Good afternoon, and welcome to HCI Group's fourth quarter and full year 2019 earnings call. My name is Cynthia, 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 5th, 2020, starting later this evening. The call is also being broadcast live via webcast and available via webcast replay until June 5th, 2020, on the investor information section of HCI Group's website at www.hcigroup.com. I would now like to turn the call over to Rachel Schwanzfiger, Investor Relations for HCI. Rachel, please proceed.
Thank you, and good afternoon. Welcome to HCI Group's fourth quarter and full year 2019 earnings call. With me today are Paresh Patel, our Chairman and Chief Executive Officer, and Mark Harmsworth, our Chief Financial Officer. Following Paresh's opening remarks, Mark will review our financial performance for the quarter and full year 2019, then turn the call back to Paresh for an operational update and business outlook. Finally, we will take your questions. 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 to 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 Paresh Patel, our Chairman and CEO. Paresh?
Thank you, Rachel, and welcome everyone. Today, I'd like to start with a brief overview of our company. HCI's principal operations are in insurance, software development, and real estate. We have two insurance companies, TypTap Insurance Company and Homeowners Choice Property & Casualty Insurance Company, both of which provide homeowners and flood insurance primarily here in Florida. We also have an information technology subsidiary called Exzeo, that develops insurance-related products and services, several of which we use in our day-to-day operations. Lastly, we have Greenleaf Capital, which owns and manages a growing portfolio of real estate in Florida. Recently, we began describing HCI as an InsurTech insurance company. While insurance is our primary business, our focus is on developing and using insurance-related technologies. We have developed a full suite of technology to speed up and lower the costs of producing, underwriting, and servicing our insurance products.
These tools also help improve our operating results. For example, TypTap has an online quoting and binding platform that can deliver a policy in minutes. Underwriting decisions on these platforms are virtually instantaneous. The platforms simplify the policy production experience for both consumers and agents, and when combined with our data analytics, they deliver superior operating results, as evidenced by our industry-leading profit margins. I will speak more about our InsurTech and what it means to us in a moment. Now, for some highlights for the fourth quarter. The fourth quarter marked the 47th out of 49 quarters that HCI has been profitable. The exceptions being the quarters in which hurricanes Irma and Michael hit. In December of this year, we also paid our 37th consecutive quarterly dividend at $0.40 per common share. As a note, at our current share price, that's a yield of about 3.7%.
Compare that to the yield of a 10-year Treasury note today. Finally, at the end of the quarter, TypTap's premiums in force quadrupled in size from the year-end of last year. This growth was organic, without any acquisitions and/or Citizens assumptions. A fantastic year for TypTap. Before I talk about our business outlook, though, I'll turn it over to our CFO, Mark Harmsworth, who will walk us through our financial performance for the fourth quarter and full year. Mark?
Thanks, Paresh. Net income for the fourth quarter was $6.4 million and diluted earnings per share were $0.82 on a GAAP basis and $0.76 on an adjusted basis. For the full year, net income of $26.6 million was up from $17.7 million last year, and diluted earnings per share were $3.31 on a GAAP basis and $2.57 on an adjusted basis. On the last few earnings calls, we've been discussing how the company's begun to grow again. In the second quarter, gross written premiums were up year-over-year. That trend continued in the third quarter, and now again in the fourth quarter.
In Q4, gross written premiums were up by 53%, driven by the growth of TypTap. TypTap wrote $24 million of premium this quarter, compared to $4 million in the fourth quarter last year. For the full year, TypTap wrote over $60 million of premium, compared to $14.5 million in 2018. While gross written premiums have been up since Q2, it takes some time, of course, for those increases to work their way through to increases in earned premium, and that started this quarter. In Q4, gross earned premiums were up 6% from the same quarter last year, and net earned premiums were up 11% for the quarter and 1% for the year. At the end of 2019, premiums in force were almost 10% higher than they were at the end of last year. Now looking at expenses for a minute.
Total expenses in the fourth quarter were 15% lower than the same quarter last year, largely due to lower loss expenses. For the full year, expenses were up less than 1% and were more than offset by a 5% increase in total revenue. As a result, net income was up for the year. Now let's turn to the balance sheet. As you know, in 2019, we brought our debt levels down considerably when we paid out in cash the $90 million in convertible bonds that came due in March. This reduced our debt-to-cap ratio from 58% at the end of last year to 48% as of this year. Despite paying down the debt, we still maintain a very strong cash and investment position.
We have $495 million in cash and financial investments on a consolidated basis. At the holding company level, we have $46 million in cash and investments, as well as $55 million in additional liquidity from our revolving credit facilities. The individual insurance companies are also in a very strong financial position. The surplus in both insurance companies is up from the end of last year, and RBC ratios are well above target. We have just under $160 million in surplus in Homeowners Choice and just over $27 million in TypTap. There is plenty of surplus in the insurance companies to support future growth. Cash flow remains strong. We generated over $54 million in consolidated cash flow from operations this year. We used those funds to buy back stock, increase dividends, and strengthen the balance sheet. In 2019, the board authorized a $20 million buyback program.
