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HCI Group, Inc. beats earnings expectations. Reported EPS is $3.22, expectations were $1.41. HCI isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to HCI Group’s Fourth Quarter 2023 Earnings Call. My name is John, and I will be your conference operator. At this time, all participants will be in a listen-only mode. Before we begin today’s call, I would like to remind everyone that this conference call is being recorded and will be available for replay through April 6, 2024, starting later today. The call is also being broadcast live via webcast and available via webcast replay until March 7, 2024, on the Investor Information section of HCI Group’s website at www.hcigroup.com. I would now like to turn the call over to Matt Glover, Gateway Investor Relations. Matt, please proceed.

Matt Glover: Thank you, John, and good afternoon, everyone. Welcome to HCI Group’s fourth quarter 2023 earnings call. On today’s call is Karin Coleman, HCI’s Chief Operating Officer; Mark Harmsworth, HCI’s Chief Financial Officer; and Paresh Patel, HCI’s Chairman and Chief Executive Officer. Following Karin’s operational update, Mark will review our financial performance for the fourth quarter of 2023, and then Paresh will provide a strategic update. To access today’s webcast, please visit the Investor Information section of 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 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 effects on the company’s business, financial conditions and results of operations. HCI Group disclaims all the obligations to update any forward-looking statements. Now, with that, I would like to turn the call over to Karin Coleman, Chief Operating Officer.

Karin?

Karin Coleman: Thank you, Matt and welcome everyone. HCI Group wrapped up 2023 by reporting another excellent quarter, with pre-tax income of $54.2 million and diluted earnings per share of $3.40. In-force premiums increased 30% in the quarter to approximately $1 billion. Similar to prior quarters, each of our business segments had a positive contribution to our results. At our insurance division, Homeowners Choice generated another quarter of consistent earnings, and TypTap Insurance Group reported its fourth straight quarter of GAAP profitability. HCI continued to deliver on its commitment to shareholders, paying a dividend of $0.40 per share, our 53rd consecutive quarterly dividend. On our last earnings call in November, we discussed several initiatives underway.

They included both of our existing carriers were in the process of assuming policies from Citizens. We said we expected those to total between $150 million to $250 million of in-force premium. I’m pleased to announce we completed three depopulations from Citizens, totaling $273 million of in-force premium. We also spoke about plans to form a new reciprocal carrier to be named Condo Owners Reciprocal Exchange, or CORE for short, with the intention of it writing commercial residential insurance in Florida. In five months, CORE went from being a concept to now being a fully licensed carrier with a Demotech rating, has fully placed its reinsurance, and last week completed its first Citizens assumption of $38 million of in-force premium. This is in addition to the $273 million I just mentioned.

CORE also has been approved for an April assumption and has applied for a June assumption as well. I look forward to providing updates on these in the future. In addition to these significant accomplishments, we took an opportunity to retire the Centerbridge preferred shares and TypTap a year ahead of schedule. We also successfully raised $85 million through a common stock offering. To summarize, in a few short months, we were able to add a significant amount of premium, improve our gross loss ratio, launch a new carrier, and simplify our balance sheet. Now I’ll turn it over to Mark to provide more details on our financial results.

Mark Harmsworth: Thanks. So as Karin mentioned, this was another really good quarter for the company. Pre-tax income was over $54 million for the quarter and $117 million for the year. Diluted earnings per share were $3.40 for the quarter and $7.62 for the year. These results reflect the continuing positive direction we’ve been discussing for a while now, growing premiums, higher investment income, better loss trends, and expense management. Gross premiums earned were 18% higher than the same quarter last year, driven by higher average premium per policy and enhanced by the takeouts we’ve done with Citizens. While the full impact of these takeouts is not yet reflected in earned premium, they did add $23 million of earned premium in the quarter.

