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 30,March 31, 20222023

OR

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 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 (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 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 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 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 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, no par value, outstanding on NovemberMay 1, 20222023 was 8,756,9708,596,673.


HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION

Item 1

Financial Statements

Consolidated Balance Sheets:

September 30, 2022March 31, 2023 (unaudited) and December 31, 20212022

1-2

Consolidated Statements of Income:

Three and nine months ended September 30,March 31, 2023 and 2022 and 2021 (unaudited)

3

Consolidated Statements of Comprehensive Income:

Three and nine months ended September 30,March 31, 2023 and 2022 and 2021 (unaudited)

4

Consolidated Statements of Equity:

Three and nine months ended September 30,March 31, 2023 and 2022 and 2021 (unaudited)

5-85-6

Consolidated Statements of Cash Flows:

NineThree months ended September 30,March 31, 2023 and 2022 and 2021 (unaudited)

9-117-9

Notes to Consolidated Financial Statements (unaudited)

12-4810-37

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

49-6438-49

Item 3

Quantitative and Qualitative Disclosures About Market Risk

65-6650-51

Item 4

Controls and Procedures

6752

PART II – OTHER INFORMATION

Item 1

Legal Proceedings

6853

Item 1A

Risk Factors

6853

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

68-6953-54

Item 3

Defaults Upon Senior Securities

6954

Item 4

Mine Safety Disclosures

6954

Item 5

Other Information

6954

Item 6

Exhibits

70-7755-59

Signatures

7860

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,

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

 

(Unaudited)

 

 

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities, available for sale, at fair value (amortized cost: $371,877
and $
41,953, respectively and allowance for credit losses: $0 and $0, respectively)

 

$

360,639

 

 

$

42,583

 

Equity securities, at fair value (cost: $36,639 and $46,276, respectively)

 

 

33,946

 

 

 

51,740

 

Fixed-maturity securities, available for sale, at fair value (amortized cost: $531,899
and $
494,197, respectively and allowance for credit losses: $0 and $0, respectively)

 

$

524,756

 

 

$

483,901

 

Equity securities, at fair value (cost: $38,575 and $36,272, respectively)

 

 

37,415

 

 

 

34,583

 

Limited partnership investments

 

 

25,405

 

 

 

28,133

 

 

 

24,520

 

 

 

25,702

 

Investment in unconsolidated joint venture, at equity

 

 

18

 

 

 

363

 

 

 

 

 

 

18

 

Real estate investments

 

 

71,500

 

 

 

73,896

 

 

 

43,562

 

 

 

71,388

 

Total investments

 

 

491,508

 

 

 

196,715

 

 

 

630,253

 

 

 

615,592

 

Cash and cash equivalents

 

 

355,699

 

 

 

628,943

 

 

 

302,025

 

 

 

234,863

 

Restricted cash

 

 

2,900

 

 

 

2,400

 

 

 

2,987

 

 

 

2,900

 

Accrued interest and dividends receivable

 

 

2,032

 

 

 

353

 

 

 

2,525

 

 

 

1,952

 

Income taxes receivable

 

 

8,134

 

 

 

4,084

 

 

 

707

 

 

 

2,807

 

Premiums receivable, net (allowance: $4,573 and $1,750, respectively)

 

 

51,762

 

 

 

68,157

 

Premiums receivable, net (allowance: $10,054 and $5,362, respectively)

 

 

44,966

 

 

 

34,998

 

Prepaid reinsurance premiums

 

 

104,539

 

 

 

26,355

 

 

 

27,063

 

 

 

66,627

 

Reinsurance recoverable, net of allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)

 

 

14,592

 

 

 

11,985

 

 

 

36,896

 

 

 

71,594

 

Unpaid losses and loss adjustment expenses (allowance: $451 and $90, respectively)

 

 

938,404

 

 

 

64,665

 

Unpaid losses and loss adjustment expenses (allowance: $453 and $454, respectively)

 

 

559,804

 

 

 

616,765

 

Deferred policy acquisition costs

 

 

48,258

 

 

 

57,695

 

 

 

46,632

 

 

 

45,522

 

Property and equipment, net

 

 

17,749

 

 

 

14,232

 

 

 

26,734

 

 

 

17,910

 

Right-of-use assets - operating leases

 

 

1,597

 

 

 

2,204

 

 

 

1,466

 

 

 

777

 

Intangible assets, net

 

 

13,651

 

 

 

10,636

 

 

 

7,686

 

 

 

10,578

 

Funds withheld for assumed business

 

 

67,313

 

 

 

73,716

 

 

 

45,274

 

 

 

48,772

 

Other assets

 

 

26,605

 

 

 

14,717

 

 

 

36,104

 

 

 

31,671

 

Total assets

 

$

2,144,743

 

 

$

1,176,857

 

 

$

1,771,122

 

 

$

1,803,328

 

(continued)

1


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – (Continued)

(Dollar amounts in thousands)

 

September 30,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

 

(Unaudited)

 

 

 

 

 

(Unaudited)

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

$

1,201,842

 

 

$

237,165

 

 

$

806,308

 

 

$

863,765

 

Unearned premiums

 

 

379,609

 

 

 

366,744

 

 

 

387,833

 

 

 

368,047

 

Advance premiums

 

 

28,672

 

 

 

13,771

 

 

 

25,834

 

 

 

18,587

 

Reinsurance payable on paid losses and loss adjustment expenses

 

 

3,046

 

 

 

4,017

 

 

 

7,043

 

 

 

8,606

 

Ceded reinsurance premiums payable

 

 

 

 

 

19,318

 

 

 

14,123

 

 

 

17,646

 

Accrued expenses

 

 

18,788

 

 

 

15,453

 

 

 

20,633

 

 

 

14,534

 

Reinsurance recovered in advance on unpaid losses

 

 

 

 

 

19,863

 

Deferred income taxes, net

 

 

1,705

 

 

 

11,739

 

 

 

3,160

 

 

 

1,704

 

Revolving credit facility

 

 

 

 

 

15,000

 

Long-term debt

 

 

211,667

 

 

 

45,504

 

 

 

196,158

 

 

 

211,687

 

Lease liabilities - operating leases

 

 

1,539

 

 

 

2,203

 

 

 

1,422

 

 

 

721

 

Other liabilities

 

 

33,453

 

 

 

31,485

 

 

 

35,886

 

 

 

23,361

 

Total liabilities

 

 

1,880,321

 

 

 

762,399

 

 

 

1,498,400

 

 

 

1,548,521

 

Commitments and contingencies (Note 20)

 

 

 

 

 

 

Redeemable noncontrolling interest (Note 17)

 

 

91,248

 

 

 

89,955

 

Commitments and contingencies (Note 21)

 

 

 

 

 

 

Redeemable noncontrolling interest (Note 18)

 

 

92,865

 

 

 

93,553

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock (no par value, 40,000,000 shares authorized, 8,926,845 and 10,131,399
shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)

 

 

 

 

 

 

Common stock (no par value, 40,000,000 shares authorized, 8,596,673 and 8,598,682
shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)

 

 

 

 

 

 

Additional paid-in capital

 

 

9,969

 

 

 

76,077

 

 

 

332

 

 

 

 

Retained income

 

 

175,056

 

 

 

246,790

 

 

 

185,028

 

 

 

172,482

 

Accumulated other comprehensive (loss) income, net of taxes

 

 

(10,795

)

 

 

498

 

Accumulated other comprehensive loss, net of taxes

 

 

(5,098

)

 

 

(9,886

)

Total stockholders’ equity

 

 

174,230

 

 

 

323,365

 

 

 

180,262

 

 

 

162,596

 

Noncontrolling interests

 

 

(1,056

)

 

 

1,138

 

 

 

(405

)

 

 

(1,342

)

Total equity

 

 

173,174

 

 

 

324,503

 

 

 

179,857

 

 

 

161,254

 

Total liabilities, redeemable noncontrolling interest and equity

 

$

2,144,743

 

 

$

1,176,857

 

 

$

1,771,122

 

 

$

1,803,328

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

2


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

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned

 

$

181,713

 

 

$

149,809

 

 

$

541,762

 

 

$

420,191

 

 

$

180,068

 

 

$

178,925

 

Premiums ceded

 

 

(74,741

)

 

 

(55,577

)

 

 

(184,108

)

 

 

(145,112

)

 

 

(70,509

)

 

 

(53,162

)

Net premiums earned

 

 

106,972

 

 

 

94,232

 

 

 

357,654

 

 

 

275,079

 

 

 

109,559

 

 

 

125,763

 

Net investment income

 

 

18,530

 

 

 

2,520

 

 

 

25,082

 

 

 

9,749

 

 

 

17,715

 

 

 

2,868

 

Net realized investment (losses) gains

 

 

(884

)

 

 

1,232

 

 

 

(1,204

)

 

 

4,952

 

Net unrealized investment losses

 

 

(347

)

 

 

(1,869

)

 

 

(8,157

)

 

 

(649

)

Net realized investment losses

 

 

(1,149

)

 

 

(314

)

Net unrealized investment gains (losses)

 

 

529

 

 

 

(3,576

)

Policy fee income

 

 

1,071

 

 

 

1,000

 

 

 

3,180

 

 

 

2,962

 

 

 

1,090

 

 

 

1,057

 

Other

 

 

1,312

 

 

 

2,102

 

 

 

3,065

 

 

 

3,502

 

 

 

1,285

 

 

 

1,242

 

Total revenue

 

 

126,654

 

 

 

99,217

 

 

 

379,620

 

 

 

295,595

 

 

 

129,029

 

 

 

127,040

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

139,794

 

 

 

62,664

 

 

 

299,328

 

 

 

164,332

 

 

 

60,565

 

 

 

72,704

 

Policy acquisition and other underwriting expenses

 

 

24,678

 

 

 

23,340

 

 

 

80,949

 

 

 

69,574

 

 

 

22,720

 

 

 

29,408

 

General and administrative personnel expenses

 

 

15,848

 

 

 

11,537

 

 

 

45,183

 

 

 

31,733

 

 

 

13,502

 

 

 

14,034

 

Interest expense

 

 

2,813

 

 

 

1,664

 

 

 

4,929

 

 

 

5,743

 

 

 

2,801

 

 

 

601

 

Debt conversion expense

 

 

 

 

 

1,273

 

 

 

 

 

 

1,273

 

Other operating expenses

 

 

7,123

 

 

 

5,243

 

 

 

20,392

 

 

 

14,245

 

 

 

6,305

 

 

 

6,292

 

Total expenses

 

 

190,256

 

 

 

105,721

 

 

 

450,781

 

 

 

286,900

 

 

 

105,893

 

 

 

123,039

 

(Loss) income before income taxes

 

 

(63,602

)

 

 

(6,504

)

 

 

(71,161

)

 

 

8,695

 

Income tax (benefit) expense

 

 

(12,099

)

 

 

(1,636

)

 

 

(13,907

)

 

 

2,888

 

Net (loss) income

 

 

(51,503

)

 

 

(4,868

)

 

 

(57,254

)

 

 

5,807

 

Net income attributable to redeemable noncontrolling
interest (Note 17)

 

 

(2,285

)

 

 

(2,202

)

 

 

(6,801

)

 

 

(5,175

)

Net loss attributable to noncontrolling interests

 

 

2,829

 

 

 

833

 

 

 

4,018

 

 

 

1,196

 

Net (loss) income after noncontrolling interests

 

$

(50,959

)

 

$

(6,237

)

 

$

(60,037

)

 

$

1,828

 

Basic (loss) earnings per share

 

$

(5.66

)

 

$

(0.72

)

 

$

(6.26

)

 

$

0.23

 

Diluted (loss) earnings per share

 

$

(5.66

)

 

$

(0.72

)

 

$

(6.26

)

 

$

0.22

 

Income before income taxes

 

 

23,136

 

 

 

4,001

 

Income tax expense

 

 

5,343

 

 

 

1,210

 

Net income

 

 

17,793

 

 

 

2,791

 

Net income attributable to redeemable noncontrolling
interest (Note 18)

 

 

(2,324

)

 

 

(2,248

)

Net (income) loss attributable to noncontrolling interests

 

 

(131

)

 

 

360

 

Net income after noncontrolling interests

 

$

15,338

 

 

$

903

 

Basic earnings per share

 

$

1.78

 

 

$

0.09

 

Diluted earnings per share

 

$

1.54

 

 

$

0.09

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

3


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net (loss) income

 

$

(51,503

)

 

$

(4,868

)

 

$

(57,254

)

 

$

5,807

 

Other comprehensive loss:

 

 

 

��

 

 

 

 

 

 

 

 

Change in unrealized loss on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses arising during the period

 

 

(5,969

)

 

 

(258

)

 

 

(12,294

)

 

 

(341

)

Call and repayment gains charged to investment income

 

 

 

 

 

 

 

 

 

 

 

(2

)

Reclassification adjustment for net realized losses (gains)

 

 

5

 

 

 

(88

)

 

 

426

 

 

 

(665

)

Net change in unrealized losses

 

 

(5,964

)

 

 

(346

)

 

 

(11,868

)

 

 

(1,008

)

Deferred income taxes on above change

 

 

(1,337

)

 

 

85

 

 

 

154

 

 

 

247

 

Total other comprehensive loss, net of income taxes

 

 

(7,301

)

 

 

(261

)

 

 

(11,714

)

 

 

(761

)

Comprehensive (loss) income

 

 

(58,804

)

 

 

(5,129

)

 

 

(68,968

)

 

 

5,046

 

Comprehensive loss attributable to noncontrolling interests

 

 

3,095

 

 

 

839

 

 

 

4,439

 

 

 

1,212

 

Comprehensive (loss) income after noncontrolling interests

 

$

(55,709

)

 

$

(4,290

)

 

$

(64,529

)

 

$

6,258

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Net income

 

$

17,793

 

 

$

2,791

 

Other comprehensive income (loss):

 

 

 

 

 

 

Change in unrealized gain (loss) on investments:

 

 

 

 

 

 

Net unrealized gains (losses) arising during the period

 

 

2,415

 

 

 

(4,151

)

Reclassification adjustment for net realized losses

 

 

738

 

 

 

429

 

Net change in unrealized gains (losses)

 

 

3,153

 

 

 

(3,722

)

Deferred income taxes on above change

 

 

1,810

 

 

 

938

 

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

 

 

4,963

 

 

 

(2,784

)

Comprehensive income

 

 

22,756

 

 

 

7

 

Comprehensive (income) loss attributable to noncontrolling interests

 

 

(306

)

 

 

461

 

Comprehensive income after noncontrolling interests

 

$

22,450

 

 

$

468

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

4


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity

For the Three Months Ended September 30, 2022March 31, 2023

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Loss,

 

 

Total
Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Loss,

 

 

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, 2022

 

 

9,047,972

 

 

$

 

 

$

12,887

 

 

$

229,621

 

 

$

(3,760

)

 

$

238,748

 

 

$

1,187

 

 

$

239,935

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(48,846

)

 

 

 

 

 

(48,846

)

 

 

(2,657

)

 

 

(51,503

)

Balance at December 31, 2022

 

 

8,598,682

 

 

$

 

 

$

 

 

$

172,482

 

 

$

(9,886

)

 

$

162,596

 

 

$

(1,342

)

 

$

161,254

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,488

 

 

 

 

 

 

17,488

 

 

 

305

 

 

 

17,793

 

Net income attributable to redeemable
noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(2,113

)

 

 

 

 

 

(2,113

)

 

 

(172

)

 

 

(2,285

)

 

 

 

 

 

 

 

 

 

 

 

(2,150

)

 

 

 

 

 

(2,150

)

 

 

(174

)

 

 

(2,324

)

Total other comprehensive loss, net of
income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,035

)

 

 

(7,035

)

 

 

(266

)

 

 

(7,301

)

Total other comprehensive income, net of
income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,788

 

 

 

4,788

 

 

 

175

 

 

 

4,963

 

Issuance of restricted stock

 

 

6,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock

 

 

(1,665

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,125

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase and retirement of common
stock under share repurchase plan

 

 

(119,462

)

 

 

 

 

 

(6,179

)

 

 

 

 

 

 

 

 

(6,179

)

 

 

 

 

 

(6,179

)

Repurchase and retirement of common
stock

 

 

(5,884

)

 

 

 

 

 

(305

)

 

 

 

 

 

 

 

 

(305

)

 

 

 

 

 

(305

)

Dilution from subsidiary stock-based
compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

852

 

 

 

852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

631

 

 

 

631

 

Common stock dividends ($0.40 per share)

 

 

 

 

 

 

 

 

 

 

 

(3,606

)

 

 

 

 

 

(3,606

)

 

 

 

 

 

(3,606

)

 

 

 

 

 

 

 

 

 

 

 

(3,432

)

 

 

 

 

 

(3,432

)

 

 

 

 

 

(3,432

)

Stock-based compensation

 

 

 

 

 

 

 

 

3,261

 

 

 

 

 

 

 

 

 

3,261

 

 

 

 

 

 

3,261

 

 

 

 

 

 

 

 

 

1,277

 

 

 

 

 

 

 

 

 

1,277

 

 

 

 

 

 

1,277

 

Balance at September 30, 2022

 

 

8,926,845

 

 

$

 

 

$

9,969

 

 

$

175,056

 

 

$

(10,795

)

 

$

174,230

 

 

$

(1,056

)

 

$

173,174

 

Additional paid-in capital shortfall
adjustment allocated to retained income

 

 

 

 

 

 

 

 

(640

)

 

 

640

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2023

 

 

8,596,673

 

 

$

 

 

$

332

 

 

$

185,028

 

 

$

(5,098

)

 

$

180,262

 

 

$

(405

)

 

$

179,857

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

5


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity – (Continued)

For the Three Months Ended September 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

 

 

 

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

)

Net income attributable to redeemable
    noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(1,891

)

 

 

 

 

 

(1,891

)

 

 

(311

)

 

 

(2,202

)

Total other comprehensive loss, net of
    income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(255

)

 

 

(255

)

 

 

(6

)

 

 

(261

)

Issuance of restricted stock

 

 

2,340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock

 

 

(38,855

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

472

 

 

 

472

 

Common stock dividends ($0.40 per share)

 

 

 

 

 

 

 

 

 

 

 

(3,261

)

 

 

 

 

 

(3,261

)

 

 

 

 

 

(3,261

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,260

 

 

 

 

 

 

 

 

 

2,260

 

 

 

 

 

 

2,260

 

Additional paid-in capital shortfall
    adjustment allocated to retained income

 

 

 

 

 

 

 

 

(44,694

)

 

 

44,694

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

 

9,591,079

 

 

$

 

 

$

39,905

 

 

$

250,808

 

 

$

799

 

 

$

291,512

 

 

$

1,016

 

 

$

292,528

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

6


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity – (Continued)

For the Nine Months Ended September 30,March 31, 2022

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Income (Loss),

 

 

Total
Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

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

 

 

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

 

 

 

10,131,399

 

 

$

 

 

$

76,077

 

 

$

246,790

 

 

$

498

 

 

$

323,365

 

 

$

1,138

 

 

$

324,503

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(53,753

)

 

 

 

 

 

(53,753

)

 

 

(3,501

)

 

 

(57,254

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

2,978

 

 

 

 

 

 

2,978

 

 

 

(187

)

 

 

2,791

 

Net income attributable to redeemable
noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(6,284

)

 

 

 

 

 

(6,284

)

 

 

(517

)

 

 

(6,801

)

 

 

 

 

 

 

 

 

 

 

 

(2,075

)

 

 

 

 

 

(2,075

)

 

 

(173

)

 

 

(2,248

)

Total other comprehensive loss, net of
income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,293

)

 

 

(11,293

)

 

 

(421

)

 

 

(11,714

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,683

)

 

 

(2,683

)

 

 

(101

)

 

 

(2,784

)

Issuance of restricted stock

 

 

7,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock

 

 

(5,630

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,265

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase and retirement of common
stock

 

 

(1,056,997

)

 

 

 

 

 

(68,103

)

 

 

 

 

 

 

 

 

(68,103

)

 

 

 

 

 

(68,103

)

 

 

(6,207

)

 

 

 

 

 

(398

)

 

 

 

 

 

 

 

 

(398

)

 

 

 

 

 

(398

)

Repurchase and retirement of common
stock under share repurchase plan

 

 

(148,927

)

 

 

 

 

 

(8,063

)

 

 

 

 

 

 

 

 

(8,063

)

 

 

 

 

 

(8,063

)

Dilution from subsidiary stock-based
compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,245

 

 

 

2,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

758

 

 

 

758

 

Common stock dividends ($1.20 per share)

 

 

 

 

 

 

 

 

 

 

 

(11,697

)

 

 

 

 

