Matthew Carletti

Matthew Carletti from JMP Securities asked about the combined impact of pricing adjustments and softening reinsurance rates on HCI Group's margins, specifically whether downward pressure is unlikely and if margin improvement is possible. He also sought clarification on the scope of potential M&A, asking if it would be limited to Florida homeowners or include broader opportunities outside Florida or in non-homeowners segments.

Answer

CEO Paresh Patel confirmed that margins are unlikely to face significant downward pressure, and improvement is not out of the question, given softening reinsurance rates. Regarding M&A, Patel provided a 'curveball' perspective, highlighting HCI Group's non-insurance assets (Exio holdings, real estate) that contribute significantly to book value ($140 per share pro forma vs. $80 for insurance operations). He stated the company's aspiration is to 'triple the share price' by thinking about 'bigger moves up' and 'home runs' in growth, leveraging their strong capital base, rather than incremental improvements.

Matthew Carletti from Citizens asked if HCI Group's margins are unlikely to face downward pressure and could potentially improve, considering pricing and reinsurance trends. He also inquired whether future M&A focus would remain on Florida homeowners or expand geographically and by product line.

Answer

Paresh Patel, Chairman and CEO, confirmed that margins are unlikely to face downward pressure and could improve due to softening reinsurance rates. Regarding M&A, Mr. Patel offered a broader perspective, highlighting that HCI Group has generated significant book value from non-insurance assets like Exio and real estate. He stated the company's aspiration is to triple its share price, focusing on 'home runs' rather than incremental improvements, leveraging its solid base of $1 billion in shareholder equity and no debt for larger strategic moves.

Matthew Carletti of JMP Securities inquired about the target market for the Exzeo spin-off, early reception from potential third-party clients, the quantifiable impact of favorable weather on the gross loss ratio, and expectations for the upcoming June 1 reinsurance renewals.

Answer

Chairman and CEO Paresh Patel and President of Exzeo Kevin Mitchell explained that Exzeo's technology is proven across multiple states and lines of business, with a massive addressable market. CFO Mark Harmsworth quantified the weather impact, noting the sub-20% gross loss ratio would normalize to around 24-25%. Paresh Patel described the reinsurance renewal market as having ample capacity, calling the process 'boring,' which he indicated was a positive sign.

Matthew Carletti asked about the strategic rationale for separating the insurance and technology units, potential expansion opportunities outside of Florida, the outlook for Citizens takeout activity, and the components of the fourth-quarter gross loss ratio.

Answer

CEO Paresh Patel explained that separating the Axio Group technology platform provides flexibility to partner with or service other carriers in new geographies like California, independent of HCI's own insurance carriers' risk appetite. He also noted that significant opportunities remain within Citizens and that HCI's technology has become highly efficient at selecting desirable policies. CFO Mark Harmsworth clarified that the Q4 loss ratio included $24.5 million in favorable development, primarily from prior quarters in 2024, and provided the normalized loss ratio figures.

Matthew Carletti asked for observations on Hurricane Milton's impact compared to prior storms, the effectiveness of recent reforms, the drivers behind the strong Citizens policy takeout rate, and the sustainability of the low underlying loss ratio.

Answer

Executive Paresh Patel explained that based on claim counts, Hurricane Milton is tracking at about half to two-thirds the size of Hurricane Ian, indicating a less severe event. He attributed the high Citizens policy take-up rate to HCI's brand reputation, technology, and timing relative to the storm. Executive Mark Harmsworth confirmed the quarter's underlying loss ratio of approximately 25% is a stable, normalized figure and a reliable go-forward number for the near term.

Matthew Carletti asked CFO Andy Omiridis for specific figures on favorable prior period development and weather catastrophe losses for the quarter, noting the absence of named storms.

Answer

CFO Andy Omiridis confirmed $27.5 million in favorable prior period development for the quarter, clarifying there were no significant weather catastrophe losses. Chairman and CEO Bruce Lucas added that Q4 typically has the best loss ratio, and even without the favorable development, net income would have been approximately $150 million.

Matthew Carletti requested specific figures for the dollar impact of favorable prior period development and the total amount of weather-related catastrophe losses in the quarter, beyond any named storms.

Answer

CFO Andy Omiridis confirmed that favorable prior period development for the quarter totaled $27.5 million, spanning the 2024, 2023, and 2022 accident years, with no cat changes or activity. Chairman and CEO Bruce Lucas added that the fourth quarter typically yields the best loss ratio, assuming no October hurricanes, and noted that even without the prior period development, net income would have been approximately $150 million.