Through the end of December, we had purchased 454,000 shares using about $18.8 million of the $20 million authorized. In December, the board authorized an extension of the 2019 program into 2020. In the first two months, we have purchased an additional 25,840 shares. This brings the total number of shares purchased under the plan to 479,850 at an average purchase price of $41.68. This now fully utilizes the $20 million authorized. In the last three years, we have reduced the float by almost 1.9 million shares, or about 20%. As a result, each shareholder owns 20% more of the company, even if they haven't bought any more stock. As I mentioned before, one of the additional benefits of reducing share count is that we can pay higher dividends per share without increasing the total cash outflow.
Total cash dividends in the second half of this year were the same as last year, despite an increase of 7% per share. 2019 was a great year for us. Revenue grew, earnings are up, dividends per share are up, debt is down, share count is down, book value per share is up. Maybe more important, return on equity this year was 14.3%. Total shareholder return over the last three years is just over 28%, despite hurricanes Irma and Michael. This may well be the best measure of performance. Looking to the future, as you know, we have recently taken on a significant book of business. We have the surplus and liquidity to take on more should the opportunity arise. With that, I'll turn it back to Paresh.
Thanks, Mark. As Mark indicated, 2019 was another successful year for us. Florida experienced a good weather year, with the exceptions of basically a hail storm in March and a glancing blow by Hurricane Dorian in September. Following on from that, on February 13th of this year, we announced that under a plan approved by the Florida regulators, Florida-based Anchor Property and Casualty Insurance Company would transition all of its policyholders to us by April 1. Anchor has approximately 43,000 policies representing close to $69 million in annualized premium, which compares to our own book of business of over 131,000 policies and approximately $370 million of annualized premium. Under the deal, Anchor policyholders were under no obligation to participate in the transition.
However, we expect to retain most of the business and that it will take some time for us to optimize the book, and we are very optimistic that this transaction will soon be accretive to earnings. Why could we do this transaction? We could pursue this transaction because we have adequate capital, and most important, we have the technology and systems in place that enable us to swiftly integrate Anchor's policyholder data and begin servicing the policies. For example, within days of receiving regulatory approval, we produced and mailed over 43,000 notices to Anchor policyholders. Beginning April 1, we will begin servicing those transition policies. All this without a need for additional personnel. The power of our technology is such that it allows us to scale operationally without significant additional costs.
In this case, we expect to add a business that is about the size of TypTap without hiring dozens of new employees. That's performance. With that, we're ready to open the call to your questions. Operator, please provide the appropriate instructions.
Thank you, sir. The floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. Questions will be taken in the order they were received. If you are using a speakerphone, we ask that while posing your question, you pick up your handset to provide a real sound quality. If at any time your question has been answered, you can remove yourself from the queue by pressing one. Again, ladies and gentlemen, if you do have a question or comment, please press star one on your telephone keypad at this time. Please hold while we poll for questions. Our first question will come from Matt Carletti of JMP. Please state your question.
Hey, thanks. Good afternoon.
Good afternoon.
Paresh, I was hoping you could maybe follow on your Anchor comments, and Mark's comments about having plenty of surplus and liquidity, should future opportunities arise, and just talk a little bit about the broader landscape in Florida. There's lots of headlines about peers, capital pressures, and potential rating agency actions, and what you see taking place as this year unfolds and as we move towards mid-year, and what opportunities that might create for HCI.
Speaking about the general Florida marketplace, I think year-end numbers have just been coming out this week. What you see across the board is after multiple years of hurricanes and various other issues, most Florida carriers are financially challenged. Their gross premium to surplus ratios are at the upper ends of allowable limits, and I think a lot of them had to add capital to bolster their surplus at year-end 2019. All of these things means that you have companies that have both balance sheet challenges and, of course, core profitability challenges with their existing portfolios. If you're in that kind of environment, if somebody needs to take over a policy or do an acquisition, it becomes very difficult to do, because how do you fund it? In that context, this is HCI's reality.
We could take over the Anchor book of business and add it to Homeowners Choice without needing to add any more capital. Oh, by the way, the regulators did ask us as to what this would do to our balance sheet and leverage. Even if we had done the Anchor deal before the end of last year, we would comfortably have met all the RBC ratios that are required. Even adding Anchor, our premium to surplus ratio basically is well under 3 to 1.
Great. That's really helpful. If I could shift gears a little bit, TypTap put up some really nice growth in the quarter. Could you talk a little bit just about maybe how production progressed across the quarter? Was it fairly stable? Did it really continue to grow week after week? Where are we now in terms of whether it's weekly or annualized production rate?
