The Misfits: HCI Group (HCI)

How this property insurance company has succeeded seems to fly in the face of the current narrative of homeowners insurance.

At the notary's office, Fritz Wagner, oil on canvas

As much as we all try to be emotionally detached from investment decisions, narratives and stories profoundly influence the way we view businesses. A core tenet of growth investing is the belief in the company’s story.

One type of company I’m particularly fond of ais one that defies some common narrative. Companies that can make superior returns in a low-return industry or generate growth in a mature market often get overlooked.

Sometimes, though, a narrative-defying business is too good to be true. Either its success is short-lived, or its perceived success was a fabrication.

On paper, HCI Group’s (NYSE: HCI) seems to contradict common knowledge. By all accounts, providing homeowners insurance in Florida is the dumbest business decision an insurance underwriter could make. Yet, HCI’s business has been incredibly profitable and has resulted in spectacular returns for its investors.

Despite HCI Group's success in recent years, I can’t help but wonder whether its success is sustainable over the long term. So, let’s investigate how a Florida homeowners insurance company has produced such incredible results while so many other insurance companies have deemed Florida’s property market “uninsurable.”

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