HCI : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

About this update from Hci Group, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the United States ("U.S.") Securities and Exchange Commission (the "SEC") on February 26, 2026 (the "2025 Annual Report"). This section is intended to (i) provide material information relevant to the assessment of our results of operations and cash flows; (ii) enhance the understanding of our financial condition, changes in financial condition, and results of operations; and (iii) discuss material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future performance or of future financial condition. The following discussion and analysis contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates involving risks, uncertainties, and assumptions, which could differ materially from actual results. Factors that could cause such differences are discussed in the sections of this Quarterly Report on Form 10-Q titled Item 1A "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements, including statements about our plans, objectives, expectations, assumptions or future events, involve risks and uncertainties. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effects of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; changes in the demand for, pricing of, availability of or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; the severity and impact of cybersecurity incidents; and other risks and uncertainties and other factors listed under Item 1A - "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q as well as the 2025 Annual Report. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance. Except as required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. OVERVIEW HCI Group, Inc., together with its subsidiaries (collectively, "we," "our," "us," the "Company," or "HCI"), is primarily engaged in the property and casualty insurance business. We provide various homeowners' property and casualty insurance products for properties located in the State of Florida, which is our primary market, as well as in other states in the northeast and southeast regions of the U.S. Our insurance operations are supported by other insurance-related subsidiaries within the consolidated group. Exzeo Group, Inc. ("Exzeo"), a publicly traded majority-owned subsidiary, provides turn-key insurance technology and operations solutions based on a proprietary platform of purpose-built software and data analytics applications that are specifically designed for the property and casualty insurance ecosystem. We utilize Exzeo's internally developed software technologies to identify profitable underwriting opportunities, drive efficiency in claim processing and settlements, and streamline operations across our insurance operations and other insurance-related businesses. We also provide attorney-in-fact ("AIF") services for reciprocal insurance exchanges owned by their policyholders. Although we do not have any equity interest in the reciprocal insurance exchanges, we are required to consolidate them as their primary beneficiary. In addition, we have a commercial real estate group that is primarily engaged in the business of developing and operating commercial properties for investment purposes or for our own use. HCI Group, Inc.'s common stock is currently listed on the New York Stock Exchange ("NYSE") under the symbol "HCI." Exzeo completed its initial public offering in November of 2025 and is currently listed on the NYSE under the symbol "XZO." As of March 31, 2026, HCI Group, Inc. owned approximately 82.5% of Exzeo's outstanding shares of common stock, inclusive of unvested restricted stock. We identify our segments based on the manner in which our Chief Executive Officer, who is the chief operating decision maker, evaluates performance and makes decisions regarding the allocation of resources. We have five reportable segments: Insurance Operations, Exzeo, Reciprocal Exchange Operations, Real Estate, and Corporate and Other. Due to their economic characteristics, our property and casualty insurance and reinsurance operations, excluding the insurance operations under Reciprocal Exchange Operations, are grouped together into one reportable segment under Insurance Operations. The Exzeo segment represents Exzeo's operations related to insurance technology and operations solutions for property and casualty insurance carriers. The Reciprocal Exchange Operations segment represents the insurance operations of consolidated reciprocal insurance exchanges that are owned by their policyholders. The Real Estate segment represents the operations of our commercial real estate group that is primarily engaged in the business of developing and operating commercial properties for investment purposes or for our own use. The Corporate and Other segment represents the activities of the holding companies and any other operations that do not meet the quantitative and qualitative thresholds for a reportable segment. The determination of segments may