Mar 5, 2015
Executives
Kevin Mitchell - Vice President, Investor Relations Paresh Patel - Chairman and CEO Richard Allen - Chief Financial Officer Scott Wallace - President, Property and Casualty Insurance Division
Analysts
Casey Alexander - Gilford Securities Matt Carletti - JMP Securities Arash Soleimani - KBW Edward Hemmelgarn - Shaker Investments
Operator
Good afternoon. Welcome to HCI Group’s Fourth Quarter 2014 Earnings Call.
My name is Robert, and I will be your conference operator this afternoon. 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 6th starting end of this evening. I would now like to turn the call over to Kevin Mitchell, the Vice President of Investor Relations for HCI Group.
You may begin.
Kevin Mitchell
Thank you, and good afternoon. Welcome to HCI Group’s fourth quarter and full year 2014 earnings call.
With me today are Paresh Patel, our Chairman and Chief Executive Officer; Richard Allen, our Chief Financial Officer; and Scott Wallace, President of the Property and Casualty Insurance Division. Following Paresh's opening remarks, Richard will review our financial performance for the fourth quarter and full year 2014, and then turn the call back to Paresh for an operational update and business outlook.
Finally, we will answer your questions. To access today's webcast, please visit the Investor Relations section of our corporate website at hcigroup.com.
Before we begin, I would like to take the opportunity to remind our listeners that today's presentation and responses to questions may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimate, expect, intend, plan and project and other similar words and expressions are intended to signify forward-looking statements.
Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission.
Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial condition and results of operations. HCI Group, Inc.
disclaims all the obligations to update any forward-looking statements. Now, I would like to turn the call over to Paresh Patel, our Chairman and CEO.
Paresh?
Paresh Patel
Thank you, Kevin, and good afternoon, everyone. As Richard will expand on it shortly, 2014 was our seventh very good year in a row.
The fourth quarter of 2014 was our 29th consecutive quarter of profitability. Here are some highlights from the quarter.
In December we paid a $0.275 per common share, our 17th consecutive quarter of paying common dividend. Also we repurchased and retired 256,324 common shares at a total cost of $10.6 million or an average price of approximately $41.20 per share.
We also assumed additional policies from Citizens in December, totaling approximately 36,000 policies with about $106 million in estimated annual premium. Of these policies approximately 30,000 policies are wind-only policies.
On another side we had a slight uptick in losses and loss adjustment expenses in the fourth quarter compared to the year ago quarter. This is consistent with the slight uptick we have seen throughout 2014.
We do not see this as a start of an upward trend, but rather a good normal level from an exceptionally good 2013. This uptick along with the timing and size of Citizens assumption of the principal differences between 2013 and 2014.
To illustrate, in 2013 we assumed $81 million of premium in early November. In 2014, we assumed $106 million, but in mid-December.
This six-week change in the quarter results in the lower premium recognition for the fourth quarter of 2014. As I will discuss later, we also did an assumption in February of 2015.
Now I would like to invite our CFO, Richard Allen to take you through the financial performance for the fourth quarter. Richard?
Richard Allen
Thank you, Paresh, and good afternoon, everyone. For the quarter ended December 31, 2014, income available to common shareholders decreased by $1 million from the same quarter in 2013 to $14.6 million or $1.30 per common share.
Gross premiums earned for the quarter were $91.4 million in line with the prior year. In comparison of the two quarters, the assumption completed in November of 2013 and December of 2014 contributed $11.5 million and $5.3 million, respectively, to the fourth quarter of 2013 and the fourth quarter of 20014.
Losses and loss adjustment expenses increase $3.2 million over the same period in 2013. For the year ended December 31st, income available to common shareholders were $62.7 million or $5.36 diluted earnings per common share, compared to $65.5 million and $5.63 earnings per common share for the year December 31, 2013.
Gross premiums earned increased 8.4% or $28.4 million to $365.5 million compared to the prior 12-month period. For the same period, net premiums earned increased 7.6% to $252.1 million, an increase of $17.8 million.
