officer)

Thanks, Karin. This was another very successful quarter for the company with a low combined ratio, growing earnings, a very strong balance sheet and strong returns on equity. Pretax income in the quarter was more than $116 million, up from $91 million in the same quarter last year. Diluted earnings per share were $6.45, up from $4.90 in the third quarter of last year and up from $5.60 in the second quarter of this year. I’ve mentioned operational leverage and the earnings power of the company many times on these calls and this is again very clear this quarter. Look at this quarter compared to the same quarter last year. Gross premiums earned are up 5%, but net income is up 27%. Why? Because investment income is up over 20%, reinsurance expenses are down and expenses are growing slower than revenue. Now look at this quarter compared to the previous quarter of this year.

Gross premiums earned are down slightly, but net income is up for the same reasons. When premiums are growing, earnings are growing faster. And when premiums are down, it doesn’t mean that earnings are down. That is operational leverage and earnings power. Let’s turn to the balance sheet for a minute, which continues to strengthen. We have over $2.1 billion in cash and investments. Stockholder equity is well over a billion dollars. Debt-to-capital ratio is less than 6% and book value per share is now over $90 and growing. As we discussed in our last call, while the growth in book value per share has been impressive, remember this does not include the unrealized gains in our ownership of Axio or on our real estate portfolio.

When these are included, pro forma book value per share is over $160. If you look at the larger population of public P&C companies over the last three years, after-tax returns on equity averaged less than 15% and yet they trade at two times book value per share during that same three-year period. We, on the other hand, generated an after-tax rate of return well over 30%. And this was at a time when we experienced two major hurricanes. Despite that superior rate of return on equity, we are trading at a much lower multiple of adjusted book value per share.

That’s the reason we bought back 4% of the company so far this year. In terms of holding company liquidity, we have over $150 million of liquidity at the HCI level even after the $80 million buyback. Our insurance carriers have also never been stronger. We have over three-quarters of a billion dollars in surplus in our various insurance companies. Our ability to maintain a strong surplus position and still generate superior returns on equity shows the effectiveness of our capital strategy which balances strong returns while having the financial strength to withstand major weather events and be there for our policyholders.

One other note: Karin mentioned Hurricane Isaias in her opening remarks. As we explained in a press release recently, our net loss for this storm in the fourth quarter will be $15 million, and that number will not change even if the gross loss changes. Wrapping up the quarter, it’s been another fantastic one for the company. Revenue is growing, margins are expanding, we’re generating record cash flows, have minimal debt, we continue to generate superior returns on capital and we’ve bought back 4% of the company. And with that, I’ll hand it back to Karin.

Karin Coleman (Chief Operating Officer)

Thanks, Mark. As market conditions have softened, we remain focused on executing our long-term strategy. As we’ve mentioned in prior calls, the strategy is to keep attrition low, to have the agility to offer new products when prudent, to be efficient with operating expenses, and to have the discipline to patiently assess the market and deploy capital on opportunities that offer meaningful upside. Related to this strategy in the quarter, gross written premiums were up 12% year over year as the new residential business at Core continues its momentum. This business has more than doubled since last quarter and is now averaging over $8 million a month. Underwriting continues to be a strength of ours and with Axio, not only do we benefit from its technology and automation, but its ongoing innovations also ensure that we will be at the forefront of our industry as AI transforms it.

On the expense front, as Mark noted, we focus on cost management to further enhance our operating leverage. For reinsurance, which is our biggest expense, we benefit when reinsurance rates soften, but also utilize a multi-tower strategy to help mitigate the potential for higher losses from any one storm. This strategy proved itself in the case of Hurricane Isaias. In addition, our sizable investment portfolio is another way we take advantage of market conditions to further strengthen the bottom line.

Lastly, since managing catastrophe risk is a critical part of our business, let me leave you with this. When Hurricane Irma hit, it took 36 months for book value to recover after the storm. For Hurricane Ian, it took us 15 months to return book value to its pre-storm level. With Hurricanes Helene and Milton it was three months, and now for Isaias it will be just two weeks. Our strategy not only drives strong earnings in a softening market, but also demonstrates how durable these results are even after factoring in the inevitable storm activity that comes with operating our business.

With that, let me turn it over to Paresh for some final thoughts.

Paresh Patel (Chairman of the Board & CEO)

Thank you, Karin. What we believe sets us apart is our ability to proactively position ourselves for future market conditions. A few years ago, we understood that it was a good time to grow, so we went on a growth upswing to strengthen our top line and we nearly doubled the size of the company. But for a little over a year now, we have known that top-line growth will be more challenging going forward. As a result, 2026 has been about maintaining a stable level of business while focusing on operating leverage.

For 2027, we will do the same while expanding EPS leverage through an even lower share count and all the while benefiting every month from our strong investment portfolio. Finally, we see an abundance of capital chasing premium in our space. We also note the rapid influence of AI and its ability to be utilized in many innovative ways. And we’ve always embraced disruption in the markets and emerging technologies. You will recall we started an insurance company when others were leaving the space. We started a technology company long before insurtech was a fad. So we are working on the next-level innovation in both insurance and the technology space and are looking forward to sharing those advances with you soon.