Matthew Carletti asked for clarification on what a potential loss would stem from or look like under the Uber AV insurance policy, given it's not a commercial auto policy. He also inquired if the expected accident frequency and severity reduction for AVs, similar to Waymo's published statistics (80-90% lower), should be anticipated for Uber's platform.

Answer

Andrew Robinson, Chairman and CEO, explained that the Uber AV policy is a proprietary, embedded liability product for platform participants, designed for autonomous vehicles operating in a mixed environment. He stated that while the fundamental exposure has comparability, the product redefines how things respond. He confirmed a dramatic difference in both frequency and severity for AVs, citing internal analysis that AV behavior reduces bodily injury severity, and the wealth of available information will be a significant advantage in claims resolution.

Matthew Carletti asked for clarification on the Uber AV insurance policy, specifically what a potential loss would stem from or look like, given it's not a commercial auto policy. He also inquired if the expected lower frequency and severity of AVs, as suggested by Waymo data, would apply to Uber's exposures or if there are unique differences.

Answer

Chairman and CEO Andrew Robinson explained that the Uber AV policy is an embedded, proprietary product designed for autonomous vehicles, covering participants on the platform. He noted that while the fundamental exposure is similar to traditional liability, the definition and response are different, leveraging the wealth of information available from AVs. Robinson affirmed that a dramatic difference in both frequency and severity is expected for AVs, including a reduction in bodily injury severity, which Uber is uniquely positioned to demonstrate through its data, regardless of specific manufacturer technology.

Matthew Carletti of JMP Securities asked about the seasonality of growth, particularly in the high-performing crop and A&H divisions, and how Q1's results fit within full-year expectations. He also requested color on which business lines were seeing favorable reserve emergence.

Answer

CEO Andrew Robinson confirmed significant seasonality, with A&H's major renewal period boosting Q1 growth, while the second quarter will be a lower growth period due to dynamics in Global Property. He reiterated confidence in achieving the mid-teens growth guidance for the full year. CFO Mark Haushill added that accident years 2020 and onward showed favorable emergence, specifically in property, surety, and professional liability, increasing the company's overall reserve margin without prompting a release.

Matthew Carletti from Citizens JMP asked about Skyward's strategic view on M&A and its current capital position, including whether it holds excess capital and has target leverage ratios.

Answer

CEO Andrew Robinson stated that while they are more actively looking at M&A, the bar is 'exceptionally high' to avoid disrupting their successful organic growth engine. CFO Mark Haushill and CEO Andrew Robinson both expressed confidence in the capital position, noting a balanced leverage ratio and significant capital efficiency from the company's diverse portfolio.

Matthew Carletti asked about Skyward's strategy for adding new growth initiatives, such as Media Liability, and inquired about the company's management of casualty reserves amid industry-wide focus on social inflation.

Answer

CEO Andrew Robinson explained that Skyward is strategically focused on building out existing investments rather than needing to add new 'puzzle pieces' for growth, highlighting the new Media Liability unit as a key example. Regarding casualty reserves, he stated that Skyward reserves conservatively with a buffer above indications. While this buffer has eroded in some bodily injury-exposed areas, it remains positive, preventing adverse development, and has been favorable in other lines like transactional E&S.

Matthew Carletti of Citizens JMP asked for guidance on how to think about the company's effective tax rate going forward.

Answer

CFO Craig Howie explained that Hamilton Insurance Group has a significant competitive advantage regarding the global minimum tax. He stated that the company has a five-year deferral and will not begin paying the global minimum tax until 2030. As a result, the current effective tax rate is expected to remain in the low single digits.

Matthew Carletti from Citizens JMP Securities asked if the quarter's ex-catastrophe accident year loss ratio included any noise from large, single-risk industry losses that had been reported by other carriers, such as an airline crash or energy sector events.

Answer

CFO Craig Howie responded that while Hamilton has exposure to such events, there were no significant aviation losses in the quarter, and any impact from other large losses was manageable and already included within the current attritional loss picks. He reminded the analyst that Hamilton's aviation exposure is through reinsurance, not direct insurance.

Matthew Carletti of Citizens JMP Securities asked whether any recent large, industry-wide risk losses, such as an airline crash or energy sector events, created noise in the ex-catastrophe accident year loss ratio for the quarter.

Answer

CFO Craig Howie acknowledged that Hamilton has exposure to the large industry losses mentioned but confirmed they were manageable and not significant for the company. He stated that these losses were already accounted for within the current attritional loss picks for the quarter and reminded that Hamilton's aviation exposure is in reinsurance, not primary insurance.

