Good afternoon, and welcome the HCI Group Incorporated Second Quarter 2019 Earnings Call. My name is Tim, and I'll be your conference operator this afternoon. At this time all participants will be in listen-only mode. Before we begin today's call, I'd like to remind everyone that this conference call is being recorded and will be available for replay through September 6, 2019, starting later this evening. The call is also being broadcast live via webcast and available via webcast replay until September 6, 2019, on the Investor Information section of HCI Group's website at www.hcigroup.com. I would now like to turn the call over to Kevin Mitchell, HCI's Senior Vice President of Investor Relations. Sir, please proceed.

Thank you, and good afternoon. Welcome to HCI Group's second quarter 2019 Earnings Call. With me today are Paresh Patel, our Chairman and Chief Executive Officer; and Mark Harmsworth, our Chief Financial Officer. Following Paresh's opening remarks, Mark will review our financial performance for the quarter and then turn the call back to Paresh for an operational update and business outlook. Finally, we will take your questions. To access today's webcast, please visit the Investor Information section of our 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 filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effect on the company's business, financial conditions and the results of operations. HCI Group, Inc. disclaims all the obligations to update any forward-looking statements. With that said, I would like now to turn the call over to Paresh Patel, our Chairman and CEO. Paresh?

Thank you, Kevin, and welcome, everyone.. In a moment Mark will give you details on our financial performance. But first here are some highlights of the quarter. We generated fully diluted earnings per share of $P.90, continuing our consistent record - consistent track record of profitability. We have been profitable in 45 of the last 47 quarters. The Streak only being broken by Florida being impacted by hurricanes. Also in June we paid our 35th consecutive quarterly dividend, at roughly $40 a share we yield about 4% a year which is a pretty good dividend. Also during the quarter we completed our catastrophic reinsurance program for the 2019 hurricane season. I am pleased to say that while we reduce the absolute spend compared to last year program, we maintain similar levels of limit and retention. We believe this is due to the reinsurers appreciating our technology that provide data transparency and efficient claims management. And finally and most importantly, TypTaps growth in premium more than doubled in Q2 compared to Q1. TypTaps growth is organic and is profitable. With that I'll now turn over the call to our CFO, Mark Harmsworth. who would walk us through the financial performance for the second quarter. Mark?

Thanks, Paresh. Net income for the second quarter of $7.6 million was up from $6.4 million in the same quarter last year. For the first six months net income of $14.3 million was down from $17.2 million in the same six month last year. Fully diluted earnings per share in the second quarter were $0.90 on a GAAP basis, down slightly from $0.92 in the second quarter last year and on an adjusted basis fully diluted earnings per share were $0.81 compared to $1.01 last year. This quarter was an encouraging one for us. On our last call, I talked about the different stages of growth that should start to reveal themselves in the numbers and this quarter represented an important step in that direction. Consolidated gross written premiums of $133 million were 1% higher than the same quarter last year, driven by the growth of - growth of TypTap, our technology powered insurance subsidiary. In the fourth quarter of 2018, TypTap rose about $4 million dollars in premium in flood and homeowners combined. In the first quarter this year that grew by 50% to $6.1 million and in the second quarter that more than doubled to just under $14 million, driven by the growth of TypTaps new homeowners products. The growth in TypTap has fueled consolidated premium growth quarter over quarter and we believe that this is a new phase for us as we moved from one of carefully controlled risk reduction to carefully controlled profitable growth. A few other highlights from the quarter. As you know we recently announced our new reinsurance program for the period June 2019 to May 2020. We estimate the consolidated net reinsurance cost to be about $124 million for that period. This does include expected growth for TypTap but is subject to a…

Thank you, Mark. Q2 demonstrates that our investments in technology and our focus analytics are paying off. While some other insure techs [ph] companies say they are developing disruptive technologies doing insurance in a better way and hoping someday in the future to be profitable. We do all of that now. We have industry leading technologies and we are already profitable. Our internally developed technologies include an automated online platform for coding and binding policies. Other things we also have is an automated intelligent underwriting tool that helps the risk selection. We have policy management software and systems and we have world class claims management software. All of these technologies make our processes fast, efficient and cost effective. While improving both the customers and the agents experience and helping us reduce costs. We also believe we have superior analytics that identify trends and improve underwriting performance. Our underwriting standards are strict and exacting. We are very selective in the policies we accept and our automated underwriting tools incorporate all of these analytics. These tools have a process that are very similar to artificial intelligence software, in that they are constantly learning and improving. So we believe that these tools and their strict underwriting standards based on years of Florida data [ph] they have enabled us and will continue to enable us to profitably navigate the challenging Florida and South Florida market. And all these technologies, analytics are embodied in TypTap, our technology driven insurance companies. TypTap in the second quarter is adding about $1.5 million and moving them per week, up from 800,000 per week in the previous quarter and 500,000 per week in the quarter before that. It now has over $32 million of premium in force and we project by the end of the year TypTap will have over $50 million of premium in force. And one more time, TypTap’s rapid growth is organic and profitable. We're not sacrificing margins for the sake of growth. This is important because bear in mind that $100 million of premium at 20% percent margin generate the same profit dollars as $400 million in a premium with 5% margins. We're very proud of the progress TypTap is making. And with that, we're ready to open the call for questions. Operator, please provide the appropriate instructions.

