UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q


☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021~~2022


☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number

001-34126

HCI Group, Inc.

(Exact name of ~~Registrant~~registrant as specified in its charter)


Florida		20-5961396
(State of Incorporation)		(IRS Employer Identification No.)

3802 Coconut Palm Drive
Tampa, FL 33619
(Address, including zip code, of principal executive offices)

(813) 849-9500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Shares, no par value	HCI	New York Stock Exchange

Indicate by check mark whether the ~~Registrant~~registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the ~~Registrant~~registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☑	Non-accelerated filer ☐	Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the ~~Registrant~~registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the ~~Registrant~~registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The aggregate number of shares of the ~~Registrant’s Common Stock,~~registrant’s common stock, no par value, outstanding on ~~November 3, 2021~~August 1, 2022 was ~~10,250,656~~9,044,534.

HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page

	PART I – FINANCIAL INFORMATION

Item 1	Financial Statements
	Consolidated Balance Sheets:
	~~September~~June 30, ~~2021~~2022 (unaudited) and December 31, ~~2020~~2021	1-2
	Consolidated Statements of Income:
	Three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	3
	Consolidated Statements of Comprehensive Income:
	Three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	4
	Consolidated ~~Statement~~Statements of Equity:
	Three and six months ended ~~September~~June 30, 2022 and 2021 (unaudited)	55-8
	~~Consolidated Statement of Stockholders’ Equity:~~
	~~Three months ended September 30, 2020 (unaudited)~~	6
	~~Consolidated Statement of Equity:~~
	~~Nine months ended September 30, 2021 (unaudited)~~	7
	~~Consolidated Statement of Stockholders’ Equity:~~
	~~Nine months ended September 30, 2020 (unaudited)~~	8
	Consolidated Statements of Cash Flows:
	~~Nine~~Six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	9-11
	Notes to Consolidated Financial Statements (unaudited)	~~12-52~~12-47

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~52-67~~48-61

Item 3	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	~~67-69~~62-63

Item 4	Controls and Procedures	6964


	PART II – OTHER INFORMATION

Item 1	Legal Proceedings	7065

Item 1A	Risk Factors	7065

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	7065-66

Item 3	Defaults ~~upon~~Upon Senior Securities	7166

Item 4	Mine Safety Disclosures	7166

Item 5	Other Information	7167

Item 6	Exhibits	~~72-81~~68-75

Signatures		8176

Certifications

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
	(Unaudited)				(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $45,016 and $70,265, respectively and allowance for credit losses: $0 and $588, respectively)	$	46,053	$	71,722
Equity securities, at fair value (cost: $46,771 and $47,029, respectively)		50,223		51,130
Fixed-maturity securities, available for sale, at fair value (amortized cost: $403,844 and $41,953, respectively and allowance for credit losses: $0 and $0, respectively)					$	398,571	$	42,583
Equity securities, at fair value (cost: $38,065 and $46,276, respectively)						35,719		51,740
Limited partnership investments		26,039		27,691		26,695		28,133
Investment in unconsolidated joint venture, at equity		370		705		858		363
Real estate investments		73,663		74,472		72,723		73,896
Total investments		196,348		225,720		534,566		196,715
Cash and cash equivalents		569,134		431,341		360,488		628,943
Restricted cash		2,400		2,400		2,600		2,400
Accrued interest and dividends receivable		463		588		1,421		353
Income taxes receivable		0		4,554		1,789		4,084
Premiums receivable, net (allowance: $3,756 and $2,053, respectively)		43,078		68,382
Premiums receivable, net (allowance: $3,935 and $1,750, respectively)						52,302		68,157
Prepaid reinsurance premiums		47,968		36,376		81,023		26,355
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)		9,658		14,127
Unpaid losses and loss adjustment expenses (allowance: $44 and $85, respectively)		39,468		71,019
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)						11,134		11,985
Unpaid losses and loss adjustment expenses (allowance: $62 and $90, respectively)						42,348		64,665
Deferred policy acquisition costs		47,129		43,858		48,305		57,695
Property and equipment, net		13,946		12,767		17,244		14,232
Right-of-use assets - operating leases		2,576		4,002		1,861		2,204
Intangible assets, net		10,807		3,568		14,358		10,636
Funds held in trust for assumed business		79,965		0
Funds withheld for assumed business						82,468		73,716
Other assets		13,174		22,611		28,796		14,717
Total assets	$	1,076,114	$	941,313	$	1,280,703	$	1,176,857

(continued)

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – (Continued)

(Dollar amounts in thousands)


	September 30,		December 31,		June 30,			December 31,
	2021		2020		2022			2021
	(Unaudited)				(Unaudited)
Liabilities and Equity
Losses and loss adjustment expenses	$	203,177	$	212,169	$	238,824		$	237,165
Unearned premiums		334,299		269,399		370,140			366,744
Advance premiums		19,062		11,370		25,428			13,771
Assumed reinsurance balances payable		88		87
Reinsurance payable on paid losses and loss adjustment expenses		4,727		0		4,302			4,017
Ceded reinsurance premiums payable						24,641			19,318
Accrued expenses		15,187		10,181		17,093			15,453
Income tax payable		3,574		0
Deferred income taxes, net		3,708		11,925		6,168			11,739
Revolving credit facility		0		23,750		0			15,000
Long-term debt		78,083		156,511		211,648			45,504
Lease liabilities - operating leases		2,578		4,014		1,824			2,203
Other liabilities		31,372		40,771		48,737			31,485
Total liabilities		695,855		740,177		948,805			762,399
Commitments and contingencies (Note 21)
Redeemable noncontrolling interest (Note 18)		87,731		0
Commitments and contingencies (Note 20)
Redeemable noncontrolling interest (Note 17)						91,963			89,955
Equity:
Common stock (0 par value, 40,000,000 shares authorized, 9,591,079 and 7,785,617 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)		0		0
Common stock (0 par value, 40,000,000 shares authorized, 9,047,972 and 10,131,399 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively)						0			0
Additional paid-in capital		39,905		0		12,887			76,077
Retained income		250,808		199,592		229,621			246,790
Accumulated other comprehensive income, net of taxes		799		1,544
Accumulated other comprehensive (loss) income, net of taxes						(3,760	)		498
Total stockholders’ equity		291,512		201,136		238,748			323,365
Noncontrolling interests		1,016		0		1,187			1,138
Total equity		292,528		201,136		239,935			324,503
Total liabilities, redeemable noncontrolling interest and equity	$	1,076,114	$	941,313	$	1,280,703		$	1,176,857

See accompanying Notes to Consolidated Financial Statements (unaudited).

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(Dollar amounts in thousands, except per share amounts)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenue
Gross premiums earned	$	149,809		$	106,694		$	420,191		$	306,862		$	181,124		$	139,440		$	360,049		$	270,382
Premiums ceded		(55,577	)		(44,231	)		(145,112	)		(109,304	)		(56,205	)		(46,436	)		(109,367	)		(89,535	)
Net premiums earned		94,232			62,463			275,079			197,558			124,919			93,004			250,682			180,847
Net investment income		2,520			1,832			9,749			3,244			3,684			2,635			6,552			7,229
Net realized investment gains (losses)		1,232			177			4,952			(632	)
Net realized investment (losses) gains														(6	)		2,607			(320	)		3,720
Net unrealized investment (losses) gains		(1,869	)		1,340			(649	)		(581	)		(4,234	)		1,489			(7,810	)		1,220
Credit losses on investments		0			(70	)		0			(596	)
Policy fee income		1,000			895			2,962			2,571			1,052			992			2,109			1,962
Gain on involuntary conversion		0			36,969			0			36,969
Other		2,102			421			3,502			1,591			511			777			1,753			1,400
Total revenue		99,217			104,027			295,595			240,124			125,926			101,504			252,966			196,378
Expenses
Losses and loss adjustment expenses		62,664			51,743			164,332			119,664			86,830			55,917			159,534			101,668
Policy acquisition and other underwriting expenses		23,340			14,210			69,574			39,027			26,863			23,169			56,271			46,234
General and administrative personnel expenses		11,537			9,871			31,733			27,969			15,301			10,546			29,335			20,196
Interest expense		1,664			2,856			5,743			8,846			1,515			2,000			2,116			4,079
Loss on repurchases of convertible senior notes		0			0			—			150
Loss on extinguishment of debt		0			98			0			98
Debt conversion expense		1,273			0			1,273			0
Other operating expenses		5,243			3,713			14,245			10,354			6,977			4,775			13,269			9,002
Total expenses		105,721			82,491			286,900			206,108			137,486			96,407			260,525			181,179
(Loss) income before income taxes		(6,504	)		21,536			8,695			34,016			(11,560	)		5,097			(7,559	)		15,199
Income tax (benefit) expense		(1,636	)		6,146			2,888			9,143			(3,018	)		1,267			(1,808	)		4,524
Net (loss) income		(4,868	)		15,390			5,807			24,873			(8,542	)		3,830			(5,751	)		10,675
Net income attributable to redeemable noncontrolling interest (Note 18)		(2,202	)		0			(5,175	)		0
Net income attributable to redeemable noncontrolling interest (Note 17)														(2,268	)		(2,179	)		(4,516	)		(2,973	)
Net loss attributable to noncontrolling interests		833			0			1,196			0			829			266			1,189			363
Net (loss) income after noncontrolling interests	$	(6,237	)	$	15,390		$	1,828		$	24,873		$	(9,981	)	$	1,917		$	(9,078	)	$	8,065
Basic (loss) earnings per share	$	(0.72	)	$	1.97		$	0.23		$	3.21		$	(1.04	)	$	0.25		$	(0.92	)	$	1.02
Diluted (loss) earnings per share	$	(0.72	)	$	1.70		$	0.22		$	3.03		$	(1.04	)	$	0.24		$	(0.92	)	$	0.98

See accompanying Notes to Consolidated Financial Statements (unaudited).

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Net (loss) income

$
(4,868
)

$
15,390

$
5,807

$
24,873

Other comprehensive (loss) income:

Change in unrealized (loss) gain on investments:

Net unrealized gains (losses) arising during the period

(258
)

247

(341
)

56

Credit losses charged to income

0

70

0

596

Call and repayment gains charged to investment income

0

(15
)

(2
)

(231
)
Reclassification adjustment for net realized gains

(88
)

21

(665
)

(1,133
)
Net change in unrealized (losses) gains

(346
)

323

(1,008
)

(712
)
Deferred income taxes on above change

85

(79
)

247

174

Total other comprehensive (loss) income, net of income taxes

(261
)

244

(761
)

(538
)
Comprehensive (loss) income

(5,129
)

15,634

5,046

24,335

Comprehensive loss attributable to noncontrolling interests

839

0

1,212

0

Comprehensive (loss) income after noncontrolling interests

$
(4,290
)

$
15,634

$
6,258

$
24,335


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Net (loss) income	$	(8,542	)	$	3,830		$	(5,751	)	$	10,675
Other comprehensive loss:
Change in unrealized loss on investments:
Net unrealized (losses) gains arising during the period		(2,174	)		99			(6,325	)		(83	)
Call and repayment gains charged to investment income		0			0			0			(2	)
Reclassification adjustment for net realized (gains) losses		(8	)		(576	)		421			(577	)
Net change in unrealized losses		(2,182	)		(477	)		(5,904	)		(662	)
Deferred income taxes on above change		553			117			1,491			162
Total other comprehensive loss, net of income taxes		(1,629	)		(360	)		(4,413	)		(500	)
Comprehensive (loss) income		(10,171	)		3,470			(10,164	)		10,175
Comprehensive loss attributable to noncontrolling interests		883			275			1,344			373
Comprehensive (loss) income after noncontrolling interests	$	(9,288	)	$	3,745		$	(8,820	)	$	10,548

See accompanying Notes to Consolidated Financial Statements (unaudited).

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated ~~Statement~~Statements of Equity

For the Three Months Ended ~~September~~June 30, 2022

(Unaudited)

(Dollar amounts in thousands, except per share amount)


	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Loss,			Total Stockholders’			Noncontrolling			Total
	Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity
Balance at March 31, 2022		10,125,927		$	—	$	79,131		$	243,647		$	(2,185	)	$	320,593		$	1,435		$	322,028
Net loss		—			—		—			(7,885	)		—			(7,885	)		(657	)		(8,542	)
Net income attributable to redeemable noncontrolling interest		—			—		—			(2,096	)		—			(2,096	)		(172	)		(2,268	)
Total other comprehensive loss, net of income taxes		—			—		—			—			(1,575	)		(1,575	)		(54	)		(1,629	)
Issuance of restricted stock		3,000			—		—			—			—			—			—			—
Forfeiture of restricted stock		(700	)		—		—			—			—			—			—			—
Repurchase and retirement of common stock		(1,050,790	)		—		(67,705	)		—			—			(67,705	)		—			(67,705	)
Repurchase and retirement of common stock under share repurchase plan		(29,465	)		—		(1,884	)		—			—			(1,884	)		—			(1,884	)
Dilution from subsidiary stock-based compensation		—			—		—			—			—			—			635			635
Common stock dividends ($0.40 per share)		—			—		—			(4,045	)		—			(4,045	)		—			(4,045	)
Stock-based compensation		—			—		3,345			—			—			3,345			—			3,345
Balance at June 30, 2022		9,047,972		$	—	$	12,887		$	229,621		$	(3,760	)	$	238,748		$	1,187		$	239,935

See accompanying Notes to Consolidated Financial Statements (unaudited).

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity – (Continued)

For the Three Months Ended June 30, 2021

(Unaudited)

(Dollar amounts in thousands, except per share amount)


	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income,			Total Stockholders’			Noncontrolling			Total			Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income,			Total Stockholders’			Noncontrolling			Total
	Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity			Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity
Balance at June 30, 2021		8,265,640		$	—	$	—		$	215,612		$	1,054		$	216,666		$	1,383		$	218,049
Net loss		—			—		—			(4,346	)		—			(4,346	)		(522	)		(4,868	)
Balance at March 31, 2021																									8,289,682		$	—	$	—		$	216,086		$	1,405		$	217,491		$	117		$	217,608
Net income (loss)																									—			—		—			4,096			—			4,096			(266	)		3,830
Net income attributable to redeemable noncontrolling interest		—			—		—			(1,891	)		—			(1,891	)		(311	)		(2,202	)		—			—		—			(2,179	)		—			(2,179	)		—			(2,179	)
Total other comprehensive loss, net of income taxes		—			—		—			—			(255	)		(255	)		(6	)		(261	)		—			—		—			—			(351	)		(351	)		(9	)		(360	)
Issuance of restricted stock		2,340			0		0			0			0			0			0			0			3,000			—		—			—			—			—			—			—
Forfeiture of restricted stock		(38,855	)		0		0			0			0			0			0			0			(9,060	)		—		—			—			—			—			—			—
Common stock issued on conversions of 4.25% senior notes		1,361,954			—		82,339			—			—			82,339			—			82,339
Cancellation of restricted stock																									(1,160	)		—		—			—			—			—			—			—
Repurchase and retirement of common stock																									(16,822	)		—		(1,288	)		—			—			(1,288	)		—			(1,288	)
Dilution from subsidiary stock-based compensation		—			—		—			—			—			—			472			472			—			—		—			—			—			—			1,541			1,541
Common stock dividends ($0.40 per share)		—			—		—			(3,261	)		—			(3,261	)		—			(3,261	)		—			—		—			(3,659	)		—			(3,659	)		—			(3,659	)
Stock-based compensation		—			—		2,260			—			—			2,260			—			2,260			—			—		2,556			—			—			2,556			—			2,556
Additional paid-in capital shortfall adjustment allocated to retained income		—			—		(44,694	)		44,694			—			—			—			—			—			—		(1,268	)		1,268			—			—			—			—
Balance at September 30, 2021		9,591,079		$	—	$	39,905		$	250,808		$	799		$	291,512		$	1,016		$	292,528
Balance at June 30, 2021																									8,265,640		$	—	$	—		$	215,612		$	1,054		$	216,666		$	1,383		$	218,049

See accompanying Notes to Consolidated Financial Statements (unaudited).

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated ~~Statement~~Statements of ~~Stockholders’~~ Equity – (Continued)

For the ~~Three~~Six Months Ended ~~September~~June 30, ~~2020~~2022

(Unaudited)

(Dollar amounts in thousands, except per share amount)

Common Stock

Additional
Paid-In

Retained

Accumulated
Other
Comprehensive
Income,

Total
Stockholders’

Shares

Amount

Capital

Income

Net of Tax

Equity

Balance at June 30, 2020

7,794,048

$
—

$
—

$
183,689

$
1,396

$
185,085

Net income

—

—

—

15,390

—

15,390

Total other comprehensive income, net of
   income taxes

—

—

—

—

244

244

Issuance of restricted stock

2,680

0

0

0

0

0

Forfeiture of restricted stock

(2,369
)

0

0

0

0

0

Repurchase and retirement of common stock

(225
)

—

(12
)

—

—

(12
)
Repurchase and retirement of common stock under
   share repurchase plan

(457
)

—

(20
)

—

—

(20
)
Common stock dividends ($0.40 per share)

—

—

—

(3,117
)

—

(3,117
)
Stock-based compensation

—

—

2,162

—

—

2,162

Additional paid-in capital shortfall allocated
   to retained income

—

—

(2,130
)

2,130

—

—

Balance at September 30, 2020

7,793,677

$
—

$
—

$
198,092

$
1,640

$
199,732


	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income (Loss),			Total Stockholders’			Noncontrolling			Total
	Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity
Balance at December 31, 2021		10,131,399		$	—	$	76,077		$	246,790		$	498		$	323,365		$	1,138		$	324,503
Net loss		—			—		—			(4,907	)		—			(4,907	)		(844	)		(5,751	)
Net income attributable to redeemable noncontrolling interest		—			—		—			(4,171	)		—			(4,171	)		(345	)		(4,516	)
Total other comprehensive loss, net of income taxes		—			—		—			—			(4,258	)		(4,258	)		(155	)		(4,413	)
Issuance of restricted stock		7,000			—		—			—			—			—			—			—
Forfeiture of restricted stock		(3,965	)		—		—			—			—			—			—			—
Repurchase and retirement of common stock		(1,056,997	)		—		(68,103	)		—			—			(68,103	)		—			(68,103	)
Repurchase and retirement of common stock under share repurchase plan		(29,465	)		—		(1,884	)		—			—			(1,884	)		—			(1,884	)
Dilution from subsidiary stock-based compensation		—			—		—			—			—			—			1,393			1,393
Common stock dividends ($0.80 per share)		—			—		—			(8,091	)		—			(8,091	)		—			(8,091	)
Stock-based compensation		—			—		6,797			—			—			6,797			—			6,797
Balance at June 30, 2022		9,047,972		$	—	$	12,887		$	229,621		$	(3,760	)	$	238,748		$	1,187		$	239,935

See accompanying Notes to Consolidated Financial Statements (unaudited).

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated ~~Statement~~Statements of Equity – (Continued)

For the ~~Nine~~Six Months Ended ~~September~~June 30, 2021

(Unaudited)

(Dollar amounts in thousands, except per share amount)


	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income,			Total Stockholders’			Noncontrolling			Total			Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income,			Total Stockholders’			Noncontrolling			Total
	Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity			Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity
Balance at December 31, 2020		7,785,617		$	—	$	—		$	199,592		$	1,544		$	201,136		$	—		$	201,136			7,785,617		$	—	$	—		$	199,592		$	1,544		$	201,136		$	—		$	201,136
Net income (loss)		—			—		—			6,692			—			6,692			(885	)		5,807			—			—		—			11,038			—			11,038			(363	)		10,675
Net income attributable to redeemable noncontrolling interest		—			—		—			(4,864	)		—			(4,864	)		(311	)		(5,175	)		—			—		—			(2,973	)		—			(2,973	)		—			(2,973	)
Cumulative effect of change in accounting principle		—			—		—			(3,018	)		—			(3,018	)		—			(3,018	)		—			—		—			(3,018	)		—			(3,018	)		—			(3,018	)
Total other comprehensive loss, net of income taxes		—			—		—			—			(745	)		(745	)		(16	)		(761	)		—			—		—			—			(490	)		(490	)		(10	)		(500	)
Issuance of restricted stock		553,426			0		0			0			0			0			0			0			551,086			—		—			—			—			—			—			—
Forfeiture of restricted stock		(49,965	)		0		0			0			0			0			0			0			(11,110	)		—		—			—			—			—			—			—
Cancellation of restricted stock		(142,760	)		—		—			—			—			—			—			—			(142,760	)		—		—			—			—			—			—			—
Repurchase and retirement of common stock		(17,193	)		—		(1,308	)		—			—			(1,308	)		—			(1,308	)		(17,193	)		—		(1,308	)		—			—			(1,308	)		—			(1,308	)
Issuance of common stock		100,000			—		5,410			—			—			5,410			—			5,410			100,000			—		5,410			—			—			5,410			—			5,410
Common stock issued on conversions of 4.25% senior notes		1,361,954			—		82,339			—			—			82,339			—			82,339
Dilution from subsidiary stock-based compensation		—			—		—			—			—			—			2,228			2,228			—			—		—			—			—			—			1,756			1,756
Issuance of warrants, net of issuance costs (Note 18)		—			—		8,640			—			—			8,640			—			8,640
Common stock dividends ($1.20 per share)		—			—		—			(9,713	)		—			(9,713	)		—			(9,713	)
Issuance of warrants, net of issuance costs (Note 17)																									—			—		8,640			—			—			8,640			—			8,640
Common stock dividends ($0.80 per share)																									—			—		—			(6,452	)		—			(6,452	)		—			(6,452	)
Stock-based compensation		—			—		6,943			—			—			6,943			—			6,943			—			—		4,683			—			—			4,683			—			4,683
Additional paid-in capital shortfall adjustment allocated to retained income		—			—		(62,119	)		62,119			—			—			—			—			—			—		(17,425	)		17,425			—			—			—			—
Balance at September 30, 2021		9,591,079		$	—	$	39,905		$	250,808		$	799		$	291,512		$	1,016		$	292,528
Balance at June 30, 2021																									8,265,640		$	—	$	—		$	215,612		$	1,054		$	216,666		$	1,383		$	218,049

See accompanying Notes to Consolidated Financial Statements (unaudited).

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Consolidated Statement of Stockholders’ Equity~~

~~For the Nine Months Ended September 30, 2020~~

~~(Unaudited)~~

~~(Dollar amounts in thousands, except per share amount)~~

Common Stock

Additional
Paid-In

Retained

Accumulated
Other
Comprehensive
Income,

Total
Stockholders’

Shares

Amount

Capital

Income

Net of Tax

Equity

Balance at December 31, 2019

7,764,564

$
—

$
—

$
183,365

$
2,178

$
185,543

Net income

—

—

—

24,873

—

24,873

Total other comprehensive loss, net of income taxes

—

—

—

—

(538
)

(538
)
Cumulative effect on adoption of credit loss standard

—

—

—

(453
)

(453
)
Exercise of common stock options

10,000

—

63

—

—

63

Issuance of restricted stock

192,680

0

0

0

0

0

Forfeiture of restricted stock

(14,727
)

0

0

0

0

0

Repurchase and retirement of common stock

(29,698
)

—

(1,338
)

—

—

(1,338
)
Repurchase and retirement of common stock under
share purchase plan

(129,142
)

—

(5,161
)

—

—

(5,161
)
Common stock dividends ($1.20 per share)

—

—

—

(9,279
)

—

(9,279
)
Stock-based compensation

—

—

6,022

—

—

6,022

Additional paid-in capital shortfall allocated
to retained income

—

—

414

(414
)

—

—

Balance at September 30, 2020

7,793,677

$
—

$
—

$
198,092

$
1,640

$
199,732

~~See accompanying Notes to Consolidated Financial Statements (unaudited).~~

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2021			2020			2022			2021
Cash flows from operating activities:
Net income after noncontrolling interests	$	1,828		$	24,873
Net (loss) income after noncontrolling interests							$	(9,078	)	$	8,065
Net income attributable to noncontrolling interests		3,979			0			3,327			2,610
Net income		5,807			24,873
Net (loss) income								(5,751	)		10,675
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		9,229			6,022
Net amortization of premiums (accretion of discounts) on investments in fixed-maturity securities		180			(21	)
Stock-based compensation expense								8,579			6,497
Net (accretion of discount) amortization of premiums on investments in fixed-maturity securities								(189	)		144
Depreciation and amortization		4,276			6,499			3,495			2,928
Deferred income tax (benefit) expense		(6,989	)		5,032
Net realized investment (gains) losses		(4,952	)		632
Net unrealized investment losses		649			581
Credit loss expense - investments		0			596
Deferred income tax benefit								(4,080	)		(3,732	)
Net realized investment losses (gains)								320			(3,720	)
Net unrealized investment losses (gains)								7,810			(1,220	)
Credit loss expense - reinsurance recoverable		(41	)		(363	)		(28	)		(28	)
Net (income) loss from unconsolidated joint venture		(423	)		46			(495	)		50
Distribution received from unconsolidated joint venture		114			0
Net (income) loss from limited partnership interests		(3,491	)		2,058
Net income from limited partnership interests								(1,799	)		(2,359	)
Distributions received from limited partnership interests		2,345			650			2,046			1,792
Loss on repurchases of convertible senior notes		0			150
Loss on extinguishment of debt		0			98
Debt conversion expense		1,273			0
Gain on involuntary conversion		0			(36,969	)
Foreign currency remeasurement loss		48			40			50			75
Other non-cash items		37			57			(405	)		21
Changes in operating assets and liabilities:
Accrued interest and dividends receivable		125			700			(1,068	)		258
Income taxes		8,128			(1,671	)		2,295			7,106
Premiums receivable, net		25,304			(8,250	)		15,855			(739	)
Prepaid reinsurance premiums		(11,592	)		(24,187	)		(54,668	)		35,614
Reinsurance recoverable		36,061			37,404			23,196			23,181
Deferred policy acquisition costs		(3,271	)		(8,038	)		9,390			(569	)
Funds held in trust for assumed business		(79,965	)		—
Funds withheld for assumed business								(8,752	)		(43,395	)
Other assets		5,727			(3,552	)		(12,707	)		9,773
Losses and loss adjustment expenses		(8,992	)		4,648			1,659			(8,384	)
Unearned premiums		64,900			57,773			3,396			40,443
Advance premiums		7,692			11,494			11,657			9,855
Assumed reinsurance balances payable		1			16
Reinsurance payable on paid losses and loss adjustment expenses		4,727			—			285			7,398
Ceded reinsurance premiums payable								5,323			9,206
Accrued expenses and other liabilities		(8,236	)		1,212			16,215			(5,223	)
Net cash provided by operating activities		48,671			77,530			21,629			95,647

(continued)

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows – (Continued)

(Unaudited)

(Amounts in thousands)


	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2021			2020			2022			2021
Cash flows from investing activities:
Investments in limited partnership interests		(837	)		(2,951	)		(1,144	)		(700	)
Distributions received from limited partnership interests		3,635			1,092			2,335			2,653
Distribution received from unconsolidated joint venture		623			0
Purchase of property and equipment		(2,583	)		(5,928	)		(4,229	)		(1,275	)
Purchase of real estate investments		(657	)		(3,052	)		(111	)		(331	)
Purchase of intangible assets								(3,800	)		0
Purchase of fixed-maturity securities		(10,504	)		(30,200	)		(377,638	)		(6,338	)
Purchase of equity securities		(72,707	)		(27,175	)		(16,383	)		(45,040	)
Purchase of short-term and other investments		(1,161	)		0			0			(1,058	)
Compensation received for property relinquished through eminent domain		0			44,000
Proceeds from sales of real estate investments								667			0
Proceeds from sales of fixed-maturity securities		18,838			79,284			11,494			14,680
Proceeds from calls, repayments and maturities of fixed-maturity securities		16,734			60,870			4,020			16,677
Proceeds from sales of equity securities		81,292			17,385			24,427			56,511
Proceeds from sales, redemptions and maturities of short-term and other investments		2,414			475			267			2,026
Net cash provided by investing activities		35,087			133,800
Net cash (used in) provided by investing activities								(360,095	)		37,805
Cash flows from financing activities:
Cash dividends paid		(9,943	)		(9,508	)		(8,168	)		(6,605	)
Cash dividends received under share repurchase forward contract		230			229			77			153
Net repayment under revolving credit facility		(23,750	)		(1,000	)		(15,000	)		(23,750	)
Proceeds from exercise of common stock options		0			63
Proceeds from issuance of redeemable noncontrolling interest and warrants		100,000			0			0			100,000
Issuance costs - redeemable noncontrolling interest		(6,262	)		0			0			(6,262	)
Cash dividends paid to redeemable noncontrolling interest		(2,542	)		0			(2,508	)		0
Proceeds from issuance of long-term debt		0			10,000			172,500			0
Repayment of long-term debt		(724	)		(16,812	)		(501	)		(480	)
Repurchases of convertible senior notes		0			(4,459	)
Repurchases of common stock		(1,308	)		(1,338	)		(68,103	)		(1,308	)
Repurchases of common stock under share repurchase plan		0			(5,161	)		(1,884	)		0
Purchase of noncontrolling interests		(58	)		0			(389	)		(58	)
Debt conversion expense paid		(1,414	)		0
Debt issuance costs		(152	)		(165	)		(5,757	)		(152	)
Net cash provided by (used in) financing activities		54,077			(28,151	)
Net cash provided by financing activities								70,267			61,538
Effect of exchange rate changes on cash		(42	)		(6	)		(56	)		(45	)
Net increase in cash, cash equivalents, and restricted cash		137,793			183,173
Net (decrease) increase in cash, cash equivalents, and restricted cash								(268,255	)		194,945
Cash, cash equivalents, and restricted cash at beginning of period		433,741			229,918			631,343			433,741
Cash, cash equivalents, and restricted cash at end of period	$	571,534		$	413,091		$	363,088		$	628,686

��

(continued)

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows – (Continued)

(Unaudited)

(Amounts in thousands)


	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2021			2020			2022			2021
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1,748		$	6,137		$	55		$	1,150
Cash paid for interest	$	6,686		$	7,137		$	943		$	3,492
Non-cash investing and financing activities:
Unrealized loss on investments in available-for-sale securities, net of tax	$	(761	)	$	(538	)	$	(4,413	)	$	(500	)
Receivable from maturities of fixed-maturity securities	$	18		$	0
Common stock issued on conversions of 4.25% senior notes	$	82,339		$	0
Receivable from sales of equity securities							$	1,051		$	3,455
Payable on purchases of equity securities							$	1,050		$	32
Warrants issued in Centerbridge transaction	$	9,217		$	0		$	0		$	9,217
Asset acquired under finance lease	$	7		$	0
Acquisition of intangibles:
Common stock issued	$	5,410		$	0		$	0		$	5,410
Contingent consideration payable	$	2,419		$	—		$	1,069		$	2,419

See accompanying Notes to Consolidated Financial Statements (unaudited).