change over time due to changes in operational emphasis, revenue, and results of operations. Refer to Note 13 "Segment Information" to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q. All financial information presented in this section has been prepared in U.S. dollars in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and includes the accounts of HCI Group, Inc. and its subsidiaries and consolidated variable interest entities. All intercompany transactions have been eliminated. FACTORS AFFECTING OPERATING RESULTS Our general operating and growth strategies are to continually optimize our existing book of insurance business, organically expand our insurance business, manage our costs and expenses, diversify our business operations, develop and deploy new technologies to streamline operational processes, and maintain a strong balance sheet so we can quickly pursue accretive opportunities when they arise. Our growth strategies also include policy assumption from third-party insurance companies with the intention of renewing and/or replacing them with our policies. Our insurance business has grown both organically and through strategic policy assumptions, which have been a key driver of our expansion. We have participated in legislatively mandated take-out programs, designed to reduce the state's risk exposure by transitioning policies from Citizens Property Insurance Corporation ("Citizens"), a Florida state supported insurer, to private insurers. We selectively pursue additional assumption opportunities with Citizens when they align with our risk appetite and growth strategy. We also assume policies from other insurance companies in Florida and/or any other state in which we operate. The nature of our business is to cover losses that may arise from, among other things, hurricanes and other catastrophic events such as tornadoes, floods and winter storms. The occurrence of any such catastrophes could have a significant adverse effect on our business, results of operations, and financial condition. To mitigate the risk associated with catastrophic events, we purchase reinsurance from other large insurance companies. Even without catastrophic events, we may incur losses and loss adjustment expenses that deviate substantially from our estimates and that may exceed our reserves, in which case our net income and capital would decrease. Our operating and growth strategies may also be impacted by regulation of our business by the State of Florida and other states in which we operate. For example, insurance regulators must approve our policy forms and premium rates as well as monitor our compliance with financial and regulatory requirements. Seasonality of Our Business Our insurance business is seasonal as hurricanes and tropical storms affecting Florida, our primary market, and other southeastern states typically occur during the period from June 1 st through November 30 th of each year. Winter storms in the northeast usually occur during the period between December 1 st and March 31 st of each year. Also, our reinsurance treaty year is typically effective on June 1 st of each year and any variation in the cost of our reinsurance, whether due to changes in reinsurance rates, coverage levels or changes in the total insured value of our policy base, will occur and be reflected in our financial results beginning on June 1 st of each year. RECENT EVENTS In March 2026, Fortex Reinsurance SPC, Ltd. ("Fortex"), our wholly-owned Cayman Islands domiciled captive reinsurance subsidiary, received its license to operate as a Class B insurer in the Cayman Islands. Fortex will allow us additional flexibility to selectively retain risk and reduce the cost of third party reinsurance. Fortex is regulated by the Cayman Islands Monetary Authority. KEY PERFORMANCE INDICATORS We make strategic decisions, measure our performance, evaluate our business, and identify trends in our business using certain key performance indicators, including the operating metrics gross loss ratio, gross expense ratio, and net combined ratio. Computations of our key performance indicators may not be comparable to other similarly titled measures reported by other companies. Additionally, we compute and disclose other ratios for informational purposes only. Gross Loss Ratio Gross loss ratio is defined as losses and loss adjustment expenses in relation to gross premiums earned. The gross loss ratio represents the percentage of our premiums used to cover our losses. We use the gross loss ratio as a metric to measure and monitor our underwriting and pricing practices. Gross Expense Ratio Gross expense ratio is defined as total expenses excluding losses and loss adjustment expenses and interest expense in relation to gross premiums earned. The gross expense ratio represents the percentage of our gross premiums used on operating expenses. We use the gross expense ratio as a metric to measure and monitor the efficiency of our operating and overhead costs. Net Combined Ratio Net combined ratio is