Represented by David, Matthew Carletti's line of questioning focused on which geographies in Florida the company is currently avoiding and the company's view on future opportunities for takeouts from the Citizens program.

Answer

Founder & CEO Robert Ritchie clarified that while they are not broadly avoiding regions, they actively manage exposure in certain areas like Pasco and Lee County. President Jon Ritchie specified that Monroe County (The Keys) is the only county they will not write in. Regarding Citizens, Jon Ritchie stated that the pool of policies is shrinking and opportunities for large-scale takeouts are likely in the past, though they will continue to seek strategic opportunities without compromising underwriting standards.

On behalf of Matthew Carletti from Citizens, an analyst asked about the company's geographic growth strategy in Florida, particularly if any areas are being avoided. The analyst also inquired about the current view on the Citizens takeout pool and future opportunities.

Answer

Founder & CEO Robert Ritchie clarified that the company manages exposure carefully in counties like Pasco and Lee but is not broadly avoiding regions. President Jon Ritchie specified that Monroe County is the only county they do not write in. Regarding Citizens, Jon Ritchie stated that large-scale takeout opportunities are likely in the past as the pool is shrinking, and while they will remain opportunistic, they will not compromise underwriting standards.

Matthew Carletti sought clarification on the potential $150 million adverse development from the Russia-Ukraine litigation, asking if this figure represents a probabilistic estimate or a 'hard stop' maximum loss based on remaining policy limits.

Answer

Group Managing Director Jonathan Strickle clarified that the $150 million figure is a 'hard stop,' representing the worst-case impact if the company were to lose the U.K. trial. CEO Dan Burrows added that resolving the U.K. trial would put approximately 95% of the litigated exposure behind them, making the issue essentially resolved.

Matthew Carletti asked about lessons learned from the California wildfires and whether the outcome would alter underwriting strategy. He also inquired about the profit commission framework and if there would be a deficit carryforward from 2024 results.

Answer

CEO Dan Burrows explained that the wildfire loss was within the company's catastrophe budget and expectations for such a tail event, validating their gross-to-net underwriting approach. CFO Allan Decleir confirmed that due to the 99.7% combined ratio in 2024, there is no deficit to carry forward into future years regarding the profit commission for The Fidelis Partnership (TFP), stating the framework agreement is working as intended.

Matthew Carletti asked for details on the adverse development in the aviation business, including the specific dollar amount and any changes to the reserving methodology for the Russia-Ukraine conflict. He also inquired about Fidelis's perspective on the competitiveness of the London market.

Answer

CFO Allan Decleir confirmed the adverse development was driven by Russia-Ukraine litigation but was offset by favorable development in property D&F, and stated the reserving methodology has not changed. He declined to provide a specific dollar amount for the aviation line. CEO Dan Burrows addressed the London market, emphasizing that Fidelis's lead position, scale, and global nature provide preferential terms and allow them to find opportunities despite broader market competition.

Matthew Carletti from Citizens Financial Group requested a qualitative update on the rollout of the Baleen platform and asked if the Q1 effective tax rate of 21% is a reliable indicator for the full year.

Answer

CEO Stephen Sills reported that the Baleen technology is working well, enabling rapid quoting, and the focus is now on expanding the broker distribution network. He expressed confidence in a significant premium ramp-up in the second half of the year. CFO Brad Mulcahey stated that the 21% tax rate is likely in the lower range for the year, as the final rate will depend on stock price changes impacting stock-based compensation benefits.

Matthew Carletti of JMP Securities requested an outlook for the slower-growing professional liability and healthcare lines and asked for more detail on competitive behavior, including whether competitors were aggressively pursuing year-end budgets.

Answer

CEO Stephen Sills confirmed that some competitors were aggressive late in the year. He explained that in professional liability, Bowhead is avoiding the highly competitive large public D&O market, instead focusing on growth in cyber, private, and small public D&O. For healthcare, he sees growth in the hospital business, senior care, and managed care E&O, while acknowledging that the miscellaneous medical segment is currently very competitive.

Matthew Carletti asked for an update on the previously mentioned spike in Florida construction claims and requested a breakdown of the moving parts in the Specialty Admitted segment's Q1 premiums, including any potential one-time impacts.

Answer

CEO Frank D'Orazio confirmed that elevated claim frequency persists in the Florida Manufacturers & Contractors book, likely due to a rush to file claims before a change in state statutes, but noted severity in that book is down. Regarding Specialty Admitted, D'Orazio detailed the strategic derisking away from commercial auto. CFO Sarah Doran clarified that the premium decline also reflects the continued runoff of legacy workers' comp programs, which had a larger impact in the prior year's quarter.