Investment income was about 50% higher than in the fourth quarter than the same quarter last year. When interest rates were low, we held on to our cash, and now we are seeing the benefits of careful duration management. Cash and fixed term investments now total over $1 billion, and we have positioned the portfolio to generate impressive yields with minimum capital risk. Another positive trend you can see in our results is the continued improvement in the gross loss ratio, which was 30.4% in the fourth quarter, down from 39.4% in the same quarter last year. When the Florida legislative changes were announced, we said we expected the consolidated gross loss ratios to drop from 40% to 30%, and that’s exactly what’s happened. We got here through careful underwriting and rate actions, along with lower claims and litigation frequency.

We’re not getting to these lower loss ratios by reducing reserves. In fact, net reserves at the end of 2023 are higher than at the end of 2022. If you looked at the balance sheet, you might notice that total reserves are lower than a year ago, but those are gross reserves. They’re down for two reasons. First, because of the payments made on storms like Ian and Irma, and second, because we have significantly reduced the ultimate expected loss for Hurricane Ian. Originally, back in September of 2022, we set the ultimate expected loss for Ian based on the models at $960 million. At the end of 2022, we lowered that to $845 million, and at the end of 2023, we lowered it again down to $740 million. While we have lowered the ultimate by more than $200 million to date, we are still at the top of the actuaries range for this storm.

The last trend I wanted to mention relates to expenses. If you look at the combination of labor, policy acquisition, and operating expenses, they’re flat quarter-over-quarter, and as a percentage of premiums, they’re down as we continue to manage expenses. The company is growing, but our expenses are not. Along with the declining loss ratios, expense management is driving significant improvement in the combined ratio, which was 85% for the full year. Now that I’ve talked about improvements to the income statement, I should also talk about improvements to the balance sheet and liquidity driven by profitability, debt management, and capital management. As you know, we raised $85 million of new equity during the fourth quarter, issuing 1,150,000 new shares.

We also expanded the capacity of our credit facility with Fifth Third Bank from $50 million to $75 million during the quarter. As of December 31, 2023, we had just over $215 million of cash and financial investments at the holding company level, and when combined with the credit facility, about $290 million of total holding company liquidity. This is about $100 million higher than it was a year ago. As Karin mentioned, there are a couple of other capital transactions that have happened since the year-end. First, we redeemed the preferred shares owned by Centerbridge, and second, we began the process of converting the balance of our 4.25% convertible notes into common to be completed by the end of the first quarter. A couple of other numbers to mention, book value per share continues to grow.

During 2023, book value per share increased from $18.91 to $33.36. Our debt to capital ratio has also improved considerably. At the end of 2022, it was just over 65%, and at the end of 2023, it was down to 48%. With the transactions happening in the first quarter of 2024, this should reduce further. By the end of the first quarter of 2024, we expect the debt to cap ratio to be under 40%. To summarize, the fourth quarter was a great ending to a really strong year. Revenue is growing, expenses are not, the balance sheet is improving, and so is our holding company liquidity. We’ve positioned ourselves well, and we look forward to the coming year. With that, I’ll hand it over to Paresh.

Paresh Patel: Thank you, Mark. Sometimes the numbers just speak for themselves. Karin talked about the multiple operational achievements over the last five months. Mark provided an update on the financial impact of these achievements, both to the income statement as well as to the balance sheet. Each of these items completed successfully is great just by itself. The fact that we managed to do all of them at the same time is really something. This is possible because of our people and the technology that we have developed. The net result of this is that we crossed the billion dollars in-force premium, which is a major milestone, and with record earnings. Stepping back from the numbers for a moment, our actions have impacted not only our shareholders, but our policyholders as well.

We now provide coverage to the most policyholders in our history. The steps we took helped to improve market conditions and reduce insurance anxiety in Florida. Through our depopulation efforts, as well as forming new carriers, we have helped the situation. Citizens is still too large with over 1.1 million policies, but it is smaller today than at any time in 2023. We look forward to help shrink it further. And the events of the last five months were not impossible. When prudent preparation and planning meet the right opportunity, and if you know how to execute successfully, that is exactly what we have done. In closing, while Q4 2023 was our best quarter so far, it is only our best quarter so far. With that, we will open for questions. Operator, please provide the instructions.

Operator: Thank you, sir. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Matt Carletti with Citizens JMP. Please proceed.

