HCI Group, Inc. Stock

Good afternoon, and welcome to HCI Group's Second Quarter 2026 Earnings Call. My name is Ali, 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 August 20, 2026, starting later today. The call is also being broadcast live via webcast and available via webcast replay until August 6, 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. Please proceed.

Thank you, and 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 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 in 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 Mark Harmsworth, Chief Financial Officer.

Thanks, Matt. Good afternoon, and thank you for joining us on our second quarter earnings call. This was another very strong quarter for the company. Pretax income of more than $110 million was 18% higher than the same quarter last year and year-to-date, pretax income of $226 million was 16% higher than the first 6 months of last year. When comparing with last year, remember that was a record year. And 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, and 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 Axio.

The loss ratio this quarter was 22%, just a touch higher than the first quarter, reflecting the normal seasonal trend and as well within the 20% to 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% to 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 was 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. 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 2 major hurricanes, Milton and Helen. This is a very compelling return for an insurance company, and yet we trade at less than 1.2x 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 1 for the company. 2025 was a record year for HCI and the first 2 quarters of this year have been even better. Revenue is growing, margins are expanding. We are generating record cash flows at minimum 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 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 are prepared to navigate through this market.

The first role 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 1 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 we -- 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 in 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, ACI knows that the first rule of growth is making sure your current customers want to stay with you.

The second role 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 1 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 utilized 1 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 second -- in the first quarter, we announced the creation of our second reinsurer Fortex Re. We quickly used Fortex and the new programs we announced on June 1 as well as for a new project of ours digital tokenized reinsurance security. In mid-June, we announced that 3 separate token offerings would be available that are structured to mirror parts of Fortex excess of loss programs. And by June, 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 6 quarters, we have averaged $5.62 per quarter in EPS and almost $110 million in pretax income, while rates have softened and competition has increased.

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

Thanks, Karin. To recap what we just heard, HCI is delivering consistently outstanding operating results in a softer market. and it's doing so while rolling out new products to offset attrition and return to organic policy growth. This is being done even as we reduce our largest operating expense line item, reinsurance. And we're doing it while improving all the quality components of the reinsurance programs for this coming year. That's a pretty good start to 2026. .

And let me add 2 quick things. In July, we signed up GEICO to distribute our new product, and they have already started selling policies. This is a new business and a new relationship that is not reflected in the second quarter numbers. We will start to benefit from this in the third quarter. Additionally, our ability to rapidly ramp up this new business, both internally and with the help of our agents is a direct result of the speed and agility that Ageas technology platform affords us on a daily basis.

So thanks to an opportunity mindset, hard work and ages pioneering technology, we may see organic policy growth by the end of the year. And this is without any cities assumptions, acquisitions or entering new markets, which in all of itself is no small achievement.

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

[Operator Instructions] Our first question is coming from Mark Hughes with Truist.

Mark, the ceded premiums in the third quarter, what should they be absolute terms or a ratio?

$96 million.

$96 million, okay. And what does it mean in terms of rates, presumably, you have to update your filed rates in Florida for the new reinsurance agreement. What do you think that will mean in terms of blended impact on pricing?

Mark, that's got to take some time because now that this thing is in here, you go through the process of going through the actuaries, the market all up and then eventually it will go into the next rate filing that we do, which probably is going to be late this year. So it's going to be -- it will get incorporated into our rate filing, but it's going to take a little while. .

Any early estimates?

No. I actually work in mysterious ways. .

Yes. Very good. And I'm sorry if you already mentioned that the tail row gross premiums written a pretty big number this quarter. What was going on there?

So some of that significant part of that, some of that is new business, Mark, but there's also -- remember, we did the takeout in Q4 last year and about $80 million of that takeout was Tailrow. So they had some significant -- a lot of those policies came up for renewal, and they wrote those in Q2. A little bit of new business there, too, but that was the biggest piece of that.

Okay. And then how meaningful is that GEICO relationship, I think you said by the end of the year, you see organic policy growth, GEICO presumably is a part of that. But sounds exciting. Any way to size that up?

No, it's early days. We'll see how it goes. But I mean I think by Karin's comments, core and a new product we already doing fantastically well. The GEICO relationship accelerates that possibility. And the other thing about all of this stuff is there's been some industry press in the last couple of weeks about bundling and putting home and auto together. You're kind of looking at core home and GEICO Auto. So that bundling may have some -- may find some traction, but we'll keep you posted as things develop, yes?

Sounds good. And then if you could spend a minute or 2 on the pilot project, the token initiative that you're talking about, the financial implications, operationally, how does that work? I'd be interested to hear a little bit more on that.

Yes. So Mark, we've -- I would tell you 2 different things. One is that we announced that we've told everybody what we're doing, and we're doing it on a very small scale just to make sure that we've got every step of the process and regulatory approvals and everything else done. So we're doing this in the short term in a nonmaterial way. And we've made great progress, obviously, because as Karin said in her prepared remarks, tokens have already been issued, et cetera, right? So all that has occurred. The -- but in the short term, it is not material to our numbers.

Having said that, in the long term, if this works, it could create a whole new asset class from a tokenization perspective, but from an HCI perspective, it opens up a whole new market through which to secure reinsurance, right? So you can imagine a future world where you've got the regular reinsurance you can buy through Premier and London. There's obviously a different market in the cat bonds, which we don't participate anybodies out there. And then this could be a whole third class of places where you can buy reinsurance. And the 3 markets complement each other as opposed to directly compete. So this could be a huge improvement for the industry. if we can get it to work all the way through, yes?

So would that be more of an asset management model on your part?

No. I think from an HCI's perspective, it's like every year, when we place reinsurance, we generally do it through the general market in Bermuda and London and [indiscernible] reinsurers, the classics. You could also place reinsurance through cat bonds and things which I'm sure you've seen lots of people do. Now you can have a third option of placing reinsurance, which would be through tokens. We're trying to open up that third avenue. And that could be as revolutionary as cat bonds when they first came along, were, right? It was a very small piece of the market, it has gone -- grown to be quite a large thing. And it's not just 1 company specific. It could be industry-wide, it could be a whole new class, yes. .

So we are pioneering all this stuff from an HCI's perspective is just were to procure reinsurance from. But it could be an asset class that could -- that will require asset managers and everything else, yes?

[Operator Instructions] Our next question is coming from Michael Phillips with Oppenheimer. .

You said that the Florida primary market is pretty rational recently and average pricing is kind of remaining pretty firm. And maybe that's one of your focused areas of growth in the near term. I guess I kind of want to hear if that's still the case.

Yes. Michael, I don't want to put words in Karen's mouth, but I don't think she said the industry rates are flat. You were just talking about HCI. .

Yes. Pretty stable rates.

For the HCI Group of carriers, right? But there are lots of rate filings that are...

