HCI Group, Inc. (HCI)

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Homeowners Choice, Inc. (HCI)

Q1 2013 Earnings Call

May, 02, 2013, 04:30 pm ET

Executives

Jay Madhu - VP, Investor Relations

Paresh Patel - Chairman & CEO

Richard Allen - CFO

Analysts

Robert Paun - Sidoti & Company

Edward Hemmelgarn - Shaker Investments

Presentation

Operator

Greetings and welcome to the Homeowners Choice First Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. A 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, Jay Madhu, Vice President of Investor Relations. Please go ahead.

Jay Madhu

Thank you and good afternoon. Welcome to Homeowners Choice first quarter 2013 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 Insurance Division. Following Paresh's opening remarks, Richard will review our financial performance for the quarter, and then turn the call back to Paresh for a brief 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 of our new corporate website at, 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 results and conditions, but rather are subject to various risks and uncertainties.

Some of these risks and uncertainties are identified in the company's filing 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 the operations. Homeowners Choice, Inc., disclaims all the 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 shortly, we had a very successful and profitable first quarter of 2013. Among the highlights with the completion of underwritten public offering of $40 million of 8% senior notes deal in 2020. We believe this successful offering demonstrates investor confidence in our business model and the recognition of the strength of our balance sheet and the prudent cash flow management we have exhibited.

Another highlight, we declared a regular quarterly cash dividend of $0.225 per common share. In addition, we have continued the successful integration of our Citizen’s assumption from November 2012.

And finally, we purchased an office building in Ocala, Florida which is about a 100 mile from Tampa for those who are outside the state. The building is a center of the state and is approximately 16,000 square feet of space and sits at about 1.6 acres of land. The purchase price was $2 million. We intend to use a portion of this building for regulations operations and also as a disaster recovery site in case of a catastrophic event impacting our company’s home office.

Now I would like to turn the call over to our Chief Financial Officer, Richard Allen to walk through our financial performance for the first quarter. Richard?

Richard Allen

Thank you, Paresh and good afternoon everyone. First quarter income available to common stockholders totaled $20.4 million or $1.81 diluted earnings per common share. This compares with $6.8 million or $0.88 diluted earnings per common share in the first quarter of 2012.

First quarter 2013 gross premiums earned increased 50.9% to $82.5 million from $54.7 million in the first quarter of 2012. This increase is primarily the result of the earned premiums generated through the November 2012 assumption from Citizens.

Net premiums earned for the first quarter of 2013 increased to $60.6 million from $40.4 million in the same year ago period. For the first quarter of 2013, loss and loss adjustment expenses totaled $15.9 million compared to with $19.2 million in the comparable quarter of 2012.

Even with the increase in policy exposures from the Citizen’s assumption in November of 2012, we continue to observe the favorable trends in frequency of reported claims as well as the average severity per claim as was discussed in our fourth quarter earnings call. We are constantly monitoring claim activities for development of trends and frequency severity and the distribution and a positive loss for the potential impact on incurred loss and loss adjustment expenses. The combined loss and expense ratio to net premiums earned was 47.3% for the first quarter of 2013 compared to 74.9% for the first quarter of 2012. This combined ratio reflects the impact of the Citizen’s assumption on the net earned premiums, the denominator in this calculation.

Turning to the balance sheet, investments in fixed income and equity securities totaled $45.1 million at March 2013 versus $44.8 million at December 31, 2012. Cash and cash equivalents at March 31 totaled $279 million compared to a $230 million at December 31, 2012, partially reflecting the successful debt issue referred to by Paresh in his initial remarks. Unearned premiums at March 31, 2013 were $141 million compared to a $154 million at December 31, 2012. The liability for losses and loss adjustment expenses was $41.8 million compared to the $41.2 million at December 31, 2012. As indicated by our results, we've had a very successful first quarter.

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