HCI Group Completes its 2024 – 2025 Catastrophe Reinsurance Programs

Rhea-AI Summary

HCI Group announced the completion of its 2024-2025 catastrophe reinsurance programs. The treaty year runs from June 1, 2024, to May 31, 2025. HCI secured over $2.7 billion in aggregate reinsurance limit for its two towers, covering policies in and outside Florida. This includes a $14 million retention for Reinsurance Tower 1 and a $9 million retention for Reinsurance Tower 2. The estimated net consolidated reinsurance premiums ceded to third parties are around $333.6 million, assuming no losses. The premiums are subject to adjustment at September 30, 2024.

Positive

• HCI secured over $2.7 billion in aggregate reinsurance limit, showcasing strong financial backing.
• Reinsurance coverage includes two towers, ensuring widespread policy protection.
• All private reinsurers are rated 'A-' or better by AM Best, indicating strong financial stability.
• HCI's conservative reinsurance approach aligns with its significant growth.

Negative

• Estimated net consolidated reinsurance premiums ceded to third parties amount to $333.6 million, representing a significant expense.
• Reinsurance premiums are subject to adjustment, implying potential cost variability.

Insights

Financial Analyst

HCI Group’s completion of its 2024-2025 catastrophe reinsurance programs provides significant insights into its financial strategies and risk management. The total reinsurance aggregate limit of $2.7 billion indicates a robust approach to risk mitigation. By securing coverage from reinsurers with ‘A-’ (Excellent) ratings or better, HCI ensures that their risk exposure is handled by financially stable partners. This is important for maintaining investor confidence, as reinsurance reduces the risk of significant financial impact from catastrophic events.

However, the estimated net consolidated reinsurance premiums of $333.6 million are noteworthy. These premiums reflect the cost of transferring risk to third parties and affect the company’s bottom line. It’s important to monitor how these costs align with revenue growth and profitability in the next financial reports. The fact that these premiums are based on exposure projections and subject to adjustment highlights the fluid nature of HCI’s costs, dependent on actual exposure levels throughout the year.

The retention levels of $14 million and $9 million for the two reinsurance towers on a per-event basis ensure that HCI retains some level of risk, which is typical in such arrangements. This strategy balances between cost control and risk transfer, a critical aspect for achieving financial stability. Retail investors should note these retention levels as they tie directly into potential financial losses HCI might have to bear before reinsurance kicks in.

Insurance Industry Expert

The structure and details of HCI Group's reinsurance programs offer valuable insights into the company’s risk management strategy. Splitting coverage into two distinct reinsurance towers, one for Florida policies and the other for non-Florida policies, demonstrates a tailored approach to addressing geographical risk exposure. This segregation helps HCI manage and mitigate region-specific risks more effectively, which is particularly important given Florida’s high susceptibility to natural disasters such as hurricanes.

The fact that all private reinsurers involved are either rated 'A-' (Excellent) by AM Best or have collateralized their obligations ensures a high level of security and reliability in the reinsurance agreements. This is a strong positive for stakeholders as it decreases the likelihood of disputes or defaults when claims are made, preserving HCI's financial health.

Furthermore, the statement regarding HCI's conservative reinsurance placement strategy and the increase in additional limits this year signals a proactive approach in response to company growth. This strategic increment in reinsurance limits can be viewed as a buffer against future uncertainties, aligning with best practices in the industry where growth necessitates scaled risk management protocols.

Market Research Analyst

The completion of HCI Group’s catastrophe reinsurance programs is a key development that reflects on the company’s overall market position and strategic foresight. In the context of the broader market, this move can be seen as HCI’s effort to consolidate its competitive edge amid a volatile environment. Reinsurance is a critical component for insurance companies to maintain solvency and financial stability, something that investors highly value in their risk assessments.

For retail investors, it’s important to view this development as a part of HCI’s broader strategy to manage risk exposure while supporting its ongoing expansion. The company’s decision to secure over $2.7 billion in reinsurance aggregate limit signifies its preparedness to handle potential large-scale claims, which in turn, stabilizes the company’s financials. This strategic risk management approach can lead to increased market confidence and potentially stabilize or even improve stock prices in the longer term.