These increases are primarily the result of the assumption of policies from Citizens in November 2013 and the ability to maintain consistent cost of reinsurance to gross premium earned over the period. Net investment income reflecting the increases in our investment portfolio from the latter part of 2013 increased to $4.8 million as compared to $1.5 million in 2013.
Benefited by market conditions in 2014, realized gains on the sales of investments were $4.8 million for the year ended December 31, 2014. Loss and loss adjustment expenses increased to $79.5 million from $65.1 million, with the loss and loss adjustment expense ratio to gross premiums earned were 21.7%.
This increase is primarily the result of claim development and with growth strengthening throughout the year. Policy acquisition cost increased to $38 million, reflecting the renewal and subsequent commissions in premium taxes on the policies we served in November of ‘13.
Interest expense increased by $6.8 million due to $103 million of senior notes issued in December 2013. Our combined ratio for the fourth quarter of 2014 was 66.8% compared to the prior period of 63.1%.
For the year ended December 31, 2014, our combined ratio was 65.5% compared to 57.5% for the prior year. On the balance sheet, invested assets increased to $168.8 million from $146 million at December 31, 2013.
Cash and short-term investments increased to $314.7 million from $293.4 million a year ago. Total stockholder’s equity increased 13.7% over the year to $182.6 million.
Included in the balance sheet and income statement, as discussed in prior calls is a benefit of our multi-year reinsurance treaties. As of December 31, 2014, we have accrued a benefit of $28.1 million and deferred recognition of $6.5 million of ceded premiums.
In closing, I mostly remember that 2014 was an extremely good year, following an exceptional year of 2013. Paresh?
Paresh Patel
Thank you, Richard. And now we’re going to talk about 2015 a little bit.
In January, we announced an increase of our regular quarterly past dividend of $0.30 from $0.275 per common share. In February, we assumed approximately 4,700 policies -- additional policies from Citizens.
This is addition to the December takeout. This assumption is significant on its own but when combined with the December assumption will result in approximately 41,000 policies joining the company with an estimated annualized premium of $118 million.
Of those, about 32,000 policies on a combined basis are wind-only policies. With these two new assumptions, we expect 2015 to be a very good year provided the hurricane season remains calm.
Also we believe our strong cash position of $315 million allows us to patiently speak and capitalize on accretive growth opportunities if and when they arise. And this is something with Florida history and we feel confident it will occur again.
Finally, on a personal note, before we open our calls for questions, I would like to take a moment to thank Scott Wallace for his service as a President of our Property and Casualty Insurance division. As we announced last month, Scott will be retiring at the end of May after a 37-year career in the insurance industry.
We thank him for his service to the HCI Group and to the industry and wish him a happy and healthy retirement. He has built and leaves behind a very talented management team at Homeowners Choice.
With that, we are ready to open the call for questions. Operator, please provide the appropriate instructions.
Operator
Thank you, sir. [Operator Instructions] Our first question comes from the line of Casey Alexander with Gilford Securities.
Please proceed with your question.
Casey Alexander
Yeah. Good afternoon.
Did you review sort of the economics and risk reward of the wind-only policies as oppose to more traditional multiline policies?
Paresh Patel
Sure Casey. Let us be straightforward.
The wind-only policies obviously don’t cover any exposure for all the other peril. It’s really pretty much a hurricane coverage policy only.
What that means, is that between the assumption times to at least June 1, when we have to add hurricane reinsurance to them, they basically have a very low loss ratio even lower than we said before. The only expenses they would have with them is that the renewal, we would get the product acquisition cost and whatever management overhead we allocate to them.
So they are very…
Richard Allen
Limited losses.
Paresh Patel
Yeah, they are very profitable in the short term. Also in this particular scenario where we are in 2015, what will happen on June 1, is we’ll have to buy reinsurance of them.
And when we do that, given the way reinsurance rate seems to be softening, and I’m godly hopeful that they be as soft as they are that, that should also provide them to be a very, very good assumption that we did in December. Well, other item I would tell you is that there -- there seems to be some perception to some people that these policies are -- did not have any reinsurance on them whatsoever until June.
