HCI Group Q3 2026 Earnings Call: EPS Rises as CORE Growth Accelerates

Key Takeaways

• Pretax income exceeded $116 million, up from $91 million a year earlier. Diluted EPS increased to $6.45 from $4.90 in Q3 2025 and $5.60 in Q2 2026.
• Gross premiums earned rose 5% year over year, while net income increased 27%, supported by investment income growth of more than 20%, lower reinsurance expense and operating costs growing more slowly than revenue.
• Gross written premiums increased 12% year over year. New residential business at CORE more than doubled from the prior quarter and is now averaging over $8 million per month.
• HCI Group reported more than $2.1 billion in cash and investments, over $1 billion in stockholders’ equity and a debt-to-capital ratio below 6%. Book value per share exceeded $90.
• Management said Hurricane Isaias will produce a $15 million net loss in Q4 2026. The amount is not expected to change even if the gross loss estimate moves because of the company’s reinsurance structure.
• For 2027, management plans to maintain a stable level of business while seeking additional EPS leverage through a lower share count and continued investment income.

Key Financial Data

Business and Operating Performance

CORE remained HCI Group’s main source of organic growth. Monthly new residential premiums increased from approximately $6 million in the prior quarter to more than $8 million, exceeding management’s earlier expectation. Management said the gap to organic policy growth had narrowed substantially, although the timing remained uncertain.

Policy attrition remained broadly stable at approximately 8%-8.5% over the past 12 months. The company attributed its earnings leverage to relatively stable operating expenses, lower reinsurance costs and growing investment income.

HCI Group generated approximately $75 million of positive cash flow per quarter. At a current yield of roughly 4%, management said each quarter’s cash generation could add about $3 million of annual investment income. The overall yield on invested balances was approximately 4.25% and had been increasing.

The company also highlighted Exzeo’s technology and automation capabilities. Management expects AI to affect how homeowners insurance is bought, sold and operated, and said HCI intends to use Exzeo to remain at the forefront of that transition.

HCI repurchased 4% of its shares during 2026. Management linked the buyback to the company’s return on equity and its view that the shares trade at a lower multiple of adjusted book value than the broader public property and casualty insurance group it referenced.

Management Outlook

Management continues to expect the loss ratio to remain within a 20%-25% range. The ratio has stayed near the low end of that range, reaching 21% for the first nine months of both 2025 and 2026.

The company’s stated combined ratio expectation remains 60%-65%, although Q3 performance was in the high-50% range. Management said expenses have remained relatively stable and are growing more slowly than revenue, including as CORE scales.

For 2027, management anticipates some reduction in insurance rates due to prior reforms and other factors. HCI plans to maintain a stable book of business, pursue EPS leverage through a lower share count and continue benefiting from its investment portfolio.

The tokenized reinsurance initiative is being tested for a full cycle. Management said the relevant milestone will be June 1, 2027, rather than the January 1 renewal period.

Risks and Watchpoints

Hurricane Isaias generated more than 1,300 claims. HCI expects a $15 million net loss in Q4 2026, while management said it was too early to publish a reliable gross loss estimate.

Management noted that capital is increasingly competing for insurance premiums, making top-line growth more challenging. Policy rates are also expected to decline somewhat in 2027.

Catastrophe exposure remains central to the business. HCI uses a multi-tower reinsurance strategy to limit losses from individual storms, but weather events can still affect quarterly results.

Loss frequency and severity have remained broadly stable following earlier legislative changes. Management noted some inflation in claim severity from material costs but said this was incorporated into its expected loss-ratio range.

Analyst Q&A Highlights

• Retention and competition: Management said policy attrition remained consistent at approximately 8%-8.5%, despite a more competitive market.
• CORE growth: Monthly written premiums reached more than $8 million, up from about $6 million in the prior quarter. Management identified CORE as the source of potential organic policy growth.
• Expense scalability: Operating expenses have changed little over the past six to eight quarters and continue to grow more slowly than revenue, supporting operating leverage as CORE expands.
• Investment income: Rising cash generation and a greater allocation to fixed-term securities are increasing invested balances. Management also sees potential for portfolio yields to rise further.
• Hurricane Isaias: The gross loss estimate remains preliminary, but management reiterated that the Q4 net loss will remain $15 million under the applicable reinsurance structure.
• Regulatory environment: Management said it did not currently expect Florida’s political landscape to materially affect operations and described regulatory relationships as constructive.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good afternoon, and welcome to the HCI Group's Third Quarter 2026 Earnings Call. My name is John, and I'll be your conference operator today. [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 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.