On the flip side, the high reinsurance premiums indicate that a significant portion of HCI's revenue is allocated to risk transfer. While this is a prudent move, ongoing monitoring of how these costs impact profitability will be crucial. Stakeholders should consider this aspect when evaluating the company’s financial health and market valuation.

TAMPA, Fla., May 30, 2024 (GLOBE NEWSWIRE) -- HCI Group, Inc. (NYSE: HCI), a holding company with operations in homeowners insurance, information technology services, real estate, and reinsurance, announced today that it has completed its catastrophe reinsurance programs for the 2024-2025 treaty year, which runs from June 1, 2024 through May 31, 2025.

“We appreciate the broad support we received from our valued reinsurance partners,” said Paresh Patel, HCI’s chairman and chief executive officer. “HCI continues to maintain a conservative approach to its reinsurance placement. This includes securing additional limit this year to support the significant growth we have achieved over the past few months.”

Similar to the prior year, HCI secured two reinsurance towers for its insurance subsidiaries, Homeowners Choice and TypTap. Reinsurance Tower 1 covers all Homeowners Choice policies issued in Florida and Reinsurance Tower 2 is shared between TypTap and Homeowners Choice and covers all TypTap policies (whether issued in Florida or outside of Florida) and Homeowners Choice policies issued outside of Florida.

Across its two reinsurance towers, HCI secured over $2.7 billion in aggregate limit for the 2024-2025 treaty year. All of HCI’s private reinsurers are AM Best rated ‘A-’ (Excellent) or better or have fully collateralized their obligations to HCI.

HCI’s reinsurance retentions are similar to the prior year, including a retention of $14 million for Reinsurance Tower 1 and $9 million for Reinsurance Tower 2. The reinsurance retentions apply to each of a first and second event.

For Reinsurance Towers 1 and 2, HCI Group expects to incur net consolidated reinsurance premiums ceded to third parties, excluding Claddaugh, of approximately $333.6 million from June 1, 2024 through May 31, 2025, assuming no losses occur during that period. HCI’s reinsurance premiums are an estimate based on exposure projections and subject to true up at September 30, 2024.

More information is available in the Company’s Form 8-K, filed today with the U.S. Securities and Exchange Commission.

About HCI Group, Inc.
HCI Group, Inc. owns subsidiaries engaged in diverse, yet complementary business activities, including homeowners insurance, information technology services, insurance management, real estate, and reinsurance. HCI’s leading insurance operation, TypTap Insurance Company, is a technology-driven homeowners insurance company. TypTap’s operations are powered in large part by insurance-related information technology developed by HCI’s software subsidiary, Exzeo USA, Inc. HCI’s largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., provides homeowners insurance primarily in Florida. HCI’s real estate subsidiary, Greenleaf Capital, LLC, owns and operates multiple properties in Florida, including office buildings, retail centers and marinas.

The company's common shares trade on the New York Stock Exchange under the ticker symbol "HCI" and are included in the Russell 2000 and S&P SmallCap 600 Index. HCI Group, Inc. regularly publishes financial and other information in the Investor Information section of the company’s website. For more information about HCI Group and its subsidiaries, visit www.hcigroup.com.

Company Contact:
Bill Broomall, CFA
Investor Relations
HCI Group, Inc.
Tel (813) 776-1012
wbroomall@typtap.com

Investor Relations Contact:
Matt Glover
Gateway Group, Inc.
Tel 949-574-3860
HCI@gateway-grp.com

FAQ

What is the duration of HCI Group's 2024-2025 reinsurance program?

The reinsurance program runs from June 1, 2024, to May 31, 2025.

How much reinsurance limit did HCI Group secure for 2024-2025?

HCI Group secured over $2.7 billion in aggregate reinsurance limit.

What is the retention amount for HCI Group's Reinsurance Tower 1?

The retention amount for Reinsurance Tower 1 is $14 million.

What is the estimated net consolidated reinsurance premiums for HCI Group?

The estimated net consolidated reinsurance premiums are approximately $333.6 million.

Are HCI Group's private reinsurers financially stable?

Yes, all private reinsurers are rated 'A-' or better by AM Best or have fully collateralized their obligations.