That isn’t really true because these policies do get covered by existing reinsurance power should there be a massive spring, storm or something, right. So it’s just -- they don’t get recalibrated to a 1 in 100 P&L of June 1.
Did that help?
Casey Alexander
Yeah. It does.
The share repurchase that you mentioned, there are 260,000, was that just in the fourth quarter?
Richard Allen
Yeah, Casey, it was.
Casey Alexander
Okay. What is book value at currently?
Richard Allen
Book value currently as of 12/31 is 17.92% -- yeah 17.92% compared to 14.68% at the prior year end.
Casey Alexander
Okay. Can you discuss, has there been any change in the attrition rate of the previously taken-up policies as we look at the book from Q3 to Q4?
Paresh Patel
Casey, we don’t see it that way and actually, on the year as a whole, we actually seem to be retaining a greater percentage pf policies, right. Now, I don’t want to again explain this as a big trend.
We are preaching perfection here because I think we are going up from 86% retention to 88% retention. Obviously, it’s not going to change, increasing forever more.
We do seem to be on the top end of the range. But so far, we seem to see retention improving despite the more competitive environment that is out there.
Casey Alexander
Another company in your marketplace reported today and discussed that they were evaluating several M&A opportunities. Have you seen any M&A opportunities come across your desk?
I know you can’t be specific about it, but what’s the marketplace look like?
Paresh Patel
Casey, I guess in simple terms, yes. We seek M&A opportunities frequently and actually I would say even may one a week.
The issue that’s there is the difference between what the seller would want to sell on that versus what we would buy at. That’s always the problem in M&A activity, right.
There are always things available for sales. There are always things available to buy.
It’s just a question of -- is it in an appropriate price? And you’ve actually seen us do this a couple of times in terms of go through -- looking acquisition rate closely.
But if it doesn’t meet our price, we are equally disciplined not to walk away from that, yes. So -- yes, I agree with the other company in terms of M&A opportunities seen there.
It’s just a question of, at what price you are willing to pay that premium.
Casey Alexander
All right. Okay.
A couple of years ago you started up an effort in Alabama as I recall. Is there any status update to that and what is kind of your, like in take your temperature about potentially branching out to some other states?
Paresh Patel
Okay. Alabama, specifically was something that if we do at a time, we sort of walk down that initiative when we got down to our end of it.
The risk reward benefit wasn’t sufficient for us to keep pursuing it. So while it’s there, it’s very much on a back-burner basis.
Casey Alexander
Okay.
Paresh Patel
Okay. And in terms of pursuing expansion assets in the state, we continue to look and we sort of investigate, check all those kinds of things.
But we don’t see it as anything significant or it’s absolutely blank for 2015 in any particular state at the moment. Are we exploring other states?
Yes, we are. We are just waiting for the right opportunity.
Casey Alexander
Okay. And my last question is we know that you’ve done multi-year contracts with reinsurance.
How would you characterize the EV reinsurance opportunity for 2015, given that there has been some discussions at lower rates around the horizon again, which make come as a surprise to some people?
Paresh Patel
Casey, as we sort of stated even last year that we were doing some of the multi-year is due to hedge volatility in insurance pricing, the reinsurance pricing, right. The point about hedging is sometimes you get wins and sometimes -- because prices go up and sometimes it goes the other way and you go -- you buy and hedge, that would get a better deal.
This is obviously at least for the multi-year contracts we did, more in that side of the equation. Having said that, we do have one of our multi-year contracts actually terminating at the end of May 2015.
So, we do what we are getting that recycling of those contracts at lower rates through basic avenues. The other way we look to benefit from this is the additional reinsurance we’ll have to buy for the wind-only book because we price the profitability and looking at that business, based on what we thought will slightly stress test numbers, which were reinsurance rates from a couple of years ago.
So, clearly, if they are lower than that, we should get some benefit from that. And then the final point about there being lower rates this year versus last year.
You are not getting the same sense that it’s going to be as big and as guaranteed that there will be lower rates this year, as we were hearing at this time last year. So, obviously from our perspective, we would like there to be lower rates and we hope there will be lower rates but I’m not so certain that it as big and as short thing as it was last year.