 

(11,697

)

 

 

 

 

 

(11,697

)

Common stock dividends ($0.40 per share)

 

 

 

 

 

 

 

 

 

 

 

(4,046

)

 

 

 

 

 

(4,046

)

 

 

 

 

 

(4,046

)

Stock-based compensation

 

 

 

 

 

 

 

 

10,058

 

 

 

 

 

 

 

 

 

10,058

 

 

 

 

 

 

10,058

 

 

 

 

 

 

 

 

 

3,452

 

 

 

 

 

 

 

 

 

3,452

 

 

 

 

 

 

3,452

 

Balance at September 30, 2022

 

 

8,926,845

 

 

$

 

 

$

9,969

 

 

$

175,056

 

 

$

(10,795

)

 

$

174,230

 

 

$

(1,056

)

 

$

173,174

 

Balance at March 31, 2022

 

 

10,125,927

 

 

$

 

 

$

79,131

 

 

$

243,647

 

 

$

(2,185

)

 

$

320,593

 

 

$

1,435

 

 

$

322,028

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

76


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity – (Continued)

For the Nine Months Ended September 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

 

 

 

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

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

6,692

 

 

 

 

 

 

6,692

 

 

 

(885

)

 

 

5,807

 

Net income attributable to redeemable
    noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(4,864

)

 

 

 

 

 

(4,864

)

 

 

(311

)

 

 

(5,175

)

Cumulative effect of change in
    accounting principle

 

 

 

 

 

 

 

 

 

 

 

(3,018

)

 

 

 

 

 

(3,018

)

 

 

 

 

 

(3,018

)

Total other comprehensive loss, net of
    income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(745

)

 

 

(745

)

 

 

(16

)

 

 

(761

)

Issuance of restricted stock

 

 

553,426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock

 

 

(49,965

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of restricted stock

 

 

(142,760

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase and retirement of common
    stock

 

 

(17,193

)

 

 

 

 

 

(1,308

)

 

 

 

 

 

 

 

 

(1,308

)

 

 

 

 

 

(1,308

)

Issuance of common stock

 

 

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

 

Issuance of warrants, net of issuance
    costs (Note 17)

 

 

 

 

 

 

 

 

8,640

 

 

 

 

 

 

 

 

 

8,640

 

 

 

 

 

 

8,640

 

Common stock dividends ($1.20 per share)

 

 

 

 

 

 

 

 

 

 

 

(9,713

)

 

 

 

 

 

(9,713

)

 

 

 

 

 

(9,713

)

Stock-based compensation

 

 

 

 

 

 

 

 

6,943

 

 

 

 

 

 

 

 

 

6,943

 

 

 

 

 

 

6,943

 

Additional paid-in capital shortfall
    adjustment allocated to retained income

 

 

 

 

 

 

 

 

(62,119

)

 

 

62,119

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

 

9,591,079

 

 

$

 

 

$

39,905

 

 

$

250,808

 

 

$

799

 

 

$

291,512

 

 

$

1,016

 

 

$

292,528

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

8


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income after noncontrolling interests

 

$

(60,037

)

 

$

1,828

 

Net income after noncontrolling interests

 

$

15,338

 

 

$

903

 

Net income attributable to noncontrolling interests

 

 

2,783

 

 

 

3,979

 

 

 

2,455

 

 

 

1,888

 

Net (loss) income

 

 

(57,254

)

 

 

5,807

 

Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:

 

 

 

 

 

 

Net income

 

 

17,793

 

 

 

2,791

 

Adjustments to reconcile net income to net cash provided by operating
activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

12,709

 

 

 

9,229

 

 

 

2,106

 

 

 

4,337

 

Net (accretion of discount) amortization of premiums on investments in
fixed-maturity securities

 

 

(922

)

 

 

180

 

Net accretion of discount on investments in fixed-maturity
securities

 

 

(1,845

)

 

 

(3

)

Depreciation and amortization

 

 

5,659

 

 

 

4,276

 

 

 

2,230

 

 

 

1,516

 

Deferred income tax benefit

 

 

(9,880

)

 

 

(6,989

)

Net realized investment losses (gains)

 

 

1,204

 

 

 

(4,952

)

Net unrealized investment losses

 

 

8,157

 

 

 

649

 

Deferred income tax expense (benefit)

 

 

3,266

 

 

 

(5,967

)

Net realized investment losses

 

 

1,149

 

 

 

314

 

Net unrealized investment (gains) losses

 

 

(529

)

 

 

3,576

 

Credit loss expense - reinsurance recoverable

 

 

361

 

 

 

(41

)

 

 

(1

)

 

 

(11

)

Net income from unconsolidated joint venture

 

 

(495

)

 

 

(423

)

Distributions received from unconsolidated joint venture

 

 

489

 

 

 

114

 

Loss from unconsolidated joint venture

 

 

 

 

 

13

 

Net income from limited partnership interests

 

 

(3,064

)

 

 

(3,491

)

 

 

(553

)

 

 

(1,780

)

Distributions received from limited partnership interests

 

 

2,417

 

 

 

2,345

 

 

 

303

 

 

 

811

 

Debt conversion expense

 

 

 

 

 

1,273

 

Gain on involuntary conversion

 

 

(13,402

)

 

 

 

Gain on sale of real estate investments

 

 

(376

)

 

 

 

Loss on extinguishment of debt

 

 

177

 

 

 

 

Gain on sales of real estate investments

 

 

(8,936

)

 

 

 

Foreign currency remeasurement loss

 

 

91

 

 

 

48

 

 

 

1

 

 

 

19

 

Other non-cash items

 

 

(38

)

 

 

37

 

 

 

71

 

 

 

11

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accrued interest and dividends receivable

 

 

(1,679

)

 

 

125

 

 

 

(573

)

 

 

(321

)

Income taxes

 

 

(4,050

)

 

 

8,128

 

 

 

2,100

 

 

 

7,145

 

Premiums receivable, net

 

 

16,395

 

 

 

25,304

 

 

 

(9,968

)

 

 

28,267

 

Prepaid reinsurance premiums

 

 

(78,184

)

 

 

(11,592

)

 

 

39,564

 

 

 

14,794

 

Reinsurance recoverable

 

 

(876,707

)

 

 

36,061

 

 

 

91,660

 

 

 

7,065

 

Deferred policy acquisition costs

 

 

9,437

 

 

 

(3,271

)

 

 

(1,110

)

 

 

4,025

 

Funds withheld for assumed business

 

 

6,403

 

 

 

(79,965

)

 

 

3,498

 

 

 

(10,352

)

Other assets

 

 

(11,317

)

 

 

5,727

 

 

 

(5,590

)

 

 

(3,102

)

Losses and loss adjustment expenses

 

 

964,677

 

 

 

(8,992

)

 

 

(57,457

)

 

 

(2,373

)

Unearned premiums

 

 

12,865

 

 

 

64,900

 

 

 

19,786

 

 

 

(1,632

)

Advance premiums

 

 

14,901

 

 

 

7,692

 

 

 

7,247

 

 

 

10,127

 

Assumed reinsurance balances payable

 

 

 

 

 

1

 

Reinsurance payable on paid losses and loss adjustment expenses

 

 

(971

)

 

 

4,727

 

 

 

(1,563

)

 

 

2,640

 

Reinsurance recovered in advance on unpaid losses

 

 

(19,863

)

 

 

 

Ceded reinsurance premiums payable

 

 

(19,318

)

 

 

(7,447

)

 

 

(3,523

)

 

 

1,581

 

Accrued expenses and other liabilities

 

 

3,631

 

 

 

(789

)

 

 

19,669

 

 

 

(6,142

)

Net cash (used in) provided by operating activities

 

 

(18,261

)

 

 

48,671

 

Net cash provided by operating activities

 

 

99,109

 

 

 

57,349

 

(continued)

97


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows – (Continued)

(Unaudited)

(Amounts in thousands)

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Investments in limited partnership interests

 

 

(1,357

)

 

 

(837

)

 

 

(170

)

 

 

 

Return of excess investments in limited partnership interests

 

 

 

 

 

151

 

Distributions received from limited partnership interests

 

 

4,732

 

 

 

3,635

 

 

 

1,602

 

 

 

785

 

Distributions received from unconsolidated joint venture

 

 

351

 

 

 

623

 

Distribution received from unconsolidated joint venture

 

 

18

 

 

 

 

Purchase of property and equipment

 

 

(5,431

)

 

 

(2,583

)

 

 

(1,469

)

 

 

(1,861

)

Purchase of real estate investments

 

 

(445

)

 

 

(657

)

 

 

(175

)

 

 

 

Purchase of intangible assets

 

 

(3,800

)

 

 

 

 

 

 

 

 

(3,800

)

Purchase of fixed-maturity securities

 

 

(393,145

)

 

 

(10,504

)

 

 

(160,152

)

 

 

(122,557

)

Purchase of equity securities

 

 

(20,921

)

 

 

(72,707

)

 

 

(6,472

)

 

 

(11,486

)

Purchase of short-term and other investments

 

 

(32

)

 

 

(1,161

)

 

 

(10

)

 

 

 

Compensation received for property relinquished through eminent domain

 

 

14,500

 

 

 

 

Proceeds from sales of real estate investments

 

 

667

 

 

 

 

 

 

21,746

 

 

 

 

Proceeds from sales of fixed-maturity securities

 

 

11,694

 

 

 

18,838

 

 

 

11,060

 

 

 

9,058

 

Proceeds from calls, repayments and maturities of fixed-maturity securities

 

 

52,023

 

 

 

16,734

 

 

 

112,497

 

 

 

1,250

 

Proceeds from sales of equity securities

 

 

29,316

 

 

 

81,292

 

 

 

3,754

 

 

 

18,369

 

Proceeds from sales, redemptions and maturities of short-term and other investments

 

 

496

 

 

 

2,414

 

 

 

14

 

 

 

192

 

Net cash (used in) provided by investing activities

 

 

(311,352

)

 

 

35,087

 

Net cash used in investing activities

 

 

(17,757

)

 

 

(109,899

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid

 

 

(11,774

)

 

 

(9,943

)

 

 

(3,432

)

 

 

(4,123

)

Cash dividends received under share repurchase forward contract

 

 

77

 

 

 

230

 

 

 

 

 

 

77

 

Net repayment under revolving credit facility

 

 

(15,000

)

 

 

(23,750

)

Proceeds from issuance of redeemable noncontrolling interest and warrants

 

 

 

 

 

100,000

 

Issuance costs - redeemable noncontrolling interest

 

 

 

 

 

(6,262

)

Cash dividends paid to redeemable noncontrolling interest

 

 

(5,508

)

 

 

(2,542

)

 

 

(3,012

)

 

 

(2,508

)

Proceeds from issuance of long-term debt

 

 

172,500

 

 

 

 

Repayment of long-term debt

 

 

(754

)

 

 

(724

)

 

 

(258

)

 

 

(249

)

Redemption of long-term debt

 

 

(6,895

)

 

 

 

Repurchases of common stock

 

 

(68,103

)

 

 

(1,308

)

 

 

(305

)

 

 

(398

)

Repurchases of common stock under share repurchase plan

 

 

(8,063

)

 

 

 

Purchase of noncontrolling interests

 

 

(406

)

 

 

(58

)

 

 

(198

)

 

 

(127

)

Debt conversion expense paid

 

 

 

 

 

(1,414

)

Debt issuance costs

 

 

(6,014

)

 

 

(152

)

Net cash provided by financing activities

 

 

56,955

 

 

 

54,077

 

Net cash used in financing activities

 

 

(14,100

)

 

 

(7,328

)

Effect of exchange rate changes on cash

 

 

(86

)

 

 

(42

)

 

 

(3

)

 

 

(25

)

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

 

(272,744

)

 

 

137,793

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

67,249

 

 

 

(59,903

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

631,343

 

 

 

433,741

 

 

 

237,763

 

 

 

631,343

 

Cash, cash equivalents, and restricted cash at end of period

 

$

358,599

 

 

$

571,534

 

 

$

305,012

 

 

$

571,440

 

(continued)

108


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows – (Continued)

(Unaudited)

(Amounts in thousands)

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

100

 

 

$

1,748

 

 

$

35

 

 

$

32

 

Cash paid for interest

 

$

1,665

 

 

$

6,686

 

 

$

739

 

 

$

727

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments in available-for-sale securities, net of tax

 

$

(11,714

)

 

$

(761

)

Receivable from maturities of fixed-maturity securities

 

$

 

 

$

18

 

Common stock issued on conversions of 4.25% senior notes

 

$

 

 

$

82,339

 

Warrants issued in Centerbridge transaction

 

$

 

 

$

9,217

 

Asset acquired under finance lease

 

$

 

 

$

7

 

Unrealized gain (loss) on investments in available-for-sale securities, net of tax

 

$

4,963

 

 

$

(2,784

)

Sale of real estate investments:

 

 

 

 

 

 

Contingent consideration receivable

 

$

125

 

 

$

 

Long-term debt obligations assumed by the buyer

 

$

8,995

 

 

$

 

Acquisition of intangibles:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued

 

$

 

 

$

5,410

 

Contingent consideration payable

 

$

1,069

 

 

$

2,419

 

 

$

 

 

$

1,069

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

119


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 other states. The operations of botheach insurance subsidiariessubsidiary are supported by HCI Group, Inc. and certain HCI subsidiaries. The operations of TypTap are also supported by TypTap Insurance Group, Inc. (“TTIG”), the Company’s majority-owned subsidiary, and certain TTIG subsidiaries. The Company emphasizes the use of internally developed technologies to collect and analyze claims and other supplemental data to assist in the underwriting process and generate savings andas well as efficiency for the operations of the insurance subsidiaries. In addition, Greenleaf Capital, LLC, the Company’s real estate subsidiary, is primarily engaged in the business of owning and leasing real estate and operating marina facilities.

Impact of Hurricane Ian

On September 28, 2022, Hurricane Ian made landfall in southwestern Florida as a dangerous, high-end Category 4 storm. After crossing the Florida peninsula, it made a second landfall on September 30, 2022 in coastal South Carolina. On a pre-tax consolidated basis, estimated gross losses related to Hurricane Ian totaled $970,000. After anticipated reinsurance recoveries, the Company incurred a net estimated loss of approximately $65,000. Gross loss estimates, including loss adjustment expenses, for HCPCI and TypTap were $550,518 and $419,482, respectively.

As a result of Hurricane Ian, the balance of previously accrued benefits under one multi-year reinsurance contract with retrospective provisions was decreased by $12,600 during the third quarter of 2022. In addition, the Company recognized an allowance for credit losses of approximately $399 related to Hurricane Ian’s unpaid ceded reinsurance recoverable.

On September 28, 2022, the Florida Office of Insurance Regulation issued an emergency order in response to Hurricane Ian preventing insurers regulated under the Florida Insurance Code from cancelling or non-renewing a policy as well as issuing a notice of cancellation or nonrenewal of a policy between September 28, 2022 and November 28, 2022, except at the written request of the policyholder. This rule does not apply to new policies effective on or after September 28, 2022.

Assumed Business

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”), in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island (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 85% quota share reinsurance on all of United’s personal lines insurance business in the states of Georgia, North Carolina, and South Carolina (collectively “Southeast Region”) from December 31, 2021 through May 31, 2022.

12


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Under this agreement, HCPCI paid United a catastrophe allowance of 9% of premium and a provisional ceding commission of 25% of premium.

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 has the right to renew and/or replace United’s insurance policies at the end of their respective policy periods. The ability to replace policies is subject to regulatory approvals in the three states. The policy replacement date was set for June 1, 2022 or such other date as mutually agreed by both parties. In connection with the transaction, United agreed to not compete with the Company for the issuance of personal lines homeowners business in these three states until July 1, 2025. As part of the transaction, United will receive a renewal rights ceding commission of 6%, with a portion of the ceding commission paid up-front, and the aggregate ceding commission amount will not exceed $6,000. See Note 7 -- “Intangible Assets, Net” for additional information.

The Company began renewing United’s policies in South Carolina on June 1, 2022. The policy replacement date for North Carolina policies has yet to be determined and the Company, through TypTap, entered into a new quota share reinsurance agreement in June 2022 to provide 100% reinsurance on all of United’s in-force, new and renewal policies in the Southeast Region from June 1, 2022 through May 31, 2023. In exchange, TypTap pays United a ceding commission of 16% of premium. See Note 21 -- “Subsequent Events” for additional information.

13


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 forof 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 30, 2022March 31, 2023 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, 2022.2023. 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, 20212022 included in the Company’s Form 10-K, which was filed with the SEC on March 10, 2022.2023.

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, intangible assets acquired from United,allowance for credit losses, 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.

Allowance for Credit Losses

Allowance for credit losses represents an estimation of potential losses that the Company may experience due to credit risk. The allowance for credit losses account is a contra account of a financial asset to reflect the net amount expected to be collected. For certain financial assets related to insurance business such as reinsurance recoverable and reinsurance receivable for premium refund, the Company uses a rating-based method, which is a modified version of the probability of default method. It requires two key inputs: a) the liquidation rate and b) the amount of loss exposure. The liquidation rate, which is published annually, is the ratio of impaired insurance companies that were eventually liquidated to the group of insurance companies considered by A.M. Best in its study. The amount of loss exposure represents the future billing balance, net of any collateral, spread over the projected periods that are based on the Company’s historical claim payment pattern. The rating-based method measures credit losses by multiplying the future billings grouped by insurance rating over the projected periods by their corresponding liquidation rates by insurance rating.

For paid reinsurance recoverable which is due within 90 days after billing, the Company will rely heavily on each reinsurer’s current rating, recent financial condition, and historical collection problems, if any, in

1410


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

determiningIn the expected credit loss. For risk attributablecase of assumed business, the Company relies entirely on the ceding insurance company to disagreements between an insurerprovide information about premiums, losses, and reinsurer regarding a difference in interpretation of provisions in a reinsurance agreement (“dispute risk”),loss adjustment expenses. When the information is not available at the reporting date, the Company will continue to use an incurred loss method to estimate losses. At September 30, 2022, there was no dispute risk associated withmake estimates based on all recent available data. Accordingly, the reinsurance recoverable balance.

Long-Term Debtactual results could differ significantly from those estimates.

Long-term debt includes debt instrumentsAll significant intercompany balances and 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 feature is considered to be non-substantive and would not impact the initial measurement and expected life of the debt instrument.transactions have been eliminated.

Revenue from Claims Processing Services

Revenue related to claims processing services is included in other revenue in the consolidated statements of income. For the three and nine months ended September 30,March 31, 2023 and 2022, revenues from claims processing services were $903527 and $2,2821,007, respectively. For the three and nine months ended September 30, 2021, revenues from claims processing services were $1,709 and $1,916, respectively. At September 30, 2022 and December 31, 2021, other assets included $1,418 and $314, respectively, of amounts receivable attributable to this service.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation. Ceded reinsurance premiums payable were reclassified out of other liabilities for the nine months ended September 30, 2021 within the consolidated statement of cash flows to conform with the current year presentation.

Note 3 -- Recent Accounting Pronouncements

Accounting Standards Update No. 2023-01. In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-01 (“ASU 2023-01”) Leases (Topic 842). For public entities, this update amends the required amortization period for leasehold improvements associated with common control leases to be over the useful life of the leasehold improvements to the common control group, regardless of the lease term, as long as the lessee controls the use of the asset through a lease. In addition, if the lessor is sub-leasing the asset while simultaneously leasing the asset from an entity not within the same common control group, the amortization period may not exceed the amortization period of the common control group. Once the lessee no longer controls the use of the asset, the asset will be accounted for as a transfer between entities under common control through an adjustment to equity. ASU 2023-01 is effective for the Company beginning with the first quarter of 2024. The Company is evaluating the impact of this update on its financial position.

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,

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Cash and cash equivalents

 

$

355,699

 

 

$

628,943

 

 

$

302,025

 

 

$

234,863

 

Restricted cash

 

 

2,900

 

 

 

2,400

 

 

 

2,987

 

 

 

2,900

 

Total

 

$

358,599

 

 

$

631,343

 

 

$

305,012

 

 

$

237,763

 

Restricted cash represents funds in the Company’s sole ownership primarily held by certain states to meet regulatory requirements in which the Company’s insurance subsidiaries conduct business to meet regulatory 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 and are included in funds withheld for assumed business on the consolidated balance sheets.

In connection with the sale of the retail shopping center investment property in Melbourne, Florida to a non-affiliate as described in Note 5 -- “Investments” under Real Estate Investments, $87 of restricted cash was deposited in escrow in March 2023 with its release contingent on certain post-sale conditions being met.

