Exzeo Group, Inc. (XZO) stock intrinsic value fair value estimate & owner earnings analysis

WHAT THE COMPANY DOES Exzeo Group sells software and back-office services to property and casualty insurers, chiefly homeowners insurers in Florida. It runs the Exzeo Platform for quoting, underwriting, policy administration and claims, and is paid mainly a percentage of the premium it manages. It is a spin-off IPO (November 2025) controlled by HCI Group, and substantially all revenue comes from insurers affiliated with HCI: TypTap Insurance Company (about $137M of 2025 revenue under a managing-general-agent contract that has renewed year by year since 2016), Homeowners Choice Property & Casualty (about $60M, under a policy administration agreement that began January 1, 2025), Tailrow and Condo Owners Reciprocal Exchange (about $12M together), plus about $9M of catastrophe-claims software. The company reports no meaningful revenue from customers outside the HCI family. WHAT CHANGED AND WHY EARNINGS ARE SO HIGH Revenue rose from $134M in 2024 to $217M in 2025 (+62%), almost entirely because four additional HCI-affiliated arrangements started paying management fees. Costs barely moved (cost of revenue $81M to $86M), so operating income jumped from $38M to $106M and owner earnings (cash from operations after removing working-capital swings, stock compensation and maintenance capital spending) rose from about $28M to about $80M. Only 2025 describes the current business: 2023 and 2024 predate the new arrangements (and 2023 revenue was reduced by $15M of fees that Exzeo waived for its affiliate TypTap). Managed premium grew from $580M to $1.39B, but year-end annual recurring revenue of $215M was about equal to 2025 revenue, and first-half 2026 revenue was $113.3M versus $108.5M a year earlier (+4.4%), with net income of $43.7M versus $39.6M. So the step-up is a one-time reset to a higher plateau, and the first two quarters of 2026 confirm that level. We anchor on 2025 owner earnings of $80.1M, less about $3.2M after-tax investment income (because the cash pile is valued separately), giving about $76.8M a year of business earning power, or about $0.85 per share on 90.2M shares. Growth reconciliation: owner earnings grew about 186% in 2025, but that was the one-time reset. Year 1 of our base case assumes 0% growth, below the trailing figure, because the reset will not repeat. BALANCE SHEET No debt. Cash of $136.7M plus $197.1M of bonds at June 30, 2026 (about $334M, of which we treat about $289M, roughly $3.20 per share, as surplus after keeping about $45M to run the business). Customer prepayments (contract liabilities of about $75M) are already reflected in operating cash flow and are not deducted again. Options on 6.35M shares carry a $23 strike, above every case below, so they are not counted. BASE CASE: about $12.15 per share Owner earnings stay flat at about $76.8M for ten years. Evidence: the TypTap contract has renewed annually for about ten years and fee revenue tracks in-force premium that is already on the platform ($215M annual recurring revenue at year-end 2025, matched by 2026 results). After year ten nothing we can document keeps the earnings growing, so they fade 10% a year. We credit no growth: the 4% first-half 2026 gain is one half-year, not a multi-year record, and growth in premium volume, new non-HCI customers and margin expansion are not in the bag. Business value about $8.95 per share, plus surplus cash about $3.20, less debt of $0, equals about $12.15. BEAR CASE: about $7.25 per share Drivers we can name from the filings: (1) every customer is controlled by HCI, which is also Exzeo's controlling shareholder, the company itself says it may lack leverage to negotiate better terms, and the main contract renews year to year; (2) precedent: Exzeo waived $15M of TypTap fees in 2023; (3) the fee rate as a share of premium already slipped in 2025; (4) the share of policyholder premium retained fell from 95.1% to 87.2%; (5) about 91% of managed premium is Florida property insurance, exposed to hurricanes; (6) costs of about $111M are largely fixed, so a 15% revenue loss cuts owner earnings about 30%. The case: owner earnings drop 30% in year 1 (to about $54M), then decline 7% a year through year ten (to about $28M), then fade 15% a year. Business value about $4.05 per share, plus surplus cash $3.20, less debt of $0, equals about $7.25. This case has no assumed loss of the cash balance. BULL CASE: about $17.39 per share Existing affiliates keep growing premium at roughly the pace seen in first-half 2026 (revenue +4%), with fixed costs, lifting owner earnings 4% a year for five years and 2% for five more (to about $103M), flat for ten more years, then fading 10% a year. We do not credit outside customers or new products. Business value about $14.19 per share, plus surplus cash $3.20, less debt of $0, equals about $17.39. WHAT WE TESTED We tried to break the base case by checking whether earnings depend on one-time items: catastrophe software revenue was only $9.4M and annual recurring revenue matches reported revenue, so the level is largely recurring. The weak spot is not the accounting but the fact that pricing and volume are set by the controlling shareholder. What would make this estimate wrong: HCI cutting fees or moving policies elsewhere (lower), or premium growth at the affiliated carriers continuing for years (higher). Other points: Owner earnings reconcile exactly to net income plus non-cash charges less maintenance capital spending. The first-half 2026 cash conversion was lower than 2025 because 2025 benefited from $18.9M of customer prepayments. Because no more than one full post-reset year of history exists, the margin-of-safety price is set with a large margin of safety, below our bear case.