Yes, Matt, the growth of TypTap in production really went very well because obviously, as we had talked in the previous call, because of Dorian, things had sort of stopped when that was approaching. That was mid-September. Then it sort of started picking up from that, accelerated all the way through October and November and December, and that's why we ended up with the numbers we did. At some point, we do have to manage where we are growing, how we are growing. We are tempering TypTap's growth a little bit, but this is by design and out of an abundance of prudence, especially given that we're approaching hurricane season and also we've done the Anchor acquisition. But fundamentally, we're in a very controlled position with both companies.
Great. Just one numbers question for Mark that I guess I want to ask every quarter. Do you have net written premiums for Q4 handy?
Yeah. It is $35.1 million.
Wonderful. All right. Thanks very much for all the color and congrats on a nice year. Best of luck going forward.
Thanks, Matt.
Thank you.
Again, ladies and gentlemen, if you do have a question, please press star one on your telephone keypad at this time. Our next question will come from Mark Hughes of SunTrust. Please proceed.
Can you talk about Anchor, the impact on profitability, kind of the average loss ratio across the book perhaps, and what steps you can take to move that over time, assuming it needs to be moved?
Yes, Mark. Couple of things. Clearly, we are taking over a book from Anchor that had challenges because otherwise Anchor wouldn't have had challenges. What we know we can do is over time, we will do a number of things. We will transition it over to our rates and forms, which we are much more comfortable with. That will alleviate some of the problem. Secondly, as we talked about earlier, we immediately pick up some improvement because we don't have the operating overhead that Anchor had as a separate company. We won't get that incremental increase on our side. That will improve profitability to some degree. As far as their loss ratios go, I don't necessarily know that their loss ratios, themselves, were particularly bad.
I think they were trying to outrun their previous issues going back to 2015, 2016, when they started and were doing a lot of takeouts. I think eventually the company couldn't outrun those sins of the past, if you like. The way we've constructed the deal, we only go on risk after April 1. We don't have any of those sins of the past coming over to us. We just have to operate the current portfolio, which I have to commend the current management, have done a good job of cleaning up.
April 1, we'll see that book. Will that be entirely written or will it just be the unearned premium that comes through?
Okay. The technical answer to that is what we are doing is a policy cancellation and a stub period rewrite. For example, if somebody had a policy that was going to expire in October of this year, Anchor has issued a cancellation notice saying that policy is being canceled as of April 1. Homeowners Choice has issued a stub policy covering April 1 to October to that same policyholder on Anchor's rates and forms. There is no disruption to policyholder. That's how that rolls over. Of course, Anchor will give us the unearned premium April 1 to October 31st, less some agreed holdbacks, et cetera. When October comes, we will renew that policy onto HCPCI paper at HCPCI rates and forms, and that'll then make that policy look just like all of our other policies. That's the sequence in which all of this happens.
Then the capital situation at TypTap, I think at HCI, you described being just under three to one. I assume your kind of limit is four to one. Is that the case? Then where do you stand with TypTap?
Okay. Because we said a couple of the numbers, let's just go through them a bit. My three to one number was me being conservative. Homeowners Choice at the end of 2019 has just under $160 million in surplus. Roughly speaking, if you add the Anchor book to it's about $370 million in premium total between the two, when you add that Anchor stuff in there. You can sort of see it's about two and a half to one even, less than that. It leaves you plenty of room for growth. If you went to that four to one number, $160 million of surplus, you can basically write $640 million of premium. We're at $370. Gives you an idea as to how much room for growth we have. TypTap is now at a slightly different point.
It ended at $27 million of surplus. It has about, as of today, I'd say about $70 million of premium in force. It still has about $30 million to grow before it hits that 4 to 1 number you were talking about. Against that side, every day going by at this point, TypTap is earning money. That surplus is going to start moving around, unless TypTap starts growing very rapidly, in which case, because of how stat accounting works, we'll have to maybe add some more capital. If we have to do that's a first world problem to have, yeah.
Yep. Let me ask, just sort of curious, any updates, couldn't let the opportunity go by without the fraud AOB update. Just in the context of that, when we think about your loss ratio last couple of years, or let's say this year, it's sort of hovered around 49%, 50%. You're at the lower end of that in the fourth quarter. Is that kind of a good run rate? Do you see anything changing in the book or the environment that moves it from that level?
I don't think so, Mark. It's Mark. I tend to think of it more, the core loss ratio as a percentage of gross premiums earned. We're always in that 25%, 26%, 27%-ish range. I don't see that really changing significantly. As we've said before, it's a little bit early to tell the impact of AOB. Litigation generally has slowed a little bit. I don't see any major changes in that environment.
Thank you.
At this time, this concludes our question- and- answer session. I would now like to turn the call back over to Rachel Schwanzfiger, who has a few closing remarks.
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. We look forward to updating you on our progress in the near future.
Thank you for joining us today for our presentation. This concludes today's call. You may now disconnect.