Nathaniel Otis

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

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 9 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 have 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 Mark Harmsworth, our Chief Financial Officer, to go through this quarter's financial results.

Mark Harmsworth

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 $1 billion. Debt-to-cap ratio was 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 on our ownership of Exzeo 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 3 years, after-tax returns on equity averaged less than 15%, and yet they trade at 2x book value per share.

During that same 3-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 2 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 $0.75 billion 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 in 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 bought back 4% of the company.

And with that, I'll hand it back to Karin.

Karin Coleman

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 Exzeo, 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 mentioned, 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. Hurricane Ian, it took us 15 months to return book value to its pre-storm level. With Hurricanes Helene and Milton, it was 3 months. And now for Isaias, it will be just 2 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

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 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, 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 have always embraced disruption in the markets and emerging technologies. You will recall, we started an insurance company when others were living in the space. We started a technology company long before InsurTech was a fad. So we are working on the next level of 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.

Operator

[Operator Instructions] And our first question comes from the line of Mark Hughes from Truist.

Question-and-Answer Session

Mark Hughes

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.

Mark Harmsworth

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

Mark Hughes

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?

Karin Coleman

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

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

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

Mark Hughes

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

Karin Coleman

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.

Operator

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

Michael Phillips

Yes. I think last quarter, Paresh said something about possibly seeing organic policy growth by 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

Yes. 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. Yes.

Mark Harmsworth

And Mike, it's Mark. Just 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

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?

Paresh Patel

I think it flows through a number of different carriers.

Michael Phillips

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 and are early moving. But I guess how do we think of those -- both components of those, particularly as CORE grows and scales?

Mark Harmsworth

Yes, Mike, it's Mark. So you're asking about which expenses?

Michael Phillips

Yes. The operating expense, it's kind of $6 million, but how does that move as CORE scales? And any impact it has...

Mark Harmsworth

Yes, I mean operating -- yes. Yes. If you look over the history of, say, the last 6, 8 quarters, that number doesn't really move that much. It's pretty flat. When it does grow, it's -- as I said in my earlier remarks, it grows slower than the revenue does.

And 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 those -- 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.

Operator

Our next question comes from the line of Matt Carletti from Citizens Bank.

Matthew Carletti

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 kind of what we should expect on the NII line?

Mark Harmsworth

Yes. So 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 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 of about -- and that's -- obviously, that's got the potential to go up. It has been increasing. So we're -- if you look into next year, so we're benefiting from 2 things. One, the invested balances are going up, and two, we've got the potential for rates to go up a bit, but it's been a very good story for us.

Matthew Carletti

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 super majority for the GOP. Any takeaways as it relates to kind of your CORE markets, homeowners insurance, good, bad or otherwise from kind of the change in landscape?

Karin Coleman

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

Operator

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

Ryan Tunis

I guess, first, just the start of the Exzeo earnings release, there's a quote from Paresh saying AI will reshape the insurance industry, not just in expense ratios, but how coverage is bought and sold. Just 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.

Paresh Patel

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 at HCI on what's -- 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 Exzeo, 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

Interesting. And then I guess could -- 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?

Mark Harmsworth

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 been -- it's pretty consistent. If you look at the loss ratio for the last -- for the first 9 months of this year, it's exactly the same as the first 9 months of last year, which is 21%. So we sort of continue to be at that low end of the range, and that's our expectation still going forward.

Ryan Tunis

And I guess are you noticing anything in the data from a loss trend standpoint, whether it's frequency or severity that'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 midpoint 2025.

Mark Harmsworth

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 -- there hasn't really 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 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

And lastly, maybe I missed it, but do you guys have a gross loss estimate pick for Isaias?

Mark Harmsworth

Yes. 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. It doesn't matter -- doesn't really matter what the gross loss -- 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.

Operator

[Operator Instructions] 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

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.

Operator

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