Thank you. [Operator Instructions] Our first question comes from the line of Matthew Carletti of GMP Securities. Please proceed with your question.

Thanks. Good afternoon. Paresh, couple of questions to start, maybe just sticking on TypTap. Can you can you paint a picture for us as you look ahead you know not quarters but several years down the road, how do you see kind of TypTap developing vis a vis homeowners choice? At some point do you cut as we’re - I would say past proof of concept look to transition some of that over or they truly are going to be kind of independent and maybe growth path will be different?

Matt, look the simple way of looking at that is homeowners choice has a wonderful set of customers and people love that brand and people and their customers have been long term customers on average for six to seven years. So we see no reason to disrupt that installed base.

Makes sense.

But yes, that's the existing book homeowners choice. The growth and the future of the company lies in TypTap and we've been on calls for several years. We are making sure that everybody clearly understands, that we are doing the thing that we said was impossible to do, which is grow organically, grow rapidly, make money, right? This is all done one policy at a time and TypTap has achieved a number that are fantastic at a very early stage of life in terms of in force, yes. We are going to add more and more capabilities and lines of business, an area that we do business in to the TypTap brand because that's a name that is synonymous for the future.

And when you say areas that you do business and lines - and lines of business, can you expand there a little bit, is that that build in a bucket a bit more outside of Florida or is that getting more diversified even within Florida or a little above?

I'm going to start sounding short techie, I'm sorry, but - this way when we saw a TypTap we were going after the flood opportunity and the flood opportunity is about $3 billion I think nationwide and we're winning in Florida. So maybe it was about a $1 billion, yes, that was a premium in Florida. So we were addressing a $1 billion opportunity. By adding homeowners, we've add another $8 billion opportunity and we're now attacking a $9 billion market combined. And we're trying to see how much of that market share can we get. In the future what we're going to do is expand into other states and maybe other lines because we're trying to increase that market, the total addressable market and increase it from $9 billion to some much greater number. And as you know in the insurance space there are hundreds of billions of dollars of market space to do eventually attack. So you'd ask the question the long term. That's what we are aspiring to in the course of the next several years.

Great. And then maybe shifting gears a little bit. What are your views on kind of in your eyes how is the AOB environment evolved in Florida, particularly given the changes that took place on July 1. Kind of what did you see in the kind of ramp up before July 1 and then and how has that changed since July 1?

So obviously July 1 is a inflection point, but because of the passage of the new law in going into effect on July 1. But right now it's too early to tell what major impact it has had on the industry going forward. Now what we know in a few months time absolutely is just that it's too early to tell them. In terms our experience and what we saw, we did not see a material difference in the number of AOB claims and or lawsuits leading up to July 1. I think that that was the nature of your question, as to what's going to happen post July 1 and what's going to look like July 1 of next year. It's just too early to tell.

Okay. Great. And then just a couple of real short ones. You mentioned a little bit of reserve strengthening. Was that largely AOB related or was that related to something else?

No it's just general fairly similar to what we did in the first quarter, we added $2.5 million something like that, about three quarters of that is related to 2018. As you know, our loss ratio usually runs between about 23.5 and 25.5. We initially booked 2018 a little bit on the lower end of that based on the way it looked at the end of the year and we're just increasing that a little bit. We've moved it up from about 23.5 to 24.5 I think. So it just reflects an adjustment in the ultimate for 2018 and a little bit of 2017.

Okay. And one last one just a number. Do you have net written premiums handy?

I do. $51 million - well, $52 million.

Great. Thanks very much and best of luck going forward.

Our next question comes from the line of Mark Hughes of SunTrust. Please proceed with your question.

Thank you. Good afternoon. The TypTap - the run rate did you say a $1.5 million per week here recently?

Yes.

Was there a boost in 2 Q around kind of the start of storm season? Will that settle down a little bit in 3Q or are you continuing to see that build?