And with that, I will turn the call over for questions.

John (Operator)

Thank you. If you wish to ask a question during this time, simply press star-1 on your telephone keypad. And our first question comes from the line of Mark Hughes from Truist. Please go ahead.

Mark Hughes (Analyst at Truist)

Yeah, thank you. Good afternoon. Any changes in policy retention? I think you’re talking about ’26 and ’27 using the Core to offset normal underlying policy losses. Are you seeing any change in those retention numbers? The market seems like it’s a little more competitive these days.

James Mark Harmsworth (Chief Financial Officer)

Not really, Mark. If you look at the retention over, say, the last 12 months — or the attrition, let’s say — it’s sort of 8–8.5%, somewhere in that range, and it’s been fairly consistent throughout the year.

Mark Hughes (Analyst at Truist)

Okay, and then how should we think about the rate going into 2027? What is the influence of rate going to be on that book of business?

James Mark Harmsworth (Chief Financial Officer)

Well, we do anticipate that rate should lower a bit, which isn’t unexpected given reforms and other factors over the past few years. So we will be working on that.

Mark Hughes (Analyst at Truist)

And then, Paresh, the tokenized reinsurance — is there anything to be done around the 1/1 renewals, or is that a 6/1 event for you?

Paresh Patel (Chairman of the Board & CEO)

Good question. It’s going to be a 6/1 event because, as you know, we are testing this thing through an entire cycle. The cycle will be over on 6/1 next year.

Mark Hughes (Analyst at Truist)

Yeah. Very good. And then anything on the GEICO relationship? I think it’s been kind of deliberate heretofore. Anything different you’re seeing there?

Karin Coleman (Chief Operating Officer)

Well, our Core business continues to grow. Last quarter we noted that we were doing about $6 million a month in Core, and that has now increased to $8 million a month. So that continues to be very positive.

Mark Hughes (Analyst at Truist)

Very good. Thank you.

Karin Coleman (Chief Operating Officer)

Thanks, Mark.

John (Operator)

Our next question comes from the line of Michael Phillips from Oppenheimer. Please go ahead.

Michael Phillips (Analyst at Oppenheimer)

Yeah, hi. Thanks. Good evening. I think last quarter Paresh said something about possibly seeing organic policy growth by the end of the year. I guess I wanted to see if you saw any path towards that. Did anything happen this quarter for that, and is it still on track, do you think, by the end of this year?

Paresh Patel (Chairman of the Board & CEO)

Yeah, we have narrowed the gap down tremendously, and it’s going to be a close-run race as to whether we see it by the end of the year, but we are planning on hopefully having it in the near future. Yeah.

James Mark Harmsworth (Chief Financial Officer)

And Mike, it’s Mark. Just, you know, the organic growth — just to go back to something Karin mentioned — we had said on the last call we were expecting about $6 million a month in written premium, and as Karin mentioned, that’s been bigger than we thought, in the $8 million range. So that’s where that organic growth that Paresh is talking about is coming from, is in the Core business line. It’s been working really well.

Michael Phillips (Analyst at Oppenheimer)

Perfect. A quick one on that then, Mark or anybody. Does the GEICO partnership only flow through Core, or is that other carriers from HCI as well?

Karin Coleman (Chief Operating Officer)

I think it flows through a number of different carriers.

Michael Phillips (Analyst at Oppenheimer)

Okay. And then maybe just lastly, I guess on the expense side, you talked about leverage a lot. Acquisition expenses are pretty flat. Your operating expenses aren’t big at all. But I guess, how do we think of those — both components of those — particularly as Core grows and scales? Yeah, the operating expense — you know, it’s $6 million. But how does that move as Core scales?

James Mark Harmsworth (Chief Financial Officer)

Yeah, Mike, it’s Mark. So you’re asking about which expenses? Yeah, I mean, operating expense — if you look over the history of, say, the last six to eight quarters, that number doesn’t really move that much. It’s pretty flat. When it does grow, it’s — you know, as I said in my earlier remarks — it grows slower than the revenue does. And, you know, the other thing is if you sort of wrap everything together and look at the combined ratio, we’ve mentioned a combined ratio expectation in the sort of 60% to 65% range.

And we’ve been at the low end of that for a significant amount of time. Actually, I think we’re in the high 50s this quarter. So, you know, even as Core is growing, those expenses are really not growing much. That’s kind of what’s creating that leverage that we talked about.

Michael Phillips (Analyst at Oppenheimer)

Okay, good deal. Thank you very much.

John (Operator)

Our next question comes from the line of Matt Tarletti from Citizens Bank. Please go ahead.

Matt Tarletti (Analyst at Citizens Bank)

Hey, thanks. Good afternoon. Mark, it looks like cash continues to be put to use — invested in investments. Can you talk a little bit about new-money rate versus book yield and what we should expect on the NII line?

