HCI Group, Inc. (HCI)

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Homeowners Choice (HCI)

Q4 2012 Results Earnings Call

March 05, 2013 16:30 ET

Executives

Paresh Patel - Chief Executive Officer

Richard R. Allen - Chief Financial Officer

Scott Wallace – President of Property & Casualty Division

Jay Madhu - Vice President of Investor Relations

Analysts

Casey Alexander - Gilford Securities

Robert Paun - Sidoti & Company

Howard Halpern - Taglich Brothers

Edward Hemmelgarn - Shaker Investments

Edward Williams - Capital Returns Management

Presentation

Operator

Greetings and welcome to the Homeowners Choice Fourth Quarter and Year-end 2012 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Jay Madhu, Vice President of Investor Relations for Homeowners Choice. Thank you. Mr. Madhu, you may begin.

Jay Madhu

Thank you. Thank you and good afternoon. Welcome to Homeowners Choice fourth quarter and full year 2012 earnings call. With me today are Paresh Patel, our Chairman and Chief Executive Officer; Richard Allen, our Chief Financial Officer, and Scott Wallace, President of our Property and Casualty Insurance Division. Following Paresh's opening remarks regarding our recent success, Richard will review our financial performance for the quarter and year, and then take the call back to Paresh for an update and business outlook. Finally, we will open up the call to your questions.

To access today's webcast, please go to the Investor Relations' section on our corporate website, at www.hcigroup.com. Before we begin, I would 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 success, results and conditions, but rather are subject to various risks and uncertainties. Some of the 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. Homeowners Choice, Inc. disclaims all obligations to update any forward-looking statements.

Now I will turn the call over to Paresh Patel, our Chairman and Chief Executive Officer. Paresh?

Paresh Patel

Thank you, Jay, and good afternoon everyone. As Richard will expand on in a minute, we had a very successful quarter and year. The fourth quarter marked our 21st consecutive quarter of profitability. The fourth quarter highlights includes, the assumption of 39,000 policies from Citizens, as a result of which we had approximately [150,000] policies in force, and about $340 million in annualized gross premium at the end of the year.

(Inaudible) highlight was retiring of all of our warrants in the fourth quarter. We also transferred our common shares to the New York Stock Exchange under the ticker symbol HCI. We issued a special dividend of $0.10 a share and increased our regular dividends to $0.25 a share.

Additional 2012 highlights include, integrating the HomeWise assumption. Purchasing the (inaudible) property, completing a $20 million following off (inaudible); hiring Scott Wallace; handling approximately 900 claims related to Tropical Storm Debby and Hurricane Isaac; and increasing our annualized dividend from $0.50 a share at the end of -- year-end 2011, to the current $0.90 a share.

Now I would like to turn the call over to our Chief Financial Officer, Richard Allen, to walk through the financial results for the fourth quarter and 2012. Richard?

Richard R. Allen

Thank you, Paresh, and good afternoon everyone. Fourth quarter income available to common stockholders totaled $13.1 million or $1.19 diluted earnings per common share. This compares with $12.6 million or $0.62 diluted earnings per common share for the fourth quarter of 2011. For the year ended December 31, 2012, income available to common stockholders was $29.8 million or $3.02 diluted earnings per common share, compared with $9.1 million or $1.34 diluted earnings per share for 2011. Fourth quarter 2012 gross premiums earned increased to 44.8% to $72 million from $49.8 million in the same year ago period.

For the year ended December 31, 2012, gross premiums earned increased 62.7% to $232.6 million from $143.6 million in 2011. Fourth quarter 2012 premiums ceded were 31.2% of the company's gross earned premiums earned compared to 28% during the same period in 2011.

For the year ended December 31, 2012, premiums ceded were 32.5% of gross premiums earned, compared with 38.7% in 2011. Net premiums earned for the fourth quarter of 2012 increased 38.3% to $49.6 million from $35.8 million in the same prior year period. Net premiums earned for the year increased 79% to $157.7 million from $88.1 million in the prior year.

For the fourth quarter of 2012, loss and loss adjustment expenses totaled $15.9 million compared with $16.9 million in the same prior year period. Loss and loss adjustment expenses for the year ended December 31, 2012 totaled $66.3 million, compared with $48.2 million in 2011. The full year 2012 (inaudible), $3.5 million related to the two tropical storms that Paresh had mentioned earlier. Even with the increase in policy exposures from the assumption of the HomeWise business in November of 2011, we have noted significant favorable trends in both frequency of reported claims and in the average severity per claim.

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