defined as total expenses excluding interest expense in relation to net premiums earned. The net combined ratio represents the combination of the net loss ratio and net expense ratio. We use the net combined ratio as a metric to measure and monitor our overall profitability. RESULTS OF OPERATIONS The following table summarizes our results of operations for the three months ended March 31, 2026 and 2025 (in thousands, except per share amounts or as otherwise indicated): Three Months Ended March 31, 2026 2025 Change Revenue Gross premiums earned $ 326,206 $ 300,383 $ 25,823 Premiums ceded (104,055 ) (99,635 ) (4,420 ) Net premiums earned 222,151 200,748 21,403 Net investment income 17,301 13,751 3,550 Net realized investment gains 534 1,167 (633 ) Net unrealized investment losses (1,698 ) (1,906 ) 208 Policy fee income 1,576 2,229 (653 ) Other 3,018 444 2,574 Total revenue 242,882 216,433 26,449 Expenses Losses and loss adjustment expenses 65,600 59,291 6,309 Policy acquisition and other underwriting expenses 31,770 27,287 4,483 General and administrative personnel expenses 22,353 20,483 1,870 Interest expense 923 3,384 (2,461 ) Other operating expenses 6,852 5,649 1,203 Total expenses 127,498 116,094 11,404 Income before income taxes 115,384 100,339 15,045 Income tax expense 30,341 26,109 4,232 Net income 85,043 74,230 10,813 Net income attributable to noncontrolling interests (11,636 ) (4,546 ) (7,090 ) Net income after noncontrolling interests $ 73,407 $ 69,684 $ 3,723 Ratios to Net Premiums Earned: Loss Ratio 29.5 % 29.5 % - Expense Ratio 27.4 % 26.6 % 0.8 % Combined Ratio 56.9 % 56.1 % 0.8 % Ratios to Gross Premiums Earned: Loss Ratio 20.1 % 19.7 % 0.4 % Expense Ratio 18.7 % 17.8 % 0.9 % Combined Ratio 38.8 % 37.5 % 1.3 % Earnings Per Share: Basic $ 5.62 $ 6.47 $ (0.85 ) Diluted $ 5.45 $ 5.35 $ 0.10 Comparison of the Three Months Ended March 31, 2026 to the Three Months Ended March 31, 2025 Gross Premiums Earned increased primarily due to a higher volume of policies in force as a result of the addition of policies assumed from Citizens during the first and fourth quarters of 2025. For the three months ended March 31, 2026, gross premiums earned were $291.2 million from Insurance Operations and $36.5 million from Reciprocal Exchange Operations. For the three months ended March 31, 2025, gross premiums earned were $282.1 million from Insurance Operations and $19.4 million from Reciprocal Exchange Operations. Premiums Ceded increased primarily due to the growth in the volume of policies in force. Premiums ceded represented 31.9% and 33.2% of gross premiums earned during the three months ended March 31, 2026 and 2025, respectively. Our premiums ceded represent costs of reinsurance (i) to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts, (ii) to provide additional loss coverage on a high-value individual risk basis through facultative reinsurance, or (iii) to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. Under contracts in effect prior to June 1, 2025, reinsurance costs could be adjusted by retrospective provisions under reinsurance contracts. There were no adjustments to premiums ceded related to retrospective provisions for the three months ended March 31, 2026 and 2025. Net Premiums Earned represent gross premiums earned less premiums ceded. Net Premiums Written represent premiums charged on policies issued during the period less any applicable reinsurance costs. The following is a reconciliation of our Net Premiums Written to Net Premiums Earned for the three months ended March 31, 2026 and 2025 (in thousands): Three Months Ended March 31, 2026 2025 Net Premiums Written $ 176,637 $ 189,611 Decrease in Unearned Premiums 45,514 11,137 Net Premiums Earned $ 222,151 $ 200,748 Net premiums written decreased as the first quarter of 2025 included an assumption of $22.0 million of written premium from Citizens. We had approximately 297,800 policies in force as of March 31, 2026 compared to approximately 278,400 policies in force as of March 31, 2025. Net investment income increased primarily as a result of an increase in our invested assets. Losses and Loss Adjustment Expenses increased primarily due to a higher volume of policies in force as well as some weather-related events in the northeast during the three months ended March 31, 2026. The gross loss ratio for the three months ended March 31, 2026 was 20.1% compared to 19.7% for the three months ended March 31, 2025. See "Reserves for Losses and Loss Adjustment Expenses" under "Critical Accounting Policies and Estimates." Policy Acquisition and Other Underwriting Expenses primarily reflect the amortization of deferred acquisition costs such as commissions payable to agents for production and renewal of policies and premium taxes. The overall increase was primarily due to a higher volume of premiums in force in the comparative periods. Income Tax Expense increased primarily as a result of an increase in income before income taxes. The effective tax rate for the three months ended March 31, 