James Mark Harmsworth (Chief Financial Officer)

Yeah, I think Karin and Paresh both mentioned it. Investment income has been growing pretty significantly and that’s really being driven just by cash flow. So we’re generating about $75 million a quarter in positive cash flow, which at our current yield of 4% or so is generating about $3 million per year of incremental investment income. So that’s been very positive. So investment income is continuing to grow just because of that increase in the sort of cash and fixed-term investment balances, the total.

And we’ve also been sort of, you know, at different times, increasing the amount that’s invested in fixed-term securities over the last little while. I think the overall yield is about 4.25% on total invested balances, and that’s — you know, obviously that’s got the potential to go up. It has been increasing. So if you look into next year, certainly we’re benefiting from two things: one, the invested balances are going up and, two, you’ve got the potential for rates to go up a bit.

But it’s been a very good story for us.

Matt Tarletti (Analyst at Citizens Bank)

Okay, great. And then maybe just one other one, if I could. Obviously elections last night and, if I’m reading kind of Florida right, it seems like stability at the CFO office, so maybe end of a supermajority for the GOP. Any takeaways as it relates to kind of your core markets — homeowners insurance — good, bad or otherwise from kind of the changing landscape?

Paresh Patel (Chairman of the Board & CEO)

We don’t see anything that’s going to be impacting it here, especially in Florida. You know, we’ve always had good working relationships with the regulators, and things seem to be pretty business as usual at this point.

Matt Tarletti (Analyst at Citizens Bank)

All right, great. Thank you.

John (Operator)

Our next question comes from the line of Ryan Tunis from Cantor. Please go ahead.

Ryan Tunis (Analyst at Cantor)

Thanks. Good evening. I guess, first, at the start of the Axio earnings release there’s a quote from Paresh saying AI will reshape the insurance industry, not just in expense ratios and how coverage is bought and sold. Curious how you’d expand on how that relates to HCI. Most of the discussion right now is around auto. You seem to think that could have an impact on home. So just looking for you to elaborate. Thanks.

Paresh Patel (Chairman of the Board & CEO)

Yes. Look, very simply, AI is going to change things. I actually cited my remarks in here as well. And we’ve always been more focused, even as HCI, on where the world is going to as opposed to where it is currently. So if AI is going to reshape things, it’s going to reshape homeowners in some interesting ways. And we are going to — luckily, having Axio — we will be at the cutting edge of this just as a normal byproduct of who we are. So the stuff you’ve heard about what AI might do to auto, I want to do that to home as well.

Ryan Tunis (Analyst at Cantor)

Interesting. And then I guess, the gross loss ratios continue to be pretty strong. I mean, could you — just given the rate environment — talk a little bit about where those are running now and what’s a reasonable expectation, perhaps in 2027?

James Mark Harmsworth (Chief Financial Officer)

So it’s Mark. So loss ratio — it’s been performing really well. We’ve said for some time now, expect the loss ratio in the 20% to 25% range. That’s still the case. It can move around a little bit. We’ve been at the low end of that range now continuously for quite a while now, and I don’t think I have anything really new to add to that. It’s pretty consistent. If you look at the loss ratio for the first nine months of this year, it’s exactly the same as the first nine months of last year, which is 21%.

We sort of continue to be at that low end of the range. And that’s our expectation still going forward.

Ryan Tunis (Analyst at Cantor)

I guess, are you noticing anything in the data from a loss trend standpoint, whether it’s frequency or severity? It’s been unusual this year because, I mean, obviously really good results. But just I guess I’m a little surprised there hasn’t been a little more deterioration toward that, you know, midpoint 20–25.

James Mark Harmsworth (Chief Financial Officer)

No, no. I mean, we follow the trends pretty carefully, obviously, and there was a significant change as the legislative changes rolled through a few years back. But since then, there really hasn’t been a lot of change in either frequency or severity. I mean, you have a little bit of inflation on the severity side, of course, with cost of materials, but that’s all sort of baked into that loss ratio range. But in terms of frequency and severity, it reset a few years back and, you know, it can move around a bit quarter to quarter based on weather.

But generally speaking, it’s been very consistent for quite a while now.

Ryan Tunis (Analyst at Cantor)

And lastly, maybe I missed it, but do you guys have a gross loss estimate? Thanks, guys.

James Mark Harmsworth (Chief Financial Officer)

Yeah. So we put a press release — a gross number? No, I mean, it’s too early to give that number. We’ll be putting that in our K. But I think the most important thing there is the net loss. Just because of how the reinsurance works for that event, the net loss that you’re going to see in Q4 is $15 million. And it doesn’t really matter what the gross is. I mean, we’ll come out with — it’s a little bit early to put a good number on that. Obviously we have a pretty good idea, but it’s too early to publish a number.

We’ll do that in the K. But I think the most important thing is that that doesn’t change the net loss number, which is what flows through to the loss expenses in Q4.

John (Operator)

Thank you. As a reminder, if you have any questions or follow-up, please press star-1 at this time. This concludes our question and answer session. I would now like to turn the call back over to Paresh Patel, who has a few closing remarks. Paresh Patel, Chairman and CEO,

Paresh Patel (Chairman of the Board & CEO)

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

John (Operator)

At this time, this concludes our question and answer session. This concludes today’s call. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.