Disclaimer: I own Exzeo shares as a long term investment. Not financial advice.
Summary (short version) Exzeo (XZO) IPO’d 7 months ago and they provide services to insurance providers in the form of analytic driven underwriting and policy management with a ‘pay as you go’ model. They have a market cap of $1.3 billion. I believe investing in the company at the current valuation (EV/FCF of 9.8) offers a lot of upside potential and minimal downside risk as they were previously a part of HCI who is now their largest shareholder and largest customer.
Details (long version) Exzeo’s advantage is their software which enables quick and accurate underwriting, claims information feeding back immediately to underwriting, and 16+ years of proprietary data (primarily home insurance). Their goal is to reduce friction in the insurance process for their customers.
Exzeo was started in 2012 inside of HCI (publicly traded Florida insurance company with a focus on home insurance). In November 2025, Exzeo separated from HCI through an IPO, however, HCI still owns 82% of Exzeo shares and HCI is still by far Exzeo’s largest customer. The same person (Paresh Patel) is the CEO of both HCI and Exzeo. The CEO, CFO, and President have all been with Exzeo for 10+ years.
Paresh Patel associated a good deal of HCI’s success to Exzeo’s superior underwriting. Obviously he has a lot of reasons to want to see Exzeo succeed, but it does seem that Exzeo at least played a decent role in HCI’s success over the last five years or so. Previously HCI affiliates were Exzeo’s only customers, so there is little history regarding how well Exzeo can attract new customers. However, in the past 7 months, Exzeo has brought on three ‘external’ customers and their premium now makes up 7% of the premium on the platform.
The main reasons I see Exzeo as a good investment:
- Valuation - EV/FCF of 9.8 (with FCF adjusted to subtract stock compensation). FCF margin of 45%. 2. From their Q1 guidance, implied pre-tax income growth for the next three quarters is between 1% and 13%. 3. Strong balance sheet with no debt and $330M in cash (with a market cap of $1.2B) 4. Asymmetric upside: * Minimal downside to the business since HCI is their biggest customer and HCI owns 82% of Exzeo shares which make up a good portion of the HCI market cap. I wouldn’t expect HCI’s premiums to decrease much as it is unlikely people will cancel their home insurance policies in Florida. Though I suppose policy holders could change to a different provider which is something to watch for. * Large potential growth if they can get other customers on the platform. They went from 0% of premium from non-HCI customers to 7% of premium in roughly 5 months. As they get more customers, it should start to snowball as more customers will build more trust, expand to more states, and possibly expand to more types of insurance. * From HCI's recent couple of calls, HCI hinted they may be looking into buying other companies. If they do, I assume one of their business cases would be that they could improve efficiency by utilizing XZO which would result in revenue growth for XZO. 5. Insiders buying stock (CFO, President, and General Counsel each bought ~$200k in December; CEO bought 100k shares from a 10b5 plan starting on March 18th and ending last week. 6. Recently announced share buy back plan of $12m which at a price of $13.85 per share would buy back about 1% of the shares. However, HCI owns 82% of outstanding shares and XZO insiders own roughly 3.2%, meaning only roughly 14.8% of shares are likely 'available' to be traded at any one time (i.e. float). The $12m would buy back 6.8% of the float at $13.85 per share.
Some risks:
- It is a small (micro?) cap stock so there will likely be volatility. This company doesn't have much of a track record as a public company so people may be more willing to sell if there are not immediate results or if the economy goes south. * The company has the ability to deal with any stock dislocations given their $330M in cash, strong FCF, and low percent of shares available. 2. Competition * Competition will not take HCI's business away, though competitors to HCI could steal premium from HCI and therefore Exzeo. Admittedly, I have not been able to tell how strong the competition is, possibly because the industry is fragmented. Some insurance providers seem to have their own 'home built' tools, but they don't sell their service outside the company. VRSK is the only other company I found that seems to do the same thing (and more). It seems to me there is room for Exzeo to grow. 3. The company doesn't have much of a track record to determine how they will operate (i.e. share based compensation, ROI, etc.). * Response: Management has been with Exzeo for a long time indicating that they are invested in the company. They have also recently bought shares. The CEO is also the CEO of HCI which seems to have a good track record, particularly the last 6 or 7 or 8 years. 4. HCI may spinoff their shares of Exzeo resulting in a large supply of Exzeo shares that people are trying to sell * Response: This is my biggest near-term worry. It could create a drag on the stock for a while, though Exzeo does have a lot of cash (26% of the market cap) that they could deploy to eat up any excess supply. Also, it would make me feel less secure about the revenue from HCI, though it would be hard for me to see HCI moving to a different underwriter in the near or even medium term given their track record with Exzeo. However, on the positive side, it may make other insurance providers feel better about using Exzeo as they may currently be concerned about competitive information making its way from Exzeo to HCI. 5. As with everything, AI disruption * Response: I view this as a low risk due to their proprietary data and the fact that underwriting is regulated by the states. Also, I suspect insurance providers will be unlikely to trust underwriting to new startups. Exzeo is 'new' to offering their services to third parties, but they have been underwriting for HCI for many years.
Some thoughts on return potential:
- Bear case: They don’t get new customers and their revenue grows at whatever rate their current customers grow their premium. Assuming that growth rate is equal to the rate of inflation, the yearly return should be the FCF/EV yield which is currently about 10%. 2. Base case: Their revenue growth rate is 10% per year through 2029 and then it drops off a percent each year thereafter. Based on my 10 year DCF, the yearly return would need to be 20% (with a terminal multiple of 11.5) 3. Bull case: In their S-1 for the IPO (pages 65 through 67), Exzeo believed their product would address a $32 billion TAM with some additional upside for adjacent categories/products. Assuming they could get 20% of that TAM and their FCF margin was 32% (note 2024's margin was 31.8% and 2025's was 43.7% (taking into account share based comp)), that would mean $2.048 billion of FCF. At a valuation of 12x EV/FCF, that would mean an EV of 24.6 billion which would be a return of 2548% (say a ~20% CAGR return over 18 years). If I change the assumption to only getting 1/50th of the TAM (i.e. just Florida out of the 50 states), the EV would be 2.46 billion which would be a return of 165% (~16% CAGR return over 7 years). Those return values ignore any cash returned to shareholders in the interum and ignores any growth to the TAM from now until 'then'. Take this with a grain of salt as TAM estimates can be very wrong.
Thanks for reading. Please share any opinions/thoughts on the investment thesis or Exzeo.