2026 and 2025 was 26.3% and 26.0%, respectively. Incorporated within each rate is the federal statutory tax rate of 21.0%, state taxes (net of federal benefits), and unfavorable non-deductible compensation expenses. Net income attributable to noncontrolling interests increased primarily as a result of an increase in net income generated by Reciprocal Insurance Exchange Operations as well as the dilution of HCI's ownership of Exzeo as a result of Exzeo's initial public offering in November 2025. Ratios The gross loss ratio, gross expense ratio, and net combined ratio each remained relatively consistent from the three months ended March 31, 2025 to the three months ended March 31, 2026. LIQUIDITY AND CAPITAL RESOURCES Throughout our history, our liquidity requirements have been met through issuances of our common and preferred stock, debt offerings, and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by our insurance subsidiaries from premiums written and investment income. We may consider raising additional capital through debt and/or equity offerings to support our growth and future investment opportunities. Our insurance subsidiaries require liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. In addition, we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets. In the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and losses and loss adjustment expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. With the exception of litigated claims, substantially all of our losses and loss adjustment expenses are fully settled and paid within approximately 100 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses. As of March 31, 2026, we have $1.0 billion of cash and cash equivalents. We believe that we maintain sufficient liquidity to pay claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position. In the future, we anticipate our primary use of funds will be to pay claims, reinsurance premiums, interest and principal on our debt, dividends, and to fund operating expenses and real estate acquisitions. From time to time, our use of funds may also include repurchases of shares of our common stock or other strategic initiatives. Revolving Credit Facility As of March 31, 2026, we are party to a senior secured revolving credit facility with Fifth Third Bank ("Revolving Credit Facility"). The Revolving Credit Facility currently provides borrowing capacity of up to $150.0 million and expires on November 5, 2030. Borrowings under the Revolving Credit Facility bear interest at an annual rate equal to the one or three month Secured Overnight Financing Rate plus a ten basis points adjustment plus a margin based on the debt-to-capital ratio, with interest payments due in arrears on January 1, April 1, July 1, and October 1. As of March 31, 2026, we had an outstanding balance of $36.0 million and had an available borrowing capacity of $114.0 million under the Revolving Credit Facility. As of March 31, 2026, we were in compliance with all required covenants. Refer to Note 8 "Revolving Credit Facility" to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q. Long-Term Debt The following table summarizes the principal and interest payment obligations of our long-term debt as of March 31, 2026 (principal in thousands): March 31, Debt Description Issued Maturity Interest Rate Payment Date 2026 4.55% Promissory Note 7/6/2018 8/1/2036 4.55% Monthly $ 4,050 5.50% Promissory Note 6/26/2023 7/1/2033 5.50% Monthly 11,357 5.65% Promissory Note 7/24/2025 8/1/2035 5.65% Monthly 16,816 Total principal amount $ 32,223 There were no significant changes in long-term debt during the three months ended March 31, 2026. See Note 9 "Long-Term Debt" to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q. At-The-Market Facility On January 22, 2024, we implemented an "at-the-market" facility (the "ATM Facility") which gives us the ability to raise up to $75.0 million through the issuance of new shares of common stock through a sales agent (the "Sales Agent"). We have no obligation to sell, and the Sales Agent has no obligation to buy or sell, any shares of common stock under the ATM Facility. As of March 31, 2026 the remaining availability under the ATM Facility was $75.0 million. Share Repurchase Program In March 2026, our Board of Directors authorized a program to repurchase up to $80.0 million, excluding commissions and fees, of shares of our common stock through February 27, 2027 (the "Share Repurchase Program"). The Share Repurchase Program permits us to repurchase shares for cash periodically in open market purchases, block transactions, privately negotiated transactions in accordance with applicable federal securities laws, or by other means, including through the use of trading programs intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions, including Rule 10b-18 under that Act. The timing and total amount of any stock repurchases will be determined at management's discretion and depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices and other