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Matthew Carletti: Hey, thanks. Good afternoon.

Paresh Patel: Hey, Matt. Good afternoon.

Matthew Carletti: Good afternoon. Paresh, your last comment there, you gave us a little peek into your continued appetite for business and to grow in Florida. Can you give us a broader picture of what the competitive landscape looks like and maybe how that might have changed, if at all, over the past three, six months?

Paresh Patel: Sure, Matt. So, what has happened is we started carriers last year. We’ve done depopulations. We were very successful at it in the sense of when we made offers, over 70% of people accepted the offers. All of this was very successful. And we watched the competitive landscape as a whole. And we noticed that there are a lot more depopulations occurring now. I think there are depopulations happening all throughout the year, all the way to June at the moment. So, all of these are very positive things. There are other carriers who have stepping up to depopulate for the first time ever. So, these are all positive signs, building on the things that Mark talked about last year, that litigation reform that was passed will have an effect.

We’re seeing everybody else vote with us that that is occurring. Having said all of that, I also want to make sure that we understand where we sit. Citizens, which had swelled to — those expectations, they would swell to almost 2 million policies by the end of 2023, has started to shrink. It is now about the same size as it was at the end of 2022. Right? So, the depopulation impacts are having an effect on the size of Citizens. It’s still very big, 1.1 million. So, there’s plenty of opportunity. But these are the first signs of a healthy market returning to Florida. And we’re glad we participated in it.

Matthew Carletti: Great. Can you give us any more color on — I mean, Karin, you commented on CORE, the $34 million in-force assumption, I guess, last week, and mentioned, April approved, I think, filing for May. Can you give us any indication of kind of potential size of those assumptions?

Paresh Patel: Hey, Matt, let me take that one as well. When we started CORE, given its capital funding, et cetera, we are trying — our initial objective was to grow it to about $75 million of in-force premium. So, 38 is a very good step towards that. The April and June depopulations will sort of top us up to the number that we want to see. And we’ve already bought reinsurance for all of that. So, CORE is up and running and healthy.

Matthew Carletti: Great. And then just a couple numbers questions, probably for Mark, but for anybody. TypTap surplus at year-end, as well as what was gross written premium for TypTap for the year?

Mark Harmsworth: So, surplus for TypTap is $92.5 million. And what was the other question, Matt?

Matthew Carletti: It was gross written premiums at TypTap for full year ’23.

Mark Harmsworth: For the full year, hang on a second, TypTap was full year $363 million.

Matthew Carletti: Awesome. Thank you very much. Congrats on a really nice quarter of a year. Thanks for the answers.

Mark Harmsworth: Yeah. Thanks, Matt.

Paresh Patel: Thanks.

Operator: The next question comes from Michael Phillips with Oppenheimer. Please proceed.

Michael Phillips: Thanks. Good afternoon, everybody. I guess maybe just a high-level question. Paresh, for your growth loss ratio, which I mean, you guys talked, you expected to be around 30, given what’s happening in Florida. But why target for such a low ratio that’s clearly, light years ahead of anybody else in the state or anybody else in the freaking country? Are you — do you feel like you leave money on the table for growth if you are shooting for such a low loss ratio? And it’s probably even some conservatism in that, I assume, given what you’re doing to your reserves.

Paresh Patel: Good question. I think the growth loss ratio, and just for the sake of it, so it follows along, we define that as our total losses that net loss is divided by gross premium. That low partly because some of it’s because of Florida. But the reason we also do that is it’s just how well our technology works, right? We charge a market competitive premium. It’s just that our technology is so great, sorry, I’m bragging about it at this point, that it picks the right policies and we’ve curated a set of policy orders now who — they file a claim when they have to, but they don’t file a claim when they don’t have to, and it creates a better stable outcome, right? It’s just been one of those things. The other side of this also, it’s a moment in time because when Mark a year ago was talking about the loss ratio going from 40 to 30, right, it seemed like a very big lift that that would occur.

And here we are, done and dusted. So that’s the item of where we sit, right? It’s something we aspire to and once in a while we achieve it, which is a great thing.