Yeah.
Casey Alexander
Yeah. Well, frankly, we would prefer that your hedges not work because if they are working that’s probably bad news for the Citizens of Florida.
Thank you for taking my questions. I appreciate.
Paresh Patel
Thank you.
Operator
The next question comes from the line of Matt Carletti with JMP Securities. Please proceed with your question.
Matt Carletti
Hey. Thanks.
Good afternoon, guys. I have a few questions.
Couple high-level ones. We touched on a few pieces like, kind of growth outlook already.
Thanks for the color and clarity on some of the take-outs. I was hoping if you could maybe fill in some of the other pieces gained, being some of the initiatives you’ve had with flood, some of the initiatives with potential cross-sells on the wind onlys and other avenues?
How should we think about, not just the next few quarters but kind of as we look through ’15 and even in ’16, what sort of growth opportunities you see on that result?
Paresh Patel
That’s a great question. From our perspective, as we had almost -- we hear a lot of these things, we sort of say thing when they are, highly unpopular for people to hear.
But then, I think it sort of plays out that way. If you recall, when people were looking at the beauty and the opportunity in the Citizens clearinghouse, right, we were saying -- we were slightly skeptical, I think the numbers speak for themselves at this point.
Along the similar lines in the flood business, et cetera, what’s beginning to happen is as [FEMA] [ph] went from that massive rate increases everywhere, they are increasing rate, starting in April and I think it will happen every year. And as those increases flow through, we are more likely to increase our premiums from that side of the business.
So, we are not necessarily looking to increase exposure and/or headcounts. We are more focused on premiums and I think we are heading in right direction.
Matt Carletti
I know you guys have been working on some things very long-term. Proplet comes to mind.
Where do you see HCI and kind of three to five years? We did have kind of the current environment.
How do you see the company being similar or different longer down the road?
Paresh Patel
Well, to be blunt about it, when we look out three to five years, right, you are going to see the business and industry that Homeowners Choice operates in one of two things, out of the same industry that’s being here for the last, shall we say 200 years in terms of how things work. And if that’s the case, we will do fine as an insurance company.
On the other hand, we are very aware that seems to be a technological play that the industry might be going through a seismic shift. And the longer term stuff that we are doing in Exzeo, et cetera is designed to make sure that we are positioned to at least participate in that transformation should it occur.
And things like Proplet obviously are products that get us to that point.
Matt Carletti
Great. And then all I have left there is just a few numbers questions.
Specifically in -- for the quarter, do you have handy gross written premiums, net written premiums, and discount both the current quarter and year ago?
Richard Allen
I have got the gross written for the annual basis right there, Matt, if that’s all right. And I will get it for you shortly and we will give it to you after the call.
Gross written for the year was $407,653,000, net written $294,230,000. Weighted average shareholders shares as of 12/31 for the year was 11,694,000 and for the quarter, it was 11,420,000.
Matt Carletti
Perfect. And then discount, do you have that handy?
Paresh Patel
Yes. Matt, let me handle that one first.
Matt Carletti
Sure.
Paresh Patel
It’s an interesting question. Everybody always focuses on that.
Matt Carletti
Right.
Paresh Patel
And it’s been causing some confusion. I just wanted to kind of clarify.
We don’t focus on that number as much as other people do and they seem to think that’s a big number, right. And what I would like to say about that is that people -- we have different companies and they look at things differently.
It’s like if you are a trader, you look at the stock price everyday of the week. If you are investor, you are more worried about where the stock is going to be a year or two years down the road.
And we are more about premium and those kinds of things. And just to illustrate the point about why this matters and why we look it at the way we do.
We assumed about $61 million of unearned premium when we took over HomeWise in November 2011, okay. That was four years ago -- since then -- sorry 3.5 years ago.
Since then, we’ve not only earned that $61 million, we’ve earned a further $187 million on those same policies. And currently, we -- as of the end of December, we’re still on $5 million a month on those policies, right.