1511


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 45 -- 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, 2022March 31, 2023 and December 31, 2021,2022, 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 or
Amortized

 

 

Allowance
for Credit

 

 

Gross
Unrealized

 

 

Gross
Unrealized

 

 

Estimated
Fair

 

 

Cost

 

 

Loss

 

 

Gain

 

 

Loss

 

 

Value

 

 

Cost

 

 

Loss

 

 

Gain

 

 

Loss

 

 

Value

 

As of September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

501,700

 

 

$

 

 

$

421

 

 

$

(6,495

)

 

$

495,626

 

Corporate bonds

 

 

28,312

 

 

 

 

 

 

39

 

 

 

(1,094

)

 

 

27,257

 

States, municipalities, and political subdivisions

 

 

1,393

 

 

 

 

 

 

1

 

 

 

(3

)

 

 

1,391

 

Exchange-traded debt

 

 

494

 

 

 

 

 

 

 

 

 

(12

)

 

 

482

 

Total

 

$

531,899

 

 

$

 

 

$

461

 

 

$

(7,604

)

 

$

524,756

 

As of December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

339,666

 

 

$

 

 

$

1

 

 

$

(9,814

)

 

$

329,853

 

 

$

463,648

 

 

$

 

 

$

59

 

 

$

(9,105

)

 

$

454,602

 

Corporate bonds

 

 

29,642

 

 

 

 

 

 

 

 

 

(1,410

)

 

 

28,232

 

 

 

28,378

 

 

 

 

 

 

20

 

 

 

(1,205

)

 

 

27,193

 

States, municipalities, and political subdivisions

 

 

1,762

 

 

 

 

 

 

 

 

 

(11

)

 

 

1,751

 

 

 

1,389

 

 

 

 

 

 

 

 

 

(6

)

 

 

1,383

 

Exchange-traded debt

 

 

700

 

 

 

 

 

 

3

 

 

 

(2

)

 

 

701

 

 

 

683

 

 

 

 

 

 

2

 

 

 

(52

)

 

 

633

 

Redeemable preferred stock

 

 

107

 

 

 

 

 

 

 

 

 

(5

)

 

 

102

 

 

 

99

 

 

 

 

 

 

 

 

 

(9

)

 

 

90

 

Total

 

$

371,877

 

 

$

 

 

$

4

 

 

$

(11,242

)

 

$

360,639

 

 

$

494,197

 

 

$

 

 

$

81

 

 

$

(10,377

)

 

$

483,901

 

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

 

 

 

 

 

 

 

 

 

(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 September 30, 2022March 31, 2023 and December 31, 20212022 are as follows:

 

September 30, 2022

 

 

December 31, 2021

 

 

March 31, 2023

 

 

December 31, 2022

 

 

Cost or

 

 

Estimated

 

 

Cost or

 

 

Estimated

 

 

Cost or

 

 

Estimated

 

 

Cost or

 

 

Estimated

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

124,676

 

 

$

124,402

 

 

$

10,734

 

 

$

10,826

 

 

$

357,645

 

 

$

355,922

 

 

$

266,170

 

 

$

265,353

 

Due after one year through five years

 

 

242,499

 

 

 

232,166

 

 

 

19,222

 

 

 

19,820

 

 

 

170,850

 

 

 

165,769

 

 

 

223,153

 

 

 

214,307

 

Due after five years through ten years

 

 

4,208

 

 

 

3,577

 

 

 

11,503

 

 

 

11,403

 

 

 

2,910

 

 

 

2,583

 

 

 

4,380

 

 

 

3,797

 

Due after ten years

 

 

494

 

 

 

494

 

 

 

494

 

 

 

534

 

 

 

494

 

 

 

482

 

 

 

494

 

 

 

444

 

 

$

371,877

 

 

$

360,639

 

 

$

41,953

 

 

$

42,583

 

 

$

531,899

 

 

$

524,756

 

 

$

494,197

 

 

$

483,901

 

16Sales 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 months ended March 31, 2023 and 2022 were as follows:

 

 

 

 

 

Gross
Realized

 

 

Gross
Realized

 

 

 

Proceeds

 

 

Gains

 

 

Losses

 

Three months ended March 31, 2023

 

$

11,060

 

 

$

 

 

$

(738

)

Three months ended March 31, 2022

 

$

9,058

 

 

$

2

 

 

$

(431

)

12


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 nine months ended September 30, 2022 and 2021 were as follows:

 

 

 

 

 

Gross
Realized

 

 

Gross
Realized

 

 

 

Proceeds

 

 

Gains

 

 

Losses

 

Three months ended September 30, 2022

 

$

200

 

 

$

 

 

$

(5

)

Three months ended September 30, 2021

 

$

4,158

 

 

$

94

 

 

$

(6

)

Nine months ended September 30, 2022

 

$

11,694

 

 

$

13

 

 

$

(439

)

Nine months ended September 30, 2021

 

$

18,838

 

 

$

671

 

 

$

(6

)

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

Securities with gross unrealized loss positions at September 30, 2022March 31, 2023 and December 31, 2021,2022, 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

 

 

Less Than Twelve Months

 

 

Twelve Months or Longer

 

 

Total

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

As of September 30, 2022

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

As of March 31, 2023

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

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

 

$

(9,677

)

 

$

324,643

 

 

$

(137

)

 

$

2,233

 

 

$

(9,814

)

 

$

326,876

 

 

$

(1,993

)

 

$

123,661

 

 

$

(4,502

)

 

$

115,681

 

 

$

(6,495

)

 

$

239,342

 

Corporate bonds

 

 

(1,164

)

 

 

26,947

 

 

 

(246

)

 

 

1,285

 

 

 

(1,410

)

 

 

28,232

 

 

 

(774

)

 

 

19,228

 

 

 

(320

)

 

 

4,146

 

 

 

(1,094

)

 

 

23,374

 

States, municipalities, and political
subdivisions

 

 

(11

)

 

 

1,751

 

 

 

 

 

 

 

 

 

(11

)

 

 

1,751

 

 

 

(3

)

 

 

897

 

 

 

 

 

 

 

 

 

(3

)

 

 

897

 

Exchange-traded debt

 

 

(2

)

 

 

517

 

 

 

 

 

 

 

 

 

(2

)

 

 

517

 

 

 

(12

)

 

 

482

 

 

 

 

 

 

 

 

 

(12

)

 

 

482

 

Redeemable preferred stock

 

 

(5

)

 

 

102

 

 

 

 

 

 

 

 

 

(5

)

 

 

102

 

Total available-for-sale securities

 

$

(10,859

)

 

$

353,960

 

 

$

(383

)

 

$

3,518

 

 

$

(11,242

)

 

$

357,478

 

 

$

(2,782

)

 

$

144,268

 

 

$

(4,822

)

 

$

119,827

 

 

$

(7,604

)

 

$

264,095

 

 

Less Than Twelve Months

 

 

Twelve Months or Longer

 

 

Total

 

 

Less Than Twelve Months

 

 

Twelve Months or Longer

 

 

Total

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

As of December 31, 2021

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

As of December 31, 2022

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

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

 

$

(73

)

 

$

9,809

 

 

$

(13

)

 

$

616

 

 

$

(86

)

 

$

10,425

 

 

$

(8,701

)

 

$

269,116

 

 

$

(404

)

 

$

4,644

 

 

$

(9,105

)

 

$

273,760

 

Corporate bonds

 

 

(53

)

 

 

4,452

 

 

 

 

 

 

 

 

 

(53

)

 

 

4,452

 

 

 

(909

)

 

 

23,028

 

 

 

(296

)

 

 

2,541

 

 

 

(1,205

)

 

 

25,569

 

States, municipalities, and political
subdivisions

 

 

(6

)

 

 

1,383

 

 

 

 

 

 

 

 

 

(6

)

 

 

1,383

 

Exchange-traded debt

 

 

(52

)

 

 

463

 

 

 

 

 

 

 

 

 

(52

)

 

 

463

 

Redeemable preferred stock

 

 

(20

)

 

 

442

 

 

 

 

 

 

 

 

 

(20

)

 

 

442

 

 

 

(9

)

 

 

90

 

 

 

 

 

 

 

 

 

(9

)

 

 

90

 

Total available-for-sale securities

 

$

(146

)

 

$

14,703

 

 

$

(13

)

 

$

616

 

 

$

(159

)

 

$

15,319

 

 

$

(9,677

)

 

$

294,080

 

 

$

(700

)

 

$

7,185

 

 

$

(10,377

)

 

$

301,265

 

At September 30, 2022March 31, 2023 and December 31, 2021,2022, there were 8873 and 2384 securities, respectively, in an unrealized loss position.

17


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.

There was

The table below summarizes theno balance or activity in the allowance for credit losses of available-for-sale fixed-maturity securities forduring the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022.

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

Balance at January 1

 

$

 

 

$

588

 

Reductions for securities sold

 

 

 

 

 

(9

)

Balance at March 31

 

$

 

 

$

579

 

Reductions for securities exchanged

 

 

 

 

 

(579

)

Balance at June 30

 

$

 

 

$

 

Balance at September 30

 

$

 

 

$

 

b) Equity Securities

The Company holds investments in equity securities measured at fair values which are readily determinable. At September 30, 2022 and December 31, 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, 2022

 

$

36,639

 

 

$

1,873

 

 

$

(4,566

)

 

$

33,946

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net (losses) gains recognized

 

$

(1,279

)

 

$

(916

)

 

$

(9,144

)

 

$

2,620

 

Exclude: Net realized (losses) gains
    recognized for securities sold

 

 

(932

)

 

 

953

 

 

 

(987

)

 

 

3,269

 

Net unrealized losses recognized

 

$

(347

)

 

$

(1,869

)

 

$

(8,157

)

 

$

(649

)

1813


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

b) Equity Securities

The Company holds investments in equity securities measured at fair values which are readily determinable. At March 31, 2023 and December 31, 2022, 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

 

March 31, 2023

 

$

38,575

 

 

$

2,399

 

 

$

(3,559

)

 

$

37,415

 

December 31, 2022

 

$

36,272

 

 

$

2,078

 

 

$

(3,767

)

 

$

34,583

 

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

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Net gains (losses) recognized

 

$

114

 

 

$

(3,542

)

Exclude: Net realized (losses) gains recognized for
    securities sold

 

 

(415

)

 

 

34

 

Net unrealized gains (losses) recognized

 

$

529

 

 

$

(3,576

)

Sales of Equity Securities

Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 were as follows:

 

 

 

 

 

Gross
Realized

 

 

Gross
Realized

 

 

 

Proceeds

 

 

Gains

 

 

Losses

 

Three months ended September 30, 2022

 

$

4,889

 

 

$

135

 

 

$

(1,067

)

Three months ended September 30, 2021

 

$

24,781

 

 

$

1,141

 

 

$

(188

)

Nine months ended September 30, 2022

 

$

29,316

 

 

$

1,988

 

 

$

(2,975

)

Nine months ended September 30, 2021

 

$

81,292

 

 

$

4,266

 

 

$

(997

)

 

 

 

 

 

Gross
Realized

 

 

Gross
Realized

 

 

 

Proceeds

 

 

Gains

 

 

Losses

 

Three months ended March 31, 2023

 

$

3,754

 

 

$

17

 

 

$

(432

)

Three months ended March 31, 2022

 

$

18,369

 

 

$

1,420

 

 

$

(1,386

)

14


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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, 2022

 

 

December 31, 2021

 

 

March 31, 2023

 

 

December 31, 2022

 

 

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)

 

$

4,120

 

 

$

 

 

 

15.37

 

 

$

6,076

 

 

$

2,085

 

 

 

15.37

 

 

$

4,062

 

 

$

 

 

 

15.37

 

 

$

4,146

 

 

$

 

 

 

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)

 

 

3,312

 

 

 

 

 

 

1.67

 

 

 

3,423

 

 

 

 

 

 

1.69

 

 

 

2,326

 

 

 

 

 

 

1.27

 

 

 

2,528

 

 

 

 

 

 

1.66

 

High returns and long-term capital appreciation
through investments in the power, utility and
energy industries, and in the infrastructure
sector. (b)(f)(g)

 

 

4,421

 

 

 

 

 

 

0.18

 

 

 

6,270

 

 

 

1,401

 

 

 

0.18

 

 

 

4,477

 

 

 

 

 

 

0.18

 

 

 

5,319

 

 

 

 

 

 

0.18

 

Value-oriented investments in less liquid and
mispriced senior and junior debts of private
equity-backed companies. (b)(h)(i)

 

 

3,757

 

 

 

 

 

 

0.57

 

 

 

4,437

 

 

 

 

 

 

0.57

 

 

 

3,258

 

 

 

 

 

 

0.56

 

 

 

3,470

 

 

 

 

 

 

0.56

 

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

 

 

7,103

 

 

 

3,633

 

 

 

1.32

 

 

 

5,977

 

 

 

4,537

 

 

 

1.36

 

 

 

7,581

 

 

 

2,982

 

 

 

1.32

 

 

 

7,457

 

 

 

3,125

 

 

 

1.32

 

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

 

 

2,692

 

 

 

2,629

 

 

 

1.07

 

 

 

1,950

 

 

 

3,050

 

 

 

0.47

 

 

 

2,816

 

 

 

2,519

 

 

 

0.85

 

 

 

2,782

 

 

 

2,536

 

 

 

0.98

 

Total

 

$

25,405

 

 

$

6,262

 

 

 

 

 

$

28,133

 

 

$

11,073

 

 

 

 

 

$

24,520

 

 

$

5,501

 

 

 

 

 

$

25,702

 

 

$

5,661

 

 

 

 

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

19


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

(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)
The term is expected to be the later of ten years or two years following the maturity of the fund’s outstanding leverage. Although the capital commitment period has expired, follow-on investments and pending commitments may require additional fundings.
(d)
The term has been extended for a second additional one-year period to June 30, 2023. Although the capital commitment period has ended, the general partner could still request an additional funding 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 an 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.

15


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

(i)
The capital commitment period has ended but an additional funding may be requested.
(j)
The term is expected to end November 27, 2027. The term may be extended for up to four 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

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Operating results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income

 

$

208,468

 

 

$

(13,796

)

 

$

724,413

 

 

$

359,885

 

 

$

182,360

 

 

$

336,828

 

Total expenses

 

 

(45,537

)

 

 

(24,828

)

 

 

(117,877

)

 

 

(105,548

)

 

 

(2,257

)

 

 

(49,317

)

Net income (loss)

 

$

162,931

 

 

$

(38,624

)

 

$

606,536

 

 

$

254,337

 

Net income

 

$

180,103

 

 

$

287,511

 

 

September 30,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Balance sheet:

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

5,488,857

 

 

$

5,855,616

 

 

$

5,228,330

 

 

$

5,119,695

 

Total liabilities

 

$

409,604

 

 

$

564,732

 

 

$

397,463

 

 

$

430,354

 

For the three and nine months ended September 30,March 31, 2023 and 2022, the Company recognized net investment income from limited partnerships of $1,265553 and $3,0641,780, respectively. Included in net investment income for the three months ended March 31, 2023 was an estimated favorable change in net asset value of $124. During the three and nine months ended September 30,March 31, 2023 and 2022, the Company received total cash distributions of $2,7681,905 and $7,1491,596, respectively, including returns on investment of $371303 and $2,417811, respectively.

ForAt March 31, 2023 and December 31, 2022, the three and nine months ended September 30, 2021,Company’s net cumulative contributed capital to the Company recognized net investment income ofpartnerships at each respective balance sheet date totaled $1,13223,546 and $3,49124,978, respectively, and the Company’s maximum exposure to loss aggregated $24,520 and $25,702, respectively. During the three and nine months ended September 30, 2021, the Company

20d) Investment in Unconsolidated Joint Venture

Melbourne FMA, LLC, a wholly owned subsidiary, had an equity investment in FMKT Mel JV, a Florida limited liability company treated as a joint venture under U.S. GAAP. In January 2023, the Company received the final distribution of $18 from FMKT Mel JV, the unconsolidated joint venture that the Company had a 90% equity interest in, which was liquidated on December 31, 2022 following the sale of its last remaining outparcel in June 2022.

16


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

received total cash distributionse) Real Estate Investments

Real estate investments consist of the following as of March 31, 2023 and December 31, 2022:

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Land

 

$

29,471

 

 

$

38,327

 

Land improvements

 

 

4,387

 

 

 

12,138

 

Buildings and building improvements

 

 

12,544

 

 

 

29,410

 

Tenant and leasehold improvements

 

 

1,270

 

 

 

1,742

 

Other

 

 

1,593

 

 

 

1,649

 

Total, at cost

 

 

49,265

 

 

 

83,266

 

Less: accumulated depreciation and amortization

 

 

(5,703

)

 

 

(11,878

)

Real estate investments

 

$

43,562

 

 

$

71,388

 

Since January 1, 2023, a Tampa office building property that was previously leased to an unaffiliated company has been used in operations by the Company and serves as TTIG’s corporate headquarters. As a result, in January 2023, $8,135 was reclassified out of real estate investments to property and equipment, net on the consolidated balance sheet.

On March 31, 2023, the Company closed on its agreement to sell the retail shopping center investment property in Melbourne, Florida to a non-affiliate for a price of $1,53518,500, and also closed on its agreement to sell the retail shopping center investment property in Sorrento, Florida to a non-affiliate for a price of $13,418. See additional information under f) Net Investment Income below. Depreciation and amortization expense related to real estate investments was $453 and $5,980, respectively, including returns on investment of $553506 for the three months ended March 31, 2023 and $2,345,2022, respectively.

At September 30, 2022 and December 31, 2021, the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $f) Net Investment Income

24,996 and $28,371Net investment income (loss), respectively, and the Company’s maximum exposure to loss aggregated $25,405 and $28,133, respectively.by source, is summarized as follows:

d) Investment in Unconsolidated Joint Venture

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Available-for-sale fixed-maturity securities

 

$

4,035

 

 

$

448

 

Equity securities

 

 

296

 

 

 

287

 

Investment expense

 

 

(129

)

 

 

(134

)

Limited partnership investments

 

 

553

 

 

 

1,780

 

Real estate investments

 

 

9,293

 

 

 

347

 

Loss from unconsolidated joint venture

 

 

 

 

 

(13

)

Cash and cash equivalents

 

 

3,667

 

 

 

153

 

Net investment income

 

$

17,715

 

 

$

2,868

 

Melbourne FMA, LLC,For the three months ended March 31, 2023, income from real estate investments included 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 30, 2022 and December 31, 2021, the Company’s maximum exposure to loss relating to the variable interest entity was $18 and $363, respectively, representing the carrying value of the investment. In June 2022, the joint venture sold its last outparcel and recognized anet realized gain of $5726,476. During resulting from the three and nine months ended September 30, 2022,sale of the Company receivedretail shopping center investment property in Melbourne, Florida in March 2023 for a cash distributionprice of $84018,500, including return on investmentand also included a net realized gain of $4892,460. During resulting from the three and nine months ended September 30, 2021,sale of the Company receivedretail shopping center investment property in Sorrento, Florida in March 2023 for a cash distributionprice of $737, including return on investment of $11413,418. At September 30, 2022 and December 31, 2021, there was no undistributed income 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

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating results:

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

 

 

$

540

 

 

$

572

 

 

$

540

 

Total expenses

 

 

 

 

 

(14

)

 

 

(22

)

 

 

(70

)

Net income

 

$

 

 

$

526

 

 

$

550

 

 

$

470

 

The Company’s share of net income*

 

$

 

 

$

473

 

 

$

495

 

 

$

423

 

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

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Balance sheet:

 

 

 

 

 

 

Property and equipment, net

 

$

 

 

$

357

 

Cash

 

 

2

 

 

 

29

 

Other

 

 

18

 

 

 

18

 

Total assets

 

$

20

 

 

$

404

 

 

 

 

 

 

 

 

Members’ capital

 

$

20

 

 

$

404

 

Total members’ capital

 

$

20

 

 

$

404

 

Investment in unconsolidated joint venture, at equity**

 

$

18

 

 

$

363

 

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

2117


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

e) Real Estate Investments

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

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Land

 

$

38,327

 

 

$

39,720

 

Land improvements

 

 

12,138

 

 

 

11,917

 

Buildings and building improvements

 

 

29,410

 

 

 

29,405

 

Tenant and leasehold improvements

 

 

1,554

 

 

 

1,511

 

Other

 

 

1,462

 

 

 

1,265

 

Total, at cost

 

 

82,891

 

 

 

83,818

 

Less: accumulated depreciation and amortization

 

 

(11,391

)

 

 

(9,922

)

Real estate investments

 

$

71,500

 

 

$

73,896

 

In May 2022, the Company sold one outparcel in Sorrento, Florida for net proceeds of $667. 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 Florida Department of Transportation (“FDOT”) in connection with an eminent domain proceeding for a planned road improvement project. See additional information under f) Net Investment Income (Loss) below. Depreciation and amortization expense related to real estate investments was $480 and $475 for the three months ended September 30, 2022 and 2021, respectively, and $1,469 and $1,445 for the nine months ended September 30, 2022 and 2021, respectively.

f) Net Investment Income (Loss)

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Available-for-sale fixed-maturity securities

 

$

2,125

 

 

$

266

 

 

$

3,710

 

 

$

1,091

 

Equity securities

 

 

288

 

 

 

322

 

 

 

875

 

 

 

1,013

 

Investment expense

 

 

(117

)

 

 

(134

)

 

 

(367

)

 

 

(388

)

Limited partnership investments

 

 

1,265

 

 

 

1,132

 

 

 

3,064

 

 

 

3,491

 

Real estate investments

 

 

13,897

 

 

 

305

 

 

 

15,782

 

 

 

3,646

 

Net income from unconsolidated joint
   venture

 

 

 

 

 

473

 

 

 

495

 

 

 

423

 

Cash and cash equivalents

 

 

1,072

 

 

 

156

 

 

 

1,523

 

 

 

473

 

Net investment income

 

$

18,530

 

 

$

2,520

 

 

$

25,082

 

 

$

9,749

 

For the three months ended September 30, 2022, income from real estate investments included a net realized gain of $13,402 resulting from the sale of 1.5 acres of land in Tampa, Florida in July 2022 for net proceeds of $14,500 to the FDOT in connection with an eminent domain proceeding for a planned road improvement project. For the nine months ended September 30, 2022, in addition to the aforementioned sale of land, 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 nine months ended September 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.