Michael Phillips: So, is it harder to get those policies that you talked about that have such great loss ratios? Is it harder to get that same kind of client base the more you expand that technology outside of Florida?

Paresh Patel: Actually, let me try to see if I can explain in a slightly different way, right? And we actually talked about this, about what’s going on inside Citizens, right? So Citizens has 1.1 million policies in it, yeah? And when you look at those policies, you just see 1.1 million policies. What our technology allows us to do is very quickly look at all of those homes and we think of them as red houses and green houses. We’ve talked about this before, right? Green houses are ones that if you take at current prices and keep them for let’s say 100 years, it will be a profitable outcome. Red houses are ones that won’t be profitable and it could be a combination of things. Reinsurance cost is too high or losses will be too high or premiums too low, any number of reasons, the computers decide what’s green and what’s red.

But if you can separate them out, you can — out of the same book separate into red house and green house and have a much better outcome than the pool you’re selecting from, right? And things that we can see is we can see that in Citizens, there’s still probably about 400,000 green homes, but we can tell them apart from the 700,000 red homes that are in there. A lot of other people can’t and that’s what gives you that item, right? We are not getting these numbers because we charge more or less. We’re charging a very market competitive rate. It’s just better policy selection and we have an advantage, because we can tell red from green as opposed to let’s just say somebody who’s colorblind. Yeah.

Michael Phillips: Okay. Thank you for those analogies. I guess, sort of related, what can you say about the margins of the books that you’re getting from Citizens? I know there’s a couple of anomalies like for now, reinsurance costs and commissions and things, but on a normal run rate, how does that profitability, the margins in that book look compared to your normal book? And I guess part of the reason why I asked is because what you just talked about is presumably you’re not using your technology for those new policies that you’re getting from Citizens, but you will eventually maybe when you renew. So, is there a different margin profile in that book compared to your normal underlying book?

Paresh Patel: Okay. Actually, our technology runs through the entire Citizens book and decides what’s red and green, right? So the policies we took over, we already had pretty much processed in terms of what we expect. So that’s the value and the ease with which we can do this, right? So that is all technology and is great. Now, there is Mark’s side of the house, which is finance, et cetera, where we take a more conservative view, right? So until we have that book on — that we take over that book and we study it and we let it age out for about six months to a year, finance takes a much more conservative view and they will reserve to a much higher loss ratio than would otherwise necessarily be indicated, which is what exactly it should be because that’s being conservative.

And eventually, when the book has enough history on our paper, the loss ratio will be adjusted on that book, right? But going in, those assumed Citizens policies carry a higher loss ratio than our existing TypTap and Homeowners Choice books. Does that help?

Michael Phillips: Yeah, it does. Yeah. Thank you. Last one, kind of a numbers question, but it sort of relates to a real-world type of a question. In the gross written premium number that you give us at $320 million, you split between TypTap and Homeowners Choice. I think there’s some accounting of the depopulation in that and I don’t know if you can just wipe that out for us. The reason I ask is because what’s the underlying growth of the two businesses without that number in it?

Mark Harmsworth: Yeah, good question. So it’s Mark. If you look at the consolidated number, so I think we put in the press release the consolidate for Q4. It doesn’t affect any other quarters, obviously. Of that $320.5 million that you see in Q4, $143 million of that is from the Citizens depop. And then if you want to further — I think in your question you said, how does it break down by underwriter? If you look at Homeowners Choice of the 182 in Q4, 120, wait, sorry, I apologize. I don’t have that in front of me. But 143 of the 320 is the consolidate number. I thought I had it by underwriter here in front of me.

Paresh Patel: Yeah. And Michael, a new thing is, presumably you’re asking this to update your model, et cetera. You should be aware that our two underwriters don’t like renew policies evenly throughout the year. TypTap is very heavily skewed in Q4 and early Q1. It has a very high GWP rate in Q4 and early Q1. Homeowners Choice, on the other hand, tends to do most of its renewals in April through August timeframe. So it creates a different dynamic from a gross written premium perspective. Obviously on our own premium, it just evens out.