Yes. You'll be reading headlines that some people are reducing rates. But as I mentioned, we haven't been 1 of those that have chased rate up over the last 3 or 4 years. So we don't see the need to significantly adjust it down. So the stability in our rates is what I think is what has been very successful, as I mentioned, it's rate and policy language. -- which I'd be very consistent with those 2 areas.

Okay. Karin, you mentioned -- you made some comments about the core. I guess I want to hear your views on the condo market. on commercial. I think you mentioned core is going to be doing some residential condo. What does that mean for the commercial space and the kind of market if you can update us there, please? .

Right. So in core, when we entered the market was focused on the commercial residential, and we saw that, that was softening very quickly. And that's when we pivoted to now bring in an HO3 product into core -- and so we've been writing voluntary business there, averaging about per month, the last couple of months, about $6 million a month of new business in that HO3 product. So we pivoted very successfully in that regard.

[Operator Instructions] Our next question is coming from Ryan Tunis with Cantor.

I guess first question just for Paris. Can you get a step back? I know you take a longer-term view. How do you evaluate just like this quarter in general, good loss ratio, growth kind of chugging along, but it's kind of hard to interpret, like where the momentum is at? Like how do you think about -- and how this quarter shows us and what's going to happen over the next year?

Ryan, welcome. So the way I would characterize it is -- and I think some of the comments Mark made, et cetera. This is like the sixth quarter in a row that were over $100 million. The ROE is very strong. We are in a position where just keeping this sequence going quarter after quarter after quarter is having a huge impact in a positive way. So we are not pressured into we have to grow 20% a year or pick a number, but you get the idea. Just the status quo is pretty a cumulative for us. So we are as Karin said in her comments, job on, keep what you already got, right? And job 2 is maneuver to what you need to based on what's going on.

And what we're doing in that is -- and I can tell you, it's pretty impressive because the commercial business in core was shrinking because that business has really got soft in terms of rates and whatever. And instead of chasing rates there, which will be 1 way to go to try and keep market share. Karin and her team pivoted to residential and started in March, Core had never written an HO3 policy and now it's producing 6 million a month, right? That is a very impressive pivot to -- from a very soft market to pick up market share and something else. And the fact that, that's done kind of gives us confidence in terms of extending the runway of what we're doing currently.

Obviously, we also said sort of kind of nature of our nature, we don't like just maintaining the status quo. So we are exploring the 2 new things. One is the tokenized reinsurance, which we gave Karin gave a very good update on. And secondly, we still keep looking at California. But there's little things, nuances when you get in the deal. I think the rates in California change in October or something. I believe there's some changes coming through. So we are trying to make sure we time our entry correctly.

So simply summarizing all of that. The status quo is good. We are taking active steps to extend the status quo as long as possible. And then we have a couple of initiatives which are geared more towards a better long-term future. Yes, that's the...

I'm going to chugging along and looking for opportunity [indiscernible]. And then just a follow-up. It looks like you guys burned through your authorization on the share repo.

Yes, we did.

But yes, yes, I didn't see a new authorization. I'm not just curious like what's going on with the repo, and that's all for me.

Ryan, it's Mark. So yes, so we had an $80 million authorization. I think about $75 million of that was used by the end of the quarter. and then the rest of it in the first week of July. So my comments on my prepared remarks were that we completed that program was completed, I think, on the sixth or seventh of July. And in terms of where it goes from here, see Parish mentioned on our last call, we saw 1 of the best investments out there was our stock. I made some comments now about where we're at and where we're trading in terms of price to book and given the 35% return on equity and where we are. So I mean, we still think our stock is a great investment. So do we like buybacks? Yes. we don't have anything active right now, but we'll see the way the rest of the year plays out.

No, no. I do too. I'd get an authorization active though.

We'll convey your advice to the Board at the next meeting. Yes? But we agree with the sentiment. .

Thank you. If there will be no final questions, this will conclude our question-and-answer session. I would now like to turn the call back over to Paresh Patel, who has a few closing remarks.

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

Thank you. This will conclude today's call, and you may disconnect at this time. We thank you for your participation.

Good afternoon, and welcome to HCI Group's First Quarter 2026 Earnings Call. My name is Tom, 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 June 6, 2026, starting later today. The call is also being broadcast live via webcast and available via webcast replay until May 6, 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.

Thank you, and good afternoon. Welcome to HCI Group's First 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 the 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, everyone, and thank you for taking the time to join us on our call today. This was another fantastic quarter. Pretax income grew by 15% from the same quarter last year to $115 million and diluted earnings per share were $5.45. This was the best first quarter ever for us as we continue to grow the top line, the bottom line and return on equity.

Gross premiums earned grew by just over 8%, reflecting the full impact of the assumptions we completed in 2025. Total revenue grew by just over 12% as investment income and other income grew significantly. The increase in other income reflects revenue that Exzeo and Griston are generating, non-HCI business. The loss ratio this quarter was 20%, about the same as the first quarter last year, reflecting continued low claims and litigation frequency.

We've been talking about the combined ratio for a while now. With where the business is, we are targeting a combined ratio of 60%, plus or minus 5%. For the full year 2025, the combined ratio was about 57%, and it was 57% again this quarter, illustrating the quality of our underwriting and our operating efficiencies.

Let's turn to the balance sheet for a minute. With growing earnings and prudent capital management, the balance sheet continues to strengthen. Stockholder equity has doubled over just the last year to over $1 billion. We have just under $2 billion of cash and fixed-term securities. Book value per share is now almost $85 and the debt-to-cap ratio is only 6%.

In addition to the strong consolidated balance sheet, the underwriters are stronger than ever. As I mentioned earlier, gross premiums are up by 8% or so, but total surplus has grown by 22% over the last year to well over $0.5 billion. The gross leverage ratio is now less than 2.5, leaving plenty of room for additional growth without the need for surplus -- for new capital, sorry, and gives us additional security if there's a storm.

We also have significant surplus in Claddaugh, which gives us considerable flexibility in our upcoming reinsurance program. 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 have been actively buying back shares under that plan. As of the end of March, we had used $17.5 million of the authorization, buying back approximately 110,000 shares.

Since the end of the first quarter, we have continued buying back shares. And at the end of April, we were up to a cumulative total of 239,000 shares purchased and have used about $37.5 million of the $80 million. In terms of holding company liquidity, we have just under $200 million of liquidity at the HCI level. This does not include the 75 million shares we own of Exzeo, which now trade publicly. Speaking of Exzeo, while our book value per share of almost $85 is impressive, I should mention that this does not include any unrealized gains on our ownership of Exzeo.

If the fair value of Exzeo and our real estate portfolio were added, pro forma book value per share would be almost $145. This means that we are trading only about 10% above book value while generating record earnings and 35% after-tax return on equity. Wrapping up on the quarter, this has been another fantastic one for the company. 2025 was a record year for HCI and the first quarter of this year was even better. Revenue is growing, margins are expanding. We are generating record cash flows, have minimal debt and are generating superior returns on capital.