Matthew Carletti of JMP Securities LLC inquired about the audit premium impact from prior quarters, potential premium benefits from recent hurricane rebuild activities, and the possible effects of tariffs on medical costs for injured workers.

Answer

President and CEO G. Frost provided the audit premium figures for the four quarters of 2024, noting Q1 2025 was $5 million versus $6.4 million in Q1 2024. She confirmed a slight increase in audit premiums from rebuilding classifications in North Carolina and Georgia. Regarding tariffs, Frost speculated they could affect pharmacy and durable medical equipment costs, but the overall impact would depend on whether those costs are passed through to customers.

Matthew Carletti asked if the strong voluntary premium growth was driven by an expanded agency appetite for AMERISAFE's broader high-hazard offerings, beyond just specific niches like roofing. He also questioned whether recent hurricane activity contributed to Q4 growth or if it is expected to provide a future tailwind.

Answer

President and CEO G. Frost confirmed that a key part of their strategy is ensuring the agency base understands the full breadth of AMERISAFE's risk appetite. She stated the company is focused on increasing the percentage of agents who submit and bind business. Regarding hurricanes, Frost explained that it is too early to see a significant impact in audit premiums and that while there was a slight increase in monthly payroll reporting from affected states, it could not be definitively attributed to storm-related reconstruction.

Matthew Carletti of JMP Securities inquired about the drivers of AMERISAFE's accelerating top-line growth, the progress of its agency engagement initiatives, and the potential business impact from recent hurricane reconstruction efforts. He also requested the ELCM metric for the quarter.

Answer

President and CEO G. Frost attributed the top-line momentum to successful, employee-led initiatives enhancing agent engagement and internal efficiency, all while maintaining strict underwriting discipline. She confirmed that post-hurricane reconstruction in the Southeast could provide a business boost. Frost also stated the ELCM for the quarter was 157.

Matthew Carletti of Citizens inquired about any anecdotal changes in business activity or client behavior since early April, such as project pauses or housing market shifts, due to macroeconomic uncertainty and tariffs.

Answer

President and CEO Craig Smiddy responded that while direct attribution is difficult, he has observed a reduction in the company's Canadian business, particularly in cross-border trucking and travel accident insurance, which may be related to tariffs. He confirmed they have not yet seen an impact on loss costs but are closely monitoring potential effects on areas like auto parts and medical supplies, and will adjust pricing based on real-time frequency and severity trends as they always do.

Matthew Carletti asked about Goosehead's E&S capabilities, particularly in California, and its potential impact on commission rates. He also questioned whether the return of product availability would be gradual or a more sudden event post-storm season.

Answer

CFO Mark Jones Jr. described E&S as a useful tool but stated it's not large enough to materially impact overall commission rates, and he expects the admitted market to eventually return to California. Regarding product availability, he and CEO Mark Miller suggested it could be a 'chunky' comeback, with carriers indicating a potential reopening of capacity after the spring wind and hail season concludes.

Matthew Carletti inquired whether the improving product availability is consistent across geographies and perils, and asked about the impact of California wildfires on Q1 production and the long-term opportunity in the state.

Answer

CEO Mark Miller responded that the market improvement varies by state and product, with auto recovering broadly while homeowners remains tight in certain areas. He stated that despite temporary underwriting moratoriums from the wildfires, California remains operational with a thriving E&S market, and Goosehead sees significant long-term potential to expand its franchise footprint there.

Matthew Carletti inquired about the stabilization of product availability in key markets like Texas and California, and also asked for clarification on a sequential decrease in G&A expenses.

Answer

CEO Mark Miller explained that the auto insurance product market is improving and changes to home insurance policies, such as depreciable roofs and higher deductibles, are creating optimism for a return of product availability. CFO Mark Jones Jr. added that the lower G&A expense was due to disciplined cost control and delaying non-essential spending, with no one-time items affecting the figure.

Matthew Carletti asked for an update on capital management strategy, noting the context of flat premium growth, rising equity, and the stock's discount to book value, and referenced past share buybacks.

Answer

Dana Hendricks, Chief Financial Officer, outlined a comprehensive capital management approach. She emphasized balancing the capital needs of operating subsidiaries, maintaining their 'A' rating from A.M. Best, and ensuring stable RBC levels. Hendricks mentioned they are cautiously adding some investment risk to the portfolio to increase yield. While share repurchases are a consideration, they are weighed against other uses of capital, such as operational investments and managing debt levels.