considerations. The Share Repurchase Program does not obligate us to repurchase a specific number of shares of common stock, and may be canceled or suspended at any time without notice. During the three months ended March 31, 2026, we repurchased 110,071 shares of common stock for $17.5 million, excluding commissions and fees, under the Share Repurchase Program. As of March 31, 2026, we may repurchase up to $62.5 million, excluding commissions and fees, of shares of its common stock under the Share Repurchase Program. As of May 6, 2026, we repurchased 265,416 shares of common stock for $41.5 million, excluding commissions and fees, and may repurchase up to $38.5 million, excluding commissions and fees, of shares of our common stock under the Share Repurchase Program. Investments The main objective of our investment policy is to maximize our after-tax investment income with a reasonable level of risk given the current financial market. Our excess cash is invested primarily in money market accounts, certificates of deposit, and available-for-sale fixed-maturity and equity securities. As of March 31, 2026, we had $979.9 million of available-for-sale fixed-maturity and equity investments, which are carried at fair value, and our available-for-sale fixed-maturity securities had a weighted-average duration of 5.1 years. Changes in the general interest rate environment affect the returns available on new available-for-sale fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing available-for-sale fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new available-for-sale fixed-maturity investments but increases the market value of existing available-for-sale fixed-maturity investments, creating the opportunity for realized investment gains on disposition. In the future, we may alter our investment policy with regard to investments in federal, state and municipal obligations, preferred and common equity securities and real estate mortgages, as permitted by applicable law, including insurance regulations. Limited Partnership Investments Our limited partnership investments consist of six private equity funds managed by their general partners. Withdrawals from limited partnership investments are generally not permitted and distributions occur when the underlying investments of the limited partnership investments are liquidated. Additionally, two of these funds have unexpired capital commitments which are callable at the discretion of the fund's general partner for funding new investments or expenses of the fund. Although capital commitments for the four remaining funds have expired, the general partners may request additional funds under certain circumstances. As of March 31, 2026, there were unexpired capital commitments of $3.8 million. Refer to Note 5 "Investments" of our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q. Real Estate Investments Real estate investments have long been a significant component of our overall investment portfolio. It diversifies our portfolio and helps offset the volatility of other higher-risk assets. Thus, we may consider expanding our real estate investments portfolio should an opportunity arise. Dividends On April 22, 2026, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on June 18, 2026 to stockholders of record on May 15, 2026. Sources and Uses of Cash The following table is a summary of our cash flow activity for the periods presented (in thousands): Three Months Ended March 31, 2026 2025 Change Net cash provided by operating activities $ 148,811 $ 162,006 $ (13,195 ) Net cash (used in) provided by investing activities (325,223 ) 66,271 (391,494 ) Net cash used in financing activities (19,571 ) (6,248 ) (13,323 ) Effect of exchange rate changes on cash (85 ) (11 ) (74 ) Net (decrease) increase in cash and cash equivalents and restricted cash $ (196,068 ) $ 222,018 $ (418,086 ) Cash Flows for the Three Months Ended March 31, 2026 Net cash provided by operating activities consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $20.1 million less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities consisted primarily of purchases of available-for-sale fixed-maturity and equity securities of $344.0 million and purchases of real estate investments of $0.8 million, partially offset by proceeds from sales of available-for-sale fixed-maturity and equity securities of $17.0 million, proceeds from calls, repayments and maturities of available-for-sale fixed-maturity securities of $2.0 million, and proceeds from sales of real estate investments of $0.8 million. Net cash used in financing activities consisted primarily of $17.5 million of repurchases of common stock and $5.2 million of common stock dividends, partially offset by net subscriber surplus contributions of $2.7 million and proceeds from the exercise of stock options of $0.8 million. Cash Flows for the Three Months Ended March 31, 2025 Net cash provided by operating activities consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $30.7 million