What the discount was day-to-day on those policies isn’t really the focus, its how much earned premium are we getting on a monthly basis and how much of a future cash flow are we going to get out of this. And to illustrate how we focus on this and we know these numbers.
Back in July 2007 when we did our first assumption about 58,000 policies, it was $77.6 million of an assumed premium. Since then on those policies, we’ve earned a further $31.7 million in premium and we continue to do that at about a $280,000 a month, right.
So in that context policy counts within a few hundred this way or that way, while it’s interesting, it’s not really that big. But having said all of that stuff, the discount at the end of the year as we filed with the department was a 177,360, okay.
Matt Carletti
Yes. Great.
Thank you very much and congrats on last year and best of luck in '15.
Paresh Patel
Thank you.
Richard Allen
Thank you.
Operator
Our next question comes from the line of Arash Soleimani with KBW. Please proceed with your question.
Arash Soleimani
Hi, everyone. Just a few questions here.
First, can you -- just a numbers question, what was the prior period reserve development in the quarter?
Paresh Patel
We don’t really have it handy, but we can call for both of the Qs and Ks. We will get you that back after the call, yes.
Arash Soleimani
Okay. And also, I think you mentioned in the release something about prior development, what was -- was there something specific driving that?
Paresh Patel
No. Arash, I think overall, and as I said in my earlier comments right, when you compare 2013 to 2014 you go there is an increase, right.
Arash Soleimani
Right.
Paresh Patel
But we are trying to make sure everybody is so seasoned that we don’t just read the numbers side by side as a 2013 was an exceptional year. So you are now reverting a little bit back to the need and we don’t want to have everybody extrapolate that to reverting to some other number, yes.
Arash Soleimani
Right.
Paresh Patel
So we are making sure we point out as when you look at the Qs and Ks filing, you see that increase, but it’s not a, oh, my god, if the trend is going up there. So I think quarter-over-quarter in the fourth quarter of 2014 versus '13, we were up about $3 million or something.
And if you look year-over-year, it’s about $14 million. So it’s about a $1 million a month.
But you also look you had a bigger book of business and those kinds of things. In 2013, it was exceptionally low because if you compare 2013 to 2012, it was flat year-over-year for a company that added about $100 million in premium, okay.
Arash Soleimani
Right.
Paresh Patel
So you get the just of it that we are trying to -- later we know that you come back from a very high number to a less high number, it is one of the same as it trend. And I said the same thing about retention when Casey asked the question earlier.
We’re retaining policies at such a high number that if we stop from 88 to 85, it is at the end of the world, it’s just 88 is an exceptionally high number. And again, we are trying to make sure everybody could appreciate that there is a certain amount of noise in the business where a few points move around is not a harbinger of long-term anything.
Arash Soleimani
Right. That makes sense.
Can you talk about -- you may have mentioned this, the expense ratio, what helped that improve? I know some of that was I think salaries, was that the bulk of it, or was there anything else in there?
Richard Allen
Basically, salaries and stock compensation expenses were reduced.
Arash Soleimani
Okay. And on those policies the income source picked up this quarter and last quarter, what’s driving the uptick there?
Paresh Patel
The uptick there if you are comparing quarter-to-quarter?
Arash Soleimani
I was looking more so year-over-year, so it looks like…
Paresh Patel
Back in 2013, we had to switch to new accounting standard. They said you had to earn it over the term of the policy.
Arash Soleimani
Okay. So it looks like it’s gone -- 4Q '13 to 4Q '14, it’s gone from I guess 85,000 to about almost a million kind of it’s gradually gone up, so that -- is that all just from change in accounting?
Paresh Patel
Yes.
Arash Soleimani
Okay. And can you talk about I guess in terms of Proplet, how is organic growth?
Is that benefiting at all from Proplet driving anything there?
Paresh Patel
Simple answer, no.
Arash Soleimani
Okay.
Paresh Patel
The item that’s going on is that there is obviously tremendous competition going in the voluntary market to pick up policies organically as anything to be the passion of the moment, right.
Arash Soleimani
Right.