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

Thank you, Mark. We are very pleased with our start to 2026. We averaged more than $5.60 per share over the past 5 quarters and entered the second quarter with -- and we entered the second quarter with $1.3 billion in premiums in force spread across 4 carriers. It is important to point out that over half of our Citizens takeouts in 2025 were done by Tailrow, our second reciprocal exchange. Tailrow is now well positioned going forward with over $120 million of in-force premiums.

All 4 of our carriers are now profitable inception to date, the last 2 having reached that milestone within a 12- to 15-month time span from inception. I bring this up to underscore our company philosophy. When we make strategic decisions, we take actions with purpose and precision. Execution is critical in our line of work. In other words, starting an insurance carrier is not that challenging. Establishing a carrier that is profitable and in a relatively short period of time is much more difficult and takes experience, skill as well as some finesse.

With that in mind, I want to share that in the first quarter, we licensed a new reinsurance company, Fortex Reinsurance, domiciled in the Cayman Islands as a Class B insurer, making it our second reinsurance company and giving us even more flexibility to selectively retain risk and reduce the cost of third-party reinsurance. You may recall that our other reinsurer, Claddaugh is domiciled in Bermuda and has been very advantageous in our reinsurance placements.

Speaking of reinsurance, HCI is in the final phase of the June 1 reinsurance placements. We won't announce any specific details until everything is finalized since current market conditions are continuing to improve. As Mark noted, we announced the $80 million share repurchase authorization on March 3 and immediately entered the market on the 4. We're not shy about our view that shares of HCI offer great value at the current price.

Consistently high return on equity, strong earnings generation, a track record of value creation and our technology platform, Exzeo, are all compelling reasons for this confidence. In addition to earnings generation and value creation, HCI offers longer-term optionality as well. Historically, we have taken advantage of market dislocation, acting quickly to deploy capital when opportunities present themselves. There will be an inflection point for our industry. In the meantime, we'll continue to serve our policyholders well, deliver strong operating results, return value to shareholders and look for additional ways to drive long-term growth in a measurable way.

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

Thanks, Karin. Mark and Karin just spent a few minutes talking about where the company is at this time. Let me recap. Premiums are growing. Reinsurance is moving in the right direction. The investment portfolio is making money. The loss ratio is stable. We are generating record earnings and the balance sheet is strong and getting stronger. This is allowing us to do 2 things at the same time. Buy back a portion of the company every month and still strengthen the balance sheet.

And why are we doing this? Because we want to invest in a company at a terrific valuation, and this is a company that we know everything about. Simply put, we are investing in ourselves. At the current rate, we are buying back about 2% of the company every quarter. This means that every shareholder on this call will effectively own 2% more of the company at the end of every quarter than they did at the start.

And we are doing this with only a portion of our earnings. With the rest of the earnings, we are further strengthening our balance sheet. This is planning for a better tomorrow because eventually an inflection point or an opportunity will come along. And when it does, we will have a very robust balance sheet that will allow us to execute quickly and with great ease. But what do we do until that opportunity or inflection point comes along?

Mark outlined the value creation that Exzeo represents to the HCI shareholders. We grew Exzeo from about an idea -- from just an idea to a $1.5 billion current valuation. And what we're doing is we're working on the next thing. We are looking at 2 or 3 things that have the potential to be the next Exzeo-like asset. We have the resources to nurture these things to their full potential. Outcomes are not always certain, but given our track record, I am very excited about the possibilities.

So that is what we are working on while we are waiting for the inflection point. And at the same time, we are acquiring valuable HCI shares. In summary, every day we come to work knowing our mission if things stay the same. We also know our mission and what we're going to do if conditions change. And finally, we are planting seeds for the long-term future. With that, I will turn it over for questions.

[Operator Instructions] And our first question will come from Matt Carletti from Citizens Capital.

Either Paresh or Karin, I guess, maybe to start with a pretty simple one, which is just can you just update us on kind of how you see kind of the primary environment in Florida, not the reinsurance environment, but just kind of the primary environment for HCI and all its carriers?

Sure. For HCI, we see stability in our premiums as it relates to previous quarters, and we anticipate that stability will remain there going forward.

Okay. Great. And then, Karin, you hit on starting a new reinsurer, which sounds like it's a captive kind of alongside kind of a new Claddaugh. I guess other than the domicile, why -- can you give us a little more color on why start a new reinsurer as opposed to just leveraging Claddaugh more?

Sure. So we have 4 carriers that we have, and we find that, that optionality really gives us an advantage through different market conditions. And so we feel that we have an opportunity to do something similar within the reinsurance space as well and maybe have some additional flexibility within those reinsurance carriers.

Okay. Great. And then one last one, if I could, Paresh, you -- at the end of your comments there you kind of touched on looking at 2 or 3 possibly Exzeo-like opportunities. Can you give us any more color? In particular, I'm just curious, are they insurance related? Or obviously, HCI does more than just insurance, you've got real estate, you've got your hands in a few things. How should we think about it at a kind of 30,000-foot level?

Yes. Matt, we are leaving these conversations slightly vague because ideas come and go, but the things we're looking at are insurance related, but I don't mean like homeowners insurance in Florida. It's other lines of insurance and/or also other aspects of the insurance value chain. So it's quite a broad net we are casting because growth isn't all about just doing more of the same. It's also being able to do new things. So we are thinking about it in terms of what's going to be needed, what's going to be valuable a decade from now, yes.

Your next question is coming from Mark Hughes from Truist.

Mark, what was your combined ratio target? Someone sneezed just as you're giving the target. At least, [indiscernible] sound like reminding...

Yes, 60%, plus or minus 5%. And we were 57% in Q1, which was pretty much the same as it was in full year 2025.

And Karin, you talked about stable for HCI for, I think, premiums. Is that the entire stable of companies, the TypTap Homeowners Choice, et cetera? Or are you specifically referring to Homeowners Choice...?

I'm talking about the whole enterprise, yes.

Okay. And then with all that capital, are there opportunities these days for book rolls or M&A or is the industry just too profitable, nobody wants to transact when they're making decent profits?

Mark, I would characterize it in the comments Karin made about the inflection points. There will be an inflection point. In terms of those kinds of things, we are now coming up on hurricane season. Would you want to expand through an acquisition coming into that? This is assuming it was Florida-based kind of thing. But it's those kinds of items that also sort of play out here.

There will be a time, there will be an opportunity, right? But you have to time it at the right moment. And let me answer it in a different way. We would like to do M&A the day after the storm as opposed to do an M&A the day before the storm. One creates a lot more headaches than the other one does, yes.

Yes. What is your posture around the reinsurance renewals? It sounds like you would be perhaps retaining more risk with the capital in Claddaugh and the Fortex. Is that a fair statement?

Yes. I think you'll see the nuances of all of this stuff when the reinsurance is placed.

Yes. We know the reinsurance market continues to softening. And so I don't know that we want to speculate on the final outcome at this point. But once we have that final -- we have the June 1 program finalized, we'll issue a press release most likely in a few weeks.