less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities consisted primarily of proceeds from calls, repayments and maturities of available-for-sale fixed-maturity securities of $81.2 million, proceeds from sales of available-for-sale fixed-maturity and equity securities of $12.2 million, and proceeds from the sale of real estate property of $0.8 million, partially offset by purchases of available-for-sale fixed-maturity and equity securities of $24.3 million, purchases of real estate investments of $1.9 million, and purchases of property and equipment of $1.7 million. Net cash used in financing activities consisted primarily of $4.3 million of common stock dividends, net repayment of our Revolving Credit Facility of $2.0 million, $0.6 million of net share settlements, and repayments of long-term debt of $0.1 million, partially offset by net subscriber surplus contributions of $0.8 million. OFF-BALANCE SHEET ARRANGEMENTS As of March 31, 2026, we had unexpired capital commitments for limited partnerships investments of $3.8 million as described above. We do not have any other arrangements giving rise to material obligations that are not reported in our consolidated balance sheets as described in Item 303 of SEC Regulation S-K. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The accompanying consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to select accounting policies and make estimates that affect amounts reported in the consolidated financial statements and the accompanying notes. Management's estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions. The following discussion includes estimates prepared in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations, and are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We believe our accounting policies and estimates specific to losses and loss adjustment expenses, reinsurance recoverable, income taxes, stock-based compensation expense, and limited partnership investments involve our most significant judgments and estimates material to our consolidated financial statements. Our accounting policies and estimates and their related risks that we consider to be critical are more fully described in our 2025 Annual Report. For the three months ended March 31, 2026, there have been no material changes with respect to any of our critical accounting policies. Reserves for Losses and Loss Adjustment Expenses Our liability for losses and loss adjustment expenses ("Reserves") is specific to property insurance, which is our insurance subsidiaries' only line of business. The Reserves include both case reserves on reported claims and our reserves for incurred but not reported ("IBNR") losses. As of each period end date, the balance of our Reserves is based on our best estimate of the ultimate cost of reported claims and the IBNR losses based primarily on our historical experience. Changes in the Reserves are charged or credited to operations as the Reserves are adjusted. The IBNR represents our estimate of the ultimate cost of all claims that have occurred but have not been reported to us, and in some cases may not yet be known to the insured, and future development of reported claims. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. As of March 31, 2026, $506.1 million of the total $566.8 million of Reserves is attributable to our estimate of IBNR. The remaining $60.7 million relates to known cases which have been reported but not yet fully settled and represents our best estimate of the cost to settle such claims. As of March 31, 2026, $52.7 million of the $60.7 million in reserves for known cases relates to claims incurred during prior years. Our Reserves decreased from $576.5 million as of December 31, 2025 to $566.8 million as of March 31, 2026. The $9.7 million decrease is comprised of (i) reductions in our non-catastrophe Reserves of $34.7 million for 2025 and prior loss years; (ii) reductions in our catastrophe Reserves of $22.1 million primarily related to Hurricane Ian, Hurricane Helene, and Hurricane Milton; and (iii) partially offset by $47.1 million in reserves established for the 2026 loss year. The Reserves established for 2026 claims are primarily driven by IBNR as of March 31, 2026. The decrease of $56.8 million related to our 2025 and prior loss-years reserves is due to settlement of such claims. Based on all information known to us, we consider our Reserves as of March 31, 2026 to be adequate to cover our claims for losses that have been incurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the Reserves. Adjustments are reflected in the results of operations in the period in which they are made, and the liabilities may deviate substantially from prior estimates. RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 3 "Recent Accounting Pronouncements" to the consolidated financial statements included in this Quarterly Report on Form 10-Q for further information about recent accounting pronouncements and adoptions.

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