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 1 -- Nature of Operations

HCI Group, Inc., together with its subsidiaries (“HCI” or the “Company”), is primarily engaged in the property and casualty insurance business through two Florida domiciled insurance companies, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”) and TypTap Insurance Company (“TypTap”). Both HCPCI and TypTap are authorized to underwrite various homeowners’ property and casualty insurance products and allied lines business in the state of Florida and in ~~several~~ other states. The operations of both insurance subsidiaries are supported by HCI Group, Inc. and certain HCI subsidiaries. The Company emphasizes the use of internally developed technologies to collect and analyze claims and other supplemental data to generate savings and efficiency for the operations of the insurance subsidiaries.

In the first quarter of 2021, the Company reorganized its operations to focus on specific business segments, resulting in the creation of TypTap Insurance Group, Inc. (“TTIG”) with a separate workforce, board of directors and financial reporting structure. In February 2021, TTIG received a capital investment from a third party representing a minority interest as described in Note 18 -- “Redeemable Noncontrolling Interest.” Companies under TTIG include TypTap, TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company, Inc., the parent company of an India company, Exzeo Software Private Limited. TTIG and its subsidiaries are considered a new reporting segment known as TypTap Group. The Company’s reportable segments now include HCPCI insurance operations, TypTap Group, real estate operations, and corporate and other. Real estate operations are conducted byaddition, Greenleaf Capital, LLC, the Company’s real estate subsidiary, ~~which~~ is primarily engaged in the ~~businesses~~business of owning and leasing real estate and operating marina facilities.

Assumed Business

~~Effective December 31, 2020,~~Northeast Region

In 2021, the Company began providing quota share reinsurance on all in-force, new and renewal policies issued by United Property & Casualty Insurance Company, an insurance subsidiary of United Insurance Holdings Corporation (“United”), ~~ceded a portion of its personal lines insurance business~~ in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island ~~to HCPCI. Under~~(collectively “Northeast Region”). Through its insurance subsidiaries, the Company began renewing and/or replacing United policies in two states in December 2021, a third state in January 2022, and the fourth state in April 2022.

Southeast Region

In February 2022, HCPCI entered into another reinsurance agreement with United where HCPCI provides ~~69.5~~85% quota share reinsurance on all of United’s ~~in-force, new~~personal lines insurance business in the states of Georgia, North Carolina, and ~~renewal policies in those states~~South Carolina (collectively “Southeast Region”) from December 31, ~~2020~~2021 through May 31, ~~2021. In exchange,~~2022. Under this agreement, HCPCI paid United ana catastrophe allowance of $~~4,400~~9 ~~towards already purchased catastrophe reinsurance~~% of premium and a provisional ceding commission of 25% of premium. That percentage could increase up to ~~31.5~~32% depending on the direct loss ratio results from the reinsured business.

~~On January 18, 2021, the~~The Company also entered into a renewal rights agreement with United in connection with the Southeast Region assumed business. Under the renewal rights agreement, the Company ~~acquired all rights~~has the right to renew and/or replace United’s ~~homeowners~~ insurance policies at the end of their respective policy ~~periods~~periods. The ability to replace policies is subject to regulatory approvals in the ~~states of Connecticut, Massachusetts, New Jersey and Rhode Island.~~three states. The policy replacement date is was set for June 1, ~~2021~~2022 or such other date as mutually agreed by both parties. ~~The agreement also contains a non-compete clause that does~~In connection with the transaction, United agreed to not ~~permit United to engage~~compete with the Company for the issuance of personal lines homeowners business in ~~marketing, selling, writing, renewing, or servicing any homeowners insurance contracts in~~ these three states until July 1, ~~2024. In return,~~2025. As part of the transaction, United ~~received~~ ~~100,000~~ ~~shares of HCI’s common stock and~~ will receive a renewal rights ceding commission of 6%, with a portion of the ceding commission ~~on any replacement premium in excess of $80,000. The total~~paid up-front, and the aggregate ceding commission amount will not exceed $~~3,100~~6,000. See Note 7 -- “Intangible Assets, Net” for additional information.

The Company ~~and United agreed to postpone the~~began renewing United’s policies in South Carolina on June 1, 2022. The policy replacement date ~~under the renewal rights agreement~~for Georgia and North Carolina policies has yet to ~~a later date~~be determined and the Company, through ~~HCPCI and~~ TypTap, entered into a new quota share reinsurance agreement in June ~~2021~~2022 to provide 100% reinsurance on all of United’s in-force, new and renewal policies in ~~those states~~the Southeast Region from June 1, ~~2021~~2022 through May 31, ~~2022. Under the new agreement, each insurance subsidiary assumes~~ 50~~% of the business and~~2023. In exchange, TypTap pays United a ceding commission of 2416% of premium.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 2 -- Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements for HCI Group, Inc. and its majority-owned and controlled subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of ~~September~~June 30, ~~2021~~2022 and the results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, ~~2021.~~2022. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, ~~2020~~2021 included in the Company’s Form 10-K, which was filed with the SEC on March ~~12, 2021.~~10, 2022.

In preparing the interim unaudited consolidated financial statements, management was required to make certain judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates.

Material estimates that are particularly susceptible to significant change in the near term are related to the Company’s losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. The Company uses various assumptions and actuarial data it believes to be reasonable under the circumstances to make these estimates. In addition, accounting policies specific to reinsurance with retrospective provisions, reinsurance recoverable, deferred income taxes, limited partnership investments, ~~warrants, redeemable noncontrolling interest,~~ intangible assets acquired from United, and stock-based compensation expense involve significant judgments and estimates material to the Company’s consolidated financial statements.

All significant intercompany balances and transactions have been eliminated.

~~Adoption of New Accounting Standards~~Long-Term Debt

~~Accounting Standards Update No. 2020-06.~~ In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06 (“ASU 2020-06”) Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 removes certain bifurcation models for convertibleLong-term debt includes debt instruments and ~~convertible preferred stock. Therefore,~~finance lease obligations. A debt instrument is generally classified as a liability and carried at amortized cost, net of any issuance costs. Debt issuance costs are capitalized and amortized to interest expense over the expected life of the debt instrument using the effective interest method. At issuance, a debt instrument with embedded features such as conversion and redemption options is evaluated to determine whether bifurcation and derivative accounting is applicable. Any embedded feature other than the conversion option is evaluated at issuance to determine if it is probable that such embedded feature will be exercised. If the Company concludes that the exercisability of that embedded feature is not probable, the embedded ~~conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required~~feature is considered to be ~~accounted for as derivatives under Topic 815, Derivatives~~non-substantive and ~~Hedging, or that do~~would not ~~result in substantial premiums accounted for as paid-in-capital. The amendments also remove three settlement conditions that are required for equity contracts to qualify for~~impact the ~~derivative scope exception~~initial measurement and ~~amend the derivative scope exception guidance for contracts in an entity’s own equity. In addition, the amendments expand disclosure requirements for convertible instruments and simplify areas~~expected life of the ~~guidance for diluted earnings-per-share calculations that are impacted by~~debt instrument.

Revenue from Claims Processing Services

Revenue related to claims processing services is included in other revenue in the ~~amendments.~~consolidated statements of income. For the three and six months ended June 30, 2022, revenues from claims processing services were

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~The Company elected to early adopt this update on January 1, 2021 using the modified retrospective method. The adoption of this update increased long-term debt by~~ $~~3,999~~ ~~and simultaneously decreased beginning retained income and deferred income tax liabilities by $3,018~~372 and $~~981~~1,379, respectively. ~~The if-converted method will be the only permissible method for computing the dilutive effect of a convertible debt instrument. Interest expense no longer includes amortization of debt discount.~~

~~Funds Held in Trust for Assumed Business~~

The Company accounts for trust account deposits with regards to the quota share reinsurance agreements between the Company's insurance subsidiaries and United as funds held in trust for assumed business. This balance consists of funds deposited to establish the trust accounts and assumed premiums written net of provisional commission, any catastrophe cost allowance applicable, and paid losses and loss adjustment expenses.

~~Redeemable Noncontrolling Interest~~

Redeemable noncontrolling interest represents an economic interest in TTIG and is presented in the temporary equity (mezzanine) section of the consolidated balance sheet. The interest contains rights in dividends, voting, conversion, participation, liquidation preference and redemption. The redemption feature is not solely within the control of TTIG (See Note 18 -- “Redeemable Noncontrolling Interest”).

The redeemable noncontrolling interest is initially recorded at fair value and is decreased by related issuance costs. The fair value is estimated using a residual fair value approach. The effect of increasing dividend rates is accreted to the redeemable noncontrolling interest with a corresponding debit to retained income. The effective interest method is used for accretion over the period of the increasing dividend rates. The carrying value of the interest is also subsequently adjusted for accrued dividends and dividend payments. The Company has an option to pay the dividends in cash or make a payment in kind. The dividends are accrued monthly assuming that they will be settled in cash.

When the redemption is probable, the Company elects to recognize changes in the redemption value immediately as it occurs and adjust the carrying value of the interest to the maximum redemption value which is the higher of the redemption price or fair market value at the reporting date. Such changes in the redemption value are treated as dividends when calculating income available to common stockholders.

~~Noncontrolling Interests~~

~~The Company has noncontrolling interests attributable to TTIG. A noncontrolling interest arises when the Company has less than~~ ~~100~~% of the voting rights and economic interests in a subsidiary. The noncontrolling interest is periodically adjusted for the expensing of TTIG’s restricted stock awards granted to its employees, the interest’s share of TTIG’s net income or loss to common stockholders and change in other comprehensive income or loss.

~~Revenue from Claims Handling Services~~

The Company provides a claims handling service to a third-party insurance company. The service includes investigation, evaluation, adjustment and settlement of a claim. These highly interrelated activities are combined to fulfill the Company’s obligation to provide the claims handling service under a contract. As such, they are considered a single performance obligation for revenue recognition purposes. Fees are established on a per-claim basis by type of claim. For each type of claim, the per-claim fee revenue is recognized over an average claim processing period.

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

The Company may incur additional costs for outsourced services in connection with the investigation, coverage analysis, adjustment, negotiation, settlement, defense or general handling of a claim. These costs are reimbursable from the customer. The Company has control over how an outsourced service is performed on its behalf. Thus, these pass-through costs are recognized as revenue in the gross amount to which the Company expects to be entitled and when the outsourced service is completed and paid or accrued by the Company.

For a certain type of claim and in addition to the per-claim service fee, the Company is entitled to additional revenue which is determined based on a fixed percent of the paid indemnification of the loss per claim. The revenue is recognized when the indemnification is paid by the Company.

~~Revenue related to claims handling services is included in other revenue in the consolidated statement of income. For the three and nine months ended September 30, 2021, revenues~~Revenues from claims ~~handling~~processing services were $~~1,709~~207 for the three and $~~1,916, respectively.~~six months ended June 30, 2021. At ~~September~~June 30, 2022 and December 31, 2021, other assets included $~~768~~321 and $314, respectively, of amounts receivable attributable to this service.

~~Stock-Based Compensation~~

The Company accounts for stock-based compensation under the fair value recognition provisions of U.S. GAAP which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors based on estimated fair values. In accordance with U.S. GAAP, the fair value of stock-based awards is generally recognized as compensation expense over the requisite service period, which is defined as the period during which a recipient is required to provide service in exchange for an award. Forfeitures of the Company’s stock-based awards are accounted for as they occur. The Company uses a straight-line attribution method for all grants that include only a service condition. Restricted stock grants with market conditions are expensed over the derived service period. Expensing market-based awards may be expedited if the conditions are met sooner than anticipated. The Company’s outstanding stock-based awards include stock options, warrants and restricted stock awards with service and market conditions. Compensation expense related to all awards is included in general and administrative personnel expenses. The Company receives a windfall tax benefit for certain stock option exercises and for restricted stock awards if these awards vest at a higher value than the value used to recognize compensation expense. In the event the restricted stock awards vest at a lower value than the value used to recognize compensation expense, the Company experiences a tax shortfall. The Company recognizes tax windfalls and shortfalls in the consolidated statements of income.

Reclassification

~~In response~~Certain prior year amounts have been reclassified to conform to the ~~new reporting segment described in Note 1 -- “Nature~~current year presentation. Ceded reinsurance premiums payable were reclassified out of ~~Operations,”~~other liabilities and funds withheld for assumed business were reclassified out of other assets for the ~~prior period segment information has been reclassified~~six months ended June 30, 2021 within the consolidated statement of cash flows to conform with the current ~~period~~year presentation. TypTap and TypTap Management Company were removed from the segment previously referred to as Insurance Operations to form the new TypTap Group segment. The information technology companies which had previously been presented in the Corporate and Other segment were also added to the TypTap Group segment.

Note 3 ~~-- Recent Accounting Pronouncements~~

~~Accounting Standards Update No. 2021-01.~~ ~~In January 2021, the FASB issued~~ ~~Accounting Standards Update~~ No. 2021-01 (“ASU 2021-01”) Reference Rate Reform (Topic 848). This update refines the scope of ASC 848 and clarifies some of its guidance as part of the Board’s monitoring of global reference rate reform activities. ASU 2021-01 permits entities to apply certain optional expedients to modifications of interest rate indexes used for margining, discounting or contract price alignment of certain derivatives in connection with reference rate reform activities under way in global financial markets. It also extends optional expedients to account for a

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

derivative contract modified as a continuation of the existing contract and to continue hedge accounting when certain critical terms of a hedging relationship change to modifications made as part of the discounting transition. ASU 2021-01 is effective immediately and does not have any ~~material impact on the Company’s consolidated financial statements.~~

~~Accounting Standards Update No. 2021-04.~~ ~~In May 2021, the FASB issued~~ ~~Accounting Standards Update~~ No. 2021-04 (“ASU 2021-04”) Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). This update clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance clarifies whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. ASU 2021-04 is effective for the Company beginning with the first quarter of 2022 and will be applied prospectively. Early adoption is permitted. This guidance will not have a ~~material~~ ~~impact on the Company’s consolidated financial statements.~~

~~Note 4~~ -- Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Cash and cash equivalents	$	569,134	$	431,341	$	360,488	$	628,943
Restricted cash		2,400		2,400		2,600		2,400
Total	$	571,534	$	433,741	$	363,088	$	631,343

Restricted cash ~~primarily~~ represents funds in the Company’s sole ownership held by certain states in which the Company’s insurance subsidiaries conduct business to meet regulatory ~~requirements.~~requirements and not available for immediate business use. Funds withheld in an account for which the Company is a co-owner but not the named beneficiary are not considered restricted cash.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 4 -- Investments

a) Available-for-Sale Fixed-Maturity Securities

The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At June 30, 2022 and December 31, 2021, the cost or amortized cost, allowance for credit loss, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:


	Cost or Amortized		Allowance for Credit		Gross Unrealized		Gross Unrealized			Estimated Fair
	Cost		Loss		Gain		Loss			Value
As of June 30, 2022
U.S. Treasury and U.S. government agencies	$	372,323	$	—	$	2	$	(4,762	)	$	367,563
Corporate bonds		28,953		—		27		(556	)		28,424
States, municipalities, and political subdivisions		1,761		—		8		(2	)		1,767
Exchange-traded debt		700		—		14		(1	)		713
Redeemable preferred stock		107		—		0		(3	)		104
Total	$	403,844	$	—	$	51	$	(5,324	)	$	398,571
As of December 31, 2021
U.S. Treasury and U.S. government agencies	$	17,046	$	—	$	64	$	(86	)	$	17,024
Corporate bonds		21,913		—		632		(53	)		22,492
States, municipalities, and political subdivisions		1,759		—		49		—			1,808
Exchange-traded debt		767		—		44		—			811
Redeemable preferred stock		468		—		0		(20	)		448
Total	$	41,953	$	—	$	789	$	(159	)	$	42,583

Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities as of June 30, 2022 and December 31, 2021 are as follows:


	June 30, 2022				December 31, 2021
	Cost or		Estimated		Cost or		Estimated
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	167,143	$	167,002	$	10,734	$	10,826
Due after one year through five years		232,353		227,637		19,222		19,820
Due after five years through ten years		3,854		3,427		11,503		11,403
Due after ten years		494		505		494		534
	$	403,844	$	398,571	$	41,953	$	42,583

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Sales of Available-for-Sale Fixed-Maturity Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale fixed-maturity securities, for the three and six months ended June 30, 2022 and 2021 were as follows:


			Gross Realized		Gross Realized
	Proceeds		Gains		Losses
Three months ended June 30, 2022	$	2,436	$	11	$	(3	)
Three months ended June 30, 2021	$	14,644	$	576	$	0
Six months ended June 30, 2022	$	11,494	$	13	$	(434	)
Six months ended June 30, 2021	$	14,680	$	577	$	—

Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities

Securities with gross unrealized loss positions at June 30, 2022 and December 31, 2021, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:


	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of June 30, 2022	Loss			Value		Loss			Value		Loss			Value
U.S. Treasury and U.S. government agencies	$	(4,664	)	$	348,459	$	(98	)	$	2,048	$	(4,762	)	$	350,507
Corporate bonds		(556	)		23,828		0			0		(556	)		23,828
States, municipalities, and political subdivisions		(2	)		387		0			0		(2	)		387
Exchange-traded debt		(1	)		23		0			0		(1	)		23
Redeemable preferred stock		(3	)		104		0			0		(3	)		104
Total available-for-sale securities	$	(5,226	)	$	372,801	$	(98	)	$	2,048	$	(5,324	)	$	374,849


	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of December 31, 2021	Loss			Value		Loss			Value		Loss			Value
U.S. Treasury and U.S. government agencies	$	(73	)	$	9,809	$	(13	)	$	616	$	(86	)	$	10,425
Corporate bonds		(53	)		4,452		0			0		(53	)		4,452
Redeemable preferred stock		(20	)		442		0			0		(20	)		442
Total available-for-sale securities	$	(146	)	$	14,703	$	(13	)	$	616	$	(159	)	$	15,319

At June 30, 2022 and December 31, 2021, there were 68 and 23 securities, respectively, in an unrealized loss position.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~Note 5 -- Investments~~

~~a) Available-for-Sale Fixed-Maturity Securities~~

The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At September 30, 2021 and December 31, 2020, the cost or amortized cost, allowance for credit loss, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:

Cost or
Amortized

Allowance
for Credit

Gross
Unrealized

Gross
Unrealized

Estimated
Fair

Cost

Loss

Gain

Loss

Value

As of September 30, 2021

U.S. Treasury and U.S. government agencies

$
12,870

$
—

$
103

$
(20
)

$
12,953

Corporate bonds

27,736

—

851

(62
)

28,525

States, municipalities, and political subdivisions

1,757

—

60

—

1,817

Exchange-traded debt

2,185

—

104

—

2,289

Redeemable preferred stock

468

—

2

(1
)

469

Total

$
45,016

$
—

$
1,120

$
(83
)

$
46,053

As of December 31, 2020

U.S. Treasury and U.S. government agencies

$
13,759

$
—

$
210

$
(1
)

$
13,968

Corporate bonds

49,957

(579
)

1,570

(17
)

50,931

States, municipalities, and political subdivisions

3,023

—

60

(2
)

3,081

Exchange-traded debt

3,491

(9
)

230

(5
)

3,707

Redeemable preferred stock

35

—

—

—

35

Total

$
70,265

$
(588
)

$
2,070

$
(25
)

$
71,722

~~Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.~~ ~~The scheduled contractual maturities of fixed-maturity securities as of September 30, 2021 and December 31, 2020 are as follows:~~

September 30, 2021

December 31, 2020

Cost or

Estimated

Cost or

Estimated

Amortized Cost

Fair Value

Amortized Cost

Fair Value

Available-for-sale

Due in one year or less

$
12,413

$
12,497

$
21,122

$
21,258

Due after one year through five years

23,548

24,209

43,561

44,339

Due after five years through ten years

7,250

7,444

2,731

3,060

Due after ten years

1,805

1,903

2,851

3,065

$
45,016

$
46,053

$
70,265

$
71,722

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

~~Sales of Available-for-Sale Fixed-Maturity Securities~~

~~Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and nine months ended September 30, 2021 and 2020 were as follows:~~

Gross
Realized

Gross
Realized

Proceeds

Gains

Losses

Three months ended September 30, 2021

$
4,158

$
94

$
(6
)
Three months ended September 30, 2020

$
1,098

$
13

$
(34
)
Nine months ended September 30, 2021

$
18,838

$
671

$
(6
)
Nine months ended September 30, 2020

$
79,284

$
1,743

$
(610
)

~~Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities~~

Securities with gross unrealized loss positions at September 30, 2021 and December 31, 2020, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:

Less Than Twelve Months

Twelve Months or Longer

Total

Gross

Estimated

Gross

Estimated

Gross

Estimated

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

As of September 30, 2021

Loss

Value

Loss

Value

Loss

Value

U.S. Treasury and U.S. government
agencies

$
(20
)

$
4,634

$
—

$
—

$
(20
)

$
4,634

Corporate bonds

(42
)

5,129

(20
)

331

(62
)

5,460

Redeemable preferred stock

(1
)

424

—

—

(1
)

424

Total available-for-sale securities

$
(63
)

$
10,187

$
(20
)

$
331

$
(83
)

$
10,518

Less Than Twelve Months

Twelve Months or Longer

Total

Gross

Estimated

Gross

Estimated

Gross

Estimated

Unrealized

Fair

Unrealized

Fair

Unrealized

Fair

As of December 31, 2020

Loss

Value

Loss

Value

Loss

Value

U.S. Treasury and U.S. government
agencies

$
(1
)

$
1,337

$
—

$
—

$
(1
)

$
1,337

Corporate bonds

(17
)

3,085

0

0

(17
)

3,085

States, municipalities, and political
subdivisions

(2
)

1,268

0

0

(2
)

1,268

Exchange-traded debt

(5
)

336

0

0

(5
)

336

Total available-for-sale securities

$
(25
)

$
6,026

$
—

$
—

$
(25
)

$
6,026

~~At September 30, 2021 and December 31, 2020, there were~~ 32 ~~and~~ 12 ~~securities, respectively, in an unrealized loss position.~~

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

Allowance for Credit Losses of Available-for-Sale Fixed-Maturity Securities

The Company regularly reviews its individual investment securities for credit impairment. The Company considers various factors in determining whether a credit loss exists for each individual security, including-

•

the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;

•

the extent to which the market value of the security has been below its cost or amortized cost;

•

general market conditions and industry or sector specific factors and other qualitative factors;

•

nonpayment by the issuer of its contractually obligated interest and principal payments; and

•

the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

The table below summarizes the activity in the allowance for credit losses of available-for-sale securities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:



	2021			2020		2022		2021
Balance at January 1	$	588		$	0	$	0	$	588
Credit loss expense		—			439
Reductions for securities sold		(9	)		—		0		(9	)
Balance at March 31	$	579		$	439	$	0	$	579
Credit loss expense		—			87
Reductions for securities exchanged		(579	)		—		0		(579	)
Balance at June 30	$	0		$	526	$	0	$	0
Credit loss expense		0			70
Balance at September 30	$	0		$	596

b) Equity Securities

The Company holds investments in equity securities measured at fair values which are readily determinable. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:

Gross
Unrealized

Gross
Unrealized

Estimated
Fair

Cost

Gain

Loss

Value

September 30, 2021

$
46,771

$
4,592

$
(1,140
)

$
50,223

December 31, 2020

$
47,029

$
4,649

$
(548
)

$
51,130


			Gross Unrealized		Gross Unrealized			Estimated Fair
	Cost		Gain		Loss			Value
June 30, 2022	$	38,065	$	2,073	$	(4,419	)	$	35,719
December 31, 2021	$	46,276	$	6,335	$	(871	)	$	51,740

The table below presents the portion of unrealized gains and losses in the Company’s consolidated statements of income related to equity securities still held.


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2022			2021		2022			2021
Net (losses) gains recognized	$	(4,323	)	$	3,069	$	(7,865	)	$	3,536
Exclude: Net realized (losses) gains recognized for securities sold		(89	)		1,580		(55	)		2,316
Net unrealized (losses) gains recognized	$	(4,234	)	$	1,489	$	(7,810	)	$	1,220

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~The table below presents the portion of unrealized gains and losses in the Company’s consolidated statements of income for the periods related to equity securities still held.~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Net (losses) gains recognized

$
(916
)

$
1,521

$
2,620

$
(2,363
)
Exclude: Net realized gains (losses) recognized for
securities sold

953

181

3,269

(1,782
)
Net unrealized (losses) gains recognized

$
(1,869
)

$
1,340

$
(649
)

$
(581
)

Sales of Equity Securities

Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were as follows:

Gross
Realized

Gross
Realized

Proceeds

Gains

Losses

Three months ended September 30, 2021

$
24,781

$
1,141

$
(188
)
Three months ended September 30, 2020

$
4,930

$
244

$
(63
)
Nine months ended September 30, 2021

$
81,292

$
4,266

$
(997
)
Nine months ended September 30, 2020

$
17,385

$
1,213

$
(2,995
)


			Gross Realized		Gross Realized
	Proceeds		Gains		Losses
Three months ended June 30, 2022	$	6,058	$	433	$	(522	)
Three months ended June 30, 2021	$	22,133	$	1,983	$	(403	)
Six months ended June 30, 2022	$	24,427	$	1,853	$	(1,908	)
Six months ended June 30, 2021	$	56,511	$	3,125	$	(809	)

c) Limited Partnership Investments

The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships.The following table provides information related to the Company’s investments in limited partnerships:


	September 30, 2021						December 31, 2020						June 30, 2022						December 31, 2021
	Carrying		Unfunded				Carrying		Unfunded				Carrying		Unfunded				Carrying		Unfunded
Investment Strategy	Value		Balance		(%)(a)		Value		Balance		(%)(a)		Value		Balance		(%) (a)		Value		Balance		(%) (a)
Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e)	$	6,100	$	2,085		15.37	$	8,131	$	2,085		15.37	$	4,613	$	0		15.37	$	6,076	$	2,085		15.37
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)		4,198		—		1.76		5,512		—		1.76		3,347		0		1.67		3,423		0		1.69
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(f)(g)		6,179		1,401		0.18		6,513		1,401		0.18		5,723		0		0.18		6,270		1,401		0.18
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(h)(i)		4,338		—		0.47		4,262		—		0.47		3,940		0		0.56		4,437		0		0.57
Value-oriented investments in mature real estate private equity funds and portfolios globally. (b)(j)														6,417		3,881		1.34		5,977		4,537		1.36
Risk-adjusted returns on credit and equity investments, primarily in private equity-owned companies. (b)(k)														2,655		2,584		0.39		1,950		3,050		0.47
Total													$	26,695	$	6,465			$	28,133	$	11,073

(a)

Represents the Company’s percentage investment in the fund at each balance sheet date.