22


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

g) Other Investments

From time to time, the Company may invest in financial assets other than stocks, mutual funds, and bonds. For the three months ended September 30,March 31, 2023 and 2022, and 2021, net realized gains related to other investments were $534 and $19181, respectively, and $209 and $1,018 for the nine months ended September 30, 2022 and 2021, respectively.

Note 56 -- 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 investmentsavailable-for-sale fixed-maturity securities carried at fair value and changes to any 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, 2022

 

 

September 30, 2021

 

 

 

Before

 

 

Income

 

 

Net of

 

 

Before

 

 

Income

 

 

Net of

 

 

 

Tax

 

 

Tax Effect

 

 

Tax

 

 

Tax

 

 

Tax Effect

 

 

Tax

 

Net unrealized losses

 

$

(5,969

)

 

$

1,336

 

 

$

(7,305

)

 

$

(258

)

 

$

(63

)

 

$

(195

)

Reclassification adjustment for realized
   losses (gains)

 

 

5

 

 

 

1

 

 

 

4

 

 

 

(88

)

 

 

(22

)

 

 

(66

)

Total other comprehensive loss

 

$

(5,964

)

 

$

1,337

 

 

$

(7,301

)

 

$

(346

)

 

$

(85

)

 

$

(261

)

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2022

 

 

September 30, 2021

 

 

 

Before

 

 

Income

 

 

Net of

 

 

Before

 

 

Income

 

 

Net of

 

 

 

Tax

 

 

Tax Effect

 

 

Tax

 

 

Tax

 

 

Tax Effect

 

 

Tax

 

Net unrealized losses

 

$

(12,294

)

 

$

(262

)

 

$

(12,032

)

 

$

(341

)

 

$

(83

)

 

$

(258

)

Call and repayment gains charged to
   investment income

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(1

)

 

 

(1

)

Reclassification adjustment for realized
   losses (gains)

 

 

426

 

 

 

108

 

 

 

318

 

 

 

(665

)

 

 

(163

)

 

 

(502

)

Total other comprehensive loss

 

$

(11,868

)

 

$

(154

)

 

$

(11,714

)

 

$

(1,008

)

 

$

(247

)

 

$

(761

)

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

 

Before

 

 

Income

 

 

Net of

 

 

Before

 

 

Income

 

 

Net of

 

 

 

Tax

 

 

Tax Effect

 

 

Tax

 

 

Tax

 

 

Tax Effect

 

 

Tax

 

Net unrealized gains (losses)

 

$

2,415

 

 

$

(1,997

)

 

$

4,412

 

 

$

(4,151

)

 

$

(1,047

)

 

$

(3,104

)

Reclassification adjustment for net
   realized losses

 

 

738

 

 

 

187

 

 

 

551

 

 

 

429

 

 

 

109

 

 

 

320

 

Total other comprehensive income
   (loss)

 

$

3,153

 

 

$

(1,810

)

 

$

4,963

 

 

$

(3,722

)

 

$

(938

)

 

$

(2,784

)

Note 67 -- 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.

23


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.

18


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Restricted Cash

Restricted cash represents cash held by state authorities and theor deposited in escrow. Its 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

From time to time, the Company has an amount outstanding under a revolving credit facility. The interest rate is variable and is periodically adjusted based on the London Interbank OfferedSecured Overnight Financing Rate (“SOFR”) plus a spread.ten basis points adjustment plus a margin based on the debt-to-capital ratio. As a result, carrying value, when outstanding, approximates fair value.

24Long-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

2037

Quoted price

3.90% Promissory Note

*

Discounted cash flow method/Level 3 inputs

3.75% Callable Promissory Note

*

Discounted cash flow method/Level 3 inputs

4.55% Promissory Note

2036

Discounted cash flow method/Level 3 inputs

*

Debt derecognized in March 2023. See Note 11 -- “Long-Term Debt” for additional information.

19


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

2037

Quoted price

3.90% Promissory Note

2032

Discounted cash flow method/Level 3 inputs

3.75% Callable Promissory Note

2036

Discounted cash flow method/Level 3 inputs

4.55% Promissory 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 September 30, 2022March 31, 2023 and December 31, 2021:2022:

 

Fair Value Measurements Using

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

As of September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

355,699

 

 

$

 

 

$

 

 

$

355,699

 

 

$

302,025

 

 

$

 

 

$

 

 

$

302,025

 

Restricted cash

 

$

2,900

 

 

$

 

 

$

 

 

$

2,900

 

 

$

2,987

 

 

$

 

 

$

 

 

$

2,987

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

321,520

 

 

$

8,333

 

 

$

 

 

$

329,853

 

 

$

487,750

 

 

$

7,876

 

 

$

 

 

$

495,626

 

Corporate bonds

 

 

28,232

 

 

 

 

 

 

 

 

 

28,232

 

 

 

27,257

 

 

 

 

 

 

 

 

 

27,257

 

State, municipalities, and political subdivisions

 

 

 

 

 

1,751

 

 

 

 

 

 

1,751

 

 

 

 

 

 

1,391

 

 

 

 

 

 

1,391

 

Exchange-traded debt

 

 

701

 

 

 

 

 

 

 

 

 

701

 

 

 

482

 

 

 

 

 

 

 

 

 

482

 

Redeemable preferred stock

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Total available-for-sale securities

 

$

350,555

 

 

$

10,084

 

 

$

 

 

$

360,639

 

 

$

515,489

 

 

$

9,267

 

 

$

 

 

$

524,756

 

Equity securities

 

$

33,946

 

 

$

 

 

$

 

 

$

33,946

 

 

$

37,415

 

 

$

 

 

$

 

 

$

37,415

 

 

 

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

 

25


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

 

 

Fair Value Measurements Using

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

As of December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

234,863

 

 

$

 

 

$

 

 

$

234,863

 

Restricted cash

 

$

2,900

 

 

$

 

 

$

 

 

$

2,900

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

446,233

 

 

$

8,369

 

 

$

 

 

$

454,602

 

Corporate bonds

 

 

27,193

 

 

 

 

 

 

 

 

 

27,193

 

State, municipalities, and political subdivisions

 

 

 

 

 

1,383

 

 

 

 

 

 

1,383

 

Exchange-traded debt

 

 

633

 

 

 

 

 

 

 

 

 

633

 

Redeemable preferred stock

 

 

90

 

 

 

 

 

 

 

 

 

90

 

Total available-for-sale securities

 

$

474,149

 

 

$

9,752

 

 

$

 

 

$

483,901

 

Equity securities

 

$

34,583

 

 

$

 

 

$

 

 

$

34,583

 

(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 September 30, 2022March 31, 2023 and December 31, 2021:2022:

 

Carrying

 

 

Fair Value Measurements Using

 

 

Estimated

 

 

Carrying

 

 

Fair Value Measurements Using

 

 

Estimated

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Fair Value

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Fair Value

 

As of September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.75% Convertible Senior Notes

 

$

166,859

 

 

$

 

 

$

134,388

 

 

$

 

 

$

134,388

 

 

$

167,396

 

 

$

 

 

$

157,805

 

 

$

 

 

$

157,805

 

4.25% Convertible Senior Notes

 

 

23,916

 

 

 

 

 

 

20,527

 

 

 

 

 

 

20,527

 

 

 

23,916

 

 

 

 

 

 

22,089

 

 

 

 

 

 

22,089

 

3.90% Promissory Note

 

 

9,031

 

 

 

 

 

 

 

 

 

8,058

 

 

 

8,058

 

3.75% Callable Promissory Note

 

 

6,881

 

 

 

 

 

 

 

 

 

6,137

 

 

 

6,137

 

4.55% Promissory Note

 

 

4,963

 

 

 

 

 

 

 

 

 

4,610

 

 

 

4,610

 

 

 

4,836

 

 

 

 

 

 

 

 

 

4,617

 

 

 

4,617

 

Total long-term debt

 

$

211,650

 

 

$

 

 

$

154,915

 

 

$

18,805

 

 

$

173,720

 

 

$

196,148

 

 

$

 

 

$

179,894

 

 

$

4,617

 

 

$

184,511

 

 

 

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:

 

 

September 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

 

 

(5,023

)

 

 

(3,169

)

Intangible assets, net

 

$

13,651

 

 

$

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.

2620


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, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.75% Convertible Senior Notes

 

$

167,126

 

 

$

 

 

$

133,167

 

 

$

 

 

$

133,167

 

4.25% Convertible Senior Notes

 

 

23,916

 

 

 

 

 

 

19,473

 

 

 

 

 

 

19,473

 

3.90% Promissory Note

 

 

8,943

 

 

 

 

 

 

 

 

 

8,152

 

 

 

8,152

 

3.75% Callable Promissory Note

 

 

6,789

 

 

 

 

 

 

 

 

 

6,171

 

 

 

6,171

 

4.55% Promissory Note

 

 

4,900

 

 

 

 

 

 

 

 

 

4,642

 

 

 

4,642

 

Total long-term debt

 

$

211,674

 

 

$

 

 

$

152,640

 

 

$

18,965

 

 

$

171,605

 

Note 8 -- Intangible Assets, Net

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

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Anchor tenant relationships (a)

 

$

 

 

$

1,761

 

In-place leases

 

 

410

 

 

 

3,579

 

Policy renewal rights

 

 

10,100

 

 

 

10,100

 

Non-compete agreements (b)

 

 

314

 

 

 

314

 

Total, at cost

 

 

10,824

 

 

 

15,754

 

Less: accumulated amortization

 

 

(3,138

)

 

 

(5,176

)

Intangible assets, net

 

$

7,686

 

 

$

10,578

 

(a)
An anchor tenant is a tenant that attracts more customers than other tenants.
(b)
Fully amortized.

The remaining weighted-average amortization periods for the intangible assets at September 30, 2022as of March 31, 2023 are summarized in the table below:

Anchor tenant relationships

11.7 years

In-place leases

9.812.1 years

Policy renewal rights - United

3.63.1 years

In connection with the Southeast Region assumed businesssales of the retail shopping center investment properties in Melbourne, Florida and Sorrento, Florida as described in Note 15 -- “Nature of Operations”“Investments” under Real Estate Investments, the Company recordedderecognized $2,200 of intangible assets, of $4,869 representing the renewal rights and non-compete agreement in exchange for consideration consisting of a 6% commissionnet on any replacement premium which includes $March 31, 2023.

3,800 of commission prepaid up-front. The consideration was estimated at $4,869 with a $1,069 contingent liability. At September 30, 2022March 31, 2023 and December 31, 2021,2022, contingent liabilities related to renewal rights intangible assets were $3,488371 and $2,419, respectively, with the contingent liabilitiesare included in other liabilities on the consolidated balance 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.

Note 8 -- Other Assets

The following table summarizes the Company’s other assets:

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Benefits receivable related to retrospective reinsurance contracts

 

$

14,781

 

 

$

3,064

 

Reimbursement receivable under TPA service

 

 

801

 

 

 

3,525

 

Prepaid expenses

 

 

3,384

 

 

 

2,853

 

Deposits

 

 

3,592

 

 

 

406

 

Lease acquisition costs, net

 

 

665

 

 

 

505

 

Other

 

 

3,382

 

 

 

4,364

 

Total other assets

 

$

26,605

 

 

$

14,717

 

Note 9 -- Revolving Credit Facility

In May 2022, the Company repaid the entire credit facility balance of $15,000 and at September 30, 2022 had no borrowings under the credit facility. For the three months ended September 30, 2022 and 2021, interest expense was $25 and $24, respectively, including $25 and $25 of amortization of issuance costs, respectively. For the nine months ended September 30, 2022 and 2021, interest expense was $176 and $153, respectively, including $74 and $74 of amortization of issuance costs, respectively. At September 30, 2022, the Company was in compliance with all required covenants and had available borrowing capacity of $65,000. See Note 21 -- “Subsequent Events” for information with regards to amendments to the terms of the credit agreement.

27


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 9 -- Other Assets

The following table summarizes the Company’s other assets:

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Benefits receivable related to retrospective reinsurance contract

 

$

23,310

 

 

$

16,317

 

Reimbursement and fees receivable under TPA service

 

 

5,339

 

 

 

7,303

 

Prepaid expenses

 

 

2,394

 

 

 

2,826

 

Deposits

 

 

709

 

 

 

491

 

Lease acquisition costs, net

 

 

696

 

 

 

832

 

Other

 

 

3,656

 

 

 

3,902

 

Total other assets

 

$

36,104

 

 

$

31,671

 

Management reviewed the collectability of the reimbursement and fees receivable under third-party administrator (“TPA”) service as of March 31, 2023 and, considering the net balance due to the counterparty as well as the balance of funds withheld for assumed business as of March 31, 2023, determined that an allowance for credit losses is not necessary for the reimbursement and fees receivable under TPA service.

Note 10 -- Revolving Credit Facility

At March 31, 2023, the Company had no borrowings outstanding under the credit facility. For the three months ended March 31, 2023 and 2022, interest expense was $25 and $89, respectively, including $25 and $25 of amortization of issuance costs, respectively. At March 31, 2023, the Company was in compliance with all required covenants and had available borrowing capacity of $50,000.

Note 11 -- Long-Term Debt

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

 

September 30,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

4.75% Convertible Senior Notes, due June 1, 2042

 

$

172,500

 

 

$

 

 

$

172,500

 

 

$

172,500

 

4.25% Convertible Senior Notes, due March 1, 2037

 

 

23,916

 

 

 

23,916

 

 

 

23,916

 

 

 

23,916

 

3.90% Promissory Note, due through April 1, 2032

 

 

9,163

 

 

 

9,431

 

 

 

 

 

 

9,072

 

3.75% Callable Promissory Note, due through
September 1, 2036

 

 

6,966

 

 

 

7,246

 

 

 

 

 

 

6,871

 

4.55% Promissory Note, due through August 1, 2036

 

 

5,033

 

 

 

5,225

 

 

 

4,902

 

 

 

4,968

 

Finance lease liabilities, due through October 15, 2024

 

 

17

 

 

 

31

 

 

 

10

 

 

 

13

 

Total principal amount

 

 

217,595

 

 

 

45,849

 

 

 

201,328

 

 

 

217,340

 

Less: unamortized issuance costs

 

 

(5,928

)

 

 

(345

)

 

 

(5,170

)

 

 

(5,653

)

Total long-term debt

 

$

211,667

 

 

$

45,504

 

 

$

196,158

 

 

$

211,687

 

22


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 future maturities of long-term debt as of September 30, 2022,March 31, 2023, 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 September 30,

 

 

 

2022

 

$

1,036

 

Due in 12 months following March 31,

 

 

 

2023

 

 

1,065

 

 

$

280

 

2024

 

 

1,106

 

 

 

285

 

2025

 

 

1,151

 

 

 

297

 

2026

 

 

197,615

 

 

 

24,227

 

2027

 

 

172,826

 

Thereafter

 

 

15,622

 

 

 

3,413

 

Total

 

$

217,595

 

 

$

201,328

 

 

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

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual interest

 

$

2,516

 

 

$

1,421

 

 

$

4,322

 

 

$

4,832

 

 

$

2,497

 

 

$

472

 

Non-cash expense (a)

 

 

272

 

 

 

219

 

 

 

431

 

 

 

758

 

 

 

279

 

 

 

40

 

Total

 

$

2,788

 

 

$

1,640

 

 

$

4,753

 

 

$

5,590

 

 

$

2,776

 

 

$

512

 

(a)
Includes amortization of debt issuance costs.

4.75%4.25% Convertible Senior Notes

In May 2022,The Company’s recent cash dividends on common stock have exceeded $0.35 per share, resulting in adjustments to the Company issued 4.75%conversion rate of the 4.25% Convertible Senior Notes in a private offering for an aggregate principal amountNotes. Accordingly, as of $172,500. The net proceeds ofMarch 31, 2023, 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

28


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 sharesconversion rate 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 4.754.25% Convertible Senior Notes is subject to conversion rate adjustments uponwas 16.5486 shares of common stock for each $1 in principal amount, which was the occurrenceequivalent of specified events (including payment of dividends above a specified amount) but will not be adjustedapproximately $60.43 per share.

There were no unamortized debt issuance costs for any accrued and unpaid interest.the 4.25% Convertible Senior Notes at March 31, 2023.

4.75% Convertible Senior Notes

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 September 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

29


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

specified fundamental change events will occur. Therefore, this embedded redemption feature is not substantive and will not affect the expected life of the liability.

Embedded Redemption Feature – Put Option of the Note Holder

At the option of the holders of the 4.75% Convertible Senior Notes, 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 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 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 September 30, 2022,March 31, 2023, the remaining amortization period of the debt issuance costs was expected to be 4.74.2 years for the 4.75% Convertible Senior Notes.

4.25% Convertible Senior 23


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

3.90% Promissory Note

On March 1, 2022, none31, 2023, in conjunction with the sale of the holdersretail shopping center investment property in Melbourne, Florida for a price of $18,500, the buyer assumed the 3.90% Promissory Note from the Company which consisted of the 4.25% Convertible Senior Notes exercised the put option, which would have required$8,979 principal balance plus $16 of accrued interest at March 31, 2023.

3.75% Callable Promissory Note

On March 31, 2023, the Company to repurchase for cash all or any portionmade an early repayment of the notes at par.entirety of its 3.75% Callable Promissory Note which included $6,775 of principal balance plus $22 of accrued interest. As a result, the Company incurred a $177 loss on extinguishment of debt. The Company’s recent cash dividends on common stock have exceeded $0.35 per share, resultingnote was collateralized by the retail shopping center investment property in adjustments to the conversion rate of the 4.25% Convertible Senior Notes. Accordingly, as of September 30, 2022, the conversion rate of the Company’s 4.25% Convertible Senior Notes was 16.5108 shares of common stock for each $1 in principal amount,Sorrento, Florida which was the equivalent of approximately $sold as described in Note 5 -- “Investments” under 60.57Real Estate Investments per share.

The debt issuance costs for the 4.25% Convertible Senior Notes had been fully amortized as of February 2022..

Note 1112 -- 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 and a profit commission equal to 10% of net profit.

30


HCI GROUP, INC. AND SUBSIDIARIES

Notes On January 12, 2023, HCPCI and TypTap received approval from the Florida Office of Insurance Regulation (“FLOIR”) to Consolidated Financial Statements (unaudited)

(Amountsdiscontinue flood insurance policies written in thousands, except shareFlorida with policy cancellation effective dates no later than May 31, 2023. The reason for discontinuation is primarily attributable to the increased costs and per share amounts, unless otherwise stated)reduced availability of flood reinsurance. The discontinuation will not have a material impact to the Company’s results of operations.

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.