Matthew Carletti asked for an update on capital management strategy, particularly regarding share buybacks, given the stock's discount to book value, growing equity, and expectations for flat premium growth.

Answer

CFO Dana Hendricks outlined a multifaceted capital management approach. She emphasized prioritizing the company's A.M. Best rating, maintaining stable and adequate RBC levels, and investing in operations to enhance profitability. While share repurchases are a consideration, they are balanced against other capital uses, including operational needs, debt levels, and opportunities to add investment risk back to the portfolio to increase yield.

Matthew Carletti asked for an update on ProAssurance's capital management strategy, questioning the use of capital for buybacks versus holding it, given the stock's discount to book value and the company's cautious growth outlook.

Answer

Dana Shannon Hendricks, Chief Financial Officer, responded that ProAssurance remains committed to capital sufficiency, balancing the needs of its A.M. Best rating, risk-based capital requirements, and liquidity. While comfortable with the current capital position, she stated the company remains cautious due to market volatility, despite A.M. Best's recent affirmation of its ratings.

Matthew Carletti of JMP Securities asked for an update on the competitive environment in medical professional liability over the past year, following the resurgence of social inflation and severity trends.

Answer

President and CEO Edward Rand described the competitive landscape as inconsistent, noting that some mutual competitors, buoyed by strong investment income, are writing policies at levels ProAssurance deems inappropriate. Executive Robert Francis added that while larger carriers show better discipline, many mutuals are still operating as if it were a few years ago, though some rational pricing is returning on a territory-by-territory basis.

Matthew Carletti asked about management's confidence level in achieving the 2025 EPS guidance of $3.60 to $3.90, especially compared to the variability of recent years, and questioned what the largest driver of variance within that guidance range is expected to be.

Answer

President and CEO Marita Zuraitis expressed high confidence in the 2025 guidance, attributing it to the successful profit restoration in the P&C segment and the predictable, stable earnings from the Life, Retirement, and Supplemental businesses. She identified catastrophe and weather-related losses as the primary remaining variable that could drive results toward the high or low end of the range, while noting that the science behind predicting these events is improving.

The analyst asked about the significant valuation gap between the company's sum-of-the-parts analysis and its current stock price, and what potential catalysts could help close that discount, such as continued performance or a structural event like an IPO of Fortegra.

Answer

Management acknowledged the valuation gap and stated the primary strategy to close it is continued strong execution, earnings growth, and book value growth at Fortegra. They believe consistent performance will eventually be recognized by the market. They are also continuously evaluating all structural options to maximize shareholder value, including a potential Fortegra IPO, but did not commit to a specific path.

Matthew Carletti from JMP Securities asked about the expected timeline for returning to Policies in Force (PIF) growth in Personal Lines and the potential impact of non-rate actions, like deductibles, on future catastrophe losses from severe convective storms.

Answer

President and CEO John "Jack" C. Roche and President of Agency Markets Richard "Dick" Lavey responded that the company is shifting to more "offense" in profitable states. They anticipate PIF shrinkage will moderate through 2025, with potential for modest positive growth by year-end. Regarding catastrophe exposure, Roche confirmed that by April 2025, the full renewal cycle of deductible changes will be complete, resulting in a "meaningful" and "significant" improvement in the portfolio's resilience, though he declined to model a specific past event.

Matthew Carletti requested a breakdown of Standard Commercial catastrophe losses by line of business and asked about the long-term strategic vision for the Personal Lines business, including its potential scale and geographic footprint, after the current profit improvement actions are complete.

Answer

John J. Marchioni, Chairman, President & CEO, provided the cat loss breakdown: Property at $93.7M, BOP at $4.4M, and Commercial Auto at $2.3M. On long-term strategy, he explained the first step is proving success in the mass affluent market within the current footprint. A potential second step would be disciplined geographic expansion, while carefully managing the company's overall catastrophe exposure.

Matthew Carletti requested a breakdown of catastrophe losses by line within Standard Commercial and asked about the long-term strategic vision for the Standard Personal Lines business after the current profitability actions are complete.

Answer

CEO John J. Marchioni provided the specific breakdown of Standard Commercial cat losses: $93.7M in property, $4.4M in BOP, and $2.3M in commercial auto. For the long-term Personal Lines strategy, he stated the near-term goal is proving they can compete in the mass affluent market, with a longer-term vision that includes potential geographic expansion to better tap that market in a disciplined way.