2018

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Value-oriented investments in mature real
   estate private equity funds and portfolio
   globally. (b)(j)

5,224

5,494

2.24

3,273

6,818

2.24

Risk-adjusted returns on credit and equity
   investments, primarily in private equity-owned
   companies. (b)(k)

0

5,000

0

—

—

—

Total

$
26,039

$
13,980

$
27,691

$
10,304

~~(a)~~

~~Represents the Company’s percentage investment in the fund at each balance sheet date.~~

(b)

Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.

(c)

~~Expected~~The term is expected to ~~have a~~be the later of ~~ten-year~~ten years ~~term.~~or two years following the maturity of the fund’s outstanding leverage. Although the capital commitment period has expired, ~~there are still~~ follow-on investments and pending commitments ~~that~~may require additional fundings.

(d)

~~Expected to have a~~ ~~three-year~~ ~~term from June 30, 2018.~~ The term has been extended for a second additional one-year ~~additional~~ period to June 30, ~~2022.~~2023. Although the capital commitment period has ended, the general partner could still request an additional funding ~~of approximately $843~~ under certain circumstances.

(e)

At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods.

(f)

Expected to have a ten-year term. The capital commitment period has expired but the general partner may request additional funding for follow-on investment.

(g)

With the consent of a supermajority of partners, the term of the fund may be extended for up to three additional one-year periods.

(h)

Expected to have aan ~~six-year~~eight-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners.

(i)

The capital commitment period has ended but an additional funding may be requested.

(j)

~~Expected~~The term is expected to ~~have an~~end ~~eight-year~~November 27, 2027. The term may be extended for up to four ~~term from November 27, 2019.~~additional one-year periods at the general partner’s discretion, and up to two additional one-year periods with the consent of the advisory committee.

(k)

Expected to have an eight-year term after the final admission date. The term may be extended for an additional one-year period at the general partner’s discretion, and up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners.

The following is the summary of aggregated unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Company’s respective balance sheet dates. The financial statements of these limited partnerships are audited annually.


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Operating results:
Total income	$	(13,796	)	$	259,635		$	359,885		$	(1,421,381	)	$	179,117		$	384,629		$	515,945		$	373,681
Total expenses		(24,828	)		(26,637	)		(105,548	)		(107,157	)		(23,023	)		(25,208	)		(72,340	)		(80,720	)
Net (loss) income	$	(38,624	)	$	232,998		$	254,337		$	(1,528,538	)
Net income													$	156,094		$	359,421		$	443,605		$	292,961


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Balance sheet:
Total assets	$	5,562,430	$	5,529,199	$	5,899,813	$	5,855,616
Total liabilities	$	505,843	$	612,048	$	408,725	$	564,732

For the three and six months ended June 30, 2022, the Company recognized net investment income of $19 and $1,799, respectively. Included in the net investment income for the three and six months ended June 30, 2022 was an estimated unfavorable change in net asset value of $516. During the three and six months ended June 30, 2022, the Company received total cash distributions of $2,785 and $4,381, respectively, including returns on investment of $1,235 and $2,046, respectively.

21For the three and six months ended June 30, 2021, the Company recognized net investment income of $1,572 and $2,359, respectively. During the three and six months ended June 30, 2021, the Company received

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~For the three and nine months ended September 30, 2021, the Company recognized net investment income of $1,132~~ ~~and $3,491, respectively. During the three and nine months ended September 30, 2021, the Company received~~ total cash distributions of $~~1,535~~2,421 and $~~5,980~~4,445, respectively, including returns on investment of $~~553~~1,314 and $~~2,345, respectively.~~

~~For the three and nine months ended September 30, 2020, the Company recognized net investment income of $689~~ ~~and net investment loss of $2,058, respectively. During the three and nine months ended September 30, 2020, the Company received total cash distributions of $850~~ ~~and $1,742, respectively, including returns on investment of $~~72 ~~and $650~~1,792, respectively.

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $~~26,474~~27,180 and $~~29,272~~28,371, respectively, and the Company’s maximum exposure to loss aggregated $~~26,039~~26,695 and $~~27,691~~28,133, respectively.

d) Investment in Unconsolidated Joint Venture

Melbourne FMA, LLC, a wholly owned subsidiary, currently has an equity investment in FMKT Mel JV, a Florida limited liability company treated as a joint venture under U.S. GAAP. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s maximum exposure to loss relating to the variable interest entity was $~~370~~858 and $~~705~~363, respectively, representing the carrying value of the investment. In ~~September 2021, FMKT Mel JV~~June 2022, the joint venture sold ~~one of~~ its ~~remaining outparcels~~last outparcel and recognized a gain ~~on sale~~ of $~~540. During the three months ended September 30, 2021, the Company received a cash distribution of $737, including return on investment of $114~~572. There were 0 cash distributions during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2022 and 2021. At ~~September~~June 30, ~~2021 and~~2022, there was undistributed income of $488 as opposed to none at December 31, ~~2020, there was~~ 0 ~~undistributed income~~2021 from this equity method investment. The following tables provide FMJV’s summarized unaudited financial results and the unaudited financial positions:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Operating results:
Total revenues	$	540		$	—		$	540		$	—		$	572		$	—		$	572		$	—
Total expenses		(14	)		(19	)		(70	)		(51	)		(8	)		(28	)		(22	)		(56	)
Net income (loss)	$	526		$	(19	)	$	470		$	(51	)	$	564		$	(28	)	$	550		$	(56	)
The Company’s share of net income (loss)*	$	473		$	(18	)	$	423		$	(46	)	$	508		$	(25	)	$	495		$	(50	)

* Included in net investment income in the Company’s consolidated statements of income.


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Balance sheet:
Property and equipment, net	$	362	$	705	$	0	$	357
Cash		37		70		953		29
Other		18		13		18		18
Total assets	$	417	$	788	$	971	$	404

Other liabilities	$	6	$	5	$	17	$	0
Members’ capital		411		783		954		404
Total liabilities and members’ capital	$	417	$	788	$	971	$	404
Investment in unconsolidated joint venture, at equity**	$	370	$	705	$	858	$	363

22** Includes the 90% share of FMKT Mel JV’s operating results.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

** Includes the 90~~% share of FMKT Mel JV’s operating results.~~

e) Real Estate Investments

Real estate investments consist of the following as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


	September 30,			December 31,			June 30,			December 31,
	2021			2020			2022			2021
Land	$	39,069		$	39,069		$	39,425		$	39,720
Land improvements		11,917			11,917			11,933			11,917
Buildings		29,405			29,115
Buildings and building improvements								29,410			29,405
Tenant and leasehold improvements		1,488			1,487			1,548			1,511
Other		1,229			1,465			1,318			1,265
Total, at cost		83,108			83,053			83,634			83,818
Less: accumulated depreciation and amortization		(9,445	)		(8,581	)		(10,911	)		(9,922	)
Real estate investments	$	73,663		$	74,472		$	72,723		$	73,896

~~For the nine months ended September 30, 2021,~~In May 2022, the Company ~~incurred a~~sold one outparcel in Sorrento, Florida for net proceeds of $21667. See additional information under f) Net Investment Income (Loss) ~~loss on disposal of assets related to a closure of a restaurant.~~below. Depreciation and amortization expense related to real estate investments was $~~475~~483 and $~~431~~479 for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and $~~1,445~~989 and $~~1,318~~970 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

g)f) Net Investment Income (Loss)

Net investment income (loss), by source, is summarized as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Available-for-sale fixed-maturity securities	$	266		$	771		$	1,091		$	3,529		$	1,137		$	384		$	1,585		$	825
Equity securities		322			336			1,013			970			300			340			587			691
Investment expense		(134	)		(125	)		(388	)		(367	)		(116	)		(129	)		(250	)		(254	)
Limited partnership investments		1,132			689			3,491			(2,058	)		19			1,572			1,799			2,359
Real estate investments		305			(34	)		3,646			(299	)		1,538			344			1,885			3,341
Net income (loss) from unconsolidated joint venture		473			(18	)		423			(46	)		508			(25	)		495			(50	)
Cash and cash equivalents		156			212			473			1,513			298			149			451			317
Short-term investments		—			1			—			2
Net investment income	$	2,520		$	1,832		$	9,749		$	3,244		$	3,684		$	2,635		$	6,552		$	7,229

For the ~~nine~~three and six months ended ~~September~~June 30, 2022, income from real estate investments included a net gain of $376 resulting from the sale of the outparcel described in e) Real Estate Investments and $451 of income from selling the liquor license previously owned by the Company’s restaurant business which was discontinued in 2020. For the six months ended June 30, 2021, income from real estate investments included a net gain of $2,790 resulting from a legal settlement with The Kroger Co. in a lawsuit filed by a real estate subsidiary of the Company to enforce a guaranty of a commercial lease.

h)g) Other Investments

From time to time, the Company may invest in financial assets other than stocks, mutual funds and bonds. For the three ~~and nine~~ months ended ~~September~~June 30, 2022 and 2021, net realized gains related to other investments were $75 and $452, respectively, and $156 and $827 for the six months ended June 30, 2022 and 2021, respectively.

2321

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

$~~191~~ ~~and $1,018, respectively. There were net realized gains of $~~17 ~~related to other investments for the three and nine months ended September 30, 2020.~~

Note 65 -- Comprehensive Income (Loss)

Comprehensive income (loss) includes net income and other comprehensive income or loss, which for the Company includes changes in unrealized gains or losses of investments carried at fair value and changes into the ~~allowance for~~ credit losses related to these investments. Reclassification adjustments for realized (gains) losses are reflected in net realized investment gains (losses) on the consolidated statements of income. The components of other comprehensive income or loss and the related tax effects allocated to each component were as follows:

Three Months Ended

Three Months Ended

September 30, 2021

September 30, 2020

Before

Income Tax

Net of

Before

Income Tax

Net of

Tax

Effect

Tax

Tax

Effect

Tax

Net unrealized (losses) gains

$
(258
)

$
(63
)

$
(195
)

$
247

$
61

$
186

Credit losses on investments

0

0

0

70

17

53

Call and repayment gains charged to
investment income

0

0

0

(15
)

(4
)

(11
)
Reclassification adjustment for realized
(gains) losses

(88
)

(22
)

(66
)

21

5

16

Total other comprehensive (losses) gains

$
(346
)

$
(85
)

$
(261
)

$
323

$
79

$
244


	Three Months Ended									Three Months Ended
	June 30, 2022									June 30, 2021
	Before			Income			Net of			Before			Income			Net of
	Tax			Tax Effect			Tax			Tax			Tax Effect			Tax
Net unrealized (losses) gains	$	(2,174	)	$	(551	)	$	(1,623	)	$	99		$	25		$	74
Call and repayment gains charged to investment income		0			0			0			0			(1	)		1
Reclassification adjustment for realized gains		(8	)		(2	)		(6	)		(576	)		(141	)		(435	)
Total other comprehensive loss	$	(2,182	)	$	(553	)	$	(1,629	)	$	(477	)	$	(117	)	$	(360	)

Nine Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

Before

Income Tax

Net of

Before

Income Tax

Net of

Tax

Effect

Tax

Tax

Effect

Tax

Net unrealized (losses) gains

$
(341
)

$
(83
)

$
(258
)

$
56

$
14

$
42

Credit losses on investments

0

0

0

596

146

450

Call and repayment gains charged to
investment income

(2
)

(1
)

(1
)

(231
)

(56
)

(175
)
Reclassification adjustment for realized
gains

(665
)

(163
)

(502
)

(1,133
)

(278
)

(855
)
Total other comprehensive losses

$
(1,008
)

$
(247
)

$
(761
)

$
(712
)

$
(174
)

$
(538
)


	Six Months Ended									Six Months Ended
	June 30, 2022									June 30, 2021
	Before			Income			Net of			Before			Income			Net of
	Tax			Tax Effect			Tax			Tax			Tax Effect			Tax
Net unrealized losses	$	(6,325	)	$	(1,598	)	$	(4,727	)	$	(83	)	$	(20	)	$	(63	)
Call and repayment gains charged to investment income		0			0			0			(2	)		(1	)		(1	)
Reclassification adjustment for realized losses (gains)		421			107			314			(577	)		(141	)		(436	)
Total other comprehensive loss	$	(5,904	)	$	(1,491	)	$	(4,413	)	$	(662	)	$	(162	)	$	(500	)

Note 76 -- Fair Value Measurements

The Company records and discloses certain financial assets at their estimated fair values. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:


Level 1	-–	Unadjusted quoted prices in active markets for identical assets.
Level 2	-–	Other inputs that are observable for the asset, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset.
Level 3	-–	Inputs that are unobservable.

2422

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Valuation Methodology

Cash and Cash Equivalents

Cash and cash equivalents primarily consist of money-market funds and certificates of deposit maturing within 90 days. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.

Restricted Cash

Restricted cash represents cash held by state authorities and the carrying value approximates fair value.

Fixed-Maturity and Equity Securities

Estimated fair values of the Company’s fixed-maturity and equity securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, which are level 2 inputs. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies, and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.

Revolving Credit Facility

~~The Company’s~~From time to time, the Company has an amount outstanding under a revolving credit ~~facility is a variable-rate loan.~~facility. The interest rate is variable and is periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, ~~its~~ carrying value, when outstanding, approximates fair value.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Long-Term Debt

The following table summarizes components of the Company’s long-term debt and methods used in estimating their fair values:


	Maturity Date	Valuation Methodology
4.75% Convertible Senior Notes	2042	Quoted price
4.25% Convertible ~~senior notes~~Senior Notes	2037	Quoted price
3.90% Promissory ~~note~~Note	2032	Discounted cash flow method/Level 3 inputs
3.75% Callable ~~promissory note~~Promissory Note	2036	Discounted cash flow method/Level 3 inputs
4.55% Promissory ~~note~~Note	2036	Discounted cash flow method/Level 3 inputs

Assets Measured at Estimated Fair Value on a Recurring Basis

The following tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The tables indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of June 30, 2022 and December 31, 2021:


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
As of June 30, 2022
Financial Assets:
Cash and cash equivalents	$	360,488	$	—	$	—	$	360,488
Restricted cash	$	2,600	$	—	$	—	$	2,600
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies	$	366,134	$	1,429	$	—	$	367,563
Corporate bonds		28,424		—		—		28,424
State, municipalities, and political subdivisions		—		1,767		—		1,767
Exchange-traded debt		713		—		—		713
Redeemable preferred stock		104		—		—		104
Total available-for-sale securities	$	395,375	$	3,196	$	—	$	398,571
Equity securities	$	35,719	$	—	$	—	$	35,719


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
As of December 31, 2021
Financial Assets:
Cash and cash equivalents	$	628,943	$	—	$	—	$	628,943
Restricted cash	$	2,400	$	—	$	—	$	2,400
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies	$	15,536	$	1,488	$	—	$	17,024
Corporate bonds		22,492		—		—		22,492
State, municipalities, and political subdivisions		—		1,808		—		1,808
Exchange-traded debt		811		—		—		811
Redeemable preferred stock		448		—		—		448
Total available-for-sale securities	$	39,287	$	3,296	$	—	$	42,583
Equity securities	$	51,740	$	—	$	—	$	51,740

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Liabilities Carried at Other Than Fair Value

The following tables present fair value information for liabilities that are carried on the consolidated balance sheets at amounts other than fair value as of June 30, 2022 and December 31, 2021:


	Carrying		Fair Value Measurements Using						Estimated
	Value		(Level 1)		(Level 2)		(Level 3)		Fair Value
As of June 30, 2022
Financial Liabilities:
Long-term debt:
4.75% Convertible Senior Notes	$	166,596	$	—	$	178,522	$	—	$	178,522
4.25% Convertible Senior Notes		23,916		—		27,143		—		27,143
3.90% Promissory Note		9,117		—		—		8,711		8,711
3.75% Callable Promissory Note		6,973		—		—		6,604		6,604
4.55% Promissory Note		5,025		—		—		4,959		4,959
Total long-term debt	$	211,627	$	—	$	205,665	$	20,274	$	225,939


	Carrying		Fair Value Measurements Using						Estimated
	Value		(Level 1)		(Level 2)		(Level 3)		Fair Value
As of December 31, 2021
Financial Liabilities:
Revolving credit facility	$	15,000	$	—	$	15,000	$	—	$	15,000
Long-term debt:
4.25% Convertible Senior Notes	$	23,885	$	—	$	33,248	$	—	$	33,248
3.90% Promissory Note		9,287		—		—		10,488		10,488
3.75% Callable Promissory Note		7,153		—		—		7,852		7,852
4.55% Promissory Note		5,148		—		—		6,051		6,051
Total long-term debt	$	45,473	$	—	$	33,248	$	24,391	$	57,639

Note 7 -- Intangible Assets, Net

The Company’s intangible assets, net consist of the following:


	June 30,			December 31,
	2022			2021
Anchor tenant relationships (a)	$	1,761		$	1,761
In-place leases		4,215			4,215
Policy renewal rights - United		12,384			7,634
Non-compete agreements - United (b)		314			195
Total, at cost		18,674			13,805
Less: accumulated amortization		(4,316	)		(3,169	)
Intangible assets, net	$	14,358		$	10,636

(a)

An anchor tenant is a tenant that attracted more customers than other tenants.

(b)

$119 was fully amortized in June 2022 and $195 was fully amortized in June 2021.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~Assets Measured at Estimated Fair Value on a Recurring Basis~~

The following table presents information about the Company’s financial assets measured at estimated fair value on a recurring basis. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of September 30, 2021 and December 31, 2020:

Fair Value Measurements Using

(Level 1)

(Level 2)

(Level 3)

Total

As of September 30, 2021

Financial Assets:

Cash and cash equivalents

$
569,134

$
—

$
—

$
569,134

Restricted cash

$
2,400

$
—

$
—

$
2,400

Fixed-maturity securities:

U.S. Treasury and U.S. government agencies

$
10,253

$
2,700

$
—

$
12,953

Corporate bonds

28,525

—

—

28,525

State, municipalities, and political subdivisions

—

1,817

—

1,817

Exchange-traded debt

2,289

—

—

2,289

Redeemable preferred stock

469

—

—

469

Total available-for-sale securities

$
41,536

$
4,517

$
—

$
46,053

Equity securities

$
50,223

$
—

$
—

$
50,223

Fair Value Measurements Using

(Level 1)

(Level 2)

(Level 3)

Total

As of December 31, 2020

Financial Assets:

Cash and cash equivalents

$
431,341

$
—

$
—

$
431,341

Restricted cash

$
2,400

$
—

$
—

$
2,400

Fixed-maturity securities:

U.S. Treasury and U.S. government agencies

$
11,236

$
2,732

$
—

$
13,968

Corporate bonds

50,931

—

—

50,931

State, municipalities, and political subdivisions

—

3,081

—

3,081

Exchange-traded debt

3,707

—

—

3,707

Redeemable preferred stock

35

—

—

35

Total available-for-sale securities

$
65,909

$
5,813

$
—

$
71,722

Equity securities

$
51,130

$
—

$
—

$
51,130

~~Assets and Liabilities Carried at Other Than Estimated Fair Value~~

The following tables present fair value information for assets and liabilities that are carried on the consolidated balance sheets at amounts other than fair value as of September 30, 2021 and December 31, 2020:

Carrying

Fair Value Measurements Using

Estimated

Value

(Level 1)

(Level 2)

(Level 3)

Fair Value

As of September 30, 2021

Financial Liabilities:

Long-term debt:

4.25% Convertible senior notes

$
56,227

$
—

$
103,490

$
—

$
103,490

3.90% Promissory note

9,371

—

—

10,598

10,598

3.75% Callable promissory note

7,241

—

—

7,986

7,986

4.55% Promissory note

5,208

—

—

6,159

6,159

Total long-term debt

$
78,047

$
—

$
103,490

$
24,743

$
128,233

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

Carrying

Fair Value Measurements Using

Estimated

Value

(Level 1)

(Level 2)

(Level 3)

Fair Value

As of December 31, 2020

Financial Liabilities:

Revolving credit facility

$
23,750

$
—

$
23,750

$
—

$
23,750

Long-term debt:

4.25% Convertible senior notes

$
133,964

$
—

$
147,236

$
—

$
147,236

3.90% Promissory note

9,617

—

—

10,044

10,044

3.75% Callable promissory note

7,502

—

—

7,747

7,747

4.55% Promissory note

5,385

—

—

5,809

5,809

Total long-term debt

$
156,468

$
—

$
147,236

$
23,600

$
170,836

~~Note 8 -- Intangible Assets, Net~~

~~The Company’s intangible assets, net consist of the following:~~

September 30,

December 31,

2021

2020

Anchor tenant relationships (a)

$
1,761

$
1,761

In-place leases

4,215

4,215

Policy renewal rights - United

7,634

—

Non-compete agreement - United (b)

195

—

Total, at cost

13,805

5,976

Less: accumulated amortization

(2,998
)

(2,408
)
Intangible assets, net

$
10,807

$
3,568

The remaining weighted-average amortization periods for the intangible assets at ~~September~~June 30, ~~2021~~2022 are summarized in the table below:


Anchor tenant relationships*	relationships		~~12.6~~11.9 years
In-place leases		~~9.9~~9.8 years
Policy renewal rights - United		~~(c)~~3.7 years

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

~~(a)~~

~~An anchor tenant is a tenant that attracted more customers than other tenants.~~

~~(b)~~

~~The entire amount was fully amortized in June 2021.~~

~~(c)~~

~~Will be amortized over~~ ~~four years~~ ~~after the policy replacement date.~~

~~The~~In connection with the Southeast Region assumed business as described in Note 1 -- “Nature of Operations” the Company recorded intangible assets of $~~7,829~~4,869 representing the renewal rights and non-compete agreement ~~described in Note 1 -- “Nature of Operations”~~ in exchange for ~~100,000~~ ~~shares~~consideration consisting of ~~HCI’s common stock and contingent consideration which is~~ a 6% commission on any replacement premium ~~in excess~~which includes $3,800 of $~~80,000~~.commission prepaid up-front. The ~~contingent~~ consideration was estimated at $4,869 with a $1,069 contingent liability. At June 30, 2022 and December 31, 2021, contingent liabilities related to renewal rights intangible assets were $3,488 and $2,419 ~~which was~~, respectively, with the contingent liabilities included in other liabilities on the consolidated balance sheet. Due to the postponement of the renewal and/or replacement of United’s policies as described in Note 1 -- "Nature of Operations,” amortization of the policy renewal rights intangible asset has yet to begin.sheets.

The renewal rights and non-compete intangible assets acquired do not meet the definition of a business as substantially all of the fair value of the intangible assets acquired are concentrated in a group of similar assets. Therefore, the Company accounted for the purchase of the renewal rights and non-compete intangible assets as an asset acquisition. ~~Total consideration paid consisted of $5,410~~ ~~worth of HCI’s common stock plus a contingent liability of $2,419~~.

Note 98 -- Other Assets

The following table summarizes the Company’s other assets:


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Benefits receivable related to retrospective reinsurance contracts	$	1,819	$	10,920	$	10,938	$	3,064
Reimbursement receivable under TPA service						1,519		3,525
Prepaid expenses		3,493		2,365		4,560		2,853
Deposits		969		445		2,577		406
Lease acquisition costs, net		521		453		570		505
Other		6,372		8,428		8,632		4,364
Total other assets	$	13,174	$	22,611	$	28,796	$	14,717

Note 109 -- Revolving Credit Facility

In ~~March 2021,~~May 2022, the Company repaid the entire credit facility balance of $~~23,750~~15,000. For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, interest expense was $62 and $25, respectively, including $24 and $~~108, respectively, including $~~25 ~~and $~~3924 of amortization of issuance costs, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, interest expense was $~~153~~151 and $~~423~~129, respectively, including $7449 and $~~118~~49 of amortization of issuance costs, respectively. At ~~September~~June 30, ~~2021,~~2022, the Company was in compliance with all required covenants with 0 borrowings outstanding. The borrowing capacity of the facility is now $65,000.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 10 -- Long-Term Debt

The following table summarizes the Company’s long-term debt:


	June 30,			December 31,
	2022			2021
4.75% Convertible Senior Notes, due June 1, 2042	$	172,500		$	0
4.25% Convertible Senior Notes, due March 1, 2037		23,916			23,916
3.90% Promissory Note, due through April 1, 2032		9,253			9,431
3.75% Callable Promissory Note, due through September 1, 2036		7,060			7,246
4.55% Promissory Note, due through August 1, 2036		5,098			5,225
Finance lease liabilities, due through October 15, 2024		21			31
Total principal amount		217,848			45,849
Less: unamortized issuance costs		(6,200	)		(345	)
Total long-term debt	$	211,648		$	45,504

The following table summarizes future maturities of long-term debt as of June 30, 2022, which takes into consideration the assumption that the 4.75% Convertible Senior Notes and 4.25% Convertible Senior Notes are repurchased at their respective next earliest call dates:


Due in 12 months following June 30,
2022	$	1,026
2023		1,057
2024		1,096
2025		1,140
2026		197,603
Thereafter		15,926
Total	$	217,848

Information with respect to interest expense related to long-term debt is as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Interest Expense:
Contractual interest	$	1,334	$	1,704	$	1,806	$	3,411
Non-cash expense (a)		119		271		159		539
Total	$	1,453	$	1,975	$	1,965	$	3,950

(a)

Includes amortization of debt issuance costs.

4.75% Convertible Senior Notes

In May 2022, the Company issued 4.75% Convertible Senior Notes in a private offering for an aggregate principal amount of $172,500. The net proceeds of the 4.75% Convertible Senior Notes were $166,486 after $6,014 in related issuance and transaction costs. These notes mature June 1, 2042 and the cash interest is payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2022.

The 4.75% Convertible Senior Notes rank equally in right of payment to the Company’s existing and future unsecured and unsubordinated obligations. The 4.75% Convertible Senior Notes do not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

the issuance or repurchase of securities by the Company or any of its subsidiaries. The 4.75% Convertible Senior Notes provide no protection to the note holders in the event of a fundamental change or other corporate transaction involving the Company except those described in the indenture. The 4.75% Convertible Senior Notes do not require a sinking fund to be established for the purpose of redemption. In conjunction with the issuance of the 4.75% Convertible Senior Notes, the Company entered into a share repurchase agreement providing for the repurchase of shares of the Company’s common stock. See Note 18 -- “Equity” under Share Repurchase Agreement for additional information.

Embedded Conversion Feature

The conversion feature of the 4.75% Convertible Senior Notes is subject to conversion rate adjustments upon the occurrence of specified events (including payment of dividends above a specified amount) but will not be adjusted for any accrued and unpaid interest.

The conversion rate of the 4.75% Convertible Senior Notes is currently 12.4166 shares of common stock for each $1 in principal amount, which is the equivalent of approximately $80.54 per share.

The holders of the 4.75% Convertible Senior Notes may convert all or a portion of their convertible senior notes during specified periods prior to the maturity date as follows: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2022, if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading day; (2) during the five business-day period after any ten consecutive trading-day period in which the trading price per $1 principal amount of the 4.75% Convertible Senior Notes is less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if specified corporate events, including a change in control, occur; (4) if any or all of the 4.75% Convertible Senior Notes are called for redemption, at any time prior to the close of business on the business day prior to the redemption date; or (5) during either the period beginning on, and including, March 1, 2027 and ending at the close of business on the business day immediately preceding June 7, 2027, or the period beginning on, and including, March 1, 2042 and ending at the close of business on the business day immediately preceding the maturity date.