Paresh Patel
You have people talking about how many millions of dollars, the writing $2 million of new business a week or whatever.
Arash Soleimani
Right.
Paresh Patel
That’s wonderful. But if you do $2 million a week or 52 weeks, you get a $104 million.
We assumed the $118 million in two assumptions, right.
Arash Soleimani
Right.
Paresh Patel
And to us the dollar looks just as green as just that one but lot less effort than the other. So we are providing our time for the right set of things, yes.
Arash Soleimani
Right. And then, you touched on this a little bit earlier in the call in response to prior question.
But in terms of the wind-only, I guess what kind of combined ratio is fair to sort of expect on a wind-only policy? And I guess I’m asking that more so on a normalized basis, once reinsurance is factored in, so let’s say a full year where you did buy reinsurance on it.
What does the wind-only policy combined ratio look like compared to your typical personal residential policy?
Paresh Patel
Okay. The numbers go slightly more complicated than just the combined ratio, right, because what’s going to happen is in the absence of hurricanes, just to clarify that, because that’s sort of things are again need to resolve.
What you will find is that the loss ratio on those policies will be a lot less than there is on a normal multi-peril policy.
Arash Soleimani
Right.
Paresh Patel
I don’t think enough the average premium per policy is higher because of rates in those kinds of things. And then further way the other side, the administration part of set up will be about the same.
Arash Soleimani
Right.
Paresh Patel
The fleet will go up a little bit. The expense will go up is the reinsurance cost as the percentage of premium because obviously, the reinsurance is covering almost the 100% exposure of the policy, yes.
Arash Soleimani
Right.
Paresh Patel
Right. So you get all those moving parts.
If reinsurance cost very soft, you should have -- after you add and subtract from here, then everywhere, you should end up with the same kinds of profit margins, maybe slightly better on the wind-only policy because -- and as it’s slightly better because reinsurance costs are slightly on the soft side, yes.
Arash Soleimani
Okay. So I know you always mentioned looking at the third quarter of the normalized combined ratio, so looks like in the third quarter of '14 you guys had 72.1% combined.
So is that sort of what maybe a little bit less than that for wind-only on a normalized basis? Is that sort of fair?
Paresh Patel
The part of that is why we are trying not to put a number especially one to the tenth of a decimal point on that. It’s going to depend on the reinsurance contract, as we get into this on June 1, yes.
Arash Soleimani
Okay.
Paresh Patel
But post June 1, we would know, but pre June 1, because the volatility associated with the reinsurance contract will be so great on those policies, we really don’t want to get down to the nearest percentage point that alone decimal points of that, yes.
Arash Soleimani
Again, I’m just asking ballparks. So I guess, would it be fit -- is AOP, is AOP loss ratio is basically zero on wind-only?
Would the reinsurance cost be higher by about that amount? So you would have like a 30% AOP loss ratio on a typical personal residential policy.
Is the reinsurance cost more expensive by that amount on a wind-only, because as they pick just people itself?
Paresh Patel
Yes. It shouldn’t be by that full amount, right.
Part of the other parts will make this slightly complicated is how those wind policies fit in with the rest of book, right.
Arash Soleimani
Right.
Paresh Patel
So on a general basis right and mark on word and this is definitely a fore-projection et cetera. We are hoping that Q3 2015 is more profitable than Q3 2014.
Definitely, on an absolute dollar basis, we are not a 100% sure that would also be on a combined ratio basis. But if things go the right way, it could be an improvement in both cases, yes.
Arash Soleimani
Okay.
Paresh Patel
But it requires a lot of right things to play out the right way.
Arash Soleimani
Okay. And in terms of the loss ratio was -- I guess year-over-year increase in the loss ratio, was that just a function again of 2013 been really good?
And I mean, I guess is that basically the extend of it or is there anything else?
Paresh Patel
Primarily, it’s basically that, right. It’s getting -- now the other thing that’s also going to happen and just so that everybody sort of see that, with the addition of this wind-only policies, the loss ratio they also start coming down in the next few months.
So that’s going to occur, because it was a wind policy with zero loss ratios on them, yes.