Mark Harmsworth: And hey, Michael, it’s Mark again. Of that 143 million in Q4, in the consolidated total, 19 million of that is TypTap. So it’s about 143, 19 — 20 million is TypTap and 123 is Homeowners Choice.

Michael Phillips: Okay. Perfect. Perfect. Thank you guys. Appreciate it. That’s all I have.

Operator: [Operator Instructions] The next question comes from Mark Hughes with Truist. Please proceed.

Mark Hughes: Yeah. Thank you. Good afternoon. The loss rate, you got to 30%. Do you think this is — if you’ve made all the progress, does this fully reflect the reform and the results of your underwriting, or is this a stop along the way?

Mark Harmsworth: I think it’s — hey Mark, it’s Mark. I think 30% is a pretty good estimate of where we are right now. So if you’re trying to project out to 2024, I think 30% is about where the book is at. Again, that’s consolidated. We can’t control the weather, of course. We have certain quarters where it can be — we tend to get a little bit more weather in Q1 and Q2. So there’s the chance it could be a little bit higher in those two quarters. But 30% is about, I think, where we’re at. And it’s — as I said in my prepared remarks, but the impact of the legislation has been pretty much what we expected it to be. We expected claims frequency to drop significantly because a significant percentage of claims were AOB claims. We expected it to drop and it did.

We expected the incidence of litigation to drop and it did and it dropped. Both dropped very close to what we had expected them to. But we’re only a year, a year and a half into it. So we’re still watching it closely and there is a certain amount of prudence in those numbers, of course, as we watch this develop. But we thought we’d get to 30% and I think 30% is about where we’re at.

Mark Hughes: Yeah. Would you say the improvement in the Ian losses, is that AOB and litigated claims as well? Or is that just — well, obviously it’s more information that’s driving it, but do you think it’s the same factors that are working through those storm claims?

Paresh Patel: Yeah. So, Mark, don’t forget Ian was after the first round of reform, but before the second round of reforms. But the bigger thing, I think, was driving the numbers there. It’s a totally different set of things. Mark’s initial number, I think 960 he said, was entirely driven from the models, right? RMSA or all the models that are covered to estimate the losses right after the storm makes landfall. That’s what drove that number. We were already thinking that that number was way overstating for us. And as time has gone on, the actuary and we’ve got more comfortable because of actual developments and actual claims and everything else to reduce the number, because keeping that original model number is just not justified.

And as Mark did say in his comments, we’re still at the top end of the range. Putting it differently also is that the book that we are curating seems to outperform model losses when an actual cat event happens, right? This is pretty big. And we didn’t just miss it by a little bit. We seem to be improving in the models by a huge amount. And we think this is a good thing for future events, yeah?

Mark Hughes: What is at this point your appetite for growth and voluntary policies in Florida? You’re obviously doing well with depop. Are you interested in the green policies out there from a voluntary standpoint?

Paresh Patel: Yes, we are. And I think we actually all through most of this last, Q4 and Q1, we continue to write voluntary policies. But it wasn’t — the volume of that was more than offset and by the depopulations, right? They just become big items and that’s just the nature of it of what happens. So yes, I think we will continue to write new policies. But it’s slightly — it’s small numbers compared to what we did in the depopulations. And we had communicated this because the item that people were looking for — what the state needed, whatever he was talking about, was how do you shrink Citizens? And you have a lot of people there who are looking to leave Citizens. They just needed a better home to go to. And we provided that.

And in all three takeouts we did. We were very careful as to how we curated who we made offers to. But the people we made offers to, 70% plus, took us up on those offers, right? I point this out because I think in the November takeout, when we made offers, we got a 70% acceptance rate. Everybody else who was participating in that takeout, their combined acceptance rate was probably around under 30%.

Mark Hughes: Yeah. And could you expand on that? Why do you think that is? Is your premium any different than the others or just the size, the brand? What’s driving that?