Mark, at some point the accelerating build will tail off. But as I said in my prepared remarks, we were doing about 4000 a week in December, it accelerated all the way through first quarter where we ended at about 800,000 a week and then it continued accelerating in the second quarter to a 1.5 million and we're still seeing doing that. Hopefully it keeps accelerating through the end of the year, but obviously nothing - trees don't grow to the sky eventually it will tail off. But even at a 1.5 it's a very good number to keep sustaining it.

Just an update on where you're seeing success. What is the normal profile either in terms of the structure of the behavior of the typical TypTap buyer?

So look we think two things that you should - you should factor into this and this is it's looking under the hood that makes this thing very encouraging. Our quote to bind ratio is around 7%. Putting it differently is that every 100 quotes we do really end up taking about seven policies. So goes to that point of only being selective. So I think there are a lot more people who want to be TypTap customers and we are willing to accept this TypTap customer because it's helping us shape the profile of the book to what we wanted to be. And I think - I don't have it handy, but I know things that we monitor and look at is what the average premium for policy is. And it's quite healthy. And we talked about 2900.

Yes - that market very similar to a CPC, it's between 28, $2900 per policy.

So a simple sound by takeaway from this is, we are growing TypTap organically with the same characteristics as we once upon a time grew homeowners choice depopulating from citizens. And you can imagine how encouraged we are that if we get the same outcome as we eventually did with homeowners choice this could be a wonderful outcome.

And when you say a quote bind is that a request to quote, so they ask for a quote from you and you bind 7% of those policies?

Actually it is how we define it. Because of the system's automated nobody requests a quote they go to an agent. The agent types in the address and whatever, the fact that they got a code for that system for that policy is what triggers in our system. So there were a hundred opportunities at least started with TypTap for every seven that abound.

Understood. The investment income in the quarter, any unusual items there. I think you said partnership income was up. Is this a good sustainable level would you say on a go forward basis?

Yes it was little higher than normal Mark. I think it was the limited partnership income averages about 750,000 a quarter and in Q2 it was a 1 million for the quarter. So about $250,000 higher than average. So other than that I think it was pretty everything is pretty normal. So it's - what we did in Q2 is probably a little higher than you'd expect going forward, mainly just because it was a good quarter for a limited partnership income.

And policy acquisition costs continued to move up a little bit is that the TypTap factors that just strong growth in the quarter?

Yes. We talked about - I talked about this a little bit on the last call and I had suggested that that's the percentage that will start to go up a little bit just as the mix changes. So TypTap has a higher cost of acquisition per policy. And so as the balance shifts towards TypTap and in periods when TypTap is writing a lot that percentage is going to is going to go up. So if we continue to write strong in Q3 probably again be higher - higher in Q3, but not Q2 is probably a pretty good estimate of where it will be, it's a little higher than what I had suggested on the call last time just because TypTap grew considerably faster than I expected it to.

And finally I wonder Paresh you might come in on the competition is maybe reduced appetite on the part of other carriers for business employee thing or contributing to your growth of TypTap. How do you assess the market when you look at your competitors?

So there's been lots of different conversations and statements made by competitors all over the place on the matter. And I think there's going to be more changes coming in the coming quarters because people have talked about rate increases and those kinds of things, which again tends to agitate a book of business. So you will probably get more churn in the state of Florida. From a measure or metric from our perspective the fact that we're doing - I think something like 7000 quotes a week, gives us a very good idea that there is obviously a fair number a - fair amount of business that is looking for a new carrier every given week. So that gives us plenty of opportunity from which to select the policy that we want. And roughly saying what that means like that it was easier to select a good book of its citizens when that a million and a half policies than when they have 500,000 policies, the 7000 quotes a week tells us that there's lots of churn going on that that lets us assemble the book we want if people do rate increases et cetera, and other dislocations in the marketplace that would just enhance that number.

And to Paresh’s point before well while we are growing in TypTap and while that - we're excited about that we're being very, very selective as you said about the policies that we pick. And the reason for that goes to what I talked about in my comments about that sustainable profitable growth not just growing for the sake of growing industry.

Understood. Thank you.

[Operator Instructions] Our next question comes from the line of Christopher Campbell of KBW. Please proceed with your question.

Good afternoon gentlemen.

Good afternoon Chris.

Yes I guess it's just a few numbers questions. It sounds like the adverse development was 2.5 million. What were cash as an absolute dollar amount and then what were repurchases?

