By Michael Loney

Feb 28 - HCI Group has split out its Exzeo technology platform into a standalone entity so it can service carriers outside of the Florida carrier’s umbrella, a move that Citizens equity analyst Matthew Carletti expects will produce “a growing stream of third-party fee income”.

On an investor call on Thursday, HCI chairman and CEO Paresh Patel said that his company’s technology “has a proven track record, and it's a game changer”.

The technology currently supports over $1.2 billion of premium across the companies controlled by HCI.

“But HCI Group represents less than 1% of the total homeowners premium in the US,” Patel said. “And given the increasing frequency and severity of catastrophe losses, we believe there's an opportunity to use our technology to drive a better underwriting result for the other 99% of the market.”

Patel said that to achieve this goal HCI has set up a new structure that will consist of two distinct operating units. The first unit includes its four catastrophe insurance companies and its captive reinsurer, as well as its operations in claims management and real estate.

The second operating unit includes HCI’s technology platform and its insurance management operations.

“This unit helps empower insurers to deliver better underwriting outcomes and optimize operational efficiencies,” Patel said. “However, this unit does not include any insurance companies, and therefore we felt it appropriate at this time to rename the unit from being TypTap Insurance Group to Exzeo Group Inc.”

Exzeo is now an independently viable entity “with solid profitability, strong cash flows, no immediate capital needs and more importantly, no hurricane volatility,” Patel said.

In 2024 Exzeo earned approximately $35 million of pretax income from serving the four carriers under the HCI umbrella, and Patel expects that number to grow “significantly” in 2025.

In a research note, Citizens equity analyst Carletti said that “HCI’s tech produces better underwriting results” and that he expects a growing stream of third-party fee income for HCI in the coming years.

“While several years ago the ability of HCI’s technology to produce superior underwriting results required some amount of a leap of faith, that is no longer the case today,” Carletti said.

Investors welcome Q4 beat

On Thursday HCI announced Q4 operating income of $5.0 million, down from $38.8 million in Q4 2023.

However, the $0.31 diluted earnings per share comfortably beat the expected $2.98 loss per share consensus estimate of six analysts tracked by MarketWatch.

New York-listed HCI’s share price was up around 3.2% as of 10.10am ET, compared with Thursday's closing price of $123.96.

GWP increased 4.4% to $334.5 million in the quarter, from $320.5 million in the prior-year period.

The gross premiums earned loss ratio was 37.2% in the fourth quarter, compared with 30.4% in Q4 2023.

On the investor call, HCI chief operating officer Karin Coleman noted that HCI handled 22,600 claims during the year. Over half of the claims came from Hurricanes Debby, Helene and Milton, with HCI expecting to pay out more than $500mn from these three events.

“Despite this, we held our rates steady in Florida, and we plan to continue to do so in 2025,” Coleman said.

During 2024, HCI offered over 68,000 Citizens policyholders a private market option and nearly 53,000 policyholders moved to HCI.

Also during the year HCI started a new insurance company, Condo Owners Reciprocal Exchange, which grew to approximately $70 million of in-force premium.

“Across our different growth initiatives, we increased our policies in-force from 247,000 to more than 272,000 and our in-force premium grew 22% to over $1.2 billion. This was accomplished all while reducing our underlying net combined ratio by 10 percentage points,” said Coleman.

Patel said on the call that the opportunity for further takeouts from Citizens still exists.

“We've grown the business by $200 million or so by taking on about 50,000 policies in the fourth quarter,” he said.

Patel also noted that HCI’s new reciprocal Tailrow just became operational a few days ago, “and we expect it to be an additional driver of growth”.

HCI announced earlier this week that Tailrow had assumed nearly 14,000 policies from Florida's state-backed carrier Citizens.