The note holders who elect to convert their convertible senior notes in connection with a fundamental change as described in the indenture will be entitled to a “make-whole” adjustment in the form of an increase in the conversion rate. Upon conversion, the Company has the option to satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock. As of June 30, 2022, none of the conditions allowing the holders of the 4.75% Convertible Senior Notes to convert had been met.

The Company determined that the 4.75% Convertible Senior Notes’ embedded conversion feature is not a derivative financial instrument and does not require bifurcation.

Embedded Redemption Feature – Fundamental Change

The note holders have the right to require the Company to repurchase for cash all or any portion of the 4.75% Convertible Senior Notes at par prior to the maturity date should any of the fundamental change events described in the indenture occur. The Company concluded that this embedded redemption feature is not a derivative financial instrument, does not require bifurcation, and that it is not probable at issuance that any of the

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~Note 11 -- Long-Term Debt~~

~~The following table summarizes~~specified fundamental change events will occur. Therefore, this embedded redemption feature is not substantive and will not affect the ~~Company’s long-term debt:~~expected life of the liability.

September 30,

December 31,

2021

2020

4.25% Convertible senior notes, due March 1, 2037

$
56,409

$
139,200

3.90% Promissory note, due through April 1, 2032

9,519

9,777

3.75% Callable promissory note, due through
September 1, 2036

7,337

7,607

4.55% Promissory note, due through August 1, 2036

5,287

5,470

Finance lease liabilities, due through October 15, 2024

36

43

Total principal amount

78,588

162,097

Less: unamortized discount and issuance costs*

(505
)

(5,586
)
Total long-term debt

$
78,083

$
156,511

Embedded Redemption Feature – Put Option of the Note Holder

* Effective January 1, 2021,At the ~~balance includes only unamortized issuance costs. See~~ ~~Adoption~~option of ~~New Accounting Standards~~ ~~in Note 2 -- “Summary~~the holders of ~~Significant Accounting Policies.”~~

~~The following table summarizes future maturities of long-term debt as of September 30, 2021, which takes into consideration~~ the ~~assumption that the~~ ~~4.25~~%4.75% Convertible Senior Notes, ~~are repurchased~~the Company is required to repurchase for cash all or any portion of the 4.75% Convertible Senior Notes at par on June 1, 2027, June 1, 2032 or June 1, 2037. The Company concluded that this embedded feature is not a derivative financial instrument and does not require bifurcation. Due to this provision, the Company determined that it is appropriate to amortize the debt issuance costs from the date the debt is issued to the earliest ~~call date.~~date at which the holders of the 4.75% Convertible Senior Notes can demand payment. Thus, the Company amortizes the issuance costs associated with the 4.75% Convertible Senior Notes over the period from May 23, 2022 to June 1, 2027.

The effective interest rate for the 4.75% Convertible Senior Notes, taking into account both cash and non-cash components, approximates

Due in 12 months following September 30,

2021

$
57,409

2022

1,036

2023

1,065

2024

1,106

2025

1,151

Thereafter

16,821

Total

$
78,588

5.6%. Had a 20-year term been used for the amortization of the issuance costs of the 4.75% Convertible Senior Notes, the annual effective interest rate charged to earnings would have decreased to approximately 5.0%. As of June 30, 2022, the remaining amortization period of the debt issuance costs was expected to be 4.9

~~Information with respect to interest expense related to long-term debt is as follows:~~years for the 4.75% Convertible Senior Notes.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Interest Expense:

Contractual interest

$
1,421

$
1,736

$
4,832

$
5,374

Non-cash expense (a)

219

1,053

758

3,174

Capitalized interest (b)

—

(41
)

—

(125
)

$
1,640

$
2,748

$
5,590

$
8,423

~~(a)~~

~~Includes amortization of debt discount and issuance costs. Amortization of debt discount discontinued effective January 1, 2021. See~~ ~~Adoption of New Accounting Standards~~ ~~in Note 2 -- “Summary of Significant Accounting Policies” for additional information.~~

~~(b)~~

~~Interest was capitalized for a construction project.~~

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

4.25% Convertible Senior Notes

On March 1, 2022, none of the holders of the 4.25% Convertible Senior Notes. exercised the put option, which would have required the Company to repurchase for cash all or any portion of the notes at par. The Company’s recent cash dividends on common stock have exceeded $0.35 per share, resulting in adjustments to the conversion rate of the 4.25% Convertible Senior Notes. Accordingly, as of ~~September~~June 30, ~~2021,~~2022, the conversion rate of the Company’s 4.25% Convertible Senior Notes was ~~16.4668~~16.4976 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $~~60.73~~60.61 per share.

~~As the Company’s common shares traded above~~ ~~130% of the conversion price for at least~~ 20 ~~trading days during the final~~ 30 trading days of both the second and third quarters of 2021, the 4.25% Convertible Notes are convertible by all holders beginning July 1 through December 31, 2021 in accordance with the terms specified in the indenture.

~~During the third quarter of 2021, the Company entered into various agreements with certain holders of the 4.25% Convertible Notes whereby the holders converted $82,480~~ ~~in aggregate principal of 4.25% Convertible Notes for aggregate consideration of~~ ~~1,356,835~~ ~~shares of HCI’s common stock and $1,414~~ of cash consideration. These transactions were accounted for as induced conversions based on the limited period of time the offers were open and the inclusion of cash consideration being one of the conversion options specified in the indenture. As such, the Company recognized debt conversion expense of $~~1,273~~ ~~during the three months ended September 30, 2021 consisting of the difference between the fair value of all consideration transferred and the fair value of common stock issued.~~

~~An additional $311~~ ~~in aggregate principal of 4.25% Convertible Notes were converted by election from holders of 4.25% Convertible Notes for aggregate consideration of~~ ~~5,119~~ ~~shares of HCI’s common stock during the three months ended September 30, 2021.~~

~~As of September 30, 2021, the remaining amortization period of the~~The debt issuance costs for the 4.25% Convertible Senior Notes ~~was expected to be~~ ~~5 months~~.had been fully amortized as of February 2022.

Note 1211 -- Reinsurance

Reinsurance obtained from other insurance companies

The Company cedes a portion of its homeowners’ insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and a portion of its flood insurance exposure under one quota share reinsurance agreement. Ceded premiums under most catastrophe excess of loss reinsurance contracts are subject to revision resulting from subsequent adjustments in total insured value. Under the terms of the quota share reinsurance agreement, the Company is entitled to a 30% ceding commission on ceded premiums ~~written. The reinsurance premiums under one flood catastrophe excess~~written and a profit commission equal to 10% of loss reinsurance contract are generally determined on a quarterly basis based on the premiums associated with the applicable flood total insured value in force on the last day of the preceding quarter.net profit.

3029

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The Company remains liable for claims payments in the event that any reinsurer is unable to meet its obligations under the reinsurance agreements. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1st of each year. The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions.

The impact of the reinsurance contracts on premiums written and earned is as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Premiums Written:
Direct	$	143,426		$	116,464		$	396,781		$	364,942		$	187,792		$	143,224		$	359,773		$	253,355
Assumed		30,840			(13	)		88,311			(92	)		(1,640	)		41,754			3,673			57,471
Gross written		174,266			116,451			485,092			364,850			186,152			184,978			363,446			310,826
Ceded		(55,577	)		(44,231	)		(145,112	)		(109,304	)		(56,205	)		(46,436	)		(109,367	)		(89,535	)
Net premiums written	$	118,689		$	72,220		$	339,980		$	255,546		$	129,947		$	138,542		$	254,079		$	221,291
Premiums Earned:
Direct	$	120,763		$	106,337		$	346,788		$	303,956		$	164,887		$	115,733		$	313,733		$	226,025
Assumed		29,046			357			73,403			2,906			16,237			23,707			46,316			44,357
Gross earned		149,809			106,694			420,191			306,862			181,124			139,440			360,049			270,382
Ceded		(55,577	)		(44,231	)		(145,112	)		(109,304	)		(56,205	)		(46,436	)		(109,367	)		(89,535	)
Net premiums earned	$	94,232		$	62,463		$	275,079		$	197,558		$	124,919		$	93,004		$	250,682		$	180,847

During the three and ~~nine~~six months ended ~~September~~June 30, 2022, the Company recognized ceded losses of $2,517 and $3,387, respectively, as reductions in losses and loss adjustment expenses. During the three and six months ended June 30, 2021, the Company recognized ceded losses of $~~1,830~~487 and $~~2,424~~594, respectively, as ~~a reduction in losses and loss adjustment expenses. During the three and nine months ended September 30, 2020, the Company recognized ceded losses of $1,871~~ ~~and $2,220, respectively, as a reduction~~reductions in losses and loss adjustment expenses. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were 5445 and 3855 reinsurers, respectively, participating in the Company’s reinsurance program. Total net amounts recoverable and receivable from reinsurers at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were $~~49,126~~53,482 and $~~85,146~~76,650, respectively. Approximately ~~66.4~~54.9% of the ~~gross~~ reinsurance recoverable balance at ~~September~~June 30, ~~2021~~2022 was receivable from 3 reinsurers, ~~including~~one of which was the Florida Hurricane Catastrophe Fund, a tax-exempt state trust fund. Based on all available information considered in the rating-based method, the Company recognized decreases in credit loss expense of $1317 and $4128 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company derecognized credit loss expenses of $1416 and $~~363~~28, respectively. Allowances for credit losses related to the reinsurance recoverable balance were $4462 and $8590 at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~The Company has~~One of the existing reinsurance contracts ~~that include~~includes retrospective provisions that adjust premiums in the event losses are minimal or zero. Prior to June 1, 2022, there were two reinsurance contracts with retrospective provisions. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company recognized reductions in premiums ceded of $~~1,364~~6,390 and $~~9,619~~7,874, respectively, related to these adjustments in the consolidated statements of income. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recognized reductions in premiums ceded of $~~4,680~~3,575 and $~~10,440~~8,255, respectively. See Note 20 -- “Commitments and Contingencies” for additional information.

3130

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Amounts receivable pursuant to retrospective provisions are reflected in other assets. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, other assets included $~~1,819~~10,938 and $~~10,920~~3,064, respectively. ~~In June 2021, the Company received $18,720~~ ~~of premium refund under the retrospective reinsurance contract that ended May 31, 2021.~~ Management believes the credit risk associated with the collectability of accrued benefits is minimal as the amount receivable is concentrated with ~~two~~ reinsurers with good credit ratings and the Company monitors the creditworthiness of these reinsurers based on available information about each reinsurer’s financial condition.

Reinsurance provided to other insurance companies

Effective January 2021, the Company began providing quota share reinsurance on all in-force, new and renewal policies issued by United. The policies were issued in the states of Connecticut, New Jersey, Massachusetts and Rhode Island.

For the three and ~~nine~~six months ended ~~September~~June 30, 2022, $20,639 and $27,488, respectively, of assumed premiums written related to the Northeast Region’s insurance policies were derecognized, which primarily resulted from the return of the unearned portion of assumed written premiums subsequent to the Company’s renewal and/or replacement of insurance policies in Massachusetts. For the three and six months ended June 30, 2021, assumed premiums written ~~related to United~~ were $~~30,840~~41,754 and $~~88,311~~57,471, respectively. At ~~September~~June 30, 2022, the Company had a net balance of $1,772 due to United related to the Northeast Region, consisting of payable on paid losses and loss adjustment expenses of $1,522 and premiums payable of $329, offset by ceding commission receivable of $79. At December 31, 2021, the Company had a net balance of $~~6,636~~4,486 due ~~from~~to United related to the Northeast Region, consisting of ~~premiums receivable of $14,951~~ ~~offset by~~ ceding commission payable of $~~3,588~~535 and payable on paid losses and loss adjustment expenses of $~~4,727~~4,017, offset by premiums receivable of $66.

Effective December 31, 2021, the Company entered into a separate agreement to provide 85% quota share reinsurance on United’s personal lines insurance policies in the states of Georgia, South Carolina and North Carolina through May 31, 2022. Effective June 1, 2022, the Company entered into a new agreement to provide 100% quota share reinsurance on United’s personal lines insurance policies in the Southeast Region. For the three and six months ended June 30, 2022, assumed premiums written related to the Southeast Region’s insurance policies were $18,999 and $31,161, respectively. At June 30, 2022, the Company had a net balance of $9,329 due to United, consisting of premiums payable of $14,027 and payable on paid losses and loss adjustment expenses of $2,780, offset by ceding commission receivable of $4,861 and a catastrophe cost allowance receivable of $2,617. At December 31, 2021, there was an amount receivable from United of $23,325, net of a ceding commission of $8,835 and a catastrophe cost allowance of $3,181.

At June 30, 2022 and December 31, 2021, the balance of funds withheld for assumed business related to the Company’s quota share reinsurance agreements with United was $82,468 and $73,716, respectively.

Note 1312 -- Losses and Loss Adjustment Expenses

The liability for losses and loss adjustment expenses (“LAE”) is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and losses incurred but not reported.

The Company primarily writes insurance in ~~the~~ states which could be exposed to hurricanes or other natural catastrophes. The occurrence of a major catastrophe could have a significant effect on the Company’s quarterly results and cause a temporary disruption of the normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

~~Activity in the liability for losses and LAE is summarized as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Net balance, beginning of period*

$
154,901

$
123,129

$
141,065

$
98,174

Incurred, net of reinsurance, related to:

Current period

53,834

50,543

147,064

116,839

Prior period

8,830

1,200

17,268

2,825

Total incurred, net of reinsurance

62,664

51,743

164,332

119,664

Paid, net of reinsurance, related to:

Current period

(31,663
)

(21,175
)

(59,265
)

(36,988
)
Prior period

(22,237
)

(9,386
)

(82,467
)

(36,539
)
Total paid, net of reinsurance

(53,900
)

(30,561
)

(141,732
)

(73,527
)
Net balance, end of period

163,665

144,311

163,665

144,311

Add: reinsurance recoverable before allowance for
credit losses

39,512

75,034

39,512

75,034

Gross balance, end of period

$
203,177

$
219,345

$
203,177

$
219,345

*~~Net balance represents beginning-of-period liability for unpaid losses and LAE less beginning-of-period reinsurance recoverable for unpaid losses and LAE.~~

3231

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Activity in the liability for losses and LAE is summarized as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Net balance, beginning of period*	$	179,837		$	144,630		$	172,410		$	141,065
Incurred, net of reinsurance, related to:
Current period		78,448			51,310			148,524			93,230
Prior period		8,382			4,607			11,010			8,438
Total incurred, net of reinsurance		86,830			55,917			159,534			101,668
Paid, net of reinsurance, related to:
Current period		(37,627	)		(20,006	)		(56,423	)		(27,602	)
Prior period		(32,626	)		(25,640	)		(79,107	)		(60,230	)
Total paid, net of reinsurance		(70,253	)		(45,646	)		(135,530	)		(87,832	)
Net balance, end of period		196,414			154,901			196,414			154,901
Add: reinsurance recoverable before allowance for credit losses		42,410			48,884			42,410			48,884
Gross balance, end of period	$	238,824		$	203,785		$	238,824		$	203,785

*Net balance represents beginning-of-period liability for unpaid losses and LAE less beginning-of-period reinsurance recoverable for unpaid losses and LAE.

The establishment of loss and LAE reserves is an inherently uncertain process and changes in loss and LAE reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such estimates are adjusted. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company recognized losses related to prior periods of $~~8,830~~8,382 and $~~17,268~~11,010, respectively, primarily to increase the reserve ~~for the 2020 loss year~~ resulting from increased ~~litigation with regards to Hurricane Sally~~litigation. Loss and ~~Tropical Storm Eta. Losses and~~ LAE expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 included estimated losses, net of reinsurance, of approximately $~~19,830~~10,438 and $~~43,330~~23,399, respectively, related to policies assumed from ~~United, approximately~~United. In addition, the Company recognized $~~9,767~~5,811 and $~~12,367~~11,932, respectively, of ~~which pertained~~losses related to ~~TypTap.~~weather events in Florida during the three and six months ended June 30, 2022.

3332

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 1413 -- Segment Information

The Company identifies its operating divisions or segments based on managerial emphasis, organizational structure and revenue source. In the first quarter of 2021, the Company reorganized its operations to focus on specific business segments, resulting in the creation of TTIG with a separate workforce, board of directors and financial reporting structure. Companies under TTIG include TypTap, TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company, Inc., the parent company of an India company, Exzeo Software Private Limited. TTIG and its subsidiaries are considered a new reporting segment known as TypTap Group. The Company ~~now~~ has 4 reportable segments: HCPCI insurance operations, TypTap Group, real estate operations, and corporate and other. Due to their economic characteristics, the Company’s property and casualty insurance division and reinsurance operations, excluding the insurance operations under TypTap Group, are grouped together into one reportable segment under HCPCI insurance operations. The TypTap Group segment includes its property and casualty insurance operations, information technology operations and its management company’s activities. The real estate operations segment includes companies engaged in operating commercial properties the Company owns for investment purposes or for use in its own operations. The corporate and other segment represents the activities of the holding companies and any other companies that do not meet the quantitative and qualitative thresholds for a reportable segment. The determination of segments may change over time due to changes in operational emphasis, revenues, and results of operations. The Company’s chief executive officer, who serves as the Company’s chief operating decision maker, evaluates each division’s financial and operating performance based on revenue and operating income.

For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, revenues from the HCPCI insurance operations segment before intracompany elimination represented ~~73.9~~69.8% and ~~59.1~~77.6%, respectively, and revenues from the TypTap Group segment represented ~~24.0~~27.9% and ~~12.6~~20.3%, respectively, of total revenues of all operating segments. For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, revenues from the HCPCI insurance operations segment before intracompany elimination represented ~~76.4~~69.8% and ~~73.8~~77.8%, respectively, and revenues from the TypTap Group segment represented ~~20.7~~28.1% and ~~12.7~~18.9%, respectively, of total revenues of all operating segments. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, HCPCI insurance operations’ total assets represented ~~60.2~~55.2% and ~~68.9~~58.7%, respectively, and TypTap Group’s total assets represented ~~26.3~~33.1% and ~~16.7~~29.3%, respectively, of the combined assets of all operating segments.

3433

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The following tables present segment information reconciled to the Company’s consolidated statements of income. Intersegment transactions are not eliminated from segment results. However, intracompany transactions are eliminated in segment results below.


	HCPCI																	HCPCI
	Insurance			TypTap			Real		Corporate/			Reclassification/						Insurance			TypTap			Real		Corporate/			Reclassification/
For Three Months Ended September 30, 2021	Operations			Group			Estate (a)		Other (b)			Elimination			Consolidated
For Three Months Ended June 30, 2022																		Operations			Group			Estate (a)		Other (b)			Elimination			Consolidated
Revenue:
Gross premiums earned(c)	$	98,256		$	51,553		$	—	$	—		$	—		$	149,809		$	115,636		$	67,443		$	—	$	—		$	(1,955	)	$	181,124
Premiums ceded		(36,955	)		(20,135	)		—		—			1,513			(55,577	)		(36,979	)		(20,629	)		—		—			1,403			(56,205	)
Net premiums earned		61,301			31,418			—		—			1,513			94,232			78,657			46,814			—		—			(552	)		124,919
Net income from investment portfolio		831			102			—		172			778			1,883
Net (loss) income from investment portfolio																			(1,446	)		283			—		(1,228	)		1,835			(556	)
Policy fee income		693			307			—		—			—			1,000			628			424			—		—			—			1,052
Other		2,087			480			2,336		489			(3,290	)		2,102			414			532			2,765		1,472			(4,672	)		511
Total revenue		64,912			32,307			2,336		661			(999	)		99,217			78,253			48,053			2,765		244			(3,389	)		125,926
Expenses:
Losses and loss adjustment expenses		36,928			24,224			—		—			1,512			62,664			48,692			38,692			—		—			(554	)		86,830
Amortization of deferred policy acquisition costs		12,402			9,250			—		—			—			21,652			15,904			7,167			—		—			—			23,071
Other policy acquisition expenses		633			1,110			—		—			(55	)		1,688			679			3,135			—		—			—			3,814
Stock-based compensation expense																			1,187			897			—		2,158			—			4,242
Interest expense		—			1			231		1,432			—			1,664			—			211			224		1,291			(211	)		1,515
Depreciation and amortization		18			342			576		171			(603	)		504			153			774			606		302			(600	)		1,235
Debt conversion expense		—			—			—		1,273			—			1,273
Personnel and other operating expenses		5,896			7,685			814		3,734			(1,853	)		16,276			7,738			8,526			626		1,913			(2,024	)		16,779
Total expenses		55,877			42,612			1,621		6,610			(999	)		105,721			74,353			59,402			1,456		5,664			(3,389	)		137,486
Income (loss) before income taxes	$	9,035		$	(10,305	)	$	715	$	(5,949	)	$	—		$	(6,504	)	$	3,900		$	(11,349	)	$	1,309	$	(5,420	)	$	—		$	(11,560	)
Total revenue from non-affiliates ~~(c)~~(d)	$	65,629		$	32,701		$	1,997	$	402								$	76,276		$	49,009		$	2,427	$	(359	)
Gross premiums written	$	118,280		$	55,987													$	113,139		$	73,013

(a)

Other revenue under real estate primarily consisted of rental income from investment properties.

(b)

Other revenue under corporate and other primarily consisted of revenue from marina business.

(c)

Gross premiums earned under HCPCI Insurance Operations consist of $113,681 from HCPCI and $1,955 from a reinsurance company.

(d)

Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	HCPCI
	Insurance			TypTap			Real		Corporate/			Reclassification/
For Three Months Ended June 30, 2021	Operations			Group			Estate (a)		Other (b)			Elimination			Consolidated
Revenue:
Gross premiums earned (c)	$	102,850		$	39,000		$	—	$	—		$	(2,410	)	$	139,440
Premiums ceded		(36,101	)		(12,585	)		—		—			2,250			(46,436	)
Net premiums earned		66,749			26,415			—		—			(160	)		93,004
Net income from investment portfolio		3,550			495			—		2,392			294			6,731
Policy fee income		701			291			—		—			—			992
Other		812			475			2,379		267			(3,156	)		777
Total revenue		71,812			27,676			2,379		2,659			(3,022	)		101,504
Expenses:
Losses and loss adjustment expenses		39,641			16,440			—		—			(164	)		55,917
Amortization of deferred policy acquisition costs		20,540			5,553			—		—			—			26,093
Other policy acquisition expenses		(5,070	)		2,021			—		—			125			(2,924	)
Stock-based compensation expense		937			1,600			—		1,618			—			4,155
Interest expense		—			—			259		1,766			(25	)		2,000
Depreciation and amortization		18			312			574		364			(605	)		663
Personnel and other operating expenses		4,665			6,233			1,317		641			(2,353	)		10,503
Total expenses		60,731			32,159			2,150		4,389			(3,022	)		96,407
Income (loss) before income taxes	$	11,081		$	(4,483	)	$	229	$	(1,730	)	$	—		$	5,097
Total revenue from non-affiliates (d)	$	70,914		$	27,813		$	2,041	$	2,715
Gross premiums written	$	124,222		$	60,725

HCPCI

Insurance

TypTap

Real

Corporate/

Reclassification/

For Three Months Ended September 30, 2020

Operations

Group

Estate (a)

Other (b)

Elimination

Consolidated

Revenue:

Gross premiums earned (c)

$
89,283

$
19,854

$
—

$
—

$
(2,443
)

$
106,694

Premiums ceded

(36,503
)

(10,171
)

—

—

2,443

(44,231
)
Net premiums earned

52,780

9,683

—

—

—

62,463

Net income from investment portfolio

1,866

363

—

1,340

(290
)

3,279

Policy fee income

684

211

—

—

—

895

Other

759

24

39,353

290

(3,036
)

37,390

Total revenue

56,089

10,281

39,353

1,630

(3,326
)

104,027

Expenses:

Losses and loss adjustment expenses

44,338

7,405

—

—

—

51,743

Amortization of deferred policy acquisition costs

10,433

3,536

—

—

—

13,969

Other policy acquisition expenses

160

531

—

—

56

747

Interest expense

—

—

463

2,631

(238
)

2,856

Depreciation and amortization

21

279

567

179

(585
)

461

Loss on repurchases of convertible senior notes

—

—

—

—

—

—

Loss on extinguishment of debt

—

—

98

—

—

98

Personnel and other operating expenses

5,896

4,527

1,325

3,428

(2,559
)

12,617

Total expenses

60,848

16,278

2,453

6,238

(3,326
)

82,491

(Loss) income before income taxes

$
(4,759
)

$
(5,997
)

$
36,900

$
(4,608
)

$
—

$
21,536

Total revenue from non-affiliates (d)

$
55,227

$
10,778

$
38,859

$
1,208

Gross premiums written

$
89,102

$
27,349

~~(a)~~

~~Other revenue under real estate primarily consisted of rental income from investment properties.~~

~~(b)~~

~~Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.~~

~~(c)~~

~~Gross premiums earned consist of $86,840~~ ~~from HCPCI and $2,443~~ ~~from a reinsurance company.~~

~~(d)~~

~~Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.~~

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

HCPCI

Insurance

TypTap

Real

Corporate/

Reclassification/

For Nine Months Ended September 30, 2021

Operations

Group

Estate (a)

Other (b)

Elimination

Consolidated

Revenue:

Gross premiums earned

$
300,827

$
119,364

$
—

$
—

$
—

$
420,191

Premiums ceded

(104,236
)

(42,229
)

—

—

1,353

(145,112
)
Net premiums earned

196,591

77,135

—

—

1,353

275,079

Net income from investment portfolio

5,261

933

—

4,059

3,799

14,052

Policy fee income

2,106

856

—

—

—

2,962

Other

3,420

1,130

9,849

1,316

(12,213
)

3,502

Total revenue

207,378

80,054

9,849

5,375

(7,061
)

295,595

Expenses:

Losses and loss adjustment expenses

110,008

52,976

—

—

1,348

164,332

Amortization of deferred policy acquisition costs

43,906

20,541

—

—

—

64,447

Other policy acquisition expenses

2,170

3,071

—

—

(114
)

5,127

Interest expense

—

91

972

4,950

(270
)

5,743

Depreciation and amortization

56

942

1,737

711

(1,841
)

1,605

Debt conversion expense

—

—

—

1,273

—

1,273

Personnel and other operating expenses

17,317

21,007

3,332

8,901

(6,184
)

44,373

Total expenses

173,457

98,628

6,041

15,835

(7,061
)

286,900

Income (loss) before income taxes

$
33,921

$
(18,574
)

$
3,808

$
(10,460
)

$
—

$
8,695

Total revenue from non-affiliates (c)

$
206,743

$
80,893

$
8,833

$
4,641

Gross premiums written

$
323,490

$
161,602

(a)

Other revenue under real estate primarily consisted of rental income from investment properties.

(b)

Other revenue under corporate and other primarily consisted of revenue from marina business.

(c)

Gross premiums earned under HCPCI Insurance Operations consist of $100,440 from HCPCI and $2,410 from a reinsurance company.

(d)

Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	HCPCI
	Insurance			TypTap			Real		Corporate/			Reclassification/
For Six Months Ended June 30, 2022	Operations			Group			Estate (a)		Other (b)			Elimination			Consolidated
Revenue:
Gross premiums earned (c)	$	234,941		$	128,065		$	—	$	—		$	(2,957	)	$	360,049
Premiums ceded		(73,932	)		(37,562	)		—		—			2,127			(109,367	)
Net premiums earned		161,009			90,503			—		—			(830	)		250,682
Net (loss) income from investment portfolio		(2,903	)		267			—		(912	)		1,970			(1,578	)
Policy fee income		1,282			827			—		—			—			2,109
Other		1,661			1,001			5,168		2,308			(8,385	)		1,753
Total revenue		161,049			92,598			5,168		1,396			(7,245	)		252,966
Expenses:
Losses and loss adjustment expenses		92,687			67,680			—		—			(833	)		159,534
Amortization of deferred policy acquisition costs		35,006			16,589			—		—			—			51,595
Other policy acquisition expenses		1,342			3,418			—		—			—			4,760
Stock-based compensation expense		2,331			1,782			—		4,466			—			8,579
Interest expense		—			411			451		1,665			(411	)		2,116
Depreciation and amortization		267			1,335			1,211		474			(1,223	)		2,064
Personnel and other operating expenses		15,056			16,019			1,933		3,647			(4,778	)		31,877
Total expenses		146,689			107,234			3,595		10,252			(7,245	)		260,525
Income (loss) before income taxes	$	14,360		$	(14,636	)	$	1,573	$	(8,856	)	$	—		$	(7,559	)
Total revenue from non-affiliates (d)	$	158,009		$	93,832		$	4,491	$	90
Gross premiums written	$	204,280		$	159,166

(a)

Other revenue under real estate primarily consisted of rental income from investment properties.