Arash Soleimani
Right. Okay.
I think that’s it for me for now. Thank you so much.
Paresh Patel
Thank you.
Operator
[Operator Instructions] The next question comes from the line of Edward Hemmelgarn with Shaker Investments. Please proceed with your question.
Edward Hemmelgarn
Yeah. A couple of questions.
One, regarding the interest rate environment and then your investments. I mean, you’ve been pretty conservative obviously, expecting that rates are going to be moving higher, given that we’re seeing negative long-term rates in Europe.
What’s your outlook and what are your intentions moving forward with the investment portfolio?
Paresh Patel
One of the luxuries we have as a company is that the primary source of income is not the investment portfolio. So, we tend to sort of take slightly long-term views.
And given that we are a risk business, risk management business on the underwriting side, we generally have tended to shy away from investments that yield, shall we say below 2% a year. So given those kinds of constraints, if interest rates continue in this low environment, et cetera, we will keep building up our cash position.
But I think worldwide there seems to be interest rates coming down. But now you also have the Federal Reserve talking about raising rates later in the year.
And we are hopeful that they actually do that, not just for investment portfolio sake but I think just from the general economy perspective, because they seem to be living in this interesting world where the U.S. economy seems to be doing very well and improving.
I know the rest of the world seems to be in a slightly different spot. But I’d continue to hope that the American economy goes from strength to strength for the sake of…
Edward Hemmelgarn
Got you. That does mean long rates will go up at all.
Paresh Patel
Yeah. Absolutely.
But we would be in a wonderful spot for that because we do have lots of cash. Even if short-term rates go up, even if long-term rates don’t, it should be helpful.
Edward Hemmelgarn
Does this help?
Paresh Patel
It should be helpful but….
Edward Hemmelgarn
Yeah. I agree.
Would you ever think about putting more of your -- I mean, I know you’ve increased the equity percentage a little bit, would you ever think about doing more with that or…?
Paresh Patel
Yes. Again, we are not -- we don’t have dogma that we have to stay in cash or we have adversity to any kind of investment.
Really, it’s more of a case of opportunity. I can tell you that if you had 10-year treasures at 5%, you will see us deploying a lot of money in that direction, right.
Unfortunately, that isn’t the case and we don’t know when that will be the case. Yeah.
Edward Hemmelgarn
All right. Okay.
The other question relates to diversification of risk. What are your thoughts?
I mean, clearly if you were able to -- and if you are having all of your risk concentrated in Florida, you’ll likely over time have bigger volatility, at least with -- if hurricanes hit in Florida will impact, whereas if you had much more because you are concentrated in Florida than if you were all on the coast or something. What are your thoughts and your intention over time there, I mean you want to find a way to diversify risk, so that you may have less volatility?
Paresh Patel
Let me give you that answer in two different parts, right, the question about diversity and volatility on the earnings. Well, that’s why we buy reinsurance.
We’ve been paying for hurricane in the half for eight wind seasons at this point. And the fact there hasn’t been any major hurricane in the Florida, means the reinsurers do very well out of it as opposed to us.
So I think, we sort of pay for that hedge because that’s not the business we are in. I’m very happy to pay that every year and not get a claim against it, because getting a claim against it means, we’ve got a major hurricane and you wouldn’t want that if we can avoid it.
So the volatility question really, while it appears on cases that that would be the thing. We are talking about the company with 29 straight quarters of profitability, which is I think more than most of the companies in all the other industries that are not suppose to be volatile have put up over the -- especially given the last seven years, right.
So, we feel -- we’re always mindful of volatility that I think we have hopefully proven that the volatility is not the absent storms and the storms we do hedge because of hurricanes, right. So you have that.
The other kind of conversation is diversity. It’s a simple observation.
There are a lot of other people who are diversified into multiple states. We don’t see the benefit to the bottomline that this diversity should have provided them, right.
And if we feel that diversity sounds great, but if it is not great, there should be outcome that follows from that and we don’t see that. So when we do see that, we will gladly follow that path.