Okay. But I think you said it continues to soften. It sounds like you're saying here in recent weeks.

Yes. yes, that's why we're kind of in this position now.

Yes. I know Exzeo is going to have its own call. But as they execute, Mark, what does it do to the P&L, just the geography of the P&L, if they're going to be growing their business, what line items are going to be most affected here?

Well, the other income, a lot of their revenue will flow through -- on a consolidated basis will flow through that other income line. That's why I kind of highlighted that for this quarter. And of course, earnings and still 80%, 85% of that is flowing through to earnings per share. So -- but in terms of revenue as they grow, that other income line is the one that will really -- that's the one that you'll see go up. And it I think tripled quarter-over-quarter, and that's why I kind of pointed that out in my prepared remarks.

Okay. And so this is kind of the starting point, and it will presumably should go up from here as they execute.

Yes.

[Operator Instructions] our next question is coming from Michael Phillips from Oppenheimer.

Mark, I wanted to make sure I understand when you talk about the target combined ratio. The 57% this quarter, like you said, was kind of what you did in 2025. So when you say target, first off, you're referring to an accident year ex cat, correct?

Yes.

Okay. And also when you say target, are you thinking about kind of through a cycle longer term? Or are you referring to, hey, that's this year's target, maybe the next 18-month target? Or what kind of time frame do you mean when you say that?

Yes. I mean it's where we are now. I don't expect it to change significantly. I mean the thing that can move it a little bit is weather, obviously, right? But I think for us right now, that's a pretty good target for the next -- certainly for this year.

Okay. Okay. Good. That's what I meant. Just to be clear on my question. So no concerns on maybe pressure on that given where the rate environment is. There's lots of good things happening in Florida, but the rate environment is softening and so there's -- you don't foresee any pressure on that because of the rate environment?

Well, I think Karin talked about that. If you look at our average premium per policy at the end of Q1, you compare it to a year ago, it's pretty much flat. And as Karin -- across the book and as Karin suggested, we don't expect that to change considerably. So yes, I mean -- and obviously, we've taken that into account when we're talking about an estimated combined ratio. The big mover is the loss ratio.

Yes. Cool. And then maybe just last one, just changing gears. One of your new initiatives was the E&S company, the surplus lines company. Can you talk about that and kind of where you see that going in the near term? I think that just started pretty recently last quarter or so. So just any thoughts on where that is.

It continues making progress, right? One of the things we talked about using that for is maybe California or things of that nature. And California is a lovely place. Things continue to evolve over there. I think we just saw some headline the other day where 60 policyholders are suing their previous carriers for the losses in the California wildfires. All of these things sort of make you -- make sure that you do your homework and diligence before you step into that. So we're doing all those things, yes.

So is that 1 of the 2 or 3 things you refer to working on? Is that kind of in the past?

I don't think it is 1 of the 3 things we're talking about in the $1 billion category kind of thing. It's yet another something we're doing, just like Karin's new reinsurer of Fortex Re. It's just yet another something we're doing besides the $1 billion asset creation kind of things that we're talking about.

[Operator Instructions] And there are no questions in queue at this time. And this does conclude our question-and-answer session. I would now like to turn the call back over to Paresh Patel, who has a few closing remarks.

Thank you. On behalf of the entire management team, I would like to thank our shareholders, employees, agents and most importantly, our policyholders for their continued support as we embark on the next phase of our growth. Thank you, and talk to you soon.

Thank you. This concludes today's call. You may now disconnect. Thank you once again for your participation. Have a wonderful day.

Good afternoon, and welcome to HCI Group's Fourth Quarter 2025 Earnings Call. My name is Tom, 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 March 25, 2026, starting later today. The call is also being broadcast live via webcast and available via webcast replay until February 25, 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 Group. Nat, please proceed.

Thank you, and good afternoon. Welcome to HCI Group's Fourth Quarter 2025 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 material adverse effects on the company's business, financial conditions and results of operations. HCI Group disclaims all the obligations to update any forward-looking statements.

Now with that, I will turn the call over to Mark Harmsworth, Chief Financial Officer.

Thanks, Nat. Good afternoon, everyone, and thank you for taking the time to join our call. As we disclosed in the earnings release, pretax income was $144 million in the fourth quarter and $429 million for the full year. Diluted earnings per share were $7.25 for the quarter and $22.72 for the year.

Gross premiums earned in the fourth quarter were up 12% from the same quarter last year and were up 14% for the full year. The gross loss ratio in the fourth quarter was 15.6%. While this includes a modest amount of favorable development from prior periods, with that added back, the normalized loss ratio was 17.5% for the fourth quarter and only [ 20% ] for the full year. For the past 3 years now, claims and litigation frequency have continued to decline, resulting in a loss ratio that has been lower each successive year, illustrating the positive impacts of the legislative reform as well as our disciplined underwriting.

The combined ratio was less than 45% in the fourth quarter. There is some noise created by the [ Citizens ] assumptions that we did in the fourth quarter. We booked some favorable loss development, as I mentioned, and a few other things. But if we adjust for all of this the normalized combined ratio was less than 60% for the fourth quarter.

Let's turn to the balance sheet for a minute. Growth in earnings combined with prudent capital management have resulted in a fantastic balance sheet. Shareholder equity at the end of the year was over $1 billion and has more than tripled in just 2 years. Book value per share is now over $80. This does not include any unrealized gains on real estate or on our investment in Exzeo. If these were to be included, pro forma book value would be about $140 per share.

Cash flow continues to be strong. Over the past 2 years, we've generated more than $0.25 billion in cash from operations and consolidated cash at the end of the year was over $1.2 billion. In terms of holding company liquidity, we have $175 million of liquidity at the HCI level. This does not include the 75 million shares we own of Exzeo, which now trade publicly.

In addition to the strong liquidity position at the holding company level, the consolidated surplus in the underwriters has never been stronger. We now have well over $0.5 billion of surplus in the underwriters. The gross leverage ratio is only 2.5, leaving plenty of room for additional growth without the need for new capital.

Our strong balance sheet should continue to provide comfort to our policyholders and our shareholders should take comfort in our efficient use of capital. Our after-tax return on equity over the past 3 years, a period of time that included 3 hurricanes, is over 35%.

In summary, this has been another fantastic quarter and year for the company. Revenue was growing, the loss ratio and expense ratios are declining. We are generating record cash flows, have minimal debt and we are generating superior returns on capital.

With that, I'll hand it over to Karin.

Thank you, Mark. In addition to the impressive financial results that we delivered in the fourth quarter, it is important to remember that in the quarter, HCI also completed the IPO of Exzeo. We currently own 82% of Exzeo's outstanding shares, representing an almost $1.2 billion stake in that company. The Exzeo platform is a tremendous asset for us, placing HCI well in front of the curve as automation and AI integration redefine the insurance industry.