(b)

Other revenue under corporate and other primarily consisted of revenue from marina business.

(c)

Gross premiums earned under HCPCI Insurance Operations consist of $231,984 from HCPCI and $2,957 from a reinsurance company.

(d)

Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	HCPCI
	Insurance			TypTap			Real		Corporate/			Reclassification/
For Six Months Ended June 30, 2021	Operations			Group			Estate (a)		Other (b)			Elimination			Consolidated
Revenue:
Gross premiums earned (c)	$	207,371		$	67,811		$	—	$	—		$	(4,800	)	$	270,382
Premiums ceded		(72,081	)		(22,094	)		—		—			4,640			(89,535	)
Net premiums earned		135,290			45,717			—		—			(160	)		180,847
Net income from investment portfolio		4,430			831			—		3,887			3,021			12,169
Policy fee income		1,413			549			—		—			—			1,962
Other		1,333			650			7,513		827			(8,923	)		1,400
Total revenue		142,466			47,747			7,513		4,714			(6,062	)		196,378
Expenses:
Losses and loss adjustment expenses		73,080			28,752			—		—			(164	)		101,668
Amortization of deferred policy acquisition costs		33,287			10,190			—		—			—			43,477
Other policy acquisition expenses		(246	)		3,062			—		—			(59	)		2,757
Stock-based compensation expense		1,698			1,967			—		2,832			—			6,497
Interest expense		—			90			741		3,518			(270	)		4,079
Depreciation and amortization		38			600			1,161		540			(1,238	)		1,101
Personnel and other operating expenses		9,723			11,355			2,518		2,335			(4,331	)		21,600
Total expenses		117,580			56,016			4,420		9,225			(6,062	)		181,179
Income (loss) before income taxes	$	24,886		$	(8,269	)	$	3,093	$	(4,511	)	$	—		$	15,199
Total revenue from non-affiliates (d)	$	141,114		$	48,192		$	6,836	$	4,239
Gross premiums written	$	205,210		$	105,615

(a)

Other revenue under real estate primarily consisted of rental income from investment properties.

(b)

Other revenue under corporate and other primarily consisted of revenue from marina business.

(c)

Gross premiums earned under HCPCI Insurance Operations consist of $202,571 from HCPCI and $4,800 from a reinsurance company.

(d)

Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

The following table presents segment assets reconciled to the Company’s total assets on the consolidated balance sheets:


	June 30,			December 31,
	2022			2021
Segments:
HCPCI Insurance Operations	$	635,564		$	676,509
TypTap Group		431,610			369,600
Real Estate Operations		127,953			127,651
Corporate and Other		176,474			65,349
Consolidation and Elimination		(90,898	)		(62,252	)
Total assets	$	1,280,703		$	1,176,857

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

HCPCI

Insurance

TypTap

Real

Corporate/

Reclassification/

For Nine Months Ended September 30, 2020

Operations

Group

Estate (a)

Other (b)

Elimination

Consolidated

Revenue:

Gross premiums earned (c)

$
255,273

$
54,829

$
—

$
—

$
(3,240
)

$
306,862

Premiums ceded

(93,466
)

(19,078
)

—

—

3,240

(109,304
)
Net premiums earned

161,807

35,751

—

—

—

197,558

Net income (loss) from investment portfolio

3,787

383

3

(1,714
)

(1,024
)

1,435

Policy fee income

1,987

584

—

—

—

2,571

Other

1,431

87

44,331

1,695

(8,984
)

38,560

Total revenue

169,012

36,805

44,334

(19
)

(10,008
)

240,124

Expenses:

Losses and loss adjustment expenses

97,621

22,043

—

—

—

119,664

Amortization of deferred policy acquisition costs

27,103

9,222

—

—

—

36,325

Other policy acquisition expenses

1,789

1,419

—

—

—

3,208

Interest expense

—

1

1,434

8,090

(679
)

8,846

Depreciation and amortization

63

820

1,862

466

(1,793
)

1,418

Loss on repurchases of convertible senior notes

—

—

—

150

—

150

Loss on extinguishment of debt

—

—

98

—

—

98

Personnel and other operating expenses

16,161

13,244

3,982

10,548

(7,536
)

36,399

Total expenses

142,737

46,749

7,376

19,254

(10,008
)

206,108

Income (loss) before income taxes

$
26,275

$
(9,944
)

$
36,958

$
(19,273
)

$
—

$
34,016

Total revenue from non-affiliates (d)

$
167,891

$
37,421

$
42,907

$
(996
)

Gross premiums written

$
302,142

$
62,708

~~(a)~~

~~Other revenue under real estate primarily consisted of rental income from investment properties.~~

~~(b)~~

~~Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.~~

~~(c)~~

~~Gross premiums earned consist of $252,033~~ ~~from HCPCI and $3,240~~ ~~from a reinsurance company.~~

~~(d)~~

~~Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.~~

~~The following table presents segment assets reconciled to the Company’s total assets in the consolidated balance sheets:~~

September 30,

December 31,

2021

2020

Segments:

HCPCI Insurance Operations

$
616,948

$
648,600

TypTap Group

294,931

157,581

Real Estate Operations

129,198

128,383

Corporate and Other

61,629

29,022

Consolidation and Elimination

(26,592
)

(22,273
)
Total assets

$
1,076,114

$
941,313

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

Note 1514 -- Leases

The table below summarizes the Company’s right-of-use (“ROU”) assets and corresponding liabilities for operating and finance leases:


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Operating leases:
ROU Assets	$	2,576	$	4,002
ROU assets					$	1,861	$	2,204
Liabilities	$	2,578	$	4,014	$	1,824	$	2,203
Finance leases:
ROU Assets	$	86	$	79
ROU assets					$	80	$	86
Liabilities	$	36	$	43	$	21	$	31

The Company’s lease of office space in India for its information technology operations expired in January 2022 and a new lease agreement was entered into effective February 2022 with an initial term of nine years.

The following table summarizes the Company’s operating and finance leases in which the Company is a lessee:


		Renewal	Other Terms and
Class of Assets	Initial Term	Option	Conditions
Operating lease:
Office equipment	1 to 6351 months	Yes	(a), (b)
Office space	3 to 109 years	Yes	(b), (c)
Finance lease:
Office equipment	3 to 5 years	Not applicable	(d)

(a)

At the end of the lease term, the Company can purchase the equipment at fair market value.

(b)

There are no variable lease payments.

(c)

Rent escalation provisions exist.

(d)

There is a bargain purchase option.

As of ~~September~~June 30, ~~2021,~~2022, maturities of lease liabilities were as follows:


	Leases				Leases
	Operating		Finance		Operating		Finance
Due in 12 months following September 30,
2021	$	1,464	$	20
Due in 12 months following June 30,
2022		1,188		15	$	1,090	$	16
2023		0		2		177		5
2024						98		1
2025						103		0
2026						109		0
Thereafter						434		0
Total lease payments		2,652		37		2,011		22
Less: interest and foreign taxes		74		1
Less: interest						187		1
Total lease obligations	$	2,578	$	36	$	1,824	$	21

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The following table provides quantitative information with regards to the Company’s operating and finance leases:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2022			2021		2022		2021
Lease costs:
Finance lease costs:
Amortization – ROU assets*	$	5		$	5	$	10	$	9
Interest expense		—			—		—		1
Operating lease costs*		282			391		656		845
Short-term lease costs*		91			113		201		150
Total lease costs	$	378		$	509	$	867	$	1,005
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows – finance leases						$	—	$	1
Operating cash flows – operating leases						$	648	$	848
Financing cash flows – finance leases						$	10	$	9

	June 30,
	2022
Weighted-average remaining lease term:
Finance leases (in years)		1.5
Operating leases (in years)		4.2
Weighted-average discount rate:
Finance leases (%)		3.4	%
Operating leases (%)		3.9	%

* Included in other operating expenses on the consolidated statements of income.

The following table summarizes the Company’s operating leases in which the Company is a lessor:


		Renewal	Other Terms and
Class of Assets	Initial Term	Option	Conditions
Operating lease:
Office space	1 to 3 years	Yes	(e)
Retail space	3 to 20 years	Yes	(e)
Boat docks/wet slips	1 to 12 months	Yes	(e)

(e)

There are no purchase options.

Note 15 -- Income Taxes

During the three months ended June 30, 2022, the Company recorded approximately $3,018 of income tax benefit, which resulted in an effective tax rate of 26.1%. During the three months ended June 30, 2021, the Company recorded approximately $1,267 of income taxes, which resulted in an effective tax rate of 24.9%. The increase in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to an increase in non-deductible compensation expense related to restricted stock granted to certain executives and the increased Florida corporate tax rate effective January 1, 2022. During the six months ended June 30, 2022, the Company recorded approximately $1,808 of income tax benefit, which resulted in an effective tax rate of 23.9%. During the six months ended June 30, 2021, the Company recorded approximately $4,524 of income taxes, which resulted in an effective tax rate of 29.8%. The decrease in the effective tax rate in 2022 as

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~The following table provides quantitative information with regards to the Company’s operating and finance leases.~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Lease costs:

Finance lease costs:

Amortization – ROU assets*

$
4

$
4

$
13

$
13

Interest expense

0

1

1

2

Operating lease costs*

386

404

1,231

560

Short-term lease costs*

100

44

250

135

Total lease costs

$
490

$
453

$
1,495

$
710

Cash paid for amounts included in the
measurement of lease liabilities:

Operating cash flows – finance leases

$
1

$
1

Operating cash flows – operating leases

$
1,237

$
566

Financing cash flows – finance leases

$
14

$
13

September 30,

2021

Weighted-average remaining lease term:

Finance leases (in years)

3.0

Operating leases (in years)

2.6

Weighted-average discount rate:

Finance leases (%)

3.5

Operating leases (%)

2.8

* Included in other operating expenses of the consolidated statements of income.

~~The following table summarizes the Company’s operating leases in which the Company is a lessor:~~


		~~Renewal~~	~~Other Terms and~~
~~Class of Assets~~	~~Initial Term~~	~~Option~~	~~Conditions~~
~~Operating lease:~~
~~Office space~~	1 to 3 ~~years~~	~~Yes~~	~~(e)~~
~~Retail space~~	3 to 20 ~~years~~	~~Yes~~	~~(e)~~
~~Boat docks/wet slips~~	1 to 12 ~~months~~	~~Yes~~	~~(e)~~

~~(e)~~

~~There are no purchase options.~~

~~Note 16 -- Income Taxes~~

~~During the three months ended September 30, 2021, the Company recorded approximately $1,636~~ ~~of income tax benefit, which resulted in an effective tax rate of~~ ~~25.2%. During the three months ended September 30, 2020, the Company recorded approximately $6,146~~ ~~of income taxes, which resulted in an effective tax rate of~~ ~~28.5%. The decrease in the effective tax rate as~~ compared with the corresponding period in the prior year was primarily attributable to the ~~non-deductibility~~recognition of ~~certain executive compensation during the three months ended September 30, 2020. During the nine months ended September 30, 2021 and 2020, the Company recorded approximately $2,888~~ ~~and $9,143, respectively, of income taxes, which resulted in effective~~ tax ~~rates of~~ ~~33.2% and~~ ~~26.9%, respectively. The increase in the effective tax rate in 2021 as compared with the corresponding period in the prior year was primarily~~benefits attributable to ~~an increase in non-deductible compensation expense related to~~

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

restricted stock ~~granted to certain executives.~~that vested in February and May 2022. The Company’s estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items.

Note 1716 -- Earnings Per Share

U.S. GAAP requires the Company to use the two-class method in computing basic earnings (loss) per share since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating securities affect the computation of both basic and diluted earnings (loss) per share during periods of net income or loss. For a majority-owned subsidiary, its basic and diluted earnings (loss) per share are first computed separately. Then, the Company’s proportionate share in that majority-owned subsidiary’s earnings is added to the computation of both basic and diluted earnings (loss) per share at a consolidated level.

A summary of the numerator and denominator of the basic and diluted earnings per common share is presented ~~below.~~below:


	Three Months Ended								Three Months Ended							Three Months Ended								Three Months Ended
	September 30, 2021								September 30, 2020							June 30, 2022								June 30, 2021
	Loss			Shares (a)		Per Share			Income			Shares (a)		Per Share		Loss			Shares (a)		Per Share			Income			Shares (a)		Per Share
	(Numerator)			(Denominator)		Amount			(Numerator)			(Denominator)		Amount		(Numerator)			(Denominator)		Amount			(Numerator)			(Denominator)		Amount
Net (loss) income	$	(4,868	)						$	15,390						$	(8,542	)						$	3,830
Less: Net income attributable to redeemable noncontrolling interest		(2,202	)							—							(2,268	)							(2,179	)
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities		774								—
Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities																	829								429
Net (loss) income attributable to HCI		(6,296	)							15,390							(9,981	)							2,080
Less: Loss (income) attributable to participating securities		537								(865	)						635								(168	)
Basic (Loss) Earnings Per Share:
(Loss) income allocated to common stockholders		(5,759	)		8,023	$	(0.72	)		14,525			7,356	$	1.97		(9,346	)		9,022	$	(1.04	)		1,912			7,526	$	0.25
Effect of Dilutive Securities:
Stock options*		0			0					—			37
Convertible senior notes* (b)		0			0					1,903			2,284
Effect of Dilutive Securities: *
Stock options																	—			—					—			175
Warrants																	—			—					—			247
Diluted (Loss) Earnings Per Share:
(Loss) income available to common stockholders and assumed conversions	$	(5,759	)		8,023	$	(0.72	)	$	16,428			9,677	$	1.70	$	(9,346	)		9,022	$	(1.04	)	$	1,912			7,948	$	0.24


(a)	Shares in thousands.
~~(b)~~	~~See~~ ~~Adoption of New Accounting Standards~~ ~~under Note 2 -- “Summary of Significant Accounting Policies” for additional information.~~
*	For the three months ended ~~September~~June 30, ~~2021,~~2022, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect. For the three months ended June 30, 2021, convertible senior notes were excluded due to anti-dilutive effect.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Six Months Ended								Six Months Ended
	June 30, 2022								June 30, 2021
	Loss			Shares (a)		Per Share			Income			Shares (a)		Per Share
	(Numerator)			(Denominator)		Amount			(Numerator)			(Denominator)		Amount
Net (loss) income	$	(5,751	)						$	10,675
Less: Net income attributable to redeemable noncontrolling interest		(4,516	)							(2,973	)
Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities		1,189								501
Net (loss) income attributable to HCI		(9,078	)							8,203
Less: Loss (income) attributable to participating securities		590								(569	)
Basic (Loss) Earnings Per Share:
(Loss) income allocated to common stockholders		(8,488	)		9,249	$	(0.92	)		7,634			7,500	$	1.02
Effect of Dilutive Securities: *
Stock options		—			—					—			141
Warrants		—			—					—			161
Diluted (Loss) Earnings Per Share:
(Loss) income available to common stockholders and assumed conversions	$	(8,488	)		9,249	$	(0.92	)	$	7,634			7,802	$	0.98


(a)	Shares in thousands.
*	For the six months ended June 30, 2022, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect. For the six months ended June 30, 2021, convertible senior notes were excluded due to anti-dilutive effect.

Note 17 -- Redeemable Noncontrolling Interest

The following table summarizes the activity of redeemable noncontrolling interest during the six months ended June 30, 2022 and 2021:


	2022			2021
Balance at January 1	$	89,955		$	0
Initial proceeds from Centerbridge		0			100,000
Increase (decrease):
Proceeds allocated to warrants*		0			(9,217	)
Issuance costs		0			(6,262	)
Issuance costs allocated to warrants*		0			577
Accrued cash dividends		1,342			458
Accretion - increasing dividend rates		906			336
Dividends paid		(2,508	)		0
Balance at March 31	$	89,695		$	85,892
Increase (decrease):
Accrued cash dividends		1,500			1,250
Accretion - increasing dividend rates		768			929
Balance at June 30	$	91,963		$	88,071

*Net decrease related to warrants of $8,640.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

For the three months ended June 30, 2022 and 2021, net income attributable to redeemable noncontrolling interest was $2,268 and $2,179, respectively, consisting of accrued cash dividends of $1,500 and $1,250, respectively, and accretion related to increasing dividend rates of $768 and $929, respectively. For the six months ended June 30, 2022 and 2021, net income attributable to redeemable noncontrolling interest was $4,516 and $2,973, respectively, consisting of accrued cash dividends of $2,842 and $1,708, respectively, and accretion related to increasing dividend rates of $1,674 and $1,265, respectively.

Nine Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

Income

Shares (a)

Per Share

Income

Shares (a)

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Net income

$
5,807

$
24,873

Less: Net income attributable to redeemable
   noncontrolling interest

(5,175
)

—

Less: TypTap Group's net loss attributable to
   non-HCI common stockholders and
   TypTap Group's participating securities

1,191

—

Net income attributable to HCI

1,823

24,873

Less: Income attributable to participating
   securities

(37
)

(1,309
)

Basic Earnings Per Share:

Income allocated to common stockholders

1,786

7,676

$
0.23

23,564

7,350

$
3.21

Effect of Dilutive Securities:

Stock options

0

182

—

17

Convertible senior notes* (b)

0

0

5,787

2,330

Warrants

0

234

—

—

Diluted Earnings Per Share:

Income available to common stockholders
   and assumed conversions

$
1,786

8,092

$
0.22

$
29,351

9,697

$
3.03


~~(a)~~	~~Shares in thousands.~~
~~(b)~~	~~See~~ ~~Adoption of New Accounting Standards~~ ~~under Note 2 -- “Summary of Significant Accounting Policies” for additional information.~~
*	~~For the nine months ended September 30, 2021, convertible senior notes were excluded due to anti-dilutive effect.~~

Note 18 -- ~~Redeemable Noncontrolling Interest~~Equity

Stockholders’ Equity

Common Stock

In March 2022, the Company’s Board of Directors authorized a plan to repurchase up to $20,000 of the Company’s common shares before commissions and fees during 2022. During the three and six months ended June 30, 2022, the Company repurchased and retired a total of 29,465 shares at a weighted average price per share of $63.92 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three and six months ended June 30, 2022 was $1,884 or $63.95 per share.

On ~~February~~April 26, ~~2021, TTIG completed~~2022, the Company’s Board of Directors declared a capital investment transaction with a fund associated with Centerbridge Partners, L.P. (collectively, the “Lead Investor”), a private investment management fund. Under the investment agreement, TTIG issued ~~9,000,000~~ ~~voting shares of its Series A-1 Preferred Stock and~~ ~~1,000,000~~ ~~non-voting shares of its Series A-2 Preferred Stock (together “Series A Preferred Stock”), $0.001~~ ~~par value, at a price~~quarterly dividend of $100.40 per ~~share for total proceeds~~common share. The dividends were paid on June 17, 2022 to stockholders of $record on ~~100,000~~May 17, 2022. ~~The proceeds will be used for TypTap’s operations~~

Warrants

At June 30, 2022, there were warrants outstanding and ~~continued expansion. The Company incurred $6,262~~ ~~of related issuance costs. In connection with the transaction, the Lead Investor was granted by HCI warrants~~exercisable to purchase 750,000 shares of ~~HCI’s~~HCI common stock ~~with~~at an exercise price of $54.40 ~~per share.~~. The warrants ~~valued at $9,217~~ ~~or $12.29~~ ~~per warrant were immediately exercisable and will~~ expire on February 26, 2025.

Share Repurchase Agreement

In conjunction with the ~~fourth anniversary~~issuance of the ~~date~~4.75% Convertible Senior Notes as described in Note 10 -- “Long-Term Debt” under 4.75% Convertible Senior Notes, the Company used $66,853 of ~~issuance.~~

~~Dividends~~

~~Dividends accrue~~the net proceeds to repurchase and ~~accumulate from the date~~retire an aggregate of ~~issuance. Cumulative dividends are payable semi-annually in cash or paid-in-kind~~1,037,600 shares of its common stock at ~~TTIG’s option. Cash dividend rates are~~a price of $~~0.50~~64.43 per share from institutional investors.

Prepaid Share Repurchase Forward Contract

In March 2022, the Company’s share repurchase forward contract with Societe Generale, entered into in ~~Year 1, $~~conjunction with the 2017 issuance of the ~~0.60~~4.25% Convertible Senior Notes, was physically settled with the delivery from Societe Generale of 191,100 ~~per share in Year 2, $0.75~~ ~~per share in Year 3, and $0.95~~ ~~per share in Year 4 and thereafter. The rates for paid-in-kind dividends are $0.60~~ ~~per share in Year 1 and $0.70~~ ~~per share in Year 2. In addition, the Series A Preferred Stock will be paid dividends on an as-converted basis when and if TTIG declares~~shares of HCI’s common stock ~~dividends.~~to the Company.

Noncontrolling Interests

At June 30, 2022, there were 81,138,380 shares of TTIG’s common stock outstanding, of which 6,138,380 shares were not owned by HCI.

During the three and six months ended June 30, 2022, TTIG repurchased and retired a total of 45,239 and 66,983 shares, respectively, of its common stock surrendered by its employees to satisfy payroll tax liabilities

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

associated with the vesting of restricted shares. The total cost of purchasing noncontrolling interests during the three and six months ended June 30, 2022 was $262 and $389, respectively.

Note 19 -- Stock-Based Compensation

~~Conversion Rights~~2012 Omnibus Incentive Plan

The ~~holders~~Company currently has outstanding stock-based awards granted under the Plan which is currently active and available for future grants. At June 30, 2022, there were 1,108,940 shares available for grant.

Stock Options

Stock options granted and outstanding under the incentive plan vest over a period of ~~TTIG’s Series~~ four years and are exercisable over the contractual term of ten years.

A ~~Preferred Stock have the right to convert~~summary of the stock ~~at any time into shares~~option activity for the three and six months ended June 30, 2022 and 2021 is as follows (option amounts not in thousands):


					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number of		Exercise		Contractual	Intrinsic
	Options		Price		Term	Value
Outstanding at January 1, 2022		440,000	$	45.25	6.6 years	$	18,119
Outstanding at March 31, 2022		440,000	$	45.25	6.3 years	$	10,494
Outstanding at June 30, 2022		440,000	$	45.25	6.1 years	$	9,354
Exercisable at June 30, 2022		357,500	$	44.23	5.8 years	$	7,965

Outstanding at January 1, 2021		440,000	$	45.25	7.6 years	$	3,113
Outstanding at March 31, 2021		440,000	$	45.25	7.3 years	$	13,464
Outstanding at June 30, 2021		440,000	$	45.25	7.1 years	$	23,883
Exercisable at June 30, 2021		275,000	$	43.40	6.6 years	$	15,436

There were 0 options exercised during the three and six months ended June 30, 2022 and 2021. For the three months ended June 30, 2022 and 2021, the Company recognized $161 and $219, respectively, of ~~TTIG’s common~~compensation expense which was included in general and administrative personnel expenses. For the six months ended June 30, 2022 and 2021, the Company recognized $345 and $442, respectively, of compensation expense. Deferred tax benefits related to stock ~~with an initial conversion rate~~options were $0 and $0 for the three months ended June 30, 2022 and 2021, respectively, and $0 and $1 for the six months ended June 30, 2022 and 2021, respectively. At June 30, 2022 and December 31, 2021, there was $660 and $1,005, respectively, of unrecognized compensation expense related to nonvested stock options. The Company expects to recognize the remaining compensation expense over a weighted-average period of ~~1 to 1~~1.3. The conversion rate will be adjusted under certain conditions. Unless converted earlier, all shares of Series A Preferred Stock will be automatically converted into shares of TTIG’s common stock at the then-applicable conversion rate upon (1) a qualified public offering of TTIG’s common stock with gross proceeds of not less than $~~250,000~~ ~~with a price per share at least equal to~~ ~~150% of the original purchase price of the Series A Preferred Stock, or (2) at the election of requisite holders of a majority of TTIG’s Series A Preferred Stock, whichever comes first.~~ years.

~~Redemption Rights~~

~~On or after the fourth anniversary of the issuance date, TTIG’s Series A Preferred Stock is redeemable at the option of the holders at a price equal to the greater of (1) $~~10 per share plus any accrued but unpaid dividends and (2) a fair market value per share determined by an independent valuation firm selected by TTIG’s board of directors. Management determined that the redemption was not probable at September 30, 2021.

~~Guaranty by HCI~~

All payment obligations to the holders of TTIG’s Series A Preferred Stock are fully guaranteed by HCI as long as TTIG’s Series A Preferred Stock is outstanding. As the guarantor, HCI is subject to certain financial covenants.

~~Liquidation Preference~~

~~In the event of any liquidation, the Series A Preferred Stock ranks senior to TTIG’s common stock with respect to distribution rights.~~

~~Anti-Dilutive Protection~~

The holders of TTIG’s Series A Preferred Stock receive protection in the form of a down-round feature which will be triggered in the event that TTIG issues additional common equivalent shares at an effective price per share less than $10 ~~per share.~~

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~The following table summarizes the activity of redeemable noncontrolling interest during the nine months ended September 30, 2021:~~

Balance at January 1, 2021

$
0

Initial proceeds from Centerbridge

100,000

Increase (decrease):

Proceeds allocated to warrants*

(9,217
)
Issuance costs

(6,262
)
Issuance costs allocated to warrants*

577

Accrued cash dividends

458

Accretion - increasing dividend rates

336

Balance at March 31, 2021

$
85,892

Increase (decrease):

Accrued cash dividends

1,250

Accretion - increasing dividend rates

929

Balance at June 30, 2021

$
88,071

Increase (decrease):

Dividends paid

(2,542
)
Accrued cash dividends

1,250

Accretion - increasing dividend rates

952

Balance at September 30, 2021

$
87,731

*Net decrease related to warrants of $~~8,640~~.

~~For the three months ended September 30, 2021, net income attributable to redeemable noncontrolling interest was $2,202, consisting of accrued cash dividends of $1,250~~ ~~and accretion related to increasing dividend rates of $952. For the nine months ended September 30, 2021, net income attributable to redeemable noncontrolling interest was $5,175, consisting of accrued cash dividends of $2,958~~ ~~and accretion related to increasing dividend rates of $2,217~~.

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

~~Note 19 -- Equity~~

~~Stockholders’ Equity~~

~~Common Stock~~

~~The Company’s 2020 stock repurchase plan was considered to be expired and there was no new stock repurchase plan approved by the Board of Directors during 2021.~~

On December 19, 2019, the Board of Directors decided to extend the term of the 2019 stock repurchase plan to March 15, 2020. On March 13, 2020, the Board approved a new stock repurchase plan for 2020 to repurchase up to $~~20,000~~ ~~of the Company’s common shares before commissions and fees. During the three months ended September 30, 2020, the Company repurchased and retired a total of~~ ~~457~~ ~~shares at a weighted average price per share of $43.76~~ ~~under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended September 30, 2020 was $~~20 ~~or $43.79~~ ~~per share. During the nine months ended September 30, 2020, the Company repurchased and retired a total of~~ ~~129,142~~ ~~shares at a weighted average price per share of $39.93~~ ~~under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the nine months ended September 30, 2020 was $5,161~~ ~~or $39.96~~ ~~per share.~~

On ~~July 7, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.40~~ ~~per common share. The dividends were paid on~~ ~~September 17, 2021~~ ~~to stockholders of record on~~ ~~August 20, 2021~~.