Paresh Patel: I think it’s all of the above, right? You have to bring multiple things to the table. Track record, make sure you make a compelling proposition to the policyholder that they should come with us. We have long-corded agents, and we should give a shout out to them. Almost universally, all the policies we selected, the agents who are actively telling the policyholders, this is a better place for you to go to. If I could have put you there in the first place, I would have. So take the offer. So these are all individual little items that all come together that work well. The other side of things also, in all three takeouts, we actually made fewer offers than we were approved for by the OIR. And we did some of that because unless we think the policyholder is going to be happy with us long-term, we tend not to make the offer, right?

We want people to join the HCI family who want to be with the HCI family. You’re seeing all the combinations of all of these things coming together in the right way, yeah?

Mark Hughes: Yeah, yeah. Okay. Mark, given the timing on the takeouts in the first quarter and the magnitude, any thoughts about kind of earned premium contribution in Q1? I think when we get into Q2, might be a little more straightforward exercise, but just given the pacing of things, I wonder if you can provide any guidance on that.

Mark Harmsworth: Yeah. So I think Karin and I both mentioned $273 million of premium in-force, and that’s three takeouts. One in November, one in December, one in January. So I’ll just focus on the ones in 2023 first. We booked $23 million of earned premium in Q4. And if you look at the timing of the assumptions that were done in ’23 and in ’24, earned premium in Q1 would be closer to $60 million to $62 million instead of the $23 million that we have. And then a little bit higher than that in Q2.

Mark Hughes: Yeah. And then the January takeout.

Mark Harmsworth: I sort of shifted gears halfway through there, Mark. I apologize. I included both of them. So they’re in Q — so in Q1, there should be about $40 million more earned premium from those takeouts than there was in Q4. And then there’ll be a little bit more a little bit more again in Q2, because one of those assumptions was toward the end of January. Does that make sense? Does that answer the question?

Mark Hughes: Yeah, that’s perfect. Thank you. And then, I think the question might have been asked earlier and if you answered it, I’m not sure they picked it up. But did you give a kind of a sense of the bottom line contributions from the takeouts if it was $23 million in premium? Do you have a number for the bottom line contribution?

Mark Harmsworth: It’s about $14 million. And of course, that number will be significantly higher in Q1.

Mark Hughes: Okay. Does that margin flow through? Is that 14 out of 23? And then if we just did a little simple math, would the other things be equal?

Mark Harmsworth: So keep in mind from now until May 31st, you’ve got no reinsurance in there, right? So the margin, initially the margin is about 65%. We’re reserving 35% on that book. So you’ve got 65% initially. There’s also no policy acquisition expense initially. Now as policies start to renew in March, some policy acquisition expense will start to creep in. So that’ll erode that margin a little bit. But for the first five months of the year, the margins are obviously very significant. And then when June 1 comes along and reinsurance kicks in, of course, the margins will deviate toward the norm of the rest of the book. But for Q4, Q1, and Q2, you’ve got a very significant amount of premium that’s coming in at a very high margin.

Mark Hughes: Yeah. Okay. Super helpful. Congratulations. Thank you.

Mark Harmsworth: Thanks, Mark.

Operator: [Operator Instructions] The next question comes from Casey Alexander with Compass Point. Please proceed.

Casey Alexander: Yeah. Hi. Good afternoon. I have — a couple questions here. You’re doing the CORE assumptions in April and June and just thinking about the company’s timing, normally they don’t do assumptions right ahead of the busiest storm season. Can you discuss the timing of those assumptions and why not wait until later in the year when you’re past the storm season before making those assumptions?

Paresh Patel: Yeah. Casey, great question of a true veteran, right? The reason for all of that stuff is that these are all the mechanics of depopulation ideas, meeting a new startup, and everything else. CORE started with $25 million of surplus. And because of that, we sort of put it, and we have to have reinsurance for it in place when we do the first depopulation in February 27th. So we had to put that into place. So we bought reinsurance for a certain size book, right? Other little things that go on is because of Citizens depopulation schedules, and blackouts times, et cetera, it’s difficult to hit that peak depopulation size all in one go because of renewal cycles and so on. So that’s why we’re going to do the April and June ones to top up what we already got in February, right?