24


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Premiums Written:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

182,039

 

 

$

143,426

 

 

$

541,812

 

 

$

396,781

 

 

$

207,423

 

 

$

171,981

 

Assumed

 

 

9,142

 

 

 

30,840

 

 

 

12,815

 

 

 

88,311

 

 

 

(7,569

)

 

 

5,313

 

Gross written

 

 

191,181

 

 

 

174,266

 

 

 

554,627

 

 

 

485,092

 

 

 

199,854

 

 

 

177,294

 

Ceded

 

 

(74,741

)

 

 

(55,577

)

 

 

(184,108

)

 

 

(145,112

)

 

 

(70,509

)

 

 

(53,162

)

Net premiums written

 

$

116,440

 

 

$

118,689

 

 

$

370,519

 

 

$

339,980

 

 

$

129,345

 

 

$

124,132

 

Premiums Earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

166,116

 

 

$

120,763

 

 

$

479,849

 

 

$

346,788

 

 

$

172,905

 

 

$

148,846

 

Assumed

 

 

15,597

 

 

 

29,046

 

 

 

61,913

 

 

 

73,403

 

 

 

7,163

 

 

 

30,079

 

Gross earned

 

 

181,713

 

 

 

149,809

 

 

 

541,762

 

 

 

420,191

 

 

 

180,068

 

 

 

178,925

 

Ceded

 

 

(74,741

)

 

 

(55,577

)

 

 

(184,108

)

 

 

(145,112

)

 

 

(70,509

)

 

 

(53,162

)

Net premiums earned

 

$

106,972

 

 

$

94,232

 

 

$

357,654

 

 

$

275,079

 

 

$

109,559

 

 

$

125,763

 

During the three and nine months ended September 30,March 31, 2023 and 2022, the Company recognized ceded losses of $907,5412,751 and $910,928, respectively, as reductions in losses and loss adjustment expenses. During the three and nine months ended September 30, 2021, the Company recognized ceded losses of $1,830 and $2,424870, respectively, as reductions in losses and loss adjustment expenses. At September 30, 2022March 31, 2023 and December 31, 2021,2022, there were 45 and 55reinsurers respectively, participating in the Company’s reinsurance program. Total net amounts recoverable and receivable from reinsurers at September 30, 2022March 31, 2023 and December 31, 20212022 were $952,996596,700 and $76,650688,359, respectively. Approximately 74.760.6% of the reinsurance recoverable balance at September 30, 2022March 31, 2023 was receivable from threesix reinsurers, 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 increasesdecreases in credit loss expense of $3891 and $36111 for the three and nine months ended September 30,March 31, 2023 and 2022, respectively. For the three and nine months ended September 30, 2021, the Company derecognized credit loss expenses of $13 and $41, respectively. Allowances for credit losses related to the reinsurance recoverable balance were $451453 and $90454 at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.

One of the existing reinsurance contracts 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. As a result of Hurricane Ian, the balance of previously accrued benefits under the multi-year reinsurance contract with retrospective provisions was decreased by $12,600 during the third quarter of 2022. For the three and nine months ended September 30,March 31, 2023 and 2022, the Company recognized reductions in premiums ceded of $3,8436,993 and $11,7171,484, respectively, related to these adjustments in the consolidated statements of income. For theSee Note 21 -- “Commitments and Contingencies” for additional information.

Amounts receivable pursuant to retrospective provisions are reflected in other assets. At March 31, 2023 and December 31, 2022, other assets included $23,310 and $16,317, respectively, of amounts receivable pursuant to retrospective provisions. Management believes the credit risk associated with the collectability of these accrued benefits is minimal as the amount receivable is concentrated with one reinsurer with a good credit rating and the Company monitors the creditworthiness of this reinsurer based on available information about the reinsurer’s financial condition.

25


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

three and nine months ended September 30, 2021, the Company recognized reductions in premiums ceded of $1,364 and $9,619, respectively. See Note 20 -- “Commitments and Contingencies” for additional information.

Amounts receivable pursuant to retrospective provisions are reflected in other assets. At September 30, 2022 and December 31, 2021, other assets included $14,781 and $3,064, respectively. Management believes the credit risk associated with the collectability of accrued benefits is minimal as the amount receivable is concentrated with reinsurers with good credit ratings and the Company monitors the creditworthiness of these reinsurers based on available information about each reinsurer’s financial condition. See Note 21 -- “Subsequent Events” for information on collection.

Reinsurance provided to other insurance companies

In 2022, the Company provided quota share reinsurance on all policies issued by United Property & Casualty Insurance Company, an insurance subsidiary of United Insurance Holdings Corporation (“United”), in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island (collectively “Northeast Region”) and the states of Georgia, North Carolina, and South Carolina (collectively “Southeast Region”). These policies were renewed and/or replaced by the Company. As of the financial reporting date, there was no reinsurance provided to United by the Company. However, additional losses may be incurred pertaining to the previous coverage periods of the quota share reinsurance agreements.

For the three months ended September 30, 2022,March 31, 2023, assumed premiums written related to the Northeast Region’s insurance policies were $0, whereas for the ninethree months ended September 30,March 31, 2022, $27,4886,849 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 and New Jersey. For the three and nine months ended September 30, 2021, assumed premiums written were $30,840 and $88,311, respectively. At September 30, 2022,March 31, 2023, the Company had a net balance of $1,3011,207 due to United related to the Northeast Region, consisting of ceding commission payable of $865 and payable on paid losses and loss adjustment expenses of $436626 and ceding commission payable of $581. At December 31, 2021,2022, the Company had a net balance of $4,4861,581 due to United related to the Northeast Region, consisting of ceding commission payable of $535 and payable on paid losses and loss adjustment expenses of $4,0171,000, offset by premiums receivable and ceding commission payable of $66581.

Effective December 31, 2021,30, 2022, the Company entered into a separate agreement to provide 85%Company’s 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 linespolicies in the Northeast Region was commuted.

For the three months ended March 31, 2023, $7,569 of assumed premiums written related to the Southeast 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 the Southeast Region. ForRegion, whereas for the three and nine months ended September 30,March 31, 2022 assumed premiums written related to the Southeast Region’s insurance policies were $9,14212,162 and $40,303, respectively.. At September 30, 2022,March 31, 2023, the Company had a net balance of $8,03814,402 receivable fromdue to United related to the Southeast Region, consisting of premiums receivablepayable of $12,6769,506, offset by and payable on paid losses and loss adjustment expenses of $2,6106,417, offset by ceding commission receivable of $1,521. At December 31, 2022, the Company had a net balance of $7,521 due to United related to the Southeast Region, consisting of payable on paid losses and loss adjustment expenses of $7,606 and ceding commission payable of $2,02816, offset by premiums receivable of $101.

On February 27, 2023, United’s Florida-domiciled residential insurance subsidiary was placed into receivership by the State of Florida due to its financial insolvency. At DecemberMarch 31, 2021, there was an2023, the Company had a net amount receivable fromdue to United of $23,325, net of a ceding commission of $8,83510,270 and a catastrophe cost allowance offunds withheld for assumed business in trust accounts totaling $3,18145,274. for the benefit of policies assumed from United. As of March 31, 2023, the Company no longer provided TPA services to United. The Company cannot predict the actions a receiver might take, which may include restrictions on, or use of, funds held in trust. Any such actions could have a material adverse effect on the Company’s financial position and results of operations.

At September 30, 2022March 31, 2023 and December 31, 2021,2022, the balance of funds withheld for assumed business related to the Company’s quota share reinsurance agreements with United was $67,31345,274 and $73,71648,772, respectively.

26


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 1213 -- 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 claimclaims development and losses incurred but not reported.

The Company primarily writes insurance in 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

32


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net balance, beginning of period*

 

$

196,414

 

 

$

154,901

 

 

$

172,410

 

 

$

141,065

 

Incurred, net of reinsurance, related to:

 

 

 

 

 

 

 

 

 

 

 

 

Current period

 

 

126,486

 

 

 

53,834

 

 

 

275,010

 

 

 

147,064

 

Prior period

 

 

13,308

 

 

 

8,830

 

 

 

24,318

 

 

 

17,268

 

Total incurred, net of reinsurance

 

 

139,794

 

 

 

62,664

 

 

 

299,328

 

 

 

164,332

 

Paid, net of reinsurance, related to:

 

 

 

 

 

 

 

 

 

 

 

 

Current period

 

 

(45,732

)

 

 

(31,663

)

 

 

(102,155

)

 

 

(59,265

)

Prior period

 

 

(27,489

)

 

 

(22,237

)

 

 

(106,596

)

 

 

(82,467

)

Total paid, net of reinsurance

 

 

(73,221

)

 

 

(53,900

)

 

 

(208,751

)

 

 

(141,732

)

Net balance, end of period

 

 

262,987

 

 

 

163,665

 

 

 

262,987

 

 

 

163,665

 

Add: reinsurance recoverable before allowance for
          credit losses

 

 

938,855

 

 

 

39,512

 

 

 

938,855

 

 

 

39,512

 

Gross balance, end of period

 

$

1,201,842

 

 

$

203,177

 

 

$

1,201,842

 

 

$

203,177

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Net balance, beginning of period*

 

$

246,546

 

 

$

172,410

 

Incurred, net of reinsurance, related to:

 

 

 

 

 

 

Current period

 

 

56,698

 

 

 

70,076

 

Prior periods

 

 

3,867

 

 

 

2,628

 

Total incurred, net of reinsurance

 

 

60,565

 

 

 

72,704

 

Paid, net of reinsurance, related to:

 

 

 

 

 

 

Current period

 

 

(11,110

)

 

 

(18,796

)

Prior periods

 

 

(49,950

)

 

 

(46,481

)

Total paid, net of reinsurance

 

 

(61,060

)

 

 

(65,277

)

Net balance, end of period

 

 

246,051

 

 

 

179,837

 

Add: reinsurance recoverable before allowance for credit losses

 

 

560,257

 

 

 

54,955

 

Gross balance, end of period

 

$

806,308

 

 

$

234,792

 

*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 months ended September 30, 2022,March 31, 2023, the Company recognized losses related to prior periods of $13,3083,867 and $24,318, respectively, primarily to increase the reserve resulting from increased litigation. The Company incurred a net estimated loss of approximately $65,000 resulting from Hurricane Ian during the third quarter of 2022. Lossreserves in response to litigation and claim severity. Losses and LAE expenses for the three and nine months ended September 30, 2022March 31, 2023 included net estimated losses of approximately $18,71521,635 and $42,114, respectively, related to United policies assumed, renewed and/or replaced. Lower losses and LAE for the three months ended March 31, 2023 resulted from United.a decrease in claims and litigation related to Florida policies.

3327


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 1314 -- 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 has four 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 30,March 31, 2023 and 2022, and 2021, revenues from the HCPCI insurance operations segment before intracompany elimination represented 60.561.2% and 73.969.8%, respectively, and revenues from the TypTap Group segment represented 29.936.5% and 24.0%, respectively, of total revenues of all operating segments. For the nine months ended September 30, 2022 and 2021, revenues from the HCPCI insurance operations segment before intracompany elimination represented 66.6% and 76.4%, respectively, and revenues from the TypTap Group segment represented 28.7% and 20.728.3%, respectively, of total revenues of all operating segments. At September 30, 2022March 31, 2023 and December 31, 2021,2022, HCPCI insurance operations’ total assets represented 55.952.5% and 58.753.4%, respectively, and TypTap Group’s total assets represented 36.739.0% and 29.337.9%, respectively, of the combined assets of all operating segments.

3428


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, 2022

 

Operations

 

 

Group

 

 

Estate (a)

 

 

Other (b)

 

 

Elimination

 

 

Consolidated

 

For Three Months Ended March 31, 2023

 

Operations

 

 

Group

 

 

Estate (a)

 

 

Other (b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned (c)

 

$

104,671

 

 

$

82,728

 

 

$

 

 

$

 

 

$

(5,686

)

 

$

181,713

 

 

$

96,991

 

 

$

87,612

 

 

$

 

 

$

 

 

$

(4,535

)

 

$

180,068

 

Premiums ceded

 

 

(46,157

)

 

 

(33,236

)

 

 

 

 

 

 

 

 

4,652

 

 

 

(74,741

)

 

 

(40,195

)

 

 

(34,823

)

 

 

 

 

 

 

 

 

4,509

 

 

 

(70,509

)

Net premiums earned

 

 

58,514

 

 

 

49,492

 

 

 

 

 

 

 

 

 

(1,034

)

 

 

106,972

 

 

 

56,796

 

 

 

52,789

 

 

 

 

 

 

 

 

 

(26

)

 

 

109,559

 

Net income from investment portfolio

 

 

1,143

 

 

 

1,144

 

 

 

 

 

 

1,338

 

 

 

13,674

 

 

 

17,299

 

 

 

2,954

 

 

 

3,379

 

 

 

 

 

 

1,900

 

 

 

8,862

 

 

 

17,095

 

Gain from sales of real estate investments

 

 

 

 

 

 

 

 

8,936

 

 

 

 

 

 

(8,936

)

 

 

 

Policy fee income

 

 

613

 

 

 

458

 

 

 

 

 

 

 

 

 

 

 

 

1,071

 

 

 

563

 

 

 

527

 

 

 

 

 

 

 

 

 

 

 

 

1,090

 

Gain on involuntary conversion

 

 

 

 

 

 

 

 

13,402

 

 

 

 

 

 

(13,402

)

 

 

 

Other

 

 

1,246

 

 

 

512

 

 

 

2,785

 

 

 

717

 

 

 

(3,948

)

 

 

1,312

 

 

 

4,653

 

 

 

1,643

 

 

 

2,923

 

 

 

595

 

 

 

(8,529

)

 

 

1,285

 

Total revenue

 

 

61,516

 

 

 

51,606

 

 

 

16,187

 

 

 

2,055

 

 

 

(4,710

)

 

 

126,654

 

 

 

64,966

 

 

 

58,338

 

 

 

11,859

 

 

 

2,495

 

 

 

(8,629

)

 

 

129,029

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

73,228

 

 

 

62,153

 

 

 

 

 

 

 

 

 

4,413

 

 

 

139,794

 

 

 

28,782

 

 

 

33,056

 

 

 

 

 

 

 

 

 

(1,273

)

 

 

60,565

 

Amortization of deferred policy acquisition costs

 

 

11,333

 

 

 

12,176

 

 

 

 

 

 

 

 

 

 

 

 

23,509

 

 

 

9,621

 

 

 

11,863

 

 

 

 

 

 

 

 

 

 

 

 

21,484

 

Other policy acquisition expenses

 

 

748

 

 

 

450

 

 

 

 

 

 

 

 

 

(29

)

 

 

1,169

 

 

 

655

 

 

 

611

 

 

 

 

 

 

 

 

 

(30

)

 

 

1,236

 

Stock-based compensation expense

 

 

1,049

 

 

 

869

 

 

 

 

 

 

2,212

 

 

 

 

 

 

4,130

 

 

 

496

 

 

 

829

 

 

 

 

 

 

781

 

 

 

 

 

 

2,106

 

Interest expense

 

 

 

 

 

222

 

 

 

221

 

 

 

2,591

 

 

 

(221

)

 

 

2,813

 

 

 

 

 

 

431

 

 

 

203

 

 

 

2,598

 

 

 

(431

)

 

 

2,801

 

Depreciation and amortization

 

 

166

 

 

 

865

 

 

 

651

 

 

 

186

 

 

 

(596

)

 

 

1,272

 

 

 

139

 

 

 

956

 

 

 

627

 

 

 

202

 

 

 

(537

)

 

 

1,387

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

177

 

 

 

 

 

 

(177

)

 

 

 

Personnel and other operating expenses

 

 

14,240

 

 

 

8,497

 

 

 

1,583

 

 

 

1,526

 

 

 

(8,277

)

 

 

17,569

 

 

 

9,919

 

 

 

9,433

 

 

 

1,554

 

 

 

1,589

 

 

 

(6,181

)

 

 

16,314

 

Total expenses

 

 

100,764

 

 

 

85,232

 

 

 

2,455

 

 

 

6,515

 

 

 

(4,710

)

 

 

190,256

 

 

 

49,612

 

 

 

57,179

 

 

 

2,561

 

 

 

5,170

 

 

 

(8,629

)

 

 

105,893

 

(Loss) income before income taxes

 

$

(39,248

)

 

$

(33,626

)

 

$

13,732

 

 

$

(4,460

)

 

$

 

 

$

(63,602

)

Income (loss) before income taxes

 

$

15,354

 

 

$

1,159

 

 

$

9,298

 

 

$

(2,675

)

 

$

 

 

$

23,136

 

Total revenue from non-affiliates (d)

 

$

55,801

 

 

$

55,803

 

 

$

15,848

 

 

$

1,440

 

 

 

 

 

 

 

 

$

56,929

 

 

$

61,286

 

 

$

11,051

 

 

$

1,926

 

 

 

 

 

 

 

Gross premiums written

 

$

119,400

 

 

$

71,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

85,153

 

 

$

114,701

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 $98,98592,456 from HCPCI and $5,6864,535 from a reinsurance company.
(d)
Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

3529


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

 

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 March 31, 2022

 

Operations

 

 

Group

 

 

Estate (a)

 

 

Other (b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned(c)

 

$

98,256

 

 

$

51,553

 

 

$

 

 

$

 

 

$

 

 

$

149,809

 

 

$

119,305

 

 

$

60,622

 

 

$

 

 

$

 

 

$

(1,002

)

 

$

178,925

 

Premiums ceded

 

 

(36,955

)

 

 

(20,135

)

 

 

 

 

 

 

 

 

1,513

 

 

 

(55,577

)

 

 

(36,953

)

 

 

(16,933

)

 

 

 

 

 

 

 

 

724

 

 

 

(53,162

)

Net premiums earned

 

 

61,301

 

 

 

31,418

 

 

 

 

 

 

 

 

 

1,513

 

 

 

94,232

 

 

 

82,352

 

 

 

43,689

 

 

 

 

 

 

 

 

 

(278

)

 

 

125,763

 

Net income from investment portfolio

 

 

831

 

 

 

102

 

 

 

 

 

 

172

 

 

 

778

 

 

 

1,883

 

Net (loss) income from investment portfolio

 

 

(1,457

)

 

 

(16

)

 

 

 

 

 

316

 

 

 

135

 

 

 

(1,022

)

Policy fee income

 

 

693

 

 

 

307

 

 

 

 

 

 

 

 

 

 

 

 

1,000

 

 

 

654

 

 

 

403

 

 

 

 

 

 

 

 

 

 

 

 

1,057

 

Other

 

 

2,087

 

 

 

480

 

 

 

2,336

 

 

 

489

 

 

 

(3,290

)

 

 

2,102

 

 

 

1,247

 

 

 

469

 

 

 

2,403

 

 

 

836

 

 

 

(3,713

)

 

 

1,242

 

Total revenue

 

 

64,912

 

 

 

32,307

 

 

 

2,336

 

 

 

661

 

 

 

(999

)

 

 

99,217

 

 

 

82,796

 

 

 

44,545

 

 

 

2,403

 

 

 

1,152

 

 

 

(3,856

)

 

 

127,040

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

36,928

 

 

 

24,224

 

 

 

 

 

 

 

 

 

1,512

 

 

 

62,664

 

 

 

43,995

 

 

 

28,988

 

 

 

 

 

 

 

 

 

(279

)

 

 

72,704

 

Amortization of deferred policy acquisition costs

 

 

12,402

 

 

 

9,250

 

 

 

 

 

 

 

 

 

 

 

 

21,652

 

 

 

19,102

 

 

 

9,422

 

 

 

 

 

 

 

 

 

 

 

 

28,524

 

Other policy acquisition expenses

 

 

633

 

 

 

1,110

 

 

 

 

 

 

 

 

 

(55

)

 

 

1,688

 

 

 

663

 

 

 

283

 

 

 

 

 

 

 

 

 

 

 

 

946

 

Stock-based compensation expense

 

 

662

 

 

 

471

 

 

 

 

 

 

1,599

 

 

 

 

 

 

2,732

 

 

 

1,144

 

 

 

885

 

 

 

 

 

 

2,308

 

 

 

 

 

 

4,337

 

Interest expense

 

 

 

 

 

1

 

 

 

231

 

 

 

1,432

 

 

 

 

 

 

1,664

 

 

 

 

 

 

200

 

 

 

227

 

 

 

374

 

 

 

(200

)

 

 

601

 

Depreciation and amortization

 

 

18

 

 

 

342

 

 

 

576

 

 

 

171

 

 

 

(603

)

 

 

504

 

 

 

114

 

 

 

561

 

 

 

605

 

 

 

172

 

 

 

(623

)

 

 

829

 

Debt conversion expense

 

 

 

 

 

 

 

 

 

 

 

1,273

 

 

 

 

 

 

1,273

 

Personnel and other operating expenses

 

 

5,234

 

 

 

7,214

 

 

 

814

 

 

 

2,135

 

 

 

(1,853

)

 

 

13,544

 

 

 

7,318

 

 

 

7,493

 

 

 

1,307

 

 

 

1,734

 

 

 

(2,754

)

 

 

15,098

 

Total expenses

 

 

55,877

 

 