~~Warrants~~

~~At September 30, 2021, there were warrants outstanding and exercisable to purchase~~ ~~750,000~~ ~~shares of HCI common stock. These warrants were issued by HCI to the Lead Investor described in Note 18 -- “Redeemable Noncontrolling Interest.”~~

~~Noncontrolling Interests~~

~~According to its amended Articles of Incorporation, TTIG is authorized to issue~~ ~~183~~ ~~million shares of common stock with a par value of $0.001~~ ~~per share, and~~ ~~37,502,000~~ ~~shares of preferred stock. In February 2021, TTIG issued~~ 10 ~~million shares of Series A Preferred Stock (see Note 18 -- “Redeemable Noncontrolling Interest”). At September 30, 2021, there were~~ ~~81,278,175~~ ~~shares of TTIG’s common stock outstanding, of which~~ ~~6,278,175~~ ~~shares were not owned by HCI.~~

~~In May 2021, TTIG repurchased and retired a total of~~ ~~52,015~~ ~~shares of its common stock surrendered by its employees to satisfy payroll tax liabilities associated with the vesting of restricted shares. The total cost of purchasing noncontrolling interests was $~~58.

~~Note 20 -- Stock-Based Compensation~~

~~2012 Omnibus Incentive Plan~~

~~The Company currently has outstanding stock-based awards granted under the Plan which is currently active and available for future grants. At September 30, 2021, there were~~ ~~1,117,275~~ ~~shares available for grant.~~

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

~~Stock Options~~

~~Stock options granted and outstanding under the incentive plans vest over periods ranging from immediately vested to~~ ~~five years~~ ~~and are exercisable over the contractual term of~~ ~~ten years~~.

~~A summary of the stock option activity for the three and nine months ended September 30, 2021 and 2020 is as follows (option amounts not in thousands):~~

Weighted

Weighted

Average

Average

Remaining

Aggregate

Number of

Exercise

Contractual

Intrinsic

Options

Price

Term

Value

Outstanding at January 1, 2021

440,000

$
45.25

7.6 years

$
3,113

Outstanding at March 31, 2021

440,000

$
45.25

7.3 years

$
13,464

Outstanding at June 30, 2021

440,000

$
45.25

7.1 years

$
23,883

Outstanding at September 30, 2021

440,000

$
45.25

6.8 years

$
29,238

Exercisable at September 30, 2021

275,000

$
43.40

6.3 years

$
18,782

Outstanding at January 1, 2020

340,000

$
43.21

7.9 years

$
1,657

Granted

110,000

$
48.00

Exercised

(10,000
)

$
6.30

Outstanding at March 31, 2020

440,000

$
45.25

8.3 years

$
—

Outstanding at June 30, 2020

440,000

$
45.25

8.1 years

$
1,184

Outstanding at September 30, 2020

440,000

$
45.25

7.8 years

$
2,321

Exercisable at September 30, 2020

165,000

$
42.17

7.0 years

$
1,334

~~The following table summarizes information about options exercised for the three and nine months ended September 30, 2021 and 2020 (option amounts not in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Options exercised

—

—

—

10,000

Total intrinsic value of exercised options

$
—

$
—

$
—

$
288

Tax benefits realized

$
—

$
—

$
—

$
71

~~For the three months ended September 30, 2021 and 2020, the Company recognized $221~~ ~~and $300, respectively, of compensation expense which was included in general and administrative personnel expenses. For the nine months ended September 30, 2021 and 2020, the Company recognized $663~~ ~~and $880, respectively, of compensation expense. Deferred tax benefits related to stock options were $~~3 ~~and $~~19 ~~for the three months ended September 30, 2021 and 2020, respectively, and $~~4 ~~and $~~57 ~~for the nine months ended September 30, 2021 and 2020, respectively. At September 30, 2021 and December 31, 2020, there was $1,226~~ ~~and $1,889, respectively, of unrecognized compensation expense related to nonvested stock options. The Company expects to recognize the remaining compensation expense over a weighted-average period of~~ ~~1.8~~ ~~years.~~

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

~~The following table provides assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the stock options granted during the nine months ended September 30, 2020:~~


	~~2020~~
~~Expected dividend yield~~		~~3.48~~	%
~~Expected volatility~~		~~38.68~~	%
~~Risk-free interest rate~~		~~1.63~~	%
~~Expected life (in years)~~		5

Restricted Stock Awards

From time to time, the Company has granted and may grant restricted stock awards to ~~its~~certain executive officers, other employees and nonemployee directors in connection with their service to the Company. The terms of the Company’s outstanding restricted stock grants may include service, performance and market-based conditions. The determination of fair value with respect to the awards containing only service-based conditions is based on the market value of the Company’s common stock on the grant date. For awards with market-based conditions, the fair value is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome.

47Information with respect to the activity of unvested restricted stock awards during the three and six months ended June 30, 2022 and 2021 is as follows:


	Number of			Weighted
	Restricted			Average
	Stock			Grant Date
	Awards			Fair Value
Nonvested at January 1, 2022		679,997		$	39.72
Granted		4,000		$	70.58
Vested		(50,667	)	$	50.68
Forfeited		(3,265	)	$	45.85
Nonvested at March 31, 2022		630,065		$	39.00
Granted		3,000		$	67.30
Vested		(51,125	)	$	45.04
Forfeited		(700	)	$	45.61
Nonvested at June 30, 2022		581,240		$	38.61

Nonvested at January 1, 2021		423,787		$	43.79
Granted		548,086		$	36.95
Vested		(41,250	)	$	42.18
Cancelled		(141,600	)	$	43.76
Forfeited		(2,050	)	$	45.67
Nonvested at March 31, 2021		786,973		$	39.11
Granted		3,000		$	76.00
Vested		(68,541	)	$	43.80
Cancelled		(1,160	)	$	45.96
Forfeited		(9,060	)	$	46.44
Nonvested at June 30, 2021		711,212		$	38.71

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

~~Information with respect to the activity of unvested restricted stock awards during the three and nine months ended September 30, 2021 and 2020 is as follows:~~

Number of

Weighted

Restricted

Average

Stock

Grant Date

Awards

Fair Value

Nonvested at January 1, 2021

423,787

$
43.79

Granted

548,086

$
36.95

Vested

(41,250
)

$
42.18

Cancelled

(141,600
)

$
43.76

Forfeited

(2,050
)

$
45.67

Nonvested at March 31, 2021

786,973

$
39.11

Granted

3,000

$
76.00

Vested

(68,541
)

$
43.80

Cancelled

(1,160
)

$
45.96

Forfeited

(9,060
)

$
46.44

Nonvested at June 30, 2021

711,212

$
38.71

Granted

2,340

$
96.60

Forfeited

(38,855
)

$
38.05

Nonvested at September 30, 2021

674,697

$
38.95

Nonvested at January 1, 2020

396,760

$
41.71

Granted

45,000

$
44.97

Vested

(31,250
)

$
40.97

Forfeited

(7,138
)

$
42.60

Nonvested at March 31, 2020

403,372

$
42.12

Granted

145,000

$
45.59

Vested

(104,926
)

$
41.16

Forfeited

(5,220
)

$
43.75

Nonvested at June 30, 2020

438,226

$
43.48

Granted

2,680

$
54.36

Vested

(625
)

$
41.02

Forfeited

(2,369
)

$
45.60

Nonvested at September 30, 2020

437,912

$
43.54

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $~~2,039~~3,184 and $~~1,862~~2,336 for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and $~~6,280~~6,452 and $~~5,142~~4,241 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there was approximately $~~21,628~~12,845 and $~~13,666~~18,995, respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period of ~~2.9~~2.1 years. The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to restricted stock awards and paid dividends, and the fair value of vested restricted stock for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Deferred tax benefits recognized	$	420	$	353	$	879	$	956	$	639	$	495	$	1,291	$	459
Tax benefits realized for restricted stock and paid dividends	$	70	$	47	$	1,482	$	1,286	$	902	$	1,357	$	1,304	$	1,412
Fair value of vested restricted stock	$	—	$	26	$	4,742	$	5,625	$	2,303	$	3,002	$	4,871	$	4,742

In February 2021, the Company cancelled 141,600 shares of restricted stock for employees who transitioned to TypTap ~~Group (See Note 1 -- “Nature of Operations”).~~Group. In exchange, these employees received replacement restricted stock issued under TTIG’s equity incentive plan.

4945

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Subsidiary Equity Plan

On February 26, 2021, TTIG’s Board of Directors approved the 2021 Equity Incentive Plan (the “2021 Plan”) which is an incentive plan denominated in TTIG’s common shares. The 2021 Plan provides for broad-based equity awards to employees and nonemployee directors of TypTap Group. The maximum number of shares that may be issued under the 2021 Plan is ~~7,000,000~~ ~~shares. In February 2021, TTIG issued a total of~~ ~~5,749,300~~ ~~shares of restricted stock to the employees who transitioned to TypTap Group.~~ For the three months ended ~~September~~June 30, 2022 and 2021, TypTap Group recognized compensation expense related to ~~restricted stock~~its stock-based awards of $~~472~~897 and $1,599, ~~and for~~respectively. For the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, TypTap Group recognized compensation expense related to ~~restricted stock~~its stock-based awards of $~~2,286~~.

On September 27, 2021, TTIG’s Board of Directors terminated the 2021 Plan and replaced it with the 2021 Omnibus Incentive Plan (the “2021 Omnibus Plan”). The initial maximum number of shares that may be issued under the 2021 Omnibus Plan is ~~7,700,000~~1,782 ~~shares.~~and $1,814, respectively. At ~~September~~June 30, 2022 and December 31, 2021, there was ~~approximately~~ $~~4,846~~9,558 and $11,230, respectively, of ~~total~~ unrecognized compensation expense related to nonvested restricted ~~stock.~~stock and stock options.

Note 2120 -- Commitments and Contingencies

Agreement with Florida Department of Transportation

In May 2022, the Company entered into an agreement to sell 1.5 acres of land in Tampa, Florida for net proceeds of $14,500 to the Florida Department of Transportation (“FDOT”) in connection with an eminent domain proceeding for a planned road improvement project. Upon the sale closing in July 2022, the Company will retain from its investment property an office building on approximately six acres of land. See Note 21 -- “Subsequent Events” for additional information.

Obligations under Multi-Year Reinsurance Contracts

As of ~~September~~June 30, ~~2021,~~2022, the Company has a contractual ~~obligations~~obligation related to 2one multi-year reinsurance ~~contracts. These~~contract. The contract was entered into effective June 1, 2022 and the Company’s previous two multi-year reinsurance contracts were commuted effective May 31, 2022. The contract may be cancelled only with the other party’s consent or when ~~their~~its respective experience ~~accounts are~~account is positive at the end of each contract year. The table below ~~presents~~represents the future minimum aggregate premium amounts payable to the reinsurer.

Due in 12 months following September 30,

2021

$
9,095

2022*

9,095

2023*

4,093

Total

$
22,283


Due in 12 months following June 30,
2022	$	91,350
2023		91,350
Total	$	182,700

*Premiums payable after May 31, 2022 are estimated.

Capital Commitments

As described in Note 54 -- “Investments” under Limited Partnership Investments, the Company is contractually committed to capital contributions for limited partnership interests. At ~~September~~June 30, ~~2021,~~2022, there was an aggregate unfunded balance of $~~13,980~~.

~~Note 22 -- Related Party Transactions~~

~~On February 12, 2021, the Company committed to provide a revolving line of credit with borrowing capacity of up to $60,000~~ to TTIG and the credit line would be available until the earlier of June 30, 2022 and the securing of alternative financing. This commitment has ended on February 26, 2021 after the investment transaction described in Note 18 -- “Redeemable Noncontrolling Interest.”

~~HCI GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(Amounts in thousands, except share and per share amounts, unless otherwise stated)~~

~~Note 23 -- Subsequent Events~~

~~On October 1, 2021, TTIG granted options to purchase an aggregate of~~ ~~6,450,000~~ ~~shares of its common stock at an exercise price of $~~23 ~~per share to its chief executive officer, Paresh Patel, and certain other executives. The options will have a~~ ~~10-year~~ ~~term and were granted pursuant to TTIG's 2021 Omnibus Plan. The options will vest over a~~ ~~four-year~~ ~~period, so long as the optionees remain employed by TTIG. TTIG is currently in the process of determining the grant date fair value of the options.~~

On October 5, 2021, a significant portion of market-based restricted stock awards that were granted in February 2021 met the condition for vesting. As a result, the expensing of an unrecognized balance of $~~7,130~~ ~~will be accelerated and the expense related to these awards will be recognized over the next~~ ~~twelve months~~6,465.

On ~~October 15, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.40~~ ~~per common share. The dividends are payable on~~ ~~December 17, 2021~~ ~~to stockholders of record on~~ ~~November 19, 2021.~~

~~During the months of October and November 2021, an additional $27,846~~ ~~and $4,340, respectively, of aggregate principal amount of the~~ ~~4.25% Convertible Notes was converted for~~ ~~458,533~~ ~~and~~ ~~71,464~~ ~~shares, respectively, of HCI's common stock and aggregate cash consideration of $481. The Company recognized debt conversion expense of $481~~ ~~for certain of the conversions.~~FIGA Assessments

In October 2021, the Florida Office of Insurance Regulation approved a 2022 assessment for the Florida Insurance Guaranty Association (“FIGA”) which is necessary to secure funds for the payment of covered claims of insolvent insurance companies. The 2022 FIGA assessment ~~will be~~is levied at 0.70% on collected premiums of all covered lines of business except auto insurance. The surcharge, which is collectible from a policyholder, will be assessed on new and renewal policies with effective dates beginning January 1, 2022 through December 31, 2022.

In March 2022, the Florida Office of Insurance Regulation approved an assessment for FIGA which is necessary to secure funds for the payment of covered claims relating to the liquidation of one insurance company.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The FIGA assessment is levied at 1.3% on collected premiums of all covered lines of business except auto insurance. The surcharge, which is collectible from a policyholder, will be assessed on new and renewal policies with effective dates beginning July 1, 2022 through June 30, 2023.

The Company’s insurance subsidiaries, as member insurers, ~~will be~~are required to collect and remit the pass-through assessments to FIGA on a quarterly basis. As of June 30, 2022, the FIGA assessments payable by the Company were $954.

Note 21 -- Subsequent Events

On July 1, 2022, the Company closed on its agreement to sell 1.5 acres of land in Tampa, Florida for net proceeds of $14,500 to the FDOT in connection with the eminent domain proceeding for the planned road improvement project. This sale results in a net realized gain of $13,402 recognized in July 2022 which will be reflected in net investment income. Upon the close of the sale, the Company is retaining from its investment property an office building on approximately six acres of land.

On July 14, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on September 16, 2022 to stockholders of record on August 19, 2022.

5147

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion under this Item 2 in conjunction with our consolidated financial statements and related notes and information included elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March ~~12, 2021.~~10, 2022. Unless the context requires otherwise, as used in this Form 10-Q, the terms “HCI,” “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to HCI Group, Inc., a Florida corporation incorporated in 2006, and its subsidiaries. All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in whole dollars unless specified otherwise.

Forward-Looking Statements

In addition to historical information, this quarterly report contains forward-looking statements as defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effects of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; changes in the demand for, pricing of, availability of or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; the severity and impact of ~~the novel coronavirus (“COVID-19”)~~a pandemic; and other risks and uncertainties detailed herein and from time to time in our SEC reports.

OVERVIEW – General

HCI Group, Inc. is a Florida-based InsurTech company with operations in property and casualty insurance, reinsurance, real estate and information technology. After the reorganization of our business in the first quarter of 2021, we now manage our operations in the following organizational segments, based on managerial emphasis and evaluation of financial and operating performances:

HCPCI Insurance Operations

▪

Property and casualty insurance

▪

Reinsurance and other auxiliary operations

TypTap Group

▪

Property and casualty insurance

▪

Information technology

Real Estate Operations

Other Operations

▪

Holding company operations

For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, revenues from HCPCI insurance operations before intracompany elimination represented ~~73.9%~~69.8% and ~~59.1%~~77.6%, respectively, and revenues from TypTap Group represented ~~24.0%~~27.9% and ~~12.6%~~20.3%, respectively, of total revenues of all operating segments. For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, revenues from HCPCI insurance operations before intracompany elimination represented

5248

~~elimination represented 76.4%~~69.8% and ~~73.8%~~77.8%, respectively, and revenues from TypTap Group represented ~~20.7%~~28.1% and ~~12.7%~~18.9%, respectively, of total revenues of all operating segments. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, HCPCI insurance operations’ total assets represented ~~60.2%~~55.2% and ~~68.9%~~58.7%, respectively, and TypTap Group’s total assets represented ~~26.3%~~33.1% and ~~16.7%~~29.3%, respectively, of the combined assets of all operating segments. See Note 1413 -- “Segment Information” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

HCPCI Insurance Operations

Property and Casualty Insurance

HCPCI provides various forms of residential insurance products such as homeowners insurance, fire insurance, flood insurance and wind-only insurance. HCPCI is authorized to write residential property and casualty insurance in the states of Arkansas, California, Connecticut, Florida, Maryland, Massachusetts, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina and Texas. Currently, Florida is HCPCI’s primary market.

~~Effective January~~In 2021, HCPCI began providing ~~69.5%~~ quota share reinsurance on all in-force, new and renewal policies issued by United ~~Property & Casualty Insurance Company,~~in the Northeast Region. HCPCI began renewing and/or replacing United policies in two states in December 2021, a ~~subsidiary~~third state in January 2022, and the fourth state in April 2022.

In February 2022, HCPCI entered into another reinsurance agreement with United where HCPCI provides 85% quota share reinsurance on all of ~~United Insurance Holdings Corporation (“United”)~~United’s personal lines insurance business in the states of ~~Connecticut, New Jersey, Massachusetts~~Georgia, North Carolina, and ~~Rhode Island. In exchange,~~South Carolina (collectively “Southeast Region”) from December 31, 2021 through May 31, 2022. Under this agreement, HCPCI paid United ana catastrophe allowance of ~~$4,400,000 towards previously purchased catastrophe reinsurance~~9% of premium and a provisional ceding commission of 25% of premium. That percentage ~~can~~could increase up to ~~31.5%~~32% depending on the direct loss ratio results from the reinsured business.

We and United agreed to postpone the policy replacement date under the renewal rights agreement to a later date and we, through HCPCI and TypTap, entered into a new quota share reinsurance agreement in June 2021 to provide 100% reinsurance on all of United’s in-force, new and renewal policies in those states from June 1, 2021 through May 31, 2022. Under the new agreement, HCPCI assumes 50% of the business and pays United a ceding commission of 24% of premium. Annual premiums from the total assumed business approximate $120,000,000. HCPCI will receive 50% of the total premiums.

Reinsurance and other auxiliary operations

We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd. We selectively retain risk in Claddaugh, reducing the cost of third-party reinsurance. Claddaugh fully collateralizes its exposure to HCPCI and TypTap by depositing funds into a trust account. Claddaugh may mitigate a portion of its risk through retrocession contracts. Currently, Claddaugh does not provide reinsurance to non-affiliates. Other auxiliary operations also include claim adjusting and processing services.

TypTap Group

Property and Casualty Insurance

TypTap Insurance Group, Inc. ~~("TTIG"~~(“TTIG”), our majority-owned subsidiary, currently has four subsidiaries: TypTap Insurance Company (“TypTap”), TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company which also owns Exzeo Software Private Limited, a subsidiary domiciled in India. TTIG is primarily engaged in the property and casualty insurance business and is currently using ~~in-house~~internally developed technology to collect and analyze claims and other supplemental data to generate savings and efficiency for its insurance operations.

TypTap, TTIG’s insurance subsidiary, has been the primary source of our organic growth in gross written premium since 2016. TypTap’s policies in force have increased from 6,721 in January 2018 to ~~48,897~~75,421 at ~~September~~June 30, ~~2021.~~2022. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies ~~efficiently in Florida.~~efficiently. As of ~~October 26, 2021,~~August 2, 2022, TypTap has been approved to offer homeowners coverage in 17 18

states outside of Florida. TypTap is currently operating in twelve states. In addition to the expansion in TypTap business, we also expect ~~future~~continued growth from the United policies assigned to TypTap through the renewal rights ~~agreement~~agreements acquired by HCI.

In ~~connection with~~2021, TypTap began providing quota share reinsurance on all in-force, new and renewal policies issued by United in the ~~aforementioned~~Northeast Region. TypTap began renewing and/or replacing United policies in two states in December 2021, a third state in January 2022, and the fourth state in April 2022.

In June 2022, TypTap entered into a new ~~quota share~~reinsurance agreement with United where TypTap ~~assumes 50%~~provides 100% quota share reinsurance on all of United’s personal lines insurance business in the ~~business.~~Southeast Region from June 1, 2022 through May 31, 2023. In exchange, TypTap ~~will receive approximately $60,000,000 of annual premiums and~~ pays United a ceding commission of ~~24%~~16% of premium.

Information Technology

Our information technology operations include a team of experienced software developers with extensive knowledge in developing web-based products and applications for mobile ~~device.~~devices. The operations, which are in Tampa, Florida and Noida, India, are focused on developing cloud-based, innovative products orand services that support in-house operations as well as our third-party relationships with our agency partners and claim vendors. These products include SAMSTM, HarmonyTM, AtlasViewer® and ClaimColony®TM.

Real Estate Operations

Our real estate operations consist of properties we own and use for our own operations and multiple properties we own and operate for investment purposes. Properties used in operations consist of one Tampa office building and ~~a secondary~~an insurance operations site in Ocala, Florida. Our investment properties include retail shopping centers, one office building, two marinas, and undeveloped land near TTIG’s headquarters in Tampa, Florida.

Other Operations

Holding company operations

Activities of our holding company, HCI Group, Inc., plus other companies that do not meet the quantitative and qualitative thresholds for a reportable segment comprise the operations of this segment.

Recent Events

On ~~October~~July 1, ~~2021, TTIG granted options~~2022, we closed on our agreement to ~~purchase an aggregate~~sell 1.5 acres of ~~6,450,000 shares~~land in Tampa, Florida for net proceeds of ~~its common stock at an exercise price~~$14,500,000 to the Florida Department of ~~$23 per share to its chief executive officer, Paresh Patel, and certain other executives. The options will have~~Transportation in connection with the eminent domain proceeding for the planned road improvement project. This sale results in a 10-year term and were granted pursuant to TTIG's 2021 Omnibus Incentive Plan. The options will vest over a four-year period, so long as the optionees remain employed by TTIG. TTIG is currently in the processnet realized gain of ~~determining the grant date fair value of the options.~~$13,402,000.

On ~~October 15, 2021,~~July 14, 2022, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on ~~December 17, 2021~~September 16, 2022 to stockholders of record on ~~November~~August 19, ~~2021.~~2022.

During the months of October and November 2021, an additional $27,846,000 and $4,340,000, respectively, of aggregate principal amount of the 4.25% Convertible Notes was converted for 458,533 and 71,464 shares, respectively, of HCI's common stock and aggregate cash consideration of approximately $481,000. We recognized debt conversion expense of $481,000 for certain of the conversions.

5450

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (dollar amounts in thousands, except per share amounts):


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenue
Gross premiums earned	$	149,809		$	106,694		$	420,191		$	306,862		$	181,124		$	139,440		$	360,049		$	270,382
Premiums ceded		(55,577	)		(44,231	)		(145,112	)		(109,304	)		(56,205	)		(46,436	)		(109,367	)		(89,535	)
Net premiums earned		94,232			62,463			275,079			197,558		��	124,919			93,004			250,682			180,847
Net investment income		2,520			1,832			9,749			3,244			3,684			2,635			6,552			7,229
Net realized investment gains (losses)		1,232			177			4,952			(632	)
Net realized investment (losses) gains														(6	)		2,607			(320	)		3,720
Net unrealized investment (losses) gains		(1,869	)		1,340			(649	)		(581	)		(4,234	)		1,489			(7,810	)		1,220
Credit losses on investments		—			(70	)		—			(596	)
Policy fee income		1,000			895			2,962			2,571			1,052			992			2,109			1,962
Gain on involuntary conversion		—			36,969			—			36,969
Other income		2,102			421			3,502			1,591			511			777			1,753			1,400
Total revenue		99,217			104,027			295,595			240,124			125,926			101,504			252,966			196,378
Expenses
Losses and loss adjustment expenses		62,664			51,743			164,332			119,664			86,830			55,917			159,534			101,668
Policy acquisition and other underwriting expenses		23,340			14,210			69,574			39,027			26,863			23,169			56,271			46,234
General and administrative personnel expenses		11,537			9,871			31,733			27,969			15,301			10,546			29,335			20,196
Interest expense		1,664			2,856			5,743			8,846			1,515			2,000			2,116			4,079
Loss on repurchases of convertible senior notes		—			—			—			150
Loss on extinguishment of debt		—			98			—			98
Debt conversion expense		1,273			—			1,273			—
Other operating expenses		5,243			3,713			14,245			10,354			6,977			4,775			13,269			9,002
Total expenses		105,721			82,491			286,900			206,108			137,486			96,407			260,525			181,179
(Loss) income before income taxes		(6,504	)		21,536			8,695			34,016			(11,560	)		5,097			(7,559	)		15,199
Income tax (benefit) expense		(1,636	)		6,146			2,888			9,143			(3,018	)		1,267			(1,808	)		4,524
Net (loss) income		(4,868	)		15,390			5,807			24,873			(8,542	)		3,830			(5,751	)		10,675
Net income attributable to noncontrolling interests		(1,369	)		—			(3,979	)		—			(1,439	)		(1,913	)		(3,327	)		(2,610	)
Net (loss) income after noncontrolling interests	$	(6,237	)	$	15,390		$	1,828		$	24,873		$	(9,981	)	$	1,917		$	(9,078	)	$	8,065
Ratios to Net Premiums Earned:
Loss Ratio		66.50	%		82.84	%		59.74	%		60.57	%		69.51	%		60.12	%		63.64	%		56.22	%
Expense Ratio		45.69	%		49.23	%		44.56	%		43.76	%		40.55	%		43.54	%		40.29	%		43.97	%
Combined Ratio		112.19	%		132.07	%		104.30	%		104.33	%		110.06	%		103.66	%		103.93	%		100.19	%
Ratios to Gross Premiums Earned:
Loss Ratio		41.83	%		48.50	%		39.11	%		39.00	%		47.94	%		40.10	%		44.31	%		37.60	%
Expense Ratio		28.74	%		28.82	%		29.17	%		28.17	%		27.97	%		29.04	%		28.05	%		29.41	%
Combined Ratio		70.57	%		77.32	%		68.28	%		67.17	%		75.91	%		69.14	%		72.36	%		67.01	%
Earnings Per Share Data:
(Loss) Earnings Per Share Data:
Basic	$	(0.72	)	$	1.97		$	0.23		$	3.21		$	(1.04	)	$	0.25		$	(0.92	)	$	1.02
Diluted	$	(0.72	)	$	1.70		$	0.22		$	3.03		$	(1.04	)	$	0.24		$	(0.92	)	$	0.98

Comparison of the Three Months Ended ~~September~~June 30, ~~2021~~2022 to the Three Months Ended ~~September~~June 30, ~~2020~~2021

Our results of operations for the three months ended ~~September~~June 30, ~~2021~~2022 reflect a net loss of approximately ~~$4,868,000~~$8,542,000 or ~~$0.72 diluted~~$1.04 loss per share, compared with a net income of approximately ~~$15,390,000~~$3,830,000 or ~~$1.70~~$0.24 diluted earnings per share, for the three months ended ~~September~~June 30, ~~2020.~~2021. The quarter-over-quarter decrease was ~~primarily~~ due to a ~~one-time gain on involuntary conversion of $36,969,000 included in our 2020 results, a $10,921,000~~$30,913,000 increase in losses and loss adjustment expenses, a ~~$9,130,000~~net decrease in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains or losses) of $7,287,000, a $4,755,000 increase in general and administrative personnel expenses, and a $3,694,000 increase in policy acquisition and other underwriting ~~expenses, and a $1,530,000 increase in other operating~~ expenses, offset by an increase in net premiums earned of ~~$31,769,000, a $1,681,000 increase in other income,~~$31,915,000 and a ~~$1,192,000~~$485,000 decrease in interest expense.