Also, in the fourth quarter, we successfully assumed 47,000 policies from [ Citizens ] representing more than $175 million of in-force premiums. For the full year, we assume 60,000 policies from [ Citizens. ]

The October assumption gave us the strategic opportunity to prefund growth for 2026 as we now start the year already ahead of 2025 on our in-force premiums. On the reinsurance front, we prudently chose not to lock in multiyear rates in recent treaty years or through [ cat ] bonds in anticipation of reinsurance market softening. Early indications are this was the right approach. For our June 1 renewal, we continue to work with our reinsurance partners to lock in more favorable terms. Layering in new business before the year begins and using expense levers to drop more to the bottom line gives us greater flexibility and readies us for future growth.

First, as a reminder, HCI has historically been successful in taking advantage of market instability and dislocation. Following record results in 2025, increased competition and a much smaller number of policies and [ Citizens ] may put pressure on other industry participants who are more constrained in growing their businesses. In this environment, we see many opportunities for strategic acquisitions, but must remain patient as pricing rationalizes.

Second, as we also continue to look at new markets to enter where our experience, expertise and cutting-edge technology differentiate us from the competition. For example, we continue to monitor California's efforts to reform the insurance industry since we see similarities in that market to the one we have successfully operated in for many years. As a reminder, HCI Group has navigated [ through ] years of market uncertainty, the highest state litigation propensity in the nation, regulatory challenges related to Citizens' depopulations and competition from below market rates, not to mention the high-risk weather environment in Florida.

Lastly, as we wait for things to materialize, we are taking the opportunity to invest in ourselves. We are finalizing and expect to announce a new $80 million share repurchase program in the coming days. We view this as an internal M&A because where else can we buy a company that trades at our discount with a return on equity consistently above 30%.

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

Thanks, Karin. You've heard the numbers, and as you can see, 2025 was another phenomenal year for HCI. These numbers are not there by accident. They are the result of careful planning and execution. And more importantly, they are sustainable over time, and we believe we can build off of them.

As Karin mentioned, the assumptions we did late in the year last year set us up to continue to grow in 2026. And there are also a number of other opportunities for us to accelerate that growth. The future looks bright, we can grow organically, we can grow by acquiring books, we can grow into new markets. We have done this consistently over a long period of time. But in the meantime, we are investing in ourselves through the share buyback program that Karin discussed. And why are we doing this? Because we feel this is a great opportunity to invest in the company with a superior ROE at a significant discount.

And on a personal note, I am also doing that personally by exercising -- as recorded yesterday, I exercised a number of stock options because I want to increase my ownership in this great company.

In closing, this was another impressive year for HCI. And I have said before that the best is yet to come. And I'm saying it again, the best is yet to come for HCI. And with that, we will open for questions.

[Operator Instructions] Our first question will come from Mark Hughes from Truist Securities.

What -- how do you see pricing shaking out over the next year? Obviously, these are some pretty strong results. What is that going to mean for your rate filings?

Yes. Mark, it's Paresh. Yes, look, it's a very competitive environment. The results speak for themselves. I think we already indicated in previous quarters that rate increases are a thing of the past, right? Now it's just about maintaining rates and/or some easing of rates. But what we would tell you is that all of that has been utterly predictable for almost a year at this point. So all that will play itself out as already anticipated by us.

What we are looking at is how to go up in much bigger increments than that, right? So all of that stuff is actually noise. And I say that in the context of -- I think, if you look back over the last 3 years, it's been years since we actually changed our rates upwards, right? We've been doing everything we've been doing at a very steady rate, and we hope to do that in 2026 and beyond. Putting it simply, I think we sell a great product at a fair price.

Very good. And when you say some easing, how do you think that shakes out across the book? I don't know if you could throw any numbers or ranges at that?

I think we have previously disclosed that Homeowners Choice, starting in January, we had already like reduced rates by 3.5%, right? So -- go ahead, Mark.

That's only on the Homeowners Choice book, and I mean I don't think -- in Florida, and I don't think that's really going to have a big impact on the average revenue per policy or any metrics that...

Any risk that you have to refund any of this to policyholders, any excess profits anything like that?

No, because I think -- look, this is an interesting world we find ourselves in. Three years ago, the concern was, will anybody even survive in Florida, and we were busily saying, "Don't worry, we got this." 3 years later, everyone seems to think that the sun will shine forever more, and there will never be any more hurricanes, right? Both extremes, I think, are a little bit overstated. And all these conversations about growth rates, all these things can change on a dime with one hurricane. This has happened before and it probably will happen again. We know this. This is why we are kind of have always been measured in our approach, and we'll continue to do so that way.

Mark, when we think about the net premiums earned, the $226 million this quarter, is that a good starting point when we think about 2026? Or is there anything unusual or onetime in that number?

Yes. I mean -- a couple of ways to think about that, Mark. First of all, Karin mentioned the assumptions that we did in Q4. Those were done in the middle of the quarter, I think, October 21. So you don't have a full quarter's worth of premium in Q4. I think of the $45 million roughly per quarter, I think about $35 million made its way into Q4. So that's one way to think of it. So gross premiums earned in Q1 should be higher than Q4 because you've got the full 90 days on that -- on those assumptions.

The other way to think about it is really, your starting point is gross premiums in force, which they're up about 11%, 12% over the end of last year. So if you're going back and comparing to the year before, Q1 is going to be higher than Q1 last year and so on. So those are sort of the two ways to think about that, if that helps.

It does. How about -- any observations about weather in the quarter? I think talking high teens gross loss ratio. Is that also -- if the top line is stable from a pricing perspective, yes, the wind could blow, but is there something about that loss ratio that might go higher or lower in the subsequent quarters?

I don't think there's -- I mean, it was a loss ratio -- the normalized loss ratio in Q4, I think I said was 17.5%. It was a fairly quiet quarter in terms of weather. But I wouldn't think of this as a weather story. I think I mentioned in my comments that the loss ratio has continued to come down over the last 3 years, some quarters, you have weather, some quarters, you don't have weather.

If you look at the 10 accident quarters since legislative reforms sort of fully kicked in, and you look at those in total, our average loss ratio during that period, ex cat is about 20%. We think of ourselves as sort of range bound around between 20% and 25%. But we've been at the lower end of that for a while. And actually, 5 of the last 10 accident quarters have been lower than 20%.

And if you look at why is the loss ratio lower in Q4 this year than Q4 last year, it's not really weather. Whether you look at ex weather or with weather, you're going to come up with the same thing. But you always have quarters where you have a little bit more weather -- less weather, but it -- Q4 was not an abnormal sort of quarter in that respect. A little bit less weather, but this is not a weather story.

Okay. So if I could sneak one more in. Paresh, you mentioned the potential to acquire books have a little more of a step function with your growth perhaps might have to wait for pricing to come in line. I mean, with the -- do you -- is it just prohibitive to pay at this point given the profitability in the state? Or are there deals potentially to be done even now?