So the only so far in Q2 we had about five hundred thousand dollars related to cats if you will do we. A couple of things in there. First of all we increased the ultimate 4 for this forecast that we're keeping track of. Right. So Michael's Irma Matthew and the hailstorm we increased that something we're obviously looking at that every quarter we increase the ultimate for the hailstorm from Q1 from 5 million to five million two hundred and fifty thousand. So there's two hundred fifty thousand dollars worth of expense for that in Q2 and then we also had about two to two hundred fifty thousand dollars worth of events related to Matthew and that's just something that sort of continues to run a little bit and the rest of it is just is just ahead. Yes that's it for cats. No no movement in Michael or core Irma. So that's the only cat numbers that are in that 24 million.

Okay. Got it in then. Okay. So just quick question on Matthews the why haven't storm been so hard for light companies to get there like to get there. There they're estimates right on. I mean we're seeing a lot of developments on that not just CGI but like in general. Was there anything special about that storm that made it harder to adjust than a normal cat they do.

Is that - I mean Matthew is what two years ago two years. Yes. I mean the development on that has not really been that significant from the initial ultimate it's maybe 15 percent higher than originally something like that. So it's just there's not that many claims left open it's just some of those claims you end up settling them for a little bit more than you expected to. We've still got we've still got some pretty good reserves left for that but I don't think it's really developed. I don't think anybody's really talking about actually development in any great fashion. Yes.

Seems kind of late report and it just seems there's anything special about it. In what accident years drove the reserve strengthening was that all 18.

No it's a little if you look at the best way to look at it is to look at the first six months total. So we've booked about four and a half million dollars worth of adverse on what we think of the daily claims about two thirds of that is 2018. Then there's a little bit for 2017 and then very minor amounts for prior years. And I think I talked early about that it's the development on 2018 has just been a little bit higher than what we expected. So we tweaked that but not dramatically higher but it's it's mostly 18 and 17. OK perfect. And then what was the dollar amount you guys spent on share repurchases. I think it was one hundred one thousand shares like how much was that like an actual dollars for the quarter. Yes six million six million six hundred and sixty three thousand. Now I think you mentioned you guys didn't see a spike up in terms of like a claims before the deadline.

How would you describe now that we're like a little over a month into that post a or b reform era. Like have you seen a noticeable year over year improvement in any of your July claims metrics that are they are giving you confidence that a or b reform might be it might be a positive in terms of core loss ratios.

Chris as we've stated earlier. Right. It's just too early to call. The reason being is don't forget the legislation and what it does is for all a or b that are signed after July 1. You still have a tail going back a couple of years several years of age will be that was signed before that. So this is going to take a while to shake out in a direction as to what concrete effect it has and 30 35 days or 36 days after the legislation went to do fact. It's just too early to tell.

Yes I just to add to that a little bit the I agree it's too early to tell and there may be a positive impact of it but we're not we're not baking any of that into our reserving methodology at this point where I think I mentioned it earlier in my prepared remarks. But if you if you take out the hailstorm which we treated separately 2019 it is developing favorably compared to 2018. I think that we're just continuing to reserve it at that higher rate and if some positives come out of AIB then we'll deal with it. But I think it's going to be a while before we really start to see that and we're not we're not making any of that optimism into our reserving methodology in anyway.

And then just my last one on the reinsurance rules like it sounds like you guys are spending you're spending less over I would like similar limits and retentions.

So I guess just what you're pricing down like is that the way we should think about it just given how little loss creep that you guys had. Chris The reason is difficult to answer that question in that context is because different people look at different ways of saying was pricing up down left or right. Because you're talking about on a risk adjusted basis et cetera and so on. All I know is at the end of the day we've got a similar tower to the one in the last year and the money we've spent is several million dollars less.

Right. How it allocates into all the different pieces. Different layers of move around in different ways. Got it. And were there any major like parts of the program that changed. I'm thinking on a risk adjusted basis like it's just them. It sounds like you paid less and that's what I'm saying is that you can fight your risk adjusted basis is a technique of computation and it's designed to say per unit cost.

It was less so that the other side of it is for our economics is how many millions of limit did you buy and smaller the dollar was a dollar spent far made. And what we're saying is that we bought the same units as last year and we spent we had a go spend that was less we'll leave it to everybody else to say well that's rates are up or down or left or right. Yes.

[Operator Instructions] At this time this does conclude our question and answer session. I would like to turn the call back over to Kevin Mitchell who has a few closing remarks.

On behalf of the tyre management team I'd like to express our appreciation for the continued support we received from our shareholders employees agents and most importantly our policyholders. We look forward to updating you on our progress in the near future.

Thank you for joining us today for our presentation. This concludes today's call. You may now disconnect have a wonderful rest of your day organizing a moment back and private conference everyone has disconnected.