Revenue

Gross Premiums Earned on a consolidated basis for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$149,809,000~~$181,124,000 and ~~$106,694,000,~~$139,440,000, respectively. HCPCI gross premiums earned were ~~$98,256,000~~$113,681,000 for the three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$86,840,000~~$100,440,000 for the three months ended ~~September~~June 30, ~~2020. The increase included $29,046,000 of gross~~2021. Gross premiums earned from the United insurance policies ~~assumed.~~assumed were $16,237,000 for the three months ended June 30, 2022 compared to $23,707,000 for the three months ended June 30, 2021. TypTap’s gross premiums earned were ~~$51,553,000~~$67,443,000 versus ~~$19,854,000~~$39,000,000 for the same comparative period with the increase due to a greater number of policies in force from the organic growth in TypTap’s business and from the business assumed from United beginning June 1, 2021.

Premiums Ceded for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$55,577,000~~$56,205,000 and ~~$44,231,000,~~$46,436,000, respectively, representing ~~37.1%~~31.0% and ~~41.5%~~33.3%, respectively, of gross premiums earned. The ~~$11,346,000~~$9,769,000 increase was primarily attributable to higher reinsurance costs for the ~~2021~~2022 contract year due to an increased overall reinsurance coverage amount as a result of premium growth and expansion. ~~Reinsurance costs were offset by a reduction in premiums ceded attributable to retrospective provisions under multi-year reinsurance agreements.~~

Our premiums ceded represent costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts or to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. Reinsurance costs can be decreased by a reduction in premiums ceded attributable to retrospective provisions under multi-year reinsurance contracts. For the three months ended ~~September~~June 30, ~~2021,~~2022, premiums ceded included a decrease of ~~$1,364,000~~$6,390,000 related to retrospective provisions compared with a decrease of ~~$4,680,000~~$3,575,000 for the three months ended ~~September~~June 30, ~~2020.~~2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”

Net Premiums Written for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 totaled approximately ~~$118,689,000~~$129,947,000 and ~~$72,220,000,~~$138,542,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The ~~increase~~decrease in ~~2021~~2022 resulted from an increase in ~~gross~~ premiums ~~written from the United insurance policies assumed and the growth of TypTap business.~~ceded to reinsurers as described above. We had approximately ~~156,000~~220,600 policies in force at ~~September~~June 30, ~~2021~~2022 (excluding policies assumed from United) as compared with approximately ~~157,000~~150,000 policies in force at ~~September~~June 30, ~~2020.~~2021.

Net Premiums Earned for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$94,232,000~~$124,919,000 and ~~$62,463,000,~~$93,004,000, respectively, and reflect the gross premiums earned less reinsurance costs as described above.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (amounts in thousands):


	Three Months Ended
	June 30,
	2022			2021
Net Premiums Written	$	129,947		$	138,542
Increase in Unearned Premiums		(5,028	)		(45,538	)
Net Premiums Earned	$	124,919		$	93,004

Three Months Ended

September 30,

2021

2020

Net Premiums Written

$
118,689

$
72,220

Increase in Unearned Premiums

(24,457
)

(9,757
)
Net Premiums Earned

$
94,232

$
62,463

Net Investment Income for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was approximately ~~$2,520,000~~$3,684,000 and ~~$1,832,000,~~$2,635,000, respectively. The ~~$688,000~~$1,049,000 increase was primarily attributable to a ~~$782,000~~$1,194,000 increase in income from ~~limited partnership and~~ real estate investments and a ~~$491,000~~$753,000 increase in income from ~~our investment in an unconsolidated joint venture,~~available-for-sale fixed-maturity securities, offset by a ~~$505,000~~$1,553,000 decrease in ~~interest~~ income from ~~fixed-maturity security~~limited partnership investments. See Net Investment Income ~~(loss)~~(Loss) under Note 54 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Net Realized Investment ~~Gains~~Losses for the three months ended ~~September~~June 30, ~~2021 and 2020~~2022 were approximately ~~$1,232,000 and $177,000, respectively.~~$6,000 versus $2,607,000 of net realized investment gains for the three months ended June 30, 2021. The ~~$1,055,000 increase~~$2,613,000 decrease was primarily attributable to net gains from selling equity ~~securities.~~securities and other investments during 2021.

Net Unrealized Investment Losses for the three months ended ~~September~~June 30, ~~2021~~2022 were approximately ~~$1,869,000~~$4,234,000 versus $1,489,000 of net unrealized investment gains ~~of approximately $1,340,000~~ for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~net unrealized investment loss for the three months ended June 30, 2022 was primarily ~~due~~attributable to an overall decline in the ~~sales of~~ equity ~~securities~~market compared with ~~aggregate net gains during~~ the ~~quarter.~~three months ended June 30, 2021.

Expenses

Our consolidated Losses and Loss Adjustment Expenses amounted to approximately ~~$62,664,000~~$86,830,000 and ~~$51,743,000~~$55,917,000 for the three months ended ~~September~~June 30, 2022 and 2021, respectively. HCPCI losses and ~~2020, respectively.~~loss adjustment expenses were $48,692,000 for the three months ended June 30, 2022 compared to $39,641,000 for the three months ended June 30, 2021. The increase was primarily attributable to a $7,902,000 net increase in losses attributable to the United policies assumed due to an increase in the number of policies assumed from United and $1,074,000 of additional losses reported during the second quarter of 2022 from Tropical Storm Eta. Losses and loss adjustment expenses for TypTap were $38,692,000 versus $16,440,000 for the same comparative period. The increase was attributable to additional losses associated with the growth in TypTap’s business during 2021 and was offset by lower third quarter 2021 losses at HCPCI when compared with 2020. TypTap experienced an additional $5,150,000$16,500,000 of losses ~~related~~attributable to ~~growth~~the greater number of TypTap policies in ~~its homeowners business, $6,535,000~~force, $2,507,000 of additional losses from policies renewed or assumed from United, and ~~$2,887,000 in combined losses from hurricanes Henri and Ida. HCPCI third quarter 2021 losses were comparatively lower due to 2020 losses~~$3,445,000 of $17,679,000 from Hurricane Sally, $4,850,000 of losses from policies acquired from Anchor Property & Casualty Insurance Company, offset by third quarter 2021 losses of $6,535,000 from policies assumed from United, and $2,305,000 resulting from re-estimation of losses from Hurricane Sally. Both companies recorded additional losses during the quarter totaling a combined $4,165,000 from re-assessing losses from Tropical Storm Eta, a fourth quarter 2020 event.prior period loss development. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”

Policy Acquisition and Other Underwriting Expenses for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$23,340,000~~$26,863,000 and ~~$14,210,000~~$23,169,000 on a consolidated basis, respectively, and primarily reflect the amortization of deferred acquisition costs such as commissions payable to agents for production and renewal of policies, catastrophe allowance payable to United, and premium taxes. An increase in policy acquisition costs primarily results from premium growth. Policy acquisition expenses for HCPCI insurance operations were ~~$13,035,000~~$16,583,000 for the three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$10,593,000~~$15,470,000 for the three months ended ~~September~~June 30, ~~2020.~~2021. The increase was due to amortization of increased costs associated with the increase in the number of policies assumed from United. TypTap Group policy acquisition expenses were ~~$10,360,000~~$10,302,000 versus ~~$4,067,000~~$7,574,000 for the same comparative period, with the increase attributable to amortization of increased commission costs related to the growth of TypTap’s policies in force over the past 12 months and the policies assumed from United.

5753

~~Debt Conversion Expense~~ ~~for the three months ended September 30, 2021 was approximately $1,273,000, representing costs associated with certain of the conversions of our 4.25% convertible senior notes.~~

General and Administrative Personnel Expenses for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$11,537,000~~$15,301,000 and ~~$9,871,000,~~$10,546,000, respectively. Our general and administrative personnel expenses include salaries, wages, payroll taxes, stock-based compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The period-over-period increase of ~~$1,666,000~~$4,755,000 was primarily attributable to ~~higher stock-based compensation expense,~~ an increase in the headcount of temporary and full-time employees and merit increases for non-executive employees effective in late February ~~2021.~~2022.

Interest Expense for the three months ended June 30, 2022 and 2021 was approximately $1,515,000 and $2,000,000, respectively. The decrease primarily resulted from conversions of our 4.25% convertible senior notes during the second half of 2021, offset by interest expense related to our 4.75% convertible senior notes issued in May 2022.

Income Tax Benefit for the three months ended ~~September~~June 30, ~~2021~~2022 was approximately ~~$1,636,000~~$3,018,000 for state, federal, and foreign income taxes resulting in an effective tax rate of ~~25.2%.~~26.1% for 2022. This compared with approximately ~~$6,146,000~~$1,267,000 of income tax expense for the three months ended ~~September~~June 30, ~~2020,~~2021, resulting in an effective tax rate of ~~28.5%.~~24.9% for 2021. The ~~decrease~~increase in the effective tax rate ~~as compared with the corresponding period in the prior year~~ was primarily attributable to ~~the non-deductibility of~~an increase in non-deductible compensation expense related to certain executive compensation ~~during~~and the ~~three months ended September 30, 2020.~~increased Florida corporate tax rate effective January 1, 2022.

Ratios:

The loss ratio applicable to the three months ended ~~September~~June 30, ~~2021~~2022 (losses and loss adjustment expenses incurred related to net premiums earned) was ~~66.5%~~69.5% compared with ~~82.8%~~60.1% for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~increase was primarily due to anthe increase in losses and loss adjustment expenses as further described above, offset in part by the increase in net premiums earned.

The expense ratio applicable to the three months ended ~~September~~June 30, ~~2021~~2022 (defined as ~~underwriting~~total expenses ~~general~~excluding losses and ~~administrative personnel expenses, interest and other operating~~loss adjustment expenses related to net premiums earned) was ~~45.7%~~40.6% compared with ~~49.2%~~43.6% for the three months ended ~~September~~June 30, ~~2020.~~2021. The decrease in our expense ratio was primarily attributable to the increase in net premiums earned and the decrease in interest expense, offset in part by the increase in ~~losses~~general and ~~loss adjustment expenses and the increase in policy acquisition, underwriting and~~administrative personnel expenses.

The combined ratio (total of all expenses in relation to net premiums earned) is the measure of overall underwriting profitability before other income. Our combined ratio for the three months ended ~~September~~June 30, ~~2021~~2022 was ~~112.2%~~110.1% compared with ~~132.0%~~103.7% for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~increase in ~~2021~~2022 was attributable to the factors described above.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the three months ended ~~September~~June 30, ~~2021~~2022 was ~~70.6%~~75.9% compared with ~~77.3%~~69.1% for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~increase in ~~2021~~2022 was primarily attributable to the ~~factors described above.~~increase in losses and loss adjustment expenses, offset by the increase in gross premiums earned.

Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

Our results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 reflect net loss of approximately $5,751,000 or $0.92 loss per share, compared with net income of approximately ~~$5,807,000~~$10,675,000 or ~~$0.22 diluted earnings per share, compared with approximately $24,873,000 or $3.03~~$0.98 diluted earnings per share, for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The period-over-period decrease ~~in net income~~ was primarily due to a ~~$44,668,000~~$57,866,000 increase in losses and loss adjustment expenses, a ~~one-time gain on involuntary conversion of $36,969,000 included in our 2020 results, and a $30,547,000 increase in policy acquisition and other underwriting expenses, offset by an increase in~~ net ~~premiums earned of $77,521,000, a $12,617,000 increase~~decrease in income from our investment portfolio (consisting of net investment income/loss and net realized and unrealized gains/losses), of $13,747,000, a $10,037,000 increase in policy acquisition and other underwriting expenses, and a ~~$3,103,000~~$9,139,000 increase in general and administrative personnel expenses, offset by an increase in net premiums earned of $69,835,000 and a $1,963,000 decrease in interest expense.

Revenue

Gross Premiums Earned on a consolidated basis for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$420,191,000~~$360,049,000 and ~~$306,862,000,~~$270,382,000, respectively. HCPCI gross premiums earned were ~~$300,827,000~~$231,984,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$252,033,000~~$202,571,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020. The increase included $73,403,000 of gross~~2021. Gross premiums earned from the United insurance policies ~~assumed.~~assumed were $46,316,000 for the six months ended June 30, 2022 compared to $44,357,000 for the six months ended June 30, 2021. TypTap’s gross premiums earned were ~~$119,364,000~~$128,065,000 versus ~~$54,829,000~~$67,811,000 for the same comparative period with the increase due to a greater number of policies in force from the organic growth in TypTap’s ~~business.~~business and from the business assumed from United beginning June 1, 2021.

Premiums Ceded for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$145,112,000~~$109,367,000 and ~~$109,304,000,~~$89,535,000, respectively, representing ~~34.5%~~30.4% and ~~35.6%~~33.1%, respectively, of gross premiums earned. The ~~$35,808,000~~$19,832,000 increase was primarily attributable to higher reinsurance costs for the ~~2021~~2022 contract year due to an increased overall reinsurance coverage amount as a result of premium growth and expansion. ~~Reinsurance costs were offset by a reduction in premiums ceded attributable to retrospective provisions under multi-year reinsurance agreements.~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, premiums ceded included a decrease of ~~$4,680,000~~$7,874,000 related to retrospective provisions compared with a net reduction of ~~$10,440,000~~$8,255,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”

Net Premiums Written for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 totaled approximately ~~$339,980,000~~$254,079,000 and ~~$255,546,000,~~$221,291,000, respectively. The ~~$84,434,000~~$32,788,000 increase in ~~2021~~2022 resulted primarily from the factors described earlier.

Net Premiums Earned for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$275,079,000~~$250,682,000 and ~~$197,558,000,~~$180,847,000, respectively, and reflect the gross premiums earned less reinsurance costs as described above.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (amounts in thousands):

Nine Months Ended

September 30,

2021

2020

Net Premiums Written

$
339,980

$
255,546

Increase in Unearned Premiums

(64,901
)

(57,988
)
Net Premiums Earned

$
275,079

$
197,558


	Six Months Ended
	June 30,
	2022			2021
Net Premiums Written	$	254,079		$	221,291
Increase in Unearned Premiums		(3,397	)		(40,444	)
Net Premiums Earned	$	250,682		$	180,847

Net Investment Incomefor the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was approximately ~~$9,749,000~~$6,552,000 and ~~$3,244,000,~~$7,229,000, respectively. The ~~$6,505,000 increase~~$677,000 decrease was primarily attributable to ~~losses~~a $1,456,000 decrease in

income from real estate investments and a $560,000 decrease in income from limited partnership investments, offset by a $760,000 increase in ~~2020 due to the economic effects of the COVID-19 pandemic and a net gain of $2,790,000 recognized in 2021 for a legal settlement received~~income from ~~The Kroger Co.~~available-for-sale fixed-maturity securities. See Net Investment Income ~~(loss)~~(Loss) under Note 54 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Net Unrealized Investment Losses for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020~~2022 were approximately ~~$649,000 and $581,000, respectively.~~$7,810,000 versus $1,220,000 of net unrealized investment gains for the six months ended June 30, 2021. The ~~decrease~~net unrealized investment loss for the six months ended June 30, 2022 was primarily ~~due~~attributable to an overall decline in the ~~sales of~~ equity ~~securities~~market compared with ~~aggregate net gains during~~ the ~~nine~~six months ended ~~September~~June 30, 2021.

Expenses

Our consolidated Losses and Loss Adjustment Expenses amounted to approximately ~~$164,332,000~~$159,534,000 and ~~$119,664,000~~$101,668,000 for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, respectively. HCPCI losses and ~~2020, respectively.~~loss adjustment expenses were $92,687,000 for the six months ended June 30, 2022 compared to $73,080,000 for the six months ended June 30, 2021. The increase was primarily attributable to $3,000,000 of losses associated with growth in HCPCI’s Florida portfolio, a $13,972,000 net increase in losses attributable to the United policies assumed due to an increase in the number of policies assumed from United and $1,241,000 of additional losses reported during the first half of 2022 from Tropical Storm Eta. Losses and loss adjustment expenses for TypTap were $67,680,000 versus $28,752,000 for the same comparative period. The increase was attributable to ~~additional losses associated with the growth in TypTap’s business during 2021 and was offset by lower 2021 losses at HCPCI when compared with 2020. TypTap experienced an additional $13,985,000~~$29,750,000 of losses ~~related~~attributable to ~~growth~~the greater number of TypTap policies in ~~its homeowners business, $9,116,000~~force, $4,951,000 of additional losses from policies assumed or renewed from United, and ~~$2,887,000 in combined losses from hurricanes Henri and Ida. HCPCI 2021 losses for the nine months were comparatively lower due to 2020 losses~~$3,990,000 of $17,679,000 from Hurricane Sally, $13,000,000 of losses from policies acquired from Anchor Property & Casualty Insurance Company, offset by 2021 losses of $27,712,000 from policies assumed from United, and $2,812,000 resulting from re-estimation of losses from Hurricane Sally. Both companies recorded additional losses during the nine months totaling a combined $8,000,000 from re-assessing losses from Tropical Storm Eta, a fourth quarter 2020 event.prior period losses. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”

Policy Acquisition and Other Underwriting Expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$69,574,000~~$56,271,000 and ~~$39,027,000~~$46,234,000 on a consolidated basis, respectively. Policy acquisition expenses for HCPCI insurance operations were ~~$46,076,000~~$36,348,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$28,892,000~~$33,041,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase was due to amortization of increased costs associated with the increase in the number of policies assumed from United. TypTap Group policy acquisition expenses were ~~$23,612,000~~$20,007,000 versus ~~$10,641,000~~$13,252,000 for the same comparative period, with the increase attributable to amortization of increased commission costs related to the growth of TypTap’s policies in force over the past 12 months and the policies assumed from United.

General and Administrative Personnel Expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were approximately ~~$31,733,000~~$29,335,000 and ~~$27,969,000,~~$20,196,000, respectively. The period-over-period increase of ~~$3,764,000~~$9,139,000 was primarily attributable to ~~higher stock-based compensation expense,~~ an increase in the headcount of temporary and full-time employees, ~~and~~ merit increases for non-executive employees effective in late February ~~2021.~~

2022, and higher stock-based compensation expense.

Interest Expensefor the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was approximately ~~$5,743,000~~$2,116,000 and ~~$8,846,000,~~$4,079,000, respectively. The decrease primarily resulted from ~~the early adoption~~conversions of ASC 2020-06 “Debt - Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s own Equity.” As described in Note 2 -- “Summary of Significant Accounting Policies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q, ASU 2020-06 allows the reversal of discounts previously recorded to account for the cash conversion feature of convertible debt instruments. Our 4.25% convertible senior notes ~~contain such a cash conversion feature and accordingly~~during the ~~discount was reversed January 1, 2021. As a result,~~second half of 2021, offset by interest expense ~~no longer includes amounts representing the amortization of the discount.~~related to our 4.75% convertible senior notes issued in May 2022.

Income Tax ~~Expense~~Benefit for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020~~2022 was approximately ~~$2,888,000 and $9,143,000, respectively,~~$1,808,000 for state, federal, and foreign income taxes resulting in an effective tax rate of ~~33.2%~~23.9% for 2022. This compared with approximately $4,524,000 of income tax expense for the six months ended June 30, 2021, ~~and 26.9%~~resulting in an effective tax rate of 29.8% for ~~2020.~~2021. The ~~increase~~decrease in the effective tax rate was primarily ~~due~~attributable to the ~~non-deductibility~~recognition of ~~certain executive compensation.~~tax benefits attributable to restricted stock that vested in February and May 2022.

Ratios:

The loss ratio applicable to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 (losses and loss adjustment expenses incurred related to net premiums earned) was ~~59.7%~~63.6% compared with ~~60.6%~~56.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~increase was primarily due to anthe increase in losses and loss adjustment expenses as further described above, offset in part by the increase in net premiums earned.

The expense ratio applicable to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~44.6%~~40.3% compared with ~~43.7%~~44.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~increase~~decrease in our expense ratio was primarily attributable to the increase in ~~policy acquisition, underwriting and personnel expenses, offset by the increase in~~ net premiums earned and the decrease in interest ~~expense.~~expense, offset in part by the increase in policy acquisition, underwriting and personnel expenses.

The combined ratio is the measure of overall underwriting profitability before other income. Our combined ratio for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~104.3%~~103.9% compared with ~~104.3%~~100.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in 2022 was attributable to the factors described above.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~68.3%~~72.4% compared with ~~67.2%~~67.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in ~~2021~~2022 was primarily attributable to the increase in losses and loss adjustment expenses, offset by the increase in gross premiums earned.

Seasonality of Our Business

Our insurance business is seasonal as hurricanes and tropical storms affecting Florida, our primary market, and other southeastern states typically occur during the period from June 1st through November 30th of each year. Winter storms in the northeast usually occur during the period between December 1st and March 31st of each year. Also, with our reinsurance treaty year typically effective June 1st of each year, any variation in the cost of our reinsurance, whether due to changes in reinsurance rates, coverage levels or changes in the total insured value of our policy base, will occur and be reflected in our financial results beginning June 1st of each year.

LIQUIDITY AND CAPITAL RESOURCES

Throughout our history, our liquidity requirements have been met through issuances of our common and preferred stock, debt offerings and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by our insurance subsidiaries from premiums written and investment income. We may consider raising additional capital through debt and equity offerings to support our growth and future investment opportunities.

Our insurance subsidiaries require liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. In addition, we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets. In the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and losses and loss adjustment expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. With the exception of litigated claims, substantially all of our losses and loss adjustment expenses are fully settled and paid within 100 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.

We believe that we maintain sufficient liquidity to pay claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position.

In the future, we anticipate our primary use of funds will be to pay claims, reinsurance premiums, interest, and dividends and to fund operating expenses and real estate acquisitions.

Revolving Credit Facility, Convertible Senior Notes, Promissory Notes, and Finance Leases

The following table summarizes the principal and interest payment obligations of our indebtedness at ~~September~~June 30, ~~2021:~~2022:


	Maturity Date	~~Interest~~ Payment Due Date
4.75% Convertible Senior Notes*	June 2042	June 1 and December 1**
4.25% Convertible ~~senior notes~~Senior Notes	March 2037	March 1 and September 1
3.75% Callable ~~promissory note~~Promissory Note	Through September 2036	1st day of each month
4.55% Promissory ~~note~~Note	Through August 2036	1st day of each month
3.90% Promissory ~~note~~Note	Through April 2032	1st day of each month
Finance leases	Through October 2024	Various
Revolving credit facility	Through December 2023	January 1, April 1, July 1, October 1


*	At the option of the noteholders, we may be required to repurchase for cash all or any portion of the notes on June 1, 2027, June 1, 2032 or June 1, 2037.
**	The cash interest is payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2022.

See Note 1110 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Share Repurchase Plan

In March 2022, the Board approved a plan to repurchase up to $20,000,000 of common shares during 2022 under which we may purchase shares of common stock in open market purchases, block transactions and privately negotiated transactions in accordance with applicable federal securities laws. At June 30, 2022, there was approximately $18,117,000 available under the plan. See Note 18 -- “Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for more information.

Limited Partnership Investments

Our limited partnership investments consist of six private equity funds managed by their general partners. ~~Four~~Two of these funds have unexpired capital commitments which are callable at the discretion of the fund’s general partner for funding new investments or expenses of the fund. Although capital commitments for ~~two~~four of the remaining funds have expired, the general partners may request additional funds under certain circumstances. At ~~September~~June 30, ~~2021,~~2022, there was an aggregate unfunded capital balance of ~~$13,980,000.~~$6,465,000. See Limited Partnership Investments under Note 54 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

Real Estate ~~Investments~~Investment

Real estate has long been a significant component of our overall investment portfolio. It diversifies our portfolio and helps offset the volatility of other higher-risk investments. Thus, we may consider increasing our real estate investment portfolio should an opportunity arise.

We currently have a 90% equity interest in FMKT Mel JV, LLC, a Florida limited liability company for which we are not the primary beneficiary. In June 2022, FMKT Mel ~~JV’s real estate portfolio consists~~JV sold its last outparcel and recognized a net gain of ~~outparcels for ground lease or sale.~~$572,000. We ~~have~~anticipate that the ~~option to take full ownership~~liquidation of ~~these outparcels by acquiring the remaining 10% interest. Alternatively, we may sell these outparcels and allocate the profits from the sale before liquidating~~ FMKT Mel ~~JV.~~JV and the distribution of its earnings will take place during the third quarter of 2022.

Sources and Uses of Cash

Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022

Net cash provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was approximately ~~$48,671,000,~~$21,629,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately ~~$38,484,000)~~$26,584,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $360,095,000 was primarily due to the purchases of fixed-maturity and equity securities of $394,021,000, the purchases of property and equipment of $4,229,000, and the purchase of intangible assets from United of $3,800,000, offset by the proceeds from sales of fixed-maturity and equity securities of $35,921,000, the proceeds from calls, repayments and maturities of fixed-maturity securities of $4,020,000, and distributions received from limited partnership investments of $2,335,000. Net cash provided by financing activities totaled $70,267,000, which was primarily due to the proceeds from issuance of 4.75% Convertible Senior Notes of $172,500,000, offset by $69,987,000 of share repurchases, net repayment of our revolving credit facility of $15,000,000, $8,091,000 of net cash dividend payments, debt issuance costs paid of $5,757,000, cash dividends paid to redeemable noncontrolling interest of $2,508,000, and repayments of long-term debt of $501,000.

Cash Flows for the Six Months Ended June 30, 2021

Net cash provided by operating activities for the six months ended June 30, 2021 was approximately $95,647,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately $23,775,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of ~~$35,087,000~~$37,805,000 was primarily due to the proceeds from sales of fixed-maturity and equity securities of ~~$100,130,000,~~$71,191,000, the proceeds from ~~redemptions~~calls, repayments and maturities of fixed-maturity securities of ~~$16,734,000,~~$16,677,000, and distributions received from limited partnership investments of ~~$3,635,000,~~$2,653,000, offset by the purchases of fixed-maturity and equity securities of ~~$83,211,000,~~$51,378,000, and the purchases of property and equipment of ~~$2,583,000.~~$1,275,000. Net cash provided by financing activities totaled ~~$54,077,000,~~$61,538,000, which consisted of net proceeds of $93,738,000 from Centerbridge for investment in TTIG, offset by ~~$9,713,000~~$6,452,000 of net cash dividend payments, net repayment of our revolving credit facility of $23,750,000, and $1,308,000 used in share repurchases.

~~Cash Flows for the Nine Months Ended September 30, 2020~~

Net cash provided by operating activities for the nine months ended September 30, 2020 was approximately $77,530,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately $39,624,000) and $27,092,000 of net cash receipts from Anchor less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Due to the inclusion of the cash receipt from Anchor, net cash provided by operating activities was higher than usual. Net cash provided by investing activities of $133,800,000 was primarily due to the proceeds from sales of fixed-maturity and equity securities of $96,669,000, the proceeds from redemptions and maturities of fixed-maturity securities of $60,870,000, and $44,000,000 of compensation received for the property taken by the power of eminent domain, offset by the purchases of fixed-maturity and equity securities of $57,375,000, the purchase of real estate investments of $3,052,000, limited partnership investments of $2,951,000, and the purchases of property and equipment of $5,928,000. Net cash used in financing activities totaled $28,151,000, which consisted of $16,533,000 used to repay 3.95% and 4% promissory notes, $9,279,000 of net cash dividend payments, $4,459,000 used to repurchase our 4.25% convertible senior notes, and $6,499,000 used in our share repurchases, and net repayment of our revolving credit facility of $1,000,000, offset by the proceeds from issuance of a 3.90% promissory note of $10,000,000.

Investments

The main objective of our investment policy is to maximize our after-tax investment income with a reasonable level of risk given the current financial market. Our excess cash is invested primarily in money market accounts, certificates of deposit, and fixed-maturity and equity securities.

At ~~September~~June 30, ~~2021,~~2022, we had ~~$96,276,000~~$434,290,000 of fixed-maturity and equity investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed-maturity investments but increases the market value of existing fixed-maturity investments, creating the opportunity for realized investment gains on disposition. ~~To maximize the gains from fixed-maturity investments in a low interest rate environment, we have decreased our holdings in fixed-maturity securities since the beginning of 2020.~~

In the future, we may alter our investment policy as to investments in federal, state and municipal obligations, preferred and common equity securities and real estate mortgages, as permitted by applicable law, including insurance regulations.