Mark, before I get to that, I was just going to add something to the things that Mark just said about the loss ratio and everything else.

I think what Mark is now alluding to is that -- the comment that I made earlier about our numbers that we're now posting up seem very sustainable, right, for an extended period of time. Things have been dialed in so well in the book that we have that it sort of starts becoming very predictable, very consistent, et cetera, because kept a very stable portfolio. So that's -- it's not about just the numbers we put up. It's giving us confidence about the coming quarters, right, which is also very important because we've lived in lots of times where things every quarter was uncertain. So we have that going for us.

In terms of growth and acquisitions or whatever, I think there are opportunities out there. Obviously, there's a negotiated transaction between the buyer and the seller. And fundamentally, I think the biggest thing that's there in the bid-ask spread right now is that the sellers think that 2025 was an average year. And the buyers probably want to average 2025 over the last 4 years and get to a different number. So that will get sorted out in the next few months as -- is 2025 repeatable, and that will set the prices would be in terms of any purchases, et cetera, that might occur. Does that help?

It does.

[Operator Instructions] And your next question today is coming from Matt Carletti from Citizens.

I actually want to follow up -- I want to follow up on actually both of Mark's questions. If I could start with the kind of the pricing question. and kind of understanding the answer you gave and some of the comments in the opening about reinsurance pricing and kind of what we're hearing in the market in terms of potential magnitude of savings. Would it be safe to kind of view it as margins are unlikely to have downward pressure on them when you put those together and that is not out of the question that they could actually improve?

Yes. I think I would -- we would conclude that, yes. Clearly, the reinsurance rates are softening as well. And as you go through this, how much margin pressure there will be is -- I don't think is as great as people fear.

Yes, that makes sense. And then if I can just follow up with the M&A question. When we think about potential M&A that you might look at, should we be thinking kind of Florida homeowners? Or should we be thinking more broadly than that, that it could be maybe a, outside of Florida or b, something more than homeowners?

Yes. Actually, Matt, I'm going to throw you a curveball on that question, right -- in Mark's prepared comments, he talked about when you factor in our Exzeo holdings and real estate holdings, stuff that sort of gets casually overlooked, book value is $140. The insurance operations is at $80, right? We've created $60 of book value by doing noninsurance things, so to speak, yes. So when you're looking at M&A and just to provide clarity to everybody as to how we're thinking about it. And I really need to tell everybody forward-looking statements. This is my aspirations.

What we've done over the years is we always look at wherever we are and say, how do we get 3x bigger or 3x the size, right? And ultimately, what we're talking about is how do we triple the share price from here because clearly, earnings call, we're trying to do right by our shareholders or people trust us with their investments. So we are sitting here looking at it saying, how do we triple our share price from here? Because that is [indiscernible] is getting paid to do.

And that doesn't translate into -- we raised rates 3% over on new policy or whatever. You got to be now thinking about bigger moves up. And that's what we're doing, and that's where we see the opportunity because we have a solid base from which to start of. Mark said $1 billion in shareholder equity, no debt, right? Karin is talking about how well the operations are running. So trying to improve that incrementally almost seems like a kind of like hitting a single when you should be thinking of home runs. And that's what we're trying to do. I can -- in terms of what we're trying to do in terms of M&A or anything else, any kind of growth.

Your next question is coming from Michael Phillips from Oppenheimer.

First question would be -- I apologize if I missed this. I don't think I did, but can you give the gross written premium numbers this quarter and last year without Citizens?

Without Citizens. Yes, this is Mark, just give me a second. You're looking for gross premiums earned without Citizens? .

For written, if you have that...

I don't think I've got in front of me. Actually, hang on a second. We've got gross written premiums in Q4 were $333 million. And yes, I don't have the Citizens number here. I apologize.

We'll get back to you on it. Yes.

Yes. No worries, I'll follow up. And then, Paresh, I think -- I just want to sure I heard you correctly. In earlier question, you were talking about buyers and sellers and kind of a disconnect. I think you said sellers think 2025 was an average year, [indiscernible] that's confusing to me given that there was no cats. Is that what you think you're hearing from sellers? Or did I hear that wrong?

No. Look, I think you've listened to enough earnings calls over the last -- just this week from enough insurance companies that everybody had a very good 2025. For whatever reason, everybody's had a great 2025. And I'd say whatever reason we know the reasons, but you get the idea.

The question is, is 2025 repeatable for the next 5 years? Or is it a peak earnings year and then things will go down a little bit? Now unless you have a plan that how you grow from here to a bigger number, you get into some of these conversations.

Now having said all of that, I'm not -- it's just life, this is how things work. This is how it worked in 2014 as well. Everybody thought 2014, which in that decade, turned out to be a peak year, was a repeatable year every year thereafter, right? And the idea about that is -- and you just hit on the key item, right, is 2025 is repeatable assuming that there will be no more hurricanes. We find that hard to model in, into our numbers, right? So consequently, that's the disconnect between buyers and sellers.

Okay. And maybe just a quick numbers question for Mark. On the expense ratio numbers. And I'm looking at net expense ratios were down pretty hard in the quarter. I guess I want to get some clarification on that. And I know there's some choppiness by quarter certainly in the G&A expense. But any commentary on I mean, how to think about just the overall net expense ratio from here?

Yes. You're comparing Q3 to Q4, right? .

Well, not just Q3, but 1Q, 2Q, 3Q.

Yes. I mean the expense ratio was lower in Q4 than it was in some of the previous quarters. And that's just sort of related to the way to the accounting related to bonuses in Q4. So we paid a considerable portion of the bonuses in restricted shares, which gets expensed over a 3- or 4-year period rather than in the current year.

So the expense ratio was lower in Q4 -- and if you look at what the expense ratio was, whether you're doing it gross or net, in the second and third quarter, that's probably a better estimate of what you would see going forward.

[Operator Instructions] And our next question is a follow-up from Mark Hughes from Truist Securities.

What do you think the timing will be on the $80 million buyback?

I think it's probably -- Obviously, it's subject to various regulatory requirements or whatever, but it could be as early as next week or the week after.

Okay. For approval? Or would you assume you could execute on that pretty quickly?

Yes. Mark, okay. So let's go to the details of some of this stuff. Because of all of these things and us also trying to be shareholder-friendly. We wanted to make sure everybody knew about it before as opposed to just a press release dropping in the middle of the week or whatever. So we want to make sure we discuss it in the earnings call. And in reality, we have to instigate it during an open window which you're probably -- and the open window will probably start for us probably mid next week.

So it's roughly in that kind of time frame that we actually have to instigate it. So what holds all these things up because we have to make sure we do it at the right time with making sure all of our shareholders are amply informed, yes, before it starts. So that's why it's next week.

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.

On behalf of the entire management team, I would like to thank our shareholders, employees, agents and most importantly, our policyholders for their continued support as we embark on the next phase of our growth. Thank you, and we look forward to keeping you informed in the future.