 

42,612

 

 

 

1,621

 

 

 

6,610

 

 

 

(999

)

 

 

105,721

 

 

 

72,336

 

 

 

47,832

 

 

 

2,139

 

 

 

4,588

 

 

 

(3,856

)

 

 

123,039

 

Income (loss) before income taxes

 

$

9,035

 

 

$

(10,305

)

 

$

715

 

 

$

(5,949

)

 

$

 

 

$

(6,504

)

 

$

10,460

 

 

$

(3,287

)

 

$

264

 

 

$

(3,436

)

 

$

 

 

$

4,001

 

Total revenue from non-affiliates (c)

 

$

65,629

 

 

$

32,701

 

 

$

1,997

 

 

$

402

 

 

 

 

 

 

 

Total revenue from non-affiliates (d)

 

$

81,733

 

 

$

44,823

 

 

$

2,064

 

 

$

449

 

 

 

 

 

 

 

Gross premiums written

 

$

118,280

 

 

$

55,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

91,141

 

 

$

86,153

 

 

 

 

 

 

 

 

 

 

 

 

 

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

36


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, 2022

 

Operations

 

 

Group

 

 

Estate (a)

 

 

Other (b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned (c)

 

$

339,612

 

 

$

210,793

 

 

$

 

 

$

 

 

$

(8,643

)

 

$

541,762

 

Premiums ceded

 

 

(120,089

)

 

 

(70,798

)

 

 

 

 

 

 

 

 

6,779

 

 

 

(184,108

)

Net premiums earned

 

 

219,523

 

 

 

139,995

 

 

 

 

 

 

 

 

 

(1,864

)

 

 

357,654

 

Net (loss) income from investment portfolio

 

 

(1,760

)

 

 

1,411

 

 

 

 

 

 

426

 

 

 

15,644

 

 

 

15,721

 

Policy fee income

 

 

1,895

 

 

 

1,285

 

 

 

 

 

 

 

 

 

 

 

 

3,180

 

Gain on involuntary conversion

 

 

 

 

 

 

 

 

13,402

 

 

 

 

 

 

(13,402

)

 

 

 

Other

 

 

2,907

 

 

 

1,513

 

 

 

7,953

 

 

 

3,025

 

 

 

(12,333

)

 

 

3,065

 

Total revenue

 

 

222,565

 

 

 

144,204

 

 

 

21,355

 

 

 

3,451

 

 

 

(11,955

)

 

 

379,620

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

165,915

 

 

 

129,833

 

 

 

 

 

 

 

 

 

3,580

 

 

 

299,328

 

Amortization of deferred policy acquisition costs

 

 

46,339

 

 

 

31,403

 

 

 

 

 

 

 

 

 

 

 

 

77,742

 

Other policy acquisition expenses

 

 

2,090

 

 

 

1,230

 

 

 

 

 

 

 

 

 

(113

)

 

 

3,207

 

Stock-based compensation expense

 

 

3,380

 

 

 

2,651

 

 

 

 

 

 

6,678

 

 

 

 

 

 

12,709

 

Interest expense

 

 

 

 

 

633

 

 

 

672

 

 

 

4,256

 

 

 

(632

)

 

 

4,929

 

Depreciation and amortization

 

 

433

 

 

 

2,200

 

 

 

1,862

 

 

 

660

 

 

 

(1,819

)

 

 

3,336

 

Personnel and other operating expenses

 

 

29,296

 

 

 

24,516

 

 

 

3,516

 

 

 

5,173

 

 

 

(12,971

)

 

 

49,530

 

Total expenses

 

 

247,453

 

 

 

192,466

 

 

 

6,050

 

 

 

16,767

 

 

 

(11,955

)

 

 

450,781

 

(Loss) income before income taxes

 

$

(24,888

)

 

$

(48,262

)

 

$

15,305

 

 

$

(13,316

)

 

$

 

 

$

(71,161

)

Total revenue from non-affiliates (d)

 

$

213,810

 

 

$

149,635

 

 

$

20,339

 

 

$

1,530

 

 

 

 

 

 

 

Gross premiums written

 

$

323,680

 

 

$

230,947

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 $330,969118,303 from HCPCI and $8,6431,002 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:

37

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Segments:

 

 

 

 

 

 

HCPCI Insurance Operations

 

$

880,107

 

 

$

912,233

 

TypTap Group

 

 

719,774

 

 

 

704,429

 

Real Estate Operations

 

 

119,646

 

 

 

126,001

 

Corporate and Other

 

 

150,118

 

 

 

159,378

 

Consolidation and Elimination

 

 

(98,523

)

 

 

(98,713

)

Total assets

 

$

1,771,122

 

 

$

1,803,328

 

30


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

 

Stock-based compensation expense

 

 

2,360

 

 

 

2,438

 

 

 

 

 

 

4,431

 

 

 

 

 

 

9,229

 

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

 

 

14,957

 

 

 

18,569

 

 

 

3,332

 

 

 

4,470

 

 

 

(6,184

)

 

 

35,144

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 15 -- Leases

(a)

Other revenue under real estate primarily consisted of rental income from investment properties.
(b)
Other revenue under corporateThe table below summarizes the Company’s right-of-use (“ROU”) assets and other primarily consisted of revenue from marina business.
(c)
Represents amounts before reclassification of certain revenuecorresponding liabilities for operating and expenses to conform with an insurance company’s presentation.
finance leases:

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Operating leases:

 

 

 

 

 

 

ROU assets

 

$

1,466

 

 

$

777

 

Liabilities

 

$

1,422

 

 

$

721

 

Finance leases:

 

 

 

 

 

 

ROU assets

 

$

80

 

 

$

80

 

Liabilities

 

$

10

 

 

$

13

 

The Company entered into a new lease effective March 2023 for its office space in Plantation, Florida which relates to its claims related administration. The new lease has an initial term of 5.25 years.

The following table presents segment assets reconciled tosummarizes the Company’s total assets onoperating and finance leases in which the consolidated balance sheets:Company is a lessee:

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Segments:

 

 

 

 

 

 

HCPCI Insurance Operations

 

$

1,141,660

 

 

$

676,509

 

TypTap Group

 

 

813,543

 

 

 

369,600

 

Real Estate Operations

 

 

125,992

 

 

 

127,651

 

Corporate and Other

 

 

159,569

 

 

 

65,349

 

Consolidation and Elimination

 

 

(96,021

)

 

 

(62,252

)

Total assets

 

$

2,144,743

 

 

$

1,176,857

 

Renewal

Other Terms and

Class of Assets

Initial Term

Option

Conditions

Operating lease:

Office equipment

1 month

Yes

(a)

Office space

3 to 9 years

Yes

(a), (b)

Finance lease:

Office equipment

3 to 5 years

Not applicable

(c)

(a)
There are no variable lease payments.
(b)
Rent escalation provisions exist.
(c)
There is a bargain purchase option.

As of March 31, 2023, maturities of lease liabilities were as follows:

 

 

Leases

 

 

 

Operating

 

 

Finance

 

Due in 12 months following March 31,

 

 

 

 

 

 

2023

 

$

258

 

 

$

9

 

2024

 

 

255

 

 

 

1

 

2025

 

 

264

 

 

 

 

2026

 

 

274

 

 

 

 

2027

 

 

315

 

 

 

 

Thereafter

 

 

336

 

 

 

 

Total lease payments

 

 

1,702

 

 

 

10

 

Less: interest

 

 

280

 

 

 

 

Total lease obligations

 

$

1,422

 

 

$

10

 

3831


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 14 -- 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,

 

 

 

2022

 

 

2021

 

Operating leases:

 

 

 

 

 

 

ROU assets

 

$

1,597

 

 

$

2,204

 

Liabilities

 

$

1,539

 

 

$

2,203

 

Finance leases:

 

 

 

 

 

 

ROU assets

 

$

80

 

 

$

86

 

Liabilities

 

$

17

 

 

$

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 51 months

Yes

(a), (b)

Office space

3 to 9 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 30, 2022, maturities of lease liabilities were as follows:

 

 

Leases

 

 

 

Operating

 

 

Finance

 

Due in 12 months following September 30,

 

 

 

 

 

 

2022

 

$

917

 

 

$

15

 

2023

 

 

92

 

 

 

2

 

2024

 

 

96

 

 

 

 

2025

 

 

101

 

 

 

 

2026

 

 

106

 

 

 

 

Thereafter

 

 

393

 

 

 

 

Total lease payments

 

 

1,705

 

 

 

17

 

Less: interest

 

 

166

 

 

 

 

Total lease obligations

 

$

1,539

 

 

$

17

 

39


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

 

 

Three Months Ended

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization – ROU assets*

 

$

4

 

 

$

4

 

 

$

14

 

 

$

13

 

 

$

4

 

 

$

5

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

1

 

Operating lease costs*

 

 

281

 

 

 

386

 

 

 

937

 

 

 

1,231

 

 

 

52

 

 

 

374

 

Short-term lease costs*

 

 

105

 

 

 

100

 

 

 

306

 

 

 

250

 

 

 

93

 

 

 

110

 

Total lease costs

 

$

390

 

 

$

490

 

 

$

1,257

 

 

$

1,495

 

 

$

149

 

 

$

489

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows – finance leases

 

 

 

 

 

 

$

 

 

$

1

 

Operating cash flows – operating leases

 

 

 

 

 

 

$

924

 

 

$

1,237

 

 

$

44

 

 

$

372

 

Financing cash flows – finance leases

 

 

 

 

 

 

$

14

 

 

$

14

 

 

$

4

 

 

$

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

2022

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

Weighted-average remaining lease term:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases (in years)

 

 

1.3

 

 

 

 

 

 

 

 

 

 

 

0.9

 

 

 

 

Operating leases (in years)

 

 

4.3

 

 

 

 

 

 

 

 

 

 

 

6.4

 

 

 

 

Weighted-average discount rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases (%)

 

 

3.4

%

 

 

 

 

 

 

 

 

 

 

 

3.3

%

 

 

 

Operating leases (%)

 

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

5.9

%

 

 

 

* 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 2015 years

Yes

(e)(d)

Boat docks/wet slips

1 to 12 months

Yes

(e)(d)

(e)(d)
There are no purchase options.

Note 1516 -- Income Taxes

During the three months ended September 30, 2022 and 2021, the Company recorded approximately $12,099 and $1,636, respectively, of income tax benefits, which resulted in effective tax rates of 19.0% and 25.2%, respectively. The decrease in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to a valuation allowance established during the third quarter of 2022 and an increase in non-deductible compensation expense related to restricted stock granted to certain executives, offset by the increased Florida corporate tax rate effective January 1, 2022. A valuation allowance must be established for deferred tax assets when it is more likely than not that the deferred tax assets will not be realized based on available evidence both positive and negative, including recent operating results, available tax planning strategies, and projected future taxable income. As of December 31, 2022, management concluded that it was more likely than not that the deferred tax assets would not be realized and therefore recorded a valuation allowance. The Company evaluates the realizability of its deferred tax assets each quarter, and as of March 31, 2023, based on all of the available evidence, management concluded that it is more likely than not that the deferred tax assets will be realized and therefore is releasing the entire valuation allowance in 2023, as a part of the effective tax rate. During the first quarter of 2023, approximately $890 of valuation allowance was released through income tax expense.

4032


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

and projected future taxable income. Management concluded that the negative evidence outweighed the positive evidence and therefore recorded a valuation allowance on the Company’s deferred tax assets as of September 30, 2022.

During the ninethree months ended September 30,March 31, 2023 and 2022, the Company recorded approximately $13,9075,343 of income tax benefit, which resulted in an effective tax rate of 19.5%. During the nine months ended September 30, 2021, the Company recorded approximatelyand $2,8881,210, respectively, of income tax expense, which resulted in an effective tax raterates of 33.223.1%. and 30.2%, respectively. The decrease in the effective tax rate in 2022 as compared with the corresponding period in the prior year was primarily attributable to the recognitionrelease of tax benefits attributable to restricted stock that vestedvaluation allowance established in February and May2022 during the first quarter of 20222023 and the valuation allowance as described above.decrease in non-deductible compensation expense. 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 1617 -- 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:

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

September 30, 2022

 

 

September 30, 2021

 

 

 

Loss

 

 

Shares (a)

 

 

Per Share

 

 

Loss

 

 

Shares (a)

 

 

Per Share

 

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

Net loss

 

$

(51,503

)

 

 

 

 

 

 

 

$

(4,868

)

 

 

 

 

 

 

Less: Net income attributable to redeemable
   noncontrolling interest

 

 

(2,285

)

 

 

 

 

 

 

 

 

(2,202

)

 

 

 

 

 

 

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

 

 

2,829

 

 

 

 

 

 

 

 

 

774

 

 

 

 

 

 

 

Net loss attributable to HCI

 

 

(50,959

)

 

 

 

 

 

 

 

 

(6,296

)

 

 

 

 

 

 

Less: Loss attributable to participating
   securities

 

 

3,289

 

 

 

 

 

 

 

 

 

537

 

 

 

 

 

 

 

Basic Loss Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss allocated to common stockholders

 

 

(47,670

)

 

 

8,427

 

 

$

(5.66

)

 

 

(5,759

)

 

 

8,023

 

 

$

(0.72

)

Effect of Dilutive Securities: *

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible senior notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Loss Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss available to common stockholders and
   assumed conversions

 

$

(47,670

)

 

 

8,427

 

 

$

(5.66

)

 

$

(5,759

)

 

 

8,023

 

 

$

(0.72

)

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2023

 

 

March 31, 2022

 

 

 

Income

 

 

Shares (a)

 

 

Per Share

 

 

Income

 

 

Shares (a)

 

 

Per Share

 

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

Net income

 

$

17,793

 

 

 

 

 

 

 

 

$

2,791

 

 

 

 

 

 

 

Less: Net income attributable to redeemable
   noncontrolling interest

 

 

(2,324

)

 

 

 

 

 

 

 

 

(2,248

)

 

 

 

 

 

 

Less: TypTap Group’s net (income) loss
   attributable to non-HCI common
   stockholders and TypTap Group’s
   participating securities

 

 

(131

)

 

 

 

 

 

 

 

 

360

 

 

 

 

 

 

 

Net income attributable to HCI

 

 

15,338

 

 

 

 

 

 

 

 

 

903

 

 

 

 

 

 

 

Less: Income attributable to participating
   securities

 

 

(564

)

 

 

 

 

 

 

 

 

(52

)

 

 

 

 

 

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income allocated to common stockholders

 

 

14,774

 

 

 

8,278

 

 

$

1.78

 

 

 

851

 

 

 

9,479

 

 

$

0.09

 

Effect of Dilutive Securities: *

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

45

 

 

 

 

 

 

 

 

 

135

 

 

 

 

Convertible senior notes

 

 

1,921

 

 

 

2,537

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

153

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders
   and assumed conversions

 

$

16,695

 

 

 

10,860

 

 

$

1.54

 

 

$

851

 

 

 

9,767

 

 

$

0.09

 

(a)
Shares in thousands.

* For the three months ended March 31, 2023, warrants were excluded due to anti-dilutive effect. For the three months ended March 31, 2022, convertible senior notes were excluded due to anti-dilutive effect.

(a)

Shares in thousands.

*

For the three months ended September 30, 2022 and 2021, respectively, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect.

4133


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2022

 

 

September 30, 2021

 

 

 

Loss

 

 

Shares (a)

 

 

Per Share

 

 

Income

 

 

Shares (a)

 

 

Per Share

 

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

Net (loss) income

 

$

(57,254

)

 

 

 

 

 

 

 

$

5,807

 

 

 

 

 

 

 

Less: Net income attributable to redeemable
   noncontrolling interest

 

 

(6,801

)

 

 

 

 

 

 

 

 

(5,175

)

 

 

 

 

 

 

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

 

 

4,018

 

 

 

 

 

 

 

 

 

1,191

 

 

 

 

 

 

 

Net (loss) income attributable to HCI

 

 

(60,037

)

 

 

 

 

 

 

 

 

1,823

 

 

 

 

 

 

 

Less: Loss (income) attributable to
   participating securities

 

 

3,855

 

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

Basic (Loss) Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income allocated to common
   stockholders

 

 

(56,182

)

 

 

8,972

 

 

$

(6.26

)

 

 

1,786

 

 

 

7,676

 

 

$

0.23

 

Effect of Dilutive Securities: *

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

182

 

 

 

 

Convertible senior notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

234

 

 

 

 

Diluted (Loss) Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income available to common
   stockholders and assumed conversions

 

$

(56,182

)

 

 

8,972

 

 

$

(6.26

)

 

$

1,786

 

 

 

8,092

 

 

$

0.22

 

(a)

Shares in thousands.

*

For the nine months ended September 30, 2022, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect. For the nine months ended September 30, 2021, convertible senior notes were excluded due to anti-dilutive effect.

Note 1718 -- Redeemable Noncontrolling Interest

The following table summarizes the activity of redeemable noncontrolling interest during the ninethree months ended September 30, 2022March 31, 2023 and 2021:2022:

 

 

2022

 

 

2021

 

Balance at January 1

 

$

89,955

 

 

$

 

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

 

 

1,342

 

 

 

458

 

Accretion - increasing dividend rates

 

 

906

 

 

 

336

 

Dividends paid

 

 

(2,508

)

 

 

 

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

 

Increase (decrease):

 

 

 

 

 

 

Accrued cash dividends

 

 

1,499

 

 

 

1,250

 

Accretion - increasing dividend rates

 

 

786

 

 

 

952

 

Dividends paid

 

 

(3,000

)

 

 

(2,542

)

Balance at September 30

 

$

91,248

 

 

$

87,731

 

42


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

 

 

2023

 

 

2022

 

Balance at January 1

 

$

93,553

 

 

$

89,955

 

Increase (decrease):

 

 

 

 

 

 

Accrued cash dividends

 

 

1,637

 

 

 

1,342

 

Accretion - increasing dividend rates

 

 

687

 

 

 

906

 

Dividends paid

 

 

(3,012

)

 

 

(2,508

)

Balance at March 31

 

$

92,865

 

 

$

89,695

 

For the three months ended September 30,March 31, 2023 and 2022, and 2021, net income attributable to redeemable noncontrolling interest was $2,2852,324 and $2,2022,248, respectively, consisting of accrued cash dividends of $1,4991,637 and $1,2501,342, respectively, and accretion related to increasing dividend rates of $786687 and $952, respectively. For the nine months ended September 30, 2022 and 2021, net income attributable to redeemable noncontrolling interest was $6,801 and $5,175, respectively, consisting of accrued cash dividends of $4,341 and $2,958, respectively, and accretion related to increasing dividend rates of $2,460 and $2,217906, respectively.

Note 1819 -- Equity

Stockholders’ Equity

Common Stock

The Company’s 2022 stock repurchase plan was considered expired and there was no new stock repurchase plan approved by the Board of Directors during the first quarter of 2023.

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 months ended September 30,March 31, 2022, there were no shares repurchased by the Company repurchased and retired a total of 119,462 shares at a weighted average price per share of $51.69under this authorizedthe 2022 stock repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended September 30, 2022 was $6,179 or $51.72 per share. During the nine months ended September 30, 2022, the Company repurchased and retired a total of 148,927 shares at a weighted average price per share of $54.11 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the nine months ended September 30, 2022 was $8,063 or $54.14 per share.

On July 14, 2022January 11, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends were paid on September 16, 2022March 17, 2023 to stockholders of record on August 19, 2022February 17, 2023.

Warrants

At September 30, 2022,March 31, 2023, there were warrants outstanding and exercisable to purchase 750,000 shares of HCI common stock at an exercise price of $54.40. The warrants expire on February 26, 2025.

Share Repurchase Agreement

In conjunction with the issuance of the 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 the net proceeds to repurchase

43


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

and retire an aggregate of 1,037,600 shares of its common stock at a price of $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 conjunction with the 2017 issuance of the 4.25% Convertible Senior Notes, was physically settled with the delivery from Societe Generale of 191,100 shares of HCI’s common stock to the Company.

Noncontrolling Interests

At September 30, 2022,March 31, 2023, there were 81,139,22181,016,355 shares of TTIG’s common stock outstanding, of which 6,139,2216,016,355 shares were not owned by HCI.

During the three and nine months ended September 30,March 31, 2023 and 2022, TTIG repurchased and retired a total of 2,89334,108 and 69,87621,744 shares, respectively, 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 during the three and nine months ended September 30,March 31, 2023 and 2022 was $17198 and $406127, respectively.

34


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 1920 -- 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, 2022,March 31, 2023, there were 1,110,6051,112,330 shares available for grant.