OFF-BALANCE SHEET ARRANGEMENTS

As of ~~September~~June 30, ~~2021,~~2022, we had unexpired capital commitments for limited partnerships in which we hold interests. Such commitments are not recognized in the financial statements but are required to be disclosed in the notes to the financial statements. See Note 2120 -- “Commitments and Contingencies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q ~~and~~ ~~Contractual Obligations and Commitment~~ ~~below~~ for additional information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments to develop amounts reflected and disclosed in our financial statements. Material estimates that are particularly susceptible to significant change in the near term are related to our losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. We base our estimates on various assumptions and actuarial data we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates.

We believe our accounting policies specific to losses and loss adjustment expenses, reinsurance recoverable, reinsurance with retrospective provisions, deferred income taxes, stock-based compensation expense, limited partnership investments, acquired intangible assets, warrants, and redeemable noncontrolling interest involve our most significant judgments and estimates material to our consolidated financial statements.

Reserves for Losses and Loss Adjustment Expenses

Our liability for losses and loss adjustment expense (“Reserves”) is specific to property insurance, which is our insurance ~~division’s~~subsidiaries’ only line of business. The Reserves include both case reserves on reported claims and our reserves for incurred but not reported (“IBNR”) losses. At each period end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are adjusted.

The IBNR represents our estimate of the ultimate cost of all claims that have occurred but have not been reported to us, and in some cases may not yet be known to the insured, and future development of reported claims. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At ~~September~~June 30, ~~2021, $151,669,000~~2022, $177,320,000 of the total ~~$203,177,000~~$238,824,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining ~~$51,508,000~~$61,504,000 relates to known cases which have been reported but not yet fully settled in which case we have established a reserve based on currently available information and our best estimate of the cost to settle each claim. At ~~September~~June 30, ~~2021, $33,889,000~~2022, $42,941,000 of the ~~$51,508,000~~$61,504,000 in reserves for known cases relates to claims incurred during prior years.

Our Reserves ~~decreased~~increased from ~~$212,169,000~~$237,165,000 at December 31, ~~2020~~2021 to ~~$203,177,000~~$238,824,000 at ~~September~~June 30, ~~2021.~~2022. The ~~$8,992,000 decrease~~$1,659,000 increase is comprised of $92,101,000 in reserves established for the 2022 loss year, offset by reductions in our Reserves of ~~$30,790,000~~$21,777,000 specific to Hurricane Irma, ~~and~~ Hurricane Michael, Hurricane Sally and Tropical Storm Eta, and reductions in our non-catastrophe Reserves of ~~$43,738,000~~$49,711,000 for 2021 and $18,954,000 for 2020 and ~~$17,895,000 for 2019 and~~ prior loss ~~years, offset by $76,228,000 in reserves established for the 2021 loss year and additional reserves of $7,203,000 for Hurricane Sally and Tropical Storm Eta.~~years. The Reserves established for ~~2021~~2022 claims is primarily driven by an allowance for those claims that have been incurred but not reported to the company as of ~~September~~June 30, ~~2021.~~2022. The decrease of ~~$61,633,000~~$68,665,000 specific to our ~~2020~~2021 and prior loss-year reserves is due to settlement of claims related to those loss years.

Based on all information known to us, we consider our Reserves at ~~September~~June 30, ~~2021~~2022 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated

regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made, and the liabilities may deviate substantially from prior estimates.

Economic Impact of Reinsurance Contracts with Retrospective Provisions

~~Two of~~From time to time, our reinsurance contracts may include retrospective provisions that adjust premiums in the event losses are minimal or zero. In accordance with accounting principles generally accepted in the United States of America, we will recognize an asset in the period in which the absence of loss experience obligates the reinsurer to pay cash or other consideration under the contract. In the event that a loss arises, we will derecognize such asset in the period in which a loss arises. Such adjustments to the asset, which accrue throughout the contract term, will negatively impact our operating results when a catastrophic loss event occurs during the contract term.

For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, we accrued benefits of ~~$1,364,000~~$6,390,000 and ~~$4,680,000,~~$3,575,000, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, we accrued benefits of ~~$9,619,000~~$7,874,000 and ~~$10,440,000,~~$8,255,000, respectively. The accrual of benefits was recognized as a reduction in ceded premiums.

As of ~~September~~June 30, ~~2021,~~2022, we had ~~$1,819,000~~$10,938,000 of accrued benefits, the amount that would be charged to earnings in the event we experience a catastrophic loss that exceeds the coverage limit provided under such agreement. ~~In June 2021, we collected $18,720,000 of premium refund from a reinsurer for the reinsurance contract that ended May 31, 2021.~~

We believe the credit risk associated with the collectability of accrued benefits is minimal based on available information about ~~the~~each reinsurer’s financial position and ~~the~~each reinsurer’s demonstrated ability to comply with contract terms.

~~Stock-Based Compensation Expense~~

We account for stock-based compensation using a recognition method based on fair value. For restricted stock with service based vesting conditions, fair value is determined by the market price of the stock on the grant date. Compensation expense is then recognized ratably over the requisite or derived service period of the award. Restricted stock awards with market based vesting conditions require the use of a Monte Carlo simulation model with the assistance of a third-party valuation specialist to estimate the fair value and derived service period of the award. We then recognize the compensation expense ratably over this derived service period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility or derived service periods. We develop our estimates based on historical data and market information.

~~Acquired Intangible Assets~~

Acquired intangible assets represent the fair value of consideration we paid and are estimated to pay in exchange for the renewal rights and non-compete intangible assets acquired from the seller. In the renewal rights transaction, we purchased the right, but not the obligation, to offer homeowners insurance coverage to all current policyholders of the seller in certain states on the agreed-upon policy replacement date. The renewal rights agreement also contains a non-compete clause whereby the seller agrees not to offer homeowners insurance policies in these states through a specified date. We record intangible assets based on the fair value of the consideration we paid and are estimated to pay to the seller as provided in the renewal rights agreement with the seller. We engaged a third-party valuation specialist to assist with the allocation of the renewal rights and non-compete intangible assets acquired. Intangible assets are amortized over their estimated useful lives. Intangible assets are evaluated periodically to ensure that there is no impairment to carrying value and no change required in the amortization period.

~~Warrants and Redeemable Noncontrolling Interest~~

In the capital investment transaction completed by TTIG with a fund associated with Centerbridge Partners, L.P., TTIG issued 10,000,000 total shares of Series A Preferred Stock and HCI issued warrants to purchase 750,000 shares of HCI common stock, in exchange for proceeds of $100,000,000. Both the fair value and expected term of the warrants were estimated with assistance from a third-party valuation specialist using a Monte Carlo simulation model. Total proceeds from the capital investment transaction were allocated using the residual fair value method, first to the warrants issued based on their estimated fair value, with the residual proceeds being allocated to the fair value of Series A Preferred Stock. See ~~Note 18 -- “Redeemable Noncontrolling Interest” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.~~

The above and other accounting estimates and their related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form 10-K, which we filed with the SEC on March ~~12, 2021.~~10, 2022. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, there have been no other material changes with respect to any of our critical accounting policies.

RECENT ACCOUNTING PRONOUNCEMENTS

~~For information with respect to~~There have been no recent accounting pronouncements ~~and~~or changes in recent accounting pronouncements during the ~~impact~~six months ended June 30, 2022, as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that are of ~~these pronouncements on our consolidated financial statements, see Note 3~~significance, or potential significance, to ~~our Notes to Unaudited Consolidated Financial Statements.~~the Company.

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our investment portfolios at ~~September~~June 30, ~~2021~~2022 included fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by outside investment advisors and are overseen by the investment committee appointed by our Board of Directors. From time to time, our investment committee may decide to invest in low risk assets such as U.S. government bonds.

Our investment portfolios are exposed to interest rate risk, credit risk and equity price risk. Fiscal and economic uncertainties caused by any government action or inaction may exacerbate these risks and potentially have adverse impacts on the value of our investment portfolios.

We classify our fixed-maturity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity. As such, any material temporary changes in their fair value can adversely impact the carrying value of our stockholders’ equity. In addition, we recognize any unrealized gains or losses related to our equity securities in our statement of income. As a result, our results of operations can be materially affected by the volatility in the equity market.

Interest Rate Risk

Our fixed-maturity securities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movement in interest rates and considering our future capital needs.

The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed-maturity securities at ~~September~~June 30, ~~2021~~2022 (amounts in thousands):


Hypothetical Change in Interest Rates	Estimated Fair Value		Change in Estimated Fair Value			Percentage Increase (Decrease) in Estimated Fair Value			Estimated Fair Value		Change in Estimated Fair Value			Percentage Increase (Decrease) in Estimated Fair Value
300 basis point increase	$	43,019	$	(3,034	)		-6.59	%	$	380,227	$	(18,344	)		-4.60	%
200 basis point increase		44,030		(2,023	)		-4.39	%		386,341		(12,230	)		-3.07	%
100 basis point increase		45,042		(1,011	)		-2.20	%		392,455		(6,116	)		-1.53	%
100 basis point decrease		46,867		814			1.77	%		404,685		6,114			1.53	%
200 basis point decrease		47,320		1,267			2.75	%		410,758		12,187			3.06	%
300 basis point decrease		47,365		1,312			2.85	%		416,417		17,846			4.48	%

Credit Risk

Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuers of our fixed-maturity securities. We mitigate the risk by investing in fixed-maturity securities that are generally investment grade, by diversifying our investment portfolio to avoid concentrations in any single issuer or business sector, and by continually monitoring each individual security for declines in credit quality. While we emphasize credit quality in our investment selection process, significant downturns in the markets or general economy may impact the credit quality of our portfolio.

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The following table presents the composition of our fixed-maturity securities, by rating, at ~~September~~June 30, ~~2021~~2022 (amounts in thousands):


			% of Total				% of Total				% of Total				% of Total
	Amortized		Amortized		Estimated		Estimated		Amortized		Amortized		Estimated		Estimated
Comparable Rating	Cost		Cost		Fair Value		Fair Value		Cost		Cost		Fair Value		Fair Value
AAA	$	678		2.0	$	692		2.0	$	93,368		23	$	93,273		23
AA+, AA, AA-		14,379		32.0		14,465		31.0		281,539		70		276,805		69
A+, A, A-		13,934		31.0		14,080		31.0		12,791		3		12,569		3
BBB+, BBB, BBB-		13,688		30.0		14,477		31.0		14,335		3		14,115		4
BB+, BB, BB-		468		1.0		469		1.0
CCC+, CC and Not rated		1,869		4.0		1,870		4.0		1,811		1		1,809		1
Total	$	45,016		100.0	$	46,053		100.0	$	403,844		100	$	398,571		100

Equity Price Risk

Our equity investment portfolio at ~~September~~June 30, ~~2021~~2022 included common stocks, perpetual preferred stocks, mutual funds and ~~exchange traded~~exchange-traded funds. We may incur losses due to adverse changes in equity security prices. We manage the risk primarily through industry and issuer diversification and asset mix.

The following table illustrates the composition of our equity securities at ~~September~~June 30, ~~2021~~2022 (amounts in thousands):


			% of Total				% of Total
	Estimated		Estimated		Estimated		Estimated
	Fair Value		Fair Value		Fair Value		Fair Value
Stocks by sector:
Consumer					$	7,360		21
Financial	$	12,303		24		5,747		16
Technology		4,210		8		1,903		5
Consumer		3,840		8
Communications		2,584		5
Other (1)		3,771		8		2,570		7
		26,708		53		17,580		49
Mutual funds and exchange traded funds by type:
Mutual funds and exchange-traded funds by type:
Debt		17,780		35		15,087		42
Equity		5,735		12		3,052		9
Total	$	50,223		100	$	35,719		100

(1)

Represents an aggregate of less than 5% sectors.

Foreign Currency Exchange Risk

At ~~September~~June 30, ~~2021,~~2022, we did not have any material exposure to foreign currency related risk.

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ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial and accounting officer), we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, our chief executive officer and our chief financial officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting during the quarter ended ~~September~~June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, implementation of possible controls and procedures depends on management’s judgment in evaluating their benefits relative to costs.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The Company is a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot predict with certainty the ultimate resolution of the claims and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 1A – RISK FACTORS

~~With the exception of the item described below, there~~There have been no material changes ~~from~~in the risk factors previously disclosed in the section entitled “Risk Factors” in our Form 10-K, which was filed with the SEC on March ~~12, 2021.~~10, 2022.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

Sales of Unregistered Securities and Use of Proceeds

~~On January 18, 2021, we issued 100,000 shares~~All information related to sales of ~~our common stock to United~~unregistered securities have been reported in ~~exchange for the renewal rights and non-compete agreement.~~

~~On February 26, 2021, warrants to purchase 750,000 shares of our common stock were issued to the lead investor in our subsidiary’s capital investment transaction.~~Current Report on Form 8-K filings.

(b)

Repurchases of Securities

~~None~~The table below summarizes the number of common shares repurchased under the share repurchase agreement and the 2022 repurchase plan approved by our Board of Directors, and also the number of common shares surrendered by employees to satisfy payroll tax liabilities associated with the vesting of restricted shares (dollar amounts in thousands, except share and per share amounts):


	Total Number of Shares		Average Price Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans		Maximum Dollar Value of Shares That May Yet Be Purchased Under The Plans
For the Month Ended	Purchased		Per Share		or Programs (a)		or Programs (b)
April 30, 2022		6,264	$	64.89		6,264	$	19,594
May 31, 2022 (c)		1,060,074	$	64.43		9,284	$	18,996
June 30, 2022		13,917	$	63.18		13,917	$	18,117
		1,080,255	$	64.42		29,465

(a)

In March 2022, our Board of Directors authorized a plan announced March 14, 2022 to repurchase up to $20,000 of the Company’s common shares before commissions and fees during 2022.

(b)

Represents the balances before commissions and fees at the end of each month. See Note 18 -- “Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

(c)

During May 2022, 1,037,600 shares of common stock were repurchased from institutional investors (see Note 18 -- “Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information).

Working Capital Restrictions and Other Limitations on Payment of Dividends

We are not subject to working capital restrictions or other limitations on the payment of dividends. Our insurance subsidiaries, however, are subject to restrictions on the dividends they may pay. Those restrictions could impact HCI’s ability to pay future dividends.

Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholder except out of that part of its available and accumulated capital and surplus funds which is derived from realized net operating profits on its business and net realized capital gains. Additionally, a Florida domestic insurer may not make dividend payments or distributions to its stockholder without prior approval of the Florida Office of Insurance Regulation if the dividend or distribution would exceed the larger of (1) the lesser of (a) 10.0% of its capital surplus or (b) net income, not including realized capital gains, plus a two year carry forward, (2) 10.0% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (3) the lesser of (a) 10.0% of capital surplus or (b) net investment income plus a three year carry forward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.

Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the Florida Office of Insurance Regulation (1) if the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, (2) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (3) the insurer files a notice of the dividend or distribution with the Florida Office of Insurance Regulation at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the Florida Office of Insurance Regulation or (2) 30 days after the Florida Office of Insurance Regulation has received notice of such dividend or distribution and has not disapproved it within such time.

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, our insurance subsidiaries paid dividends of ~~$11,900,000~~$12,000,000 to HCI.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

None.

ITEM 5 – OTHER INFORMATION

None.

7167

ITEM 6 – EXHIBITS

The following documents are filed as part of this report:


EXHIBIT
NUMBER		DESCRIPTION

3.1		Articles of Incorporation, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 7, 2013.

3.1.1		Articles of Amendment to Articles of Incorporation designating the rights, preferences and limitations of Series B Junior Participating Preferred Stock. Incorporated by reference to Exhibit 3.1 to our Form 8-K filed October 18, 2013.

3.1.2		Articles of Amendment to Articles of Incorporation cancelling the rights, preferences and limitations of Series B Junior Participating Preferred Stock. Incorporated by reference to Exhibit 3.1 to our Form 8-K filed May 15, 2020.

3.2		Bylaws, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our Form ~~8-Q~~8-K filed September 13, 2019.

4.1		Form of common stock certificate. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed November 7, 2013.

4.2		Common Stock Purchase Warrant, dated February 26, 2021, issued by HCI Group, Inc. to CB Snowbird Holdings, L.P. Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 1, 2021.

4.3		Indenture, dated May 23, 2022, by and between HCI Group, Inc. and The Bank of New York Mellon Trust Company, N.A.

4.6		Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 12, 2021.

~~4.8~~		Indenture, dated December 11, 2013, between HCI Group, Inc. and The Bank of New York Mellon Trust Company, N.A. (including Global Note). Incorporated by reference to Exhibit 4.1 to our Form 8-K filed December 12, 2013.

4.9		See Exhibits 3.1, 3.1.1, 3.1.2 and 3.2 of this report for provisions of the Articles of Incorporation, as amended, and our Bylaws, as amended, defining certain rights of security holders.

4.10		Indenture, dated March 3, 2017, between HCI Group, Inc. and The Bank of New York Mellon Trust Company, N.A. Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 3, 2017.

4.11		Form of Global 4.25% Convertible Senior Note due 2037 (included in Exhibit 4.1). Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 3, 2017.

10.1		Preferred Stock Purchase Agreement, dated February 26, 2021, among TypTap Insurance Group, Inc., HCI Group, Inc., and CB Snowbird Holdings, L.P. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021.

10.2		Amended and Restated Articles of Incorporation of TypTap Insurance Group, Inc. filed February 26, 2021. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021.

10.3		Shareholders Agreement, dated February 26, 2021, among TypTap Insurance Group, Inc., CB Snowbird Holdings, L.P., HCI Group, Inc., and the other shareholders party thereto. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021.


10.4		Parent Guaranty Agreement, dated February 26, 2021, between HCI Group, Inc. and CB Snowbird Holdings, L.P. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021.


10.5**		~~Restated~~ HCI Group, Inc. 2012 Omnibus Incentive ~~Plan.~~Plan as revised April 26, 2022. Incorporated by reference to ~~Exhibit 99.1 of~~the corresponding numbered exhibit to our Form ~~8-K~~10-Q filed ~~March 23, 2017.~~May 6, 2022.

10.6**		HCI Group, Inc. (formerly known as Homeowners Choice, Inc.) 2007 Stock Option and Incentive Plan. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 29, 2008.

10.7**		Executive Employment Agreement dated November 23, 2016 between Mark Harmsworth and HCI Group, Inc. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2017.

~~10.8~~		Working Layer Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2016, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers (National Fire). Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 3, 2016.

~~10.9~~		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) (Arch), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.10~~		Reinstatement Premium Protection Reinsurance Contract (Chubb), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.11~~		Property Catastrophe First Excess of Loss Reinsurance Contract, effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.12~~		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.13~~		Reinstatement Premium Protection Reinsurance Contract (For Working Layer Cat), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.14~~		Property Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.


~~10.15~~		Property Catastrophe First Excess of Loss Reinsurance Contract (Endurance), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.16~~		Reinstatement Premium Protection Reinsurance Contract (Fidelis), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.17~~		Property Catastrophe First Excess of Loss Reinsurance Contract, effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.18~~		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) (Hiscox), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.19~~		Reinstatement Premium Protection Reinsurance Contract (For Cat Excess) (Hiscox), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.20~~		Reinstatement Premium Protection Reinsurance Contract (For Working Layer Cat) (Hiscox), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.21~~		Reinstatement Premium Protection Reinsurance Contract (Horseshoe), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.22~~		Property Catastrophe Excess of Loss Reinsurance Contract (Munich), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.23~~		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.


~~10.24~~		Reinstatement Premium Protection Reinsurance Contract, effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.25~~		Top Layer Property Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.26~~		Reinstatement Premium Protection Reinsurance Contract (Transatlantic), effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.27~~		Endorsement No. 1 to the Flood Catastrophe Excess of Loss Reinsurance Contract, effective: July 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by National Liability and Fire Insurance Company. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.28~~		Working Layer Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2020, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.29~~		Reimbursement Contract effective June 1, 2020 between Homeowners Choice Property & Casualty Insurance Company and the State Board of Administration which administers the Florida Hurricane Catastrophe Fund. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

~~10.30~~		Reimbursement Contract effective June 1, 2020 between TypTap Insurance Company and the State Board of Administration which administers the Florida Hurricane Catastrophe Fund. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2020.

10.31		Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.32		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.33		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.


		Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.34		Joinder, Second Amendment to Credit Agreement and Modification of Other Loan Documents. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed January 28, 2021.

10.40		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.41		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.42		Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.


10.43		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.44		7th Layer Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.45		Flood Property Catastrophe Excess of Loss Reinsurance Contract effective ~~June~~July 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.46**		Written Description of Non-Employee Director Compensation Arrangement adopted September 9, 2019 establishing compensation of our non-employee directors. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed November 6, 2019.

~~10.47~~		Policy Replacement Agreement, dated February 12, 2020, by and between Homeowners Choice Property & Casualty Insurance Company, Inc. and Anchor Property & Casualty Insurance Company together with Anchor Insurance Managers, Inc. Incorporated by reference to Exhibit 99.1 of our Form 8-K filed February 14, 2020.

10.48**		TypTap Insurance Group, Inc. 2021 Equity Incentive Plan. Incorporated by reference to Exhibit 10.5 of our Form 8-K filed March 1, 2021.

10.49**		Form of Restricted Stock Award Agreement of TypTap Insurance Group, Inc. Incorporated by reference to Exhibit 10.6 of our Form 8-K filed March 1, 2021.



10.50		Exchange Agreement, dated August 26, 2021, by and between HCI Group, Inc. and Citadel Equity Fund Ltd. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed November 9, 2021.

10.51**		Stock Option Agreement between Paresh Patel and TypTap Insurance Group, Inc. dated October 1, 2021. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed October 7, 2021.

10.52**		TypTap Insurance Group, Inc. 2021 Omnibus Incentive Plan. Incorporated by reference to Exhibit 99.2 of our Form 8-K filed October 7, 2021.

10.53		Purchase Agreement, dated May 18, 2022, by and among HCI Group, Inc., JMP Securities LLC and Truist Securities, Inc., as representatives of the several purchasers named therein. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed May 23, 2022.

10.57		Form of executive restricted stock award contract. Incorporated by reference to Exhibit 10.57 ofto our Form 10-Q ~~for the quarter ended March 31, 2014~~ filed May 1, 2014.

10.58		Purchase Agreement, dated February 28, 2017, by and between HCI Group, Inc. and JMP Securities LLC and SunTrust Robinson Humphrey, Inc., as representatives of the several initial purchasers named therein. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed February 28, 2017.

10.59		Prepaid Forward Contract, dated February 28, 2017 and effective as of March 3, 2017, between HCI Group, Inc. and Societe Generale. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed March 3, 2017.

10.60		Credit Agreement, Promissory Note, Security and Pledge Agreement, dated December 5, 2018, between HCI Group, Inc. and Fifth Third Bank. Incorporated by reference to Exhibits 99.1, 99.2, and 99.3 of our Form 8-K filed December 6, 2018.

10.88**		Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 7, 2017. Incorporated by reference to ~~exhibit~~Exhibit 99.2 to our Form 8-K filed January 11, 2017.

10.89**		~~Employment Agreement between Paresh Patel and HCI Group, Inc. dated December 30, 2016. Incorporated by reference to the exhibit numbered 99.1 to our Form 8-K filed December 30, 2016.~~

10.99**		Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 7, 2017. Incorporated by reference to ~~exhibit~~Exhibit 99.1 to our Form 8-K filed January 11, 2017.

10.100**		Restricted Stock Award Contract between Mark Harmsworth and HCI Group, Inc. dated December 5, 2016. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2017.

10.101**		Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated February 8, 2018. Incorporated by reference to ~~exhibit~~Exhibit 99.1 to our Form 8-K filed February 14, 2018.

10.102**		Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated February 8, 2018. Incorporated by reference to ~~exhibit~~Exhibit 99.2 to our Form 8-K filed February 14, 2018.

10.103**		Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 15, 2019. Incorporated by reference to ~~exhibit~~Exhibit 99.1 to our Form 8-K filed January 22, 2019.

10.104**		Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 15, 2019. Incorporated by reference to ~~exhibit~~Exhibit 99.2 to our Form 8-K filed January 22, 2019.


10.105**		Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 16, 2020. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed January 23, 2020.

10.106**		Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 16, 2020. Incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 23, 2020.

10.107		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.108		Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.109		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.110		Non-Florida Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.111		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021, issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.112		Top Layer Flood/Wind Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.


10.113		Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.114		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.


10.115		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.116		Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.117		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.118		Non-Florida Property Catastrophe $6MXS$4M Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.119		Non-Florida Reinstatement Premium Protection Reinsurance Contract (For $6MXS$4m4M Excess Cat) effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.120		Reimbursement Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by the State Board of Administration of the State of Florida. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.121		Reimbursement Contract effective June 1, 2021 issued to TypTap Insurance Company by the State Board of Administration of the State of Florida. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.122		Multi-Year Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.


10.123		Multi-Year Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.124		Property Quota Share Reinsurance Contract effective December 31, 2020 issued to United Property and Casualty Insurance Company by Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.

10.125		Renewal Rights Agreement effective January 18, 2021 by and among United Property and Casualty Insurance Company, Inc., United Insurance Holdings Corp., United Insurance Management, L.C. and Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.

10.126		Property Quota Share Reinsurance Contract effective June 1, 2021 issued to United Property and Casualty Insurance Company by Homeowners Choice Property & Casualty Insurance Company and TypTap Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.

10.127		Renewal Rights Agreement effective December 30, 2021 by and among United Property and Casualty Insurance Company, Inc., United Insurance Holdings Corp., United Insurance Management, L.C. and Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.

10.128		Property Quota Share Reinsurance Contract effective December 31, 2021 issued to United Property and Casualty Insurance Company, by Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.

10.129		Property Quota Share Reinsurance Contract effective June 1, 2022 issued to United Property and Casualty Insurance Company by TypTap Insurance Company.

10.131		Multi-Year Working Layer Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.132		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.133		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.134		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.135		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).


10.136		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.137		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.138		Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.139		Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.140		Sixth Layer Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.141		Non-Florida Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.142		Non-Florida Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.143		Flood Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.144		Property Catastrophe Shared Multi-Region Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.145		Top Layer Flood/Wind Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv).

10.146		Reimbursement Contract effective June 1, 2022 between TypTap Insurance Company and the State Board of Administration of the State of Florida which administers the Florida Hurricane Catastrophe Fund.

10.147		Reimbursement Contract effective June 1, 2022 between Homeowners Choice Property & Casualty Insurance Company, Inc. and the State Board of Administration of the State of Florida which administers the Florida Hurricane Catastrophe Fund.



31.1		Certification of the Chief Executive Officer

31.2		Certification of the Chief Financial Officer

32.1		Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.ss.1350

32.2		Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.ss.1350


101.INS		Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL documents.

101.SCH		Inline XBRL Taxonomy Extension Schema.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		Inline XBRL Definition Linkbase.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

** Management contract or compensatory plan.

8075

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, who has signed this report on behalf of the Company.


	HCI GROUP, INC.

~~November~~August 9, ~~2021~~2022	By:	/s/ Paresh Patel
		Paresh Patel
		Chief Executive Officer
		(Principal Executive Officer)

~~November~~August 9, ~~2021~~2022	By:	/s/ James Mark Harmsworth
		James Mark Harmsworth
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

8176


Value-oriented investments in mature real estate private equity funds and portfolio globally. (b)(j)		5,224		5,494	2.24		3,273		6,818	2.24
Risk-adjusted returns on credit and equity investments, primarily in private equity-owned companies. (b)(k)		0		5,000	0		—		—	—
Total	$	26,039	$	13,980		$	27,691	$	10,304


Due in 12 months following September 30,
2021	$	57,409
2022		1,036
2023		1,065
2024		1,106
2025		1,151
Thereafter		16,821
Total	$	78,588



Balance at January 1, 2021	$	0
Initial proceeds from Centerbridge		100,000
Increase (decrease):
Proceeds allocated to warrants*		(9,217	)
Issuance costs		(6,262	)
Issuance costs allocated to warrants*		577
Accrued cash dividends		458
Accretion - increasing dividend rates		336
Balance at March 31, 2021	$	85,892
Increase (decrease):
Accrued cash dividends		1,250
Accretion - increasing dividend rates		929
Balance at June 30, 2021	$	88,071
Increase (decrease):
Dividends paid		(2,542	)
Accrued cash dividends		1,250
Accretion - increasing dividend rates		952
Balance at September 30, 2021	$	87,731


Due in 12 months following September 30,
2021	$	9,095
2022*		9,095
2023*		4,093
Total	$	22,283