HCI Group's (HCI) Premium Growth Impresses, Rising Costs Ail

HCI Group, Inc. HCI has been delivering higher premiums over a considerable period of time and we expect this momentum to stay in the near term. This probable growth in future will primarily stem from TypTap Insurance Company, which is the company’s technology-based insurance unit.

The expansion of TypTap Insurance Company and its profitability streak will add fuel to the property and casualty (P&C) insurer’s solid premium trajectory. Notably, the insurance subsidiary’s contribution is anticipated to be the company’s primary growth driver in 2019.

Banking on the rising interest rates, the insurer has been experiencing sound investment results and we expect this trend to continue in the future as well. An estimated increase in limited partnership income and higher interest rates on fixed-term securities, short-term investments and cash can lead to better investment income in the near term.

With respect to shareholder value addition, the company has been involved in a string of shareholder-oriented activities like share repurchases and dividend payments. Such efforts underline the company’s strong liquidity position and further preserve the existing investors’ confidence in the stock and attract fresh ones as well.

Interestingly, the company has been focusing on lowering its share count through strategic buybacks. A lower share count translates into individual shares, representing a higher percentage of ownership. Hence, the company will be able to hike dividends without a significant increase in actual cash flows.

Additionally, a solid capital position cushions the company against market uncertainties while retaining its financial strength and flexibility required to chase new opportunities.  

Shares of this Zacks Rank #3 (Hold) P&C insurer have lost 17.9% year to date against the industry’s rise of 0.6%. However, we believe, the aforementioned positives will turn the stock around in the near term.

Notably, for the P&C insurer, the Zacks Consensus Estimate for 2019 earnings stands at $4.50, indicating year-over-year growth of 39.3%.

However, the company has been experiencing escalating expenses in the past few years, which might restrict its operating margin expansion.

Being a P&C insurer, the company is substantially exposed to unpredictable catastrophic events, thereby inducing losses that could affect the company’s underwriting performance.

Stocks to Consider

Some better-ranked stocks from the same space are Cincinnati Financial Corporation CINF, Hallmark Financial Services, Inc. HALL and Berkshire Hathaway Inc. BRK.B, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cincinnati Financial provides property and casualty insurance products in the United States. The company pulled off positive surprises in three of the trailing four quarters, the average earnings surprise being 18.08%.

Hallmark Financial underwrites, markets, distributes and services property/casualty insurance products to businesses and individuals in the United States. The company surpassed estimates in all the preceding four quarters, the average being 91.28%.

Berkshire Hathaway engages in insurance, freight rail transportation and utility businesses. The company exceeded estimates in three of the previous four quarters, the average beat being 4.31%.

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