Stock Options

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

44


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

A summary of the stock option activity for the three and nine months ended September 30,March 31, 2023 and 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

 

Outstanding at September 30, 2022

 

 

440,000

 

 

$

45.25

 

 

5.8 years

 

$

117

 

Exercisable at September 30, 2022

 

 

357,500

 

 

$

44.23

 

 

5.5 years

 

$

117

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

Term

 

Value

 

Outstanding at January 1, 2023

 

 

440,000

 

 

$

45.25

 

 

5.6 years

 

$

 

Outstanding at March 31, 2023

 

 

440,000

 

 

$

45.25

 

 

5.3 years

 

$

3,146

 

Exercisable at March 31, 2023

 

 

412,500

 

 

$

45.07

 

 

5.2 years

 

$

3,031

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Exercisable at March 31, 2022

 

 

357,500

 

 

$

44.23

 

 

6.0 years

 

$

8,891

 

There were no options exercised during the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022. For the three months ended September 30,March 31, 2023 and 2022, and 2021, the Company recognized $16290 and $221184, respectively, of compensation expense related to stock options which wasis included in general and administrative personnel expenses. For the nine months ended September 30, 2022 and 2021, the Company recognized $507 and $663, respectively, of compensation expense. Deferred tax benefits related to stock options were $0 and $3for the three months ended September 30,March 31, 2023 and 2022. At March 31, 2023 and December 31, 2022, and 2021, respectively, andthere was $0246 and $4 for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and December 31, 2021, there was $498 and $1,005336, 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 1.110 years.months.

Restricted Stock Awards

From time to time, the Company has granted and may grant restricted stock awards to certain executive officers, other employees, and nonemployeenon-employee 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.

4535


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,March 31, 2023 and 2022 and 2021 is as follows:

 

Number of

 

 

Weighted

 

 

Number of

 

 

Weighted

 

 

Restricted

 

 

Average

 

 

Restricted

 

 

Average

 

 

Stock

 

 

Grant Date

 

 

Stock

 

 

Grant Date

 

 

Awards

 

 

Fair Value

 

Nonvested at January 1, 2023

 

 

342,459

 

 

$

39.86

 

Granted

 

 

6,000

 

 

$

51.76

 

Vested

 

 

(40,352

)

 

$

54.83

 

Forfeited

 

 

(2,125

)

 

$

40.33

 

Nonvested at March 31, 2023

 

 

305,982

 

 

$

38.11

 

 

Awards

 

 

Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2022

 

 

679,997

 

 

$

39.72

 

 

 

679,997

 

 

$

39.72

 

Granted

 

 

4,000

 

 

$

70.58

 

 

 

4,000

 

 

$

70.58

 

Vested

 

 

(50,667

)

 

$

50.68

 

 

 

(50,667

)

 

$

50.68

 

Forfeited

 

 

(3,265

)

 

$

45.85

 

 

 

(3,265

)

 

$

45.85

 

Nonvested at March 31, 2022

 

 

630,065

 

 

$

39.00

 

 

 

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

 

Forfeited

 

 

(1,665

)

 

$

45.56

 

Nonvested at September 30, 2022

 

 

579,575

 

 

$

38.59

 

 

 

 

 

 

 

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

 

The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $3,0991,187 and $2,0393,268 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $9,551 and $6,280 for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022March 31, 2023 and December 31, 2021,2022, there was approximately $9,6707,086 and $18,9958,048, 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 2.22.0 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 months ended September 30, 2022March 31, 2023 and 2021.2022.

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Deferred tax benefits recognized

 

$

230

 

 

$

420

 

 

$

1,521

 

 

$

879

 

 

$

263

 

 

$

652

 

Tax benefits realized for restricted stock and
paid dividends

 

$

56

 

 

$

70

 

 

$

1,360

 

 

$

1,482

 

 

$

299

 

 

$

402

 

Fair value of vested restricted stock

 

$

 

 

$

 

 

$

4,871

 

 

$

4,742

 

 

$

2,213

 

 

$

2,568

 

46Subsidiary Equity Plan

For the three months ended March 31, 2023 and 2022, TypTap Group recognized compensation expense related to its stock-based awards of $829 and $885, respectively. At March 31, 2023 and December 31, 2022, there was $6,999 and $7,876, respectively, of unrecognized compensation expense related to nonvested restricted stock and stock options.

36


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

In February 2021, the Company cancelled 141,600 shares of restricted stock for employees who transitioned to TypTap Group. In exchange, these employees received replacement restricted stock issued under TTIG’s equity incentive plan.

Subsidiary Equity Plan

For the three months ended September 30, 2022 and 2021, TypTap Group recognized compensation expense related to its stock-based awards of $869 and $472, respectively. For the nine months ended September 30, 2022 and 2021, TypTap Group recognized compensation expense related to its stock-based awards of $2,651 and $2,286, respectively. At September 30, 2022 and December 31, 2021, there was $8,780 and $11,230, respectively, of unrecognized compensation expense related to nonvested restricted stock and stock options.

Note 2021 -- Commitments and Contingencies

Obligations under One Multi-Year Reinsurance ContractsContract

As of September 30, 2022,March 31, 2023, the Company has a contractual obligation related to one multi-year reinsurance 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 its respective experience account is positive at the end of each contract year. The table below representspresents the future minimum aggregate premium amounts payable to the reinsurer.

Due in 12 months following September 30,

 

 

 

2022

 

$

91,350

 

Due in 12 months following March 31,

 

 

 

2023

 

 

91,350

 

 

$

91,350

 

2024

 

 

91,350

 

Total

 

$

182,700

 

 

$

182,700

 

Capital Commitments

As described in Note 45 -- “Investments” under Limited Partnership Investments, the Company is contractually committed to capital contributions for limited partnership interests. At September 30, 2022,March 31, 2023, there was an aggregate unfunded balance of $6,2625,501.

FIGA Assessments

In October 2021,During 2022, the Florida Office of Insurance RegulationFLOIR approved a 2022 assessmentassessments for the Florida Insurance Guaranty Association (“FIGA”) which is necessaryin order to secure funds for the payment of covered claims relating to the liquidation of insolventthree insurance companies. The 2022FIGA assessments are levied on collected premiums of all covered lines of business except auto insurance. The surcharges, which are collectible from a policyholder, are assessed on new and renewal policies with specified effective dates.

The Company’s insurance subsidiaries, as member insurers, are required to collect and remit the pass-through assessments to FIGA on a quarterly basis. As of March 31, 2023, the FIGA assessments payable by the Company were $3,205.

Note 22 -- Subsequent Events

On April 10, 2023, the FLOIR approved an assessment for FIGA in order to secure funds for the payment of covered claims relating to the liquidation of one insurance company. The FIGA assessment iswill be levied at 0.701% 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. The FIGA assessment is levied at 1.3% on collected premiums of all covered lines of business except auto

47


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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.

In August 2022, the Florida Office of Insurance Regulation approved a 2023 assessment for FIGA which is necessary to secure funds for the payment of covered claims relating to the liquidation of two insurance companies. The 2023 FIGA assessment 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 JanuaryOctober 1, 2023 through December 31, 2023.

The Company’s insurance subsidiaries, as member insurers, are required to collect and remit the pass-through assessments to FIGA on a quarterly basis. As of September 30, 2022,2024 and continuing until the FIGA assessments payableend of the assessment year in which the Series 2023A Bonds issued by the Company were $2,858.

Note 21 -- Subsequent Events

In connection with the Company’s quota share reinsurance agreement to provide 100% reinsurance on all of United’s in-force, new and renewal policiesFlorida Insurance Assistance Interlocal Agency have been paid in the Southeast Region from June 1, 2022 through May 31, 2023, the Company began renewing and/or replacing United’s policies in Georgia on October 1, 2022.

On October 5, 2022, 231,516 shares of restricted stock issued to employees vested one year subsequent to satisfaction of a market-based vesting condition on October 5, 2021. The restricted shares were granted in February 2021 with a grant date fair value of $36.57 per share. The Company repurchased and retired a total of 80,339 shares surrendered to satisfy payroll tax liabilities associated with the vesting of these restricted shares.

On October 7, 2022, the Company received the entirety of the $5,457 amount receivable pursuant to retrospective provisions under the Company’s previous two multi-year reinsurance contracts which were commuted effective May 31, 2022.full.

On October 13, 2022April 14, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on DecemberJune 16, 20222023 to stockholders of record on November 18, 2022May 19, 2023.

On November 7, 2022,April 19, 2023, the Company executed an amendment to the revolving credit facility with Fifth Third Bank. Under the terms of the amendment, the maximum debt-to-capital ratio as definedincorporated a new property and casualty insurance subsidiary, Tailrow Insurance Company (“Tailrow”), in the credit agreement is set at 67.5% and the borrowing capacityState of the line of credit is set at $50,000. This summary of the amendment is qualified in its entirety by reference to the Fourth Amendment to Credit Agreement, which is filed as Exhibit 10.61 to this Quarterly Report on Form 10-Q.Florida. Tailrow currently has no operations.

4837


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 10, 2022.2023. 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 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,information technology services, insurance management, real estate and information technology. After the reorganization of our business in the first quarter of 2021, we nowreinsurance. We manage our operations in the following organizational segments, based on managerial emphasis and evaluation of financial and operating performances:

a)
HCPCI Insurance Operations
Property and casualty insurance
Reinsurance and other auxiliary operations
b)
TypTap Group
Property and casualty insurance
Information technology
c)
Real Estate Operations
d)
Other Operations
Holding company operations

For the three months ended September 30,March 31, 2023 and 2022, and 2021, revenues from HCPCI insurance operations before intracompany elimination represented 60.5%61.2% and 73.9%69.8%, respectively, and revenues from TypTap Group represented 29.9% and 24.0%, respectively, of total revenues of all operating segments. For the nine months ended September 30, 2022 and 2021, revenues from HCPCI insurance operations before intracompany

4938


elimination represented 66.6%36.5% and 76.4%, respectively, and revenues from TypTap Group represented 28.7% and 20.7%28.3%, respectively, of total revenues of all operating segments. At September 30, 2022March 31, 2023 and December 31, 2021,2022, HCPCI insurance operations’ total assets represented 55.9%52.5% and 58.7%53.4%, respectively, and TypTap Group’s total assets represented 36.7%39.0% and 29.3%37.9%, respectively, of the combined assets of all operating segments. See Note 1314 -- “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.

In 2021,Due to the reduced availability and affordability of flood reinsurance coverage, HCPCI began providing quota share reinsurance on all in-force, new and renewal policies issued by United in the Northeast Region. HCPCI began renewing and/or replacing Unitedwill cease to offer flood insurance policies in two states in December 2021, a third state in January 2022, and the fourth state in April2023. Gross premiums earned from such policies comprised less than 1% of total HCPCI gross premiums earned during 2022.

In February 2022, HCPCI entered into another reinsurance agreement with United where HCPCI provides 85% quota share reinsurance on all of United’s personal lines insurance business in the states of Georgia, North Carolina, and South Carolina (collectively “Southeast Region”) from December 31, 2021 through May 31, 2022. Under this agreement, HCPCI paid United a catastrophe allowance of 9% of premium and a provisional ceding commission of 25% of premium. In September 2022, HCPCI began renewing United’s policies in South Carolina.

Reinsurance and other auxiliary operations

We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd.Ltd (“Claddaugh”). 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, however Claddaugh did not enter into any retrocession contracts for the 2022-2023 treaty year. 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”), 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 internally developed technology to collect and analyze claims and other supplemental data to generate savings and efficiency for its insurance operations.

Property and Casualty Insurance

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 85,781102,839 at September 30, 2022.March 31, 2023. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently. As of November 2, 2022,April 28, 2023, TypTap has been approved to offer

50


homeowners coverage in 1929 states outside of Florida.

TypTap is currently operating in 12 states. In additionalso phasing out its flood insurance products during 2023 due to the expansion inreduced availability and affordability of flood reinsurance coverage. Gross premiums earned from such policies comprised less than 5% of total TypTap business, we also expect continued growth from the United policies assigned to TypTap through the renewal rights agreements acquired by HCI.

In 2021, TypTap began providing quota share reinsurance on all in-force, new and renewal policies issued by United in the 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 Aprilgross premiums earned during 2022.

In June 2022, TypTap entered into a new reinsurance agreement with United where TypTap provides 100% quota share reinsurance on all of United’s personal lines insurance business in the Southeast Region from June 1, 2022 through May 31, 2023. In exchange, TypTap pays United a ceding commission of 16% of premium. Simultaneously, TypTap began renewing United’s policies in South Carolina.39


Information Technology

Our information technology operations include a team of experienced software developers with extensive knowledge in developingdesigning and creating web-based products and applications for mobile devices.applications. The operations, which are located in Tampa, Florida and Noida, India, are focused on developing cloud-based, innovative products and 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 ClaimColonyTM.

Real Estate Operations

Our real estate operations consist of multiple properties we own and operate for investment purposes and also properties we own and use for our own operations and multiple properties we own and operate for investment purposes.operations. Properties used in operations consist of onetwo Tampa office buildingbuildings and 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.

In July 2022,March 2023, we closed on our agreement to sell 1.5 acresfinalized the sales of landtwo retail shopping center investment properties in Tampa, Florida to the FDOT in connection with an eminent domain proceeding for a planned road improvement project.Melbourne and Sorrento, Florida. See Real Estate Investments under Note 45 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

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.

51


Impact of Hurricane Ian

On September 28, 2022, Hurricane Ian made landfall in southwestern Florida as a dangerous, high-end Category 4 storm. After crossing the Florida peninsula, it made a second landfall on September 30, 2022 in coastal South Carolina. On a pre-tax consolidated basis, estimated gross losses related to Hurricane Ian totaled $970,000,000. After anticipated reinsurance recoveries, we incurred a net estimated loss of approximately $65,000,000. Gross loss estimates, including loss adjustment expenses, for HCPCI and TypTap were $550,518,000 and $419,482,000, respectively.

As a result of Hurricane Ian, the balance of previously accrued benefits under one multi-year reinsurance contract with retrospective provisions was decreased by $12,600,000 during the third quarter of 2022. Assuming the lack of more storm events, benefits remain available in future periods but at reduced amounts. In addition, we recognized an allowance for credit losses of approximately $399,000 related to Hurricane Ian’s unpaid ceded reinsurance recoverable.

On September 28, 2022, the Florida Office of Insurance Regulation issued an emergency order in response to Hurricane Ian preventing insurers regulated under the Florida Insurance Code from cancelling or non-renewing a policy as well as issuing a notice of cancellation or nonrenewal of a policy between September 28, 2022 and November 28, 2022, except at the written request of the policyholder. This rule does not apply to new policies effective on or after September 28, 2022.

Recent Events

In connection with our quota share reinsurance agreement to provide 100% reinsurance on all of United’s in-force, new and renewal policies in the Southeast Region from June 1, 2022 through May 31,On April 14, 2023, we began renewing and/or replacing United’s policies in Georgia on October 1, 2022.

On October 5, 2022, 231,516 shares of restricted stock issued to employees vested one year subsequent to satisfaction of a market-based vesting condition on October 5, 2021. The restricted shares were granted in February 2021 with a grant date fair value of $36.57 per share. We repurchased and retired a total of 80,339 shares surrendered to satisfy payroll tax liabilities associated with the vesting of these restricted shares.

On October 7, 2022, we received the entirety of the $5,457,000 amount receivable pursuant to retrospective provisions under our previous two multi-year reinsurance contracts which were commuted effective May 31, 2022.

On October 13, 2022, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on DecemberJune 16, 20222023 to stockholders of record on November 18, 2022.May 19, 2023.

On November 7, 2022,April 19, 2023, we executed an amendment to our revolving credit facility with Fifth Third Bank. Under the terms of the amendment, the maximum debt-to-capital ratio as definedincorporated a new property and casualty insurance subsidiary, Tailrow Insurance Company (“Tailrow”), in the credit agreement is set at 67.5% and the borrowing capacityState of the line of credit is set at $50,000,000. This summary of the amendment is qualified in its entirety by reference to the Fourth Amendment to Credit Agreement, which is filed as Exhibit 10.61 to this Quarterly Report on Form 10-Q.Florida. Tailrow currently has no operations.

5240


RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 (dollar amounts in thousands, except per share amounts):

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned

 

$

181,713

 

 

$

149,809

 

 

$

541,762

 

 

$

420,191

 

 

$

180,068

 

 

$

178,925

 

Premiums ceded

 

 

(74,741

)

 

 

(55,577

)

 

 

(184,108

)

 

 

(145,112

)

 

 

(70,509

)

 

 

(53,162

)

Net premiums earned

 

 

106,972

 

 

 

94,232

 

 

 

357,654

 

 

 

275,079

 

 

 

109,559

 

 

 

125,763

 

Net investment income

 

 

18,530

 

 

 

2,520

 

 

 

25,082

 

 

 

9,749

 

 

 

17,715

 

 

 

2,868

 

Net realized investment (losses) gains

 

 

(884

)

 

 

1,232

 

 

 

(1,204

)

 

 

4,952

 

Net unrealized investment losses

 

 

(347

)

 

 

(1,869

)

 

 

(8,157

)

 

 

(649

)

Net realized investment losses

 

 

(1,149

)

 

 

(314

)

Net unrealized investment gains (losses)

 

 

529

 

 

 

(3,576

)

Policy fee income

 

 

1,071

 

 

 

1,000

 

 

 

3,180

 

 

 

2,962

 

 

 

1,090

 

 

 

1,057

 

Other income

 

 

1,312

 

 

 

2,102

 

 

 

3,065

 

 

 

3,502

 

 

 

1,285

 

 

 

1,242

 

Total revenue

 

 

126,654

 

 

 

99,217

 

 

 

379,620

 

 

 

295,595

 

 

 

129,029

 

 

 

127,040

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

139,794

 

 

 

62,664

 

 

 

299,328

 

 

 

164,332

 

 

 

60,565

 

 

 

72,704

 

Policy acquisition and other underwriting expenses

 

 

24,678

 

 

 

23,340

 

 

 

80,949

 

 

 

69,574

 

 

 

22,720

 

 

 

29,408

 

General and administrative personnel expenses

 

 

15,848

 

 

 

11,537

 

 

 

45,183

 

 

 

31,733

 

 

 

13,502

 

 

 

14,034

 

Interest expense

 

 

2,813

 

 

 

1,664

 

 

 

4,929

 

 

 

5,743

 

 

 

2,801

 

 

 

601

 

Debt conversion expense

 

 

 

 

 

1,273

 

 

 

 

 

 

1,273

 

Other operating expenses

 

 

7,123

 

 

 

5,243

 

 

 

20,392

 

 

 

14,245

 

 

 

6,305

 

 

 

6,292

 

Total expenses

 

 

190,256

 

 

 

105,721

 

 

 

450,781

 

 

 

286,900

 

 

 

105,893

 

 

 

123,039

 

(Loss) income before income taxes

 

 

(63,602

)

 

 

(6,504

)

 

 

(71,161

)

 

 

8,695

 

Income tax (benefit) expense

 

 

(12,099

)

 

 

(1,636

)

 

 

(13,907

)

 

 

2,888

 

Net (loss) income

 

 

(51,503

)

 

 

(4,868

)

 

 

(57,254

)

 

 

5,807

 

Net loss (income) attributable to noncontrolling interests

 

 

544

 

 

 

(1,369

)

 

 

(2,783

)

 

 

(3,979

)

Net (loss) income after noncontrolling interests

 

$

(50,959

)

 

$

(6,237

)

 

$

(60,037

)

 

$

1,828

 

Income before income taxes

 

 

23,136

 

 

 

4,001

 

Income tax expense

 

 

5,343

 

 

 

1,210

 

Net income

 

 

17,793

 

 

 

2,791

 

Net income attributable to noncontrolling interests

 

 

(2,455

)

 

 

(1,888

)

Net income after noncontrolling interests

 

$

15,338

 

 

$

903

 

Ratios to Net Premiums Earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Ratio

 

 

130.68

%

 

 

66.50

%

 

 

83.69

%

 

 

59.74

%

 

 

55.28

%

 

 

57.81

%

Expense Ratio

 

 

47.18

%

 

 

45.69

%

 

 

42.35

%

 

 

44.56

%

 

 

41.37

%

 

 

40.02

%

Combined Ratio

 

 

177.86

%

 

 

112.19

%

 

 

126.04

%

 

 

104.30

%

 

 

96.65

%

 

 

97.83

%

Ratios to Gross Premiums Earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Ratio

 

 

76.93

%

 

 

41.83

%

 

 

55.25

%

 

 

39.11

%

 

 

33.63

%

 

 

40.63

%

Expense Ratio

 

 

27.77

%

 

 

28.74

%

 

 

27.96

%

 

 

29.17

%

 

 

25.17

%

 

 

28.14

%

Combined Ratio

 

 

104.70

%

 

 

70.57

%

 

 

83.21

%

 

 

68.28

%

 

 

58.80

%

 

 

68.77

%

(Loss) Earnings Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share Data:

 

 

 

 

 

 

Basic

 

$

(5.66

)

 

$

(0.72

)

 

$

(6.26

)

 

$

0.23

 

 

$

1.78

 

 

$

0.09

 

Diluted

 

$

(5.66

)

 

$

(0.72

)

 

$

(6.26

)

 

$

0.22

 

 

$

1.54

 

 

$

0.09

 

Comparison of the Three Months Ended September 30, 2022March 31, 2023 to the Three Months Ended September 30, 2021March 31, 2022

Our results of operations for the three months ended September 30, 2022March 31, 2023 reflect net lossincome of approximately $51,503,000$17,793,000 or $5.66 loss$1.54 diluted earnings per share, compared with approximately $4,868,000$2,791,000 or $0.72 loss$0.09 diluted earnings per share, for the three months ended September 30, 2021.March 31, 2022. The quarter-over-quarter decreaseincrease was primarily due to a $77,130,000 increase in losses and loss adjustment expenses, a $4,311,000 increase in general and administrative personnel expenses, and a $1,880,000 increase in other operating expenses, offset by a $15,416,000an $18,117,000 net increase in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains or losses), a $12,139,000 decrease in losses and loss adjustment expenses, and a $12,740,000$6,688,000 decrease in policy acquisition and other underwriting expenses, offset by a $17,347,000 increase in net premiums earned.ceded and a $2,200,000 increase in interest expense.