At this time, this concludes our call. You may now disconnect. Thank you once again for your participation.

Good afternoon, and welcome to HCI Group's Third Quarter 2025 Earnings Call. My name is Ali, 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 December 6, 2025, starting later today. The call is also being broadcast live via webcast and available via webcast replay until November 6, 2026 on the Investor Information section of HCI Group's website at www.hcigroup.

I would now like to turn the call over to Nat Otis, HCI Group. Nat, please proceed.

Thank you, and good afternoon. Welcome to HCI Group's Third Quarter 2025 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 risk or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial conditions and results of operations. HCI Group disclaims all the obligations to update any forward-looking statements.

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

Thank you, Matt. Good afternoon, everyone, and thank you for joining us today. We're pleased to report another quarter of strong financial results, reflecting our continued focus on disciplined execution, profitable growth and delivering value for our shareholders.

Highlights for the third quarter include reported earnings of $4.90 per share, net combined ratio of 64%, total shareholders' equity of $821 million with book value per share increasing more than 50% year-to-date to $63 per share and a 22% loss ratio as the weather in Florida remained favorable as we move through the remainder of the 2025 hurricane season.

In addition to these financial achievements, we had several other important developments in the quarter. A three-building campus in Tampa owned by Greenleaf Capital, our real estate division had its tenant move in and the entire campus is now fully leased. This allows flexibility to explore financing options for the property to optimize returns for shareholders.

During the quarter, Greenleaf also added to its portfolio by acquiring a new complex in Pinellas County, Florida. We continue to identify opportunities that can deliver sustainable long-term value for the shareholders. Lastly, in September, Exzeo added a fifth carrier to its platform, its first non-HCI-controlled carrier. In addition to these notable accomplishments, we've continued to make strong progress on several other initiatives in the first few months of the fourth quarter.

In October, we successfully assumed over 47,000 policies from Citizens, representing about $175 million of in-force premium. With the strong outcome in October, we do not plan to participate in the December assumption from Citizens. We recently entered into a new credit facility with Fifth Third Bank, which will significantly increase the amount of credit available to HCI. Mark will go into more details on that.

And finally, earlier this week, Exzeo successfully completed its initial public offering. We are excited about Exzeo's future prospects, and we look forward to HCI remaining a significant shareholder of Exzeo for the foreseeable future. Mark and Paresh will provide additional details in their remarks. Looking ahead, we remain committed to delivering strong earnings compounding book value per share and generating attractive returns for our shareholders.

Now I'll turn it over to Mark to provide more details on our financials.

Thanks, Karin. Pretax income for the third quarter was just over $90 million. And as Karin mentioned, diluted earnings per share were $4.90. Year-to-date, pretax income is $285 million compared to $167 million for the first 9 months of last year, an increase of more than 70%.

Let's talk about the loss ratio for a minute. When comparing to the third quarter of last year, you have to remember that Hurricane Helene happened last quarter, for that quarter. If we adjusted for that, the loss ratio in the third quarter last year would have been about 25%. In the third quarter this year, the loss ratio was down to 22%, reflecting lower quarter-over-quarter claim frequency. The combined ratio this quarter was 64%, reflecting the lower loss ratio and lower operating expenses as a percentage of premiums. The combined ratio this quarter is a little lower than the 70% we've discussed a few times as the loss ratio this quarter was a little lower than expected.

Now let's look at the balance sheet for a minute, which continues to improve. Cash and investments are up by around $334 million so far this year. Long-term debt is now only $32 million, shareholder equity of well over $800 million has almost doubled since the start of the year. Debt to cap has dropped to 8% and book value per share is up more than 50% so far this year to more than $63. Our strong balance sheet should continue to provide comfort to our policyholders and our shareholders should take comfort in our efficient use of capital as our after-tax return on equity continues to be over 30%.

Our strong balance sheet has also allowed us to negotiate better terms with our credit partner, Fifth Third Bank. As Karin mentioned, we recently renegotiated our credit facility, and in doing so, doubled the size of the facility from $75 million to $150 million and released all of the real estate collateral that had secured it.

In summary, this was another strong quarter and a very strong year for the company. Our operating ratios are all improving. The balance sheet continues to get stronger. We're generating superior returns, and we're poised for additional profitable growth with the recent Citizens assumptions.

And with that, I'll hand it over to Paresh.

Thanks, Mark. Karin and Mark talked about the last quarter. But as we all know, the big event was the one that occurred earlier this year -- earlier this week. For the last 2 years, we have been choreographing a complicated sequence of steps to begin to unlock the true value of Exzeo, our organically grown internally developed insurance platform. And HCI investors have exhibited both patients and support while we went about this. And with Exzeo's IPO earlier this week, we have completed the last step in this sequence.

And while we are already focused on what we're doing next, it's important to step back for a moment to reflect and more importantly, to quantify the meaningful financial benefit of the Exzeo IPO to HCI shareholders.

Mark, can you please provide the details.

Sure. So in that IPO that Paresh just mentioned, Exzeo issued 8 million new shares at a price of $21 per share and the net proceeds were about $155 million. In addition to those 8 million shares, there's a potential overallotment of another 1.2 million shares, which I'm not including in any of the numbers that I mentioned here.

In the offering, HCI did not sell any of its shares in Exzeo. We owned 75 million shares before the IPO, and we own 75 million after it. Because of our ownership position, we will continue to consolidate Exzeo into the financial statements of HCI as we've always done, that there will be a couple of impacts. First, when calculating earnings per share, net income attributable to noncontrolling interest will increase slightly, and therefore, diluted earnings per share will decline slightly. If the IPO had happened at the start of Q3 as an example, the impact to diluted earnings per share would have been less than $0.15.

Second, when we booked the IPO in Q4, there will be a significant increase in the consolidated book value and book value per share of HCI, resulting from the net proceeds of the IPO. Book value will go up by about $125 million and book value per share will go up by about $10. By the end of this year, we expect HCI's book value to be over $1 billion and book value per share to be close to $80. This is a tremendous achievement driven by careful capital management and profitable growth. However, that book value will not include any of the unrealized gains on our ownership of Exzeo shares. We own 75 million shares of Exzeo and you can see at any time what they're trading for. But we will have them on the books for less than $3 a share because they're recorded effectively at cost. If you get out a calculator and do the math, you'll see that difference is more than the entire book value of HCI.

This is an exciting transaction for the shareholders of both companies, and we look forward to the continued innovation growth and success of EXO. And with that, I'll hand it back to Karin.

Thanks, Mark. To wrap things up, we're very pleased with how our businesses continue to perform. HCI's insurance and reinsurance operations continue to grow and deliver solid results. Our real estate assets have significant embedded value while also delivering meaningful returns and our investment portfolio continues to be an important source of strong and stable income. Lastly, we were excited to see Exzeo's successful IPO earlier this week as the transaction partially unlocked the intrinsic value of that company.