So you are trying to over three takeouts do what — in theory, you could say you could do it all in one go, but in practice, it’s better to layer it in over three takeouts than to do it in one. So in reality, the April and the June takeouts can almost be thought of as delayed February takeout.

Casey Alexander: Understood. If you already have the reinsurance in place, then you’re covered for the upcoming season. So that makes perfect sense. Thank you for that. Secondly, your discussion about the declining reserves against Ian, the change over $200 million from the models, I’m just curious, the next time there’s a storm, would you again just go off the models first and then work it down, or is your experience with the book knowing that it tends to outperform the models, would you reserve it differently next time or would you do the same thing and just go by the models and then work it down?

Paresh Patel: So Casey, look, the item that happens, right, is the day after a storm everybody is going off the models and everybody uses those numbers, right? That’s kind of like what happened. And actually if you recall, right, vividly do the days after Ian happened, people were busily — the whole industry, modelers, et cetera, out. They say, oh, Ian’s going to be $30 million, then it became $40 million, then it became $50 million. I think it peaked out at over $70 billion was what Ian’s estimate was, right? And we were already looking at it within 10 days given our technology that given our market share, it would be virtually impossible to spend $70 billion on the claims that we had. But we are also subject to actuaries and industry models and everything else.

That’s why Mark is almost obligated to work with what the model is saying, right? It’s only when about five, six months go by and we start switching over to claims received, payments made, all those kinds of things that you can switch to your own experience model. And that is what’s going on, right? And Mark’s comments about having to reduce Ian, if you recall, he also said he’s at the top end of the range. I don’t think at this point the actuary is telling him he can’t put up more for Ian than that number, right? We have plenty of reinsurance left, but this is how this is going. And as I answered in one of the earlier questions, this is all not by accident. It is a result of the technology and how it curates a superior book and how it actually performs in the strong.

These things are now becoming inescapable as to how well this stuff is working.

Casey Alexander: That again makes perfect sense. Thank you. My last question is, TypTap has now generated four straight quarters of profit. You’ve kind of removed Centerbridge from the equation. So what else does TypTap have to do before you guys would be willing to create a capital transaction for the company?

Paresh Patel: Okay. Casey, I don’t necessarily know that TypTap has been hampered by things we have to do to create a capital transaction. I think we could do that reasonably well and reasonably short order, right? Don’t forget we did all the way to an S1 three years ago. But part of that whole situation is tempered by two items. One is market macro conditions out there in terms of IPOs and stuff and we watch and monitor that. So that’s what we are being told is the market is — conditions are very good for follow-on offerings, but they’re less favorable for IPOs. So that gives us some pause. And the second item is obviously where does — is TypTap actually in need of new capital? If it isn’t, do you want to keep enhancing its value and showing how what a great outfit — what a great company and technology it has and only when it’s fully appreciated by the market then have the capital event.

So these are things that are causing us to not move as quickly as people might anticipate because in being patient, we’re actually I think creating greater value for our shareholders, which ultimately is the goal.

Casey Alexander: Okay. Thank you for that. And my last question is, there’s significant indication that — interest rates are likely to be declining at some point in time here in the next several months. Just look at Chairman Powell’s testimony earlier today. And you guys have a significant cash hoard. At what point in time do you start to kind of extend duration a little bit and try to capture some of some of that yield curve for a little longer compared to where short-term rates are likely to go over the next 12 to 24 months?

Paresh Patel: Funny you bring that up. We were just having that discussion internally, right? And I think in the coming months we will be extending duration and you’re going more towards fixing the yield on our cash hoard. So yes, we are exactly the same mind and we are starting to move in that direction.

Casey Alexander: Okay. Well, thank you for taking my questions. Appreciate it.

Mark Harmsworth: Thank you.

Paresh Patel: Okay.

Operator: At this time, this concludes the question-and-answer session. I would now like to turn the call back to Paresh Patel who has a few closing remarks.

End of Q&A:

Paresh Patel: Thank you. On behalf of the entire management team, I would like to thank our shareholders, employees, agents, and most importantly our policyholders for their continued support. Thank you.

Operator: At this time, this concludes our question-and-answer session. This concludes today’s call. You may now disconnect.