The other part about diversifying, the answer I will give you is we don’t see diversity as just having to be in more insurance lines or in more states. It’s the whole thing of, is that what you’re willing to grow.
We’re also diversifying by being in other businesses whether it’d be software or real estate et cetera. So we are looking to diversify in means other than insurance.
So ultimately, it’s about having a favorable balance sheet -- favorable and growing balance sheet and hopefully consistent -- earnings quarter-over-quarter even though the earnings maybe slightly volatile but they are there quarter after quarter after quarter. Long, long answer, I hope that helps.
Yeah.
Edward Hemmelgarn
I agree. I guess, I was just -- you also to the extent that I think there is a certain volatility risk review that’s a discount that Homeowners Choices earn because the parity of its exposure to Florida really and to the extent that one could begin to diversify one’s risk and maybe not have the same highs of income as HCIs have.
But also then reduce the risk of, let’s say, even reinsurance, I mean, if you had one or two hurricanes, we had -- I mean, it would have an impact on earnings release in the quarter for HCI. And maybe to the extent, if the policies were in more locations with carrying reinsurance in each one of those and the risk you would probably have more frequent events but not as significant.
Therefore the earnings would be spread out far more even. And as you point out, you can do the same thing what the need of the business is.
I’m just curious what -- how quickly you might wish to move on that. And I do think that would probably reduce some of discount, it’s currently assigned to HCI.
Paresh Patel
Yeah. Edward, it’s an interesting conversation because the full conversation about the discount and I totally share the viewpoint.
But we are running -- we have always managed the business and we manage the business in terms of what the appropriate thing to do and not the popular thing to do. And unfortunately, we have always had a discount associated with us based on that.
To give you an idea, your every -- everybody spend 2014 about why take up such a great idea and how much growth it lead to and what will we do and et cetera, right. What everybody has forgotten is Homeowners Choice was a company that pioneered the idea of the fourth quarter takeout in 2007 and 2008 and 2009 and2010.
We only passed in 2011, because you are buying home wise and we did in 2004. And all of those years when we were doing that stuff there was universal agreement that takeouts were bad idea and the company that did that would have worse outcomes than the people who wrote that policies, one policy at a time voluntarily, right.
Ironically enough, at this point that, those two dogmas have been reversed and we could have over those five years done things that were more popular, but I can assure you that we would not have been more profitable. The results speak for themselves that -- on those numbers at this point.
So as you look forward we have the same issue. We are trying to do what’s right as opposed to what’s popular in the short-term.
Edward Hemmelgarn
I agree. I certainly agree.
I appreciated the benefit of the takeout and seeing the behind, I was just curious longer term what your thoughts maybe regarding, I am assuming that at some point in time, I mean, that the takeouts available.
Paresh Patel
That’s not at some point in time, I think we are pretty much there now.
Edward Hemmelgarn
Yeah. So, in -- so thinking about future growth and how you might approach it…
Paresh Patel
To that point, I think, the future growth that we will have, I suspect, is going to be in a same way that we always had it, is that, there will be -- sitting here one day and an opportunity will show up and it has happened consistently is just that it is unpredictable. So our future growth I think is going to come along those lines.
I mean, I will give you an example. I will be talking about lack of growth opportunities.
You put one hurricane in Florida, growth opportunity will show up very plentiful, very quickly, right. So given those kinds of things, we are very patience to wait for the world to catch-up to us as opposed to chase the other things.
As far as other opportunities, the real estate division continues to do well and it’s a long-term investment, same thing with the software division. And I am confident that some day, people will look back and say, well, those good investments?
Can I say that that absolutely be on the shadow of doubt today, no, and my confident that that will occur, yes. Thanks for the time.
Edward Hemmelgarn
Okay. Thanks.
Paresh Patel
Yeah.
Operator
At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Kevin Mitchell who has a few closing remarks.
Kevin Mitchell
On behalf of the entire management team, I would like to express our appreciation for the continued support we receive from our shareholders, employees, agents and most importantly, our policyholders. We look forward to the continued success in 2015.
Operator
Thank you for joining us today for our presentation. This concludes today's call.
You may disconnect.