As Mark pointed out, though, we did not sell a single share in the IPO because we believe that this is just the beginning of a successful journey for that company. In short, we're very pleased with both HCI's results as well as Exzeo's successful IPO.

With that, I'll turn the call over for questions. Operator?

[Operator Instructions]. Our first question is coming from Michael Phillips with Oppenheimer.

This is Amir in for Mike. I just had a question around Citizens. Can you guys please give us an update on the 75,000 policies you guys applied to take out for Citizens for each 3 of the subsidiaries. Or in other words, like how many of the 25,000 are you guys expecting to write? And just subsequently for homeowners choice, what is an expected average policy size of those takeouts?

I think we had a total of 47,000 policies that are in that October takeout.

We applied for 75,000. We got...

Right. We applied for 75,000, but we ended up with the 47,000 mentioned in the script.

And I think Homeowners Choice got about 19,200 -- sorry, Homeowners Choice got about 19,500, Tailrow got about just over 19,000 and TypTap got a little bit over 8,000.

That's great. And just one last question on my side. Would you guys be able to share any expected use of cash on balance sheet over the coming years for Homeowners Choice or any more possible aggressive state of -- state expansion or potential M&A?

It's Mark. I mean I don't think we can get too specific. But I mean I talked in my in my prepared remarks about the strong capital position. There's also a really strong surplus position in the underwriters. And without getting too specific, we grew by 15% or so this year. We've got lots of opportunities for both ahead of us for the year coming up, and we will grow, and we've got the capital to do that. So 2026 is going to be a good year.

[Operator Instructions] Our next question is coming from Mark Hughes of Truist.

Mark, how much cash at the holding company?

So total holding company liquidity at the end of September, I think, was about, about $285 million total.

Okay. And then the -- why not do the December takeout? You had a good success for October. Is that -- why not go for more next month?

Mark, great question. The reality of it is, I think Citizen is now shrinking. For the record, I think Citizen is no longer the largest insurance carrier in the state anymore. It's dropped down the rankings quite a bit. And by the time you get around to December, I'm not saying there won't be enough policies there, but I think we have a lot more -- we're already thinking about other things beyond Citizens. And it just seemed like a little bit of a distraction to still be saying you are -- keep going back to a well that is dried up that much. If you wanted Citizens policies really, you would have done it 2 years ago, which we did.

Yes. The expense ratio was quite good in the quarter, both G&A and other operating expenses were down. Anything unusual this quarter? Or is that just leverage?

Yes. So thanks for the question, Mark, it's Mark. I mean, no, there's nothing unusual in Q3. It's just a continuation of what we've been talking about before about operational leverage and the importance of technology we've been able to grow without really adding any people and that results in flattish operating expenses while revenue keeps going up. So revenue was up 13%. Operating expenses don't go up that much. And it's just that operational leverage we've been talking about for a while, there's nothing unusual at all in Q3.

Yes. When we think about modeling the Exzeo impact and the minority interest. Essentially, we're accounting for 8 million shares out of Exzeo's earnings those will be pulled out as minority interest. And so on a go-forward basis, we've got to think about the ratio of Exzeo versus HCI earnings when we think about what we should use as the basis to calculate the minority earnings. Any rules of thumb or anything you might suggest as we contemplate that?

Yes. I mean it's pretty straight. It's Mark again. It's pretty straightforward. If you just pull out, for example, and I gave an idea on the call about the $0.15 a little bit less than that. That's what the impact would have been if the IPO would have happened on July 1. So if it would have had full effect in Q3. It's not a very big effect. So if you think about -- even in the press release, we've got an earnings per share calculation there, and there's that little part there where we back out the minority interest of a number of companies, including Exzeo, that number would be -- it wouldn't be twice as big as it is. It would be a little bit less than that. And then you just do the calculation as you would normally do it. So that negative $2 million that you see there in the press release. Just if you want a rule of thumb, say double that. And that's how you do EPS. It's pretty straightforward.

Yes. Do you have -- I assume it's broken out in the queue, the net income for Exzeo versus the Homeowners Choice?

It will be in the segmented report in the queue that's published tomorrow.

Okay. Very good. And then anything to say on the Exzeo pipeline, just kind of an update on the business there. I understand if there's nothing you can or in position to say at this time, but anything about the pipeline of business, growth prospects for Exzeo that you're able to share?

Yes. Mark, it's Paresh. I think going forward, we're going to be trying to keep this call about HCI and just basically our HCI feels about Exzeo's [indiscernible] its ownership of Exzeo as opposed to the pipelines and discussing Exzeo things, because now that Exzeo's public, Exzeo will shortly hold its own quarterly earnings calls, et cetera, and that's where all those things will come in.

But having said all of those things, very simple thing. There continues to be outsized interest in people joining the Exzeo platform. And I believe they've announced that they've already got a second customer already, but it was subsequent to the end of Q3. And the pipeline will go -- we have to start somewhere and the pipeline grows from there, and it seems to be doing it very healthily.

Very good. I appreciate that and understand your preference going forward. Mark, the -- I'll try to take one more in. Mark, the loss ratio, 25% in this quarter last year, ex-Helene to 22%. How much of that might have been weather mix? Could you maybe give a little bit more on the improvement there?

No. I mean, the weather was pretty consistent, Weather was fairly good third quarter last year, third quarter this year. It was really just frequency, claims frequency was down from -- it was, I think, 3.7% annualized, 3.7% in the third quarter last year, 3.4% in the third quarter of this year. And that's what drove the loss ratio lower. Really nothing else going on just lower claim frequency. And weather was not -- I mean, there's always weather, but weather was not a factor one way or the other from one quarter to the next.

[Operator Instructions] Our next question is coming from [indiscernible] with Citizens.

I'm calling in for Matt Carletti, and a lot of the questions have already been answered. But just one question to clarify the October take-out, you mentioned it's $175 million in force premium. Is that roughly the same as the annualized premium regarding those takeouts? And then how much of that is unearned premium that has been recognized in Q4?

So it's Mark. So yes, so the number that Karin gave, that's basically the annualized premium or the premium in force or whatever you want to call that. And in terms of how much of that is unearned. So that will be the amount of cash that we get and the amount that will be written in Q4, it's about -- yes, it's about 60% of that number. Now -- and then, of course, in terms of how that will get earned, that will just get earned evenly over the next -- the $175 million is what -- when you're modeling earned premium, it's the $175 million that matters, not how much of it is earned and unearned in Q4. It's the $175 million that you need to model.

Okay. And you said 60%?

Yes. It's about that. That's pretty normal. Yes. The 60% of the $175 million, that's your unearned.

At this time, this does conclude our question-and-answer session. I would now like to turn the call back over to Karin Coleman for a few closing remarks.

On behalf of the entire management team, I'd like to thank our shareholders, employees, agents and most importantly, our policyholders for their continued support as we embark on the next phase of our growth. Thank you.

Thank you. At this time, this will conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.