5341


Revenue

Gross Premiums Earned on a consolidated basis for the three months ended September 30,March 31, 2023 and 2022 and 2021 were approximately $181,713,000$180,068,000 and $149,809,000,$178,925,000, respectively. HCPCI gross premiums earned were $98,985,000 forThe $1,143,000 increase was primarily attributable to the three months ended September 30, 2022 compared to $98,256,000 foreffect of premium rate increases, offset by a reduction in the three months ended September 30, 2021.number of policies in force. Gross premiums earned from the United insurance policies assumed were $15,597,000$7,163,000 for the three months ended September 30, 2022March 31, 2023 compared to $29,046,000with $30,079,000 for the three months ended September 30, 2021.March 31, 2022. HCPCI gross premiums earned were $92,456,000 for the three months ended March 31, 2023 compared with $118,303,000 for the three months ended March 31, 2022. TypTap’s gross premiums earned were $82,728,000 versus $51,553,000$87,612,000 compared with $60,622,000 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, 2022.

Premiums Ceded for the three months ended September 30,March 31, 2023 and 2022 and 2021 were approximately $74,741,000$70,509,000 and $55,577,000,$53,162,000, respectively, representing 41.1%39.2% and 37.1%29.7%, respectively, of gross premiums earned. The $19,164,000$17,347,000 increase was primarily attributable to higher reinsurance costs for theeffective June 1, 2022 contract year due toand an increased overall reinsurance coverage amount as a result of premium growth and expansion. In addition, ceded premiums were increasedexpansion, offset by a reversal of $12,600,000 of previously accrued benefitsnet reduction in premiums ceded attributable to retrospective provisions under multi-year reinsurance contracts due to the effects of Hurricane Ian.contracts.

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 30, 2022,March 31, 2023, premiums ceded included a decrease of $3,843,000$6,993,000 related to retrospective provisions compared with a decrease of $1,364,000$1,484,000 for the three months ended September 30, 2021.March 31, 2022. See “Economic Impact of Reinsurance ContractsContract with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”

Net Premiums Written for the three months ended September 30,March 31, 2023 and 2022 and 2021 totaled approximately $116,440,000$129,345,000 and $118,689,000,$124,132,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The decreaseincrease in 20222023 primarily resulted from the growth in TypTap’s business, offset by an increase in premiums ceded to reinsurers as described above. We had approximately 214,000216,300 policies in force at September 30, 2022 (excluding policies assumed from United)March 31, 2023 (direct and assumed) as compared with approximately 156,000283,900 policies in force at September 30, 2021.March 31, 2022.

Net Premiums Earned for the three months ended September 30,March 31, 2023 and 2022 and 2021 were approximately $106,972,000$109,559,000 and $94,232,000,$125,763,000, 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 30,March 31, 2023 and 2022 and 2021 (amounts in thousands):

 

Three Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2023

 

 

2022

 

Net Premiums Written

 

$

116,440

 

 

$

118,689

 

 

$

129,345

 

 

$

124,132

 

Increase in Unearned Premiums

 

 

(9,468

)

 

 

(24,457

)

(Increase) Decrease in Unearned Premiums

 

 

(19,786

)

 

 

1,631

 

Net Premiums Earned

 

$

106,972

 

 

$

94,232

 

 

$

109,559

 

 

$

125,763

 

5442


Net Investment Income for the three months ended September 30,March 31, 2023 and 2022 and 2021 was approximately $18,530,000$17,715,000 and $2,520,000,$2,868,000, respectively. The $16,010,000$14,847,000 increase was primarily attributable to a $13,592,000an $8,946,000 increase in income from real estate investments, a $1,859,000$3,587,000 increase in income from available-for-sale fixed-maturity securities and a $916,000$3,514,000 increase in interest income from cash and cash equivalents. See Net Investment Income (Loss)under Note 45 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Net Realized Investment Losses for the three months ended September 30,March 31, 2023 and 2022 were approximately $884,000 versus $1,232,000 of net realized investment gains for the three months ended September 30, 2021.$1,149,000 and $314,000, respectively. The $2,116,000 decrease$835,000 increase was primarily attributable to net realized losses of approximately $932,000$1,153,000 from sellingsales of fixed-maturity and equity securities during the three months ended September 30, 2022 as opposed toMarch 31, 2023 compared with net realized gainslosses of approximately $953,000$395,000 from selling equitysales of these securities during the corresponding period in 2021.2022.

Net Unrealized Investment LossesGains for the three months ended September 30, 2022 and 2021March 31, 2023 were approximately $347,000 and $1,869,000, respectively.$529,000 compared with approximately $3,576,000 of net unrealized investment losses for the three months ended March 31, 2022. The decreaseincrease was primarily attributable to an overall improvement in the equity market compared with the three months ended September 30, 2021.March 31, 2022.

Expenses

Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $139,794,000$60,565,000 and $62,664,000$72,704,000 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. HCPCIThe losses and loss adjustment expenses of HCPCI Insurance Operations were $73,228,000$28,782,000 and $43,995,000 for the three months ended September 30,March 31, 2023 and 2022, compared to $36,928,000 for the three months ended September 30, 2021.respectively. The increasedecrease was primarily attributable to $42,346,000the lower number of losses attributableFlorida and non-Florida policies as well as fewer claims and less litigation related to Hurricane Ian which struckFlorida policies as compared with the Southeastern United States in late September.first quarter of 2022. Losses and loss adjustment expenses for TypTap were $62,153,000 versus $24,224,000$33,056,000 compared with $28,988,000 for the same comparative period. The increase was attributable to $22,251,000 of losses attributable to Hurricane Ian, $6,750,000 of losses due toan increase in the greater number of TypTapnon-Florida policies, offset by a positive effect resulting from a decrease in force, $2,064,000the amount of additional losses fromclaims and litigation related to Florida policies assumed from United or any subsequent renewal or replacementwhen compared with the first quarter of United policies, and $6,818,000 of prior period loss development.2022. 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 30,March 31, 2023 and 2022 and 2021 were approximately $24,678,000$22,720,000 and $23,340,000$29,408,000 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 payablepaid to United, and premium taxes. Policy acquisition expenses for HCPCI insurance operationsInsurance Operations were $12,081,000$10,276,000 for the three months ended September 30, 2022March 31, 2023 compared to $13,035,000with $19,765,000 for the three months ended September 30, 2021.March 31, 2022. The decrease in amortized costs was primarily due to amortizationa reduction of decreased costs associated with the policies assumed from United or any subsequent renewal or replacement of United policies. An increase in policy acquisition costs primarily results from premium growth.force. TypTap Group policy acquisition expenses were $12,626,000 versus $10,360,000$12,474,000 compared with $9,705,000 for the same comparative period, with the increase attributable to amortization of increased commissionin amortized costs relatedattributable to the growth of TypTap’s non-Florida policies, offset by lower policy acquisition costs in force over the past 12 months.Florida resulting from lower commissions and a higher mix of renewal versus new business in Florida.

5543


General and Administrative Personnel Expenses for the three months ended September 30,March 31, 2023 and 2022 and 2021 were approximately $15,848,000$13,502,000 and $11,537,000,$14,034,000, 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 projectprojects 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 increasedecrease of $4,311,000$532,000 was primarily attributable to a decrease in stock-based compensation expense, offset by an increase in the headcount of temporary and full-time employees and merit increases for non-executive employees effective in late February 2022, and higher stock-based compensation expense.2023.

Interest Expense for the three months ended September 30,March 31, 2023 and 2022 and 2021 was approximately $2,813,000$2,801,000 and $1,664,000,$601,000, respectively. The increase primarily resulted from interest expense related to our 4.75% convertible senior notesConvertible Senior Notes issued in May 2022, offset by conversions of our 4.25% convertible senior notes during the second half of 2021.2022.

Income Tax BenefitsExpense for the three months ended September 30,March 31, 2023 and 2022 was approximately $5,343,000 and 2021 were approximately $12,099,000 and $1,636,000,$1,210,000, respectively, for state, federal, and foreign income taxes resulting in effective tax rates of 19.0%23.1% and 25.2%30.2%, respectively. The decrease in the effective tax rate was primarily attributable to athe release of valuation allowance established in 2022 during the thirdfirst quarter of 20222023 and an increasethe decrease in non-deductible compensation expense related to certain executive compensation, offset by the increased Florida corporate tax rate effective January 1, 2022.expense.

Ratios:

The loss ratio applicable to the three months ended September 30, 2022March 31, 2023 (losses and loss adjustment expenses incurred related to net premiums earned) was 130.7%55.3% compared with 66.5%57.8% for the three months ended September 30, 2021.March 31, 2022. The increasedecrease was primarily dueattributable to the increasedecrease in losses and loss adjustment expenses due to Hurricane Ian, offset in part byfewer claims and less litigation related to Florida policies as compared to the increase in net premiums earned.first quarter of 2022.

The expense ratio applicable to the three months ended September 30, 2022March 31, 2023 (defined as total expenses excluding losses and loss adjustment expenses related to net premiums earned) was 47.2%41.4% compared with 45.7%40.0% for the three months ended September 30, 2021.March 31, 2022. The increase in our expense ratio was primarily attributable to the increase in generalreinsurance costs and administrative personnel and other operating expenses,the increase in interest expense, offset in part by the decrease in debt conversion expense.policy acquisition and other underwriting 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 30, 2022March 31, 2023 was 177.9%96.7% compared with 112.2%97.8% for the three months ended September 30, 2021.March 31, 2022. The increasedecrease in 20222023 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 30, 2022March 31, 2023 was 104.7%58.8% compared with 70.6%68.8% for the three months ended September 30, 2021.March 31, 2022. The increasedecrease in 20222023 was primarily attributable to the increasedecrease in losses and loss adjustment expenses due to Hurricane Ian, offset byand the increase in gross premiums earned.

56


Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Our results of operations for the nine months ended September 30, 2022 reflect net loss of approximately $57,254,000 or $6.26 loss per share, compared with net income of approximately $5,807,000 or $0.22 diluted earnings per share, for the nine months ended September 30, 2021. The period-over-period decrease was primarily due to a $134,996,000 increase in losses and loss adjustment expenses, a $13,450,000 increase in general and administrative personnel expenses, and an $11,375,000 increase in policy acquisition and other underwriting expenses, offset by an increase in net premiums earned of $82,575,000, a $1,669,000 net increase in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains/losses), and an $814,000 decrease in interest expense.

Revenue

Gross Premiums Earned on a consolidated basis for the nine months ended September 30, 2022 and 2021 were approximately $541,762,000 and $420,191,000, respectively. HCPCI gross premiums earned were $330,969,000 for the nine months ended September 30, 2022 compared to $300,827,000 for the nine months ended September 30, 2021. Gross premiums earned from the United insurance policies assumed were $61,913,000 for the nine months ended September 30, 2022 compared to $73,403,000 for the nine months ended September 30, 2021. TypTap’s gross premiums earned were $210,793,000 versus $119,364,000 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, 2022.

Premiums Ceded for the nine months ended September 30, 2022 and 2021 were approximately $184,108,000 and $145,112,000, respectively, representing 34.0% and 34.5%, respectively, of gross premiums earned. The $38,996,000 increase was primarily attributable to higher reinsurance costs for the 2022 contract year due to an increased overall reinsurance coverage amount as a result of premium growth and expansion. In addition, ceded premiums were increased by a reversal of $12,600,000 of previously accrued benefits attributable to retrospective provisions under multi-year reinsurance contracts due to the effects of Hurricane Ian.

For the nine months ended September 30, 2022, premiums ceded included a decrease of $11,717,000 related to retrospective provisions compared with a net reduction of $9,619,000 for the nine months ended September 30, 2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”

Net Premiums Written for the nine months ended September 30, 2022 and 2021 totaled approximately $370,519,000 and $339,980,000, respectively. The $30,539,000 increase in 2022 resulted primarily from the factors described earlier.

Net Premiums Earned for the nine months ended September 30, 2022 and 2021 were approximately $357,654,000 and $275,079,000, 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 months ended September 30, 2022 and 2021 (amounts in thousands):

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2022

 

 

2021

 

Net Premiums Written

 

$

370,519

 

 

$

339,980

 

Increase in Unearned Premiums

 

 

(12,865

)

 

 

(64,901

)

Net Premiums Earned

 

$

357,654

 

 

$

275,079

 

57


Net Investment Income for the nine months ended September 30, 2022 and 2021 was approximately $25,082,000 and $9,749,000, respectively. The $15,333,000 increase was primarily attributable to a $12,136,000 increase in income from real estate investments, a $2,619,000 increase in income from available-for-sale fixed-maturity securities and a $1,050,000 increase in interest income from cash and cash equivalents. See Net Investment Income (Loss) under Note 4 -- “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 months ended September 30, 2022 and 2021 were approximately $8,157,000 and $649,000, respectively. The increase was primarily attributable to an overall deterioration in the equity market compared with the nine months ended September 30, 2021.

Expenses

Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $299,328,000 and $164,332,000 for the nine months ended September 30, 2022 and 2021, respectively. HCPCI losses and loss adjustment expenses were $165,915,000 for the nine months ended September 30, 2022 compared to $110,008,000 for the nine months ended September 30, 2021. The increase was primarily attributable to $42,346,000 of losses from Hurricane Ian, and a $14,928,000 net increase in losses attributable to the United policies due to an increase in the number of policies assumed from United or any subsequent renewal or replacement of United policies. Losses and loss adjustment expenses for TypTap were $129,833,000 versus $52,976,000 for the same comparative period. The increase was attributable to $22,251,000 of losses attributable to Hurricane Ian, $36,500,000 of losses due to the greater number of TypTap policies in force, $7,015,000 of additional losses from policies assumed from United or any subsequent renewal or replacement of United policies, and $10,990,000 of 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 months ended September 30, 2022 and 2021 were approximately $80,949,000 and $69,574,000 on a consolidated basis, respectively. Policy acquisition expenses for HCPCI insurance operations were $48,429,000 for the nine months ended September 30, 2022 compared to $46,076,000 for the nine months ended September 30, 2021. The increase was due to amortization of increased costs associated with the policies assumed from United or any subsequent renewal or replacement of United policies. TypTap Group policy acquisition expenses were $32,633,000 versus $23,612,000 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 or any subsequent renewal or replacement of United policies.

General and Administrative Personnel Expenses for the nine months ended September 30, 2022 and 2021 were approximately $45,183,000 and $31,733,000, respectively. The period-over-period increase of $13,450,000 was primarily attributable to an increase in the headcount of temporary and full-time employees, merit increases for non-executive employees effective in late February 2022, and higher stock-based compensation expense.

Interest Expense for the nine months ended September 30, 2022 and 2021 was approximately $4,929,000 and $5,743,000, 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 nine months ended September 30, 2022 was approximately $13,907,000 for state, federal, and foreign income taxes resulting in an effective tax rate of 19.5% for 2022. This compared with approximately $2,888,000 of income tax expense for the nine months ended September 30, 2021, resulting in an effective tax rate of 33.2% for 2021. The decrease in the effective tax rate was primarily attributable to a valuation

58


allowance established during the third quarter of 2022 and the recognition of tax benefits attributable to restricted stock that vested in February and May of 2022.


Ratios:

The loss ratio applicable to the nine months ended September 30, 2022 (losses and loss adjustment expenses incurred related to net premiums earned) was 83.7% compared with 59.7% for the nine months ended September 30, 2021. The increase was primarily due to the 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 months ended September 30, 2022 was 42.3% compared with 44.6% for the nine months ended September 30, 2021. The decrease in our expense ratio was primarily attributable to the increase in net premiums earned and the decrease in debt conversion 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 months ended September 30, 2022 was 126.0% compared with 104.3% for the nine months ended September 30, 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 months ended September 30, 2022 was 83.2% compared with 68.3% for the nine months ended September 30, 2021. The increase in 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.

44


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 on 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 on 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 andand/or 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 100approximately 90 days of the claim receipt date.

59


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 30, 2022:March 31, 2023:

Maturity Date

Payment Due Date

4.75% Convertible Senior Notes*

June 2042

June 1 and December 1**1

4.25% Convertible Senior NotesNotes**

March 2037

March 1 and September 1

3.75% Callable Promissory Note

Through September 2036

1st day of each month

4.55% Promissory Note

Through August 2036

1st day of each month

3.90% Promissory 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.

**

TheAt the option of the noteholders, we may be required to repurchase for cash interest is payable semiannually in arrearsall or any portion of the notes on JuneMarch 1, and December2027 or March 1, of each year, beginning on December 1, 2022.2032.

See Note 1011 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Share Repurchase Plan45


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 September 30, 2022, there was approximately $11,941,000 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. 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 the four of the remaining funds have expired, the general partners may request additional funds under certain circumstances. At September 30, 2022,March 31, 2023, there was an aggregate unfunded capital balance of $6,262,000.$5,501,000. See Limited Partnership Investments under Note 45 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.10-Q.

60


Real Estate 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.assets. Thus, we may consider increasingexpanding our real estate investment portfolio should an opportunity arise.

We currently havehad a 90% equity interest in FMKT Mel JV, LLC, a Florida limited liability company for which we arewere not the primary beneficiary. InFollowing the sale of its last remaining outparcel in June 2022, FMKT Mel JV sold its last outparcel and recognized a net gain of $572,000. FMKT Mel JV distributed its earnings during the third quarter of 2022 and is expected to bethe subsidiary was liquidated byin December 31, 2022. In January 2023, we received the final distribution of $18,000 from FMKT Mel JV.

Sources and Uses of Cash

Cash Flows for the NineThree Months Ended September 30, 2022

Net cash used in operating activities for the nine months ended September 30, 2022 was approximately $18,261,000, which consisted primarily of cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments less cash received from net premiums written and reinsurance recoveries (of approximately $34,222,000). Net cash used in investing activities of $311,352,000 was primarily due to the purchases of fixed-maturity and equity securities of $414,066,000, the purchases of property and equipment of $5,431,000, and the purchase of intangible assets from United of $3,800,000, offset by the proceeds from calls, repayments and maturities of fixed-maturity securities of $52,023,000, the proceeds from sales of fixed-maturity and equity securities of $41,010,000, $14,500,000 of compensation received for the property relinquished through eminent domain, and distributions received from limited partnership investments of $4,732,000. Net cash provided by financing activities totaled $56,955,000, which was primarily due to the proceeds from issuance of 4.75% Convertible Senior Notes of $172,500,000, offset by $76,166,000 of share repurchases, net repayment of our revolving credit facility of $15,000,000, $11,697,000 of net cash dividend payments, debt issuance costs paid of $6,014,000, cash dividends paid to redeemable noncontrolling interest of $5,508,000, and repayments of long-term debt of $754,000.

Cash Flows for the Nine Months Ended September 30, 2021March 31, 2023

Net cash provided by operating activities for the ninethree months ended September 30, 2021March 31, 2023 was approximately $48,671,000,$99,109,000, which consisted primarily of cash received from net premiums written, and reinsurance recoveries (ofof approximately $38,484,000)$94,412,000 less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided byused in investing activities of $35,087,000$17,757,000 was primarily due to the proceeds from salespurchases of fixed-maturity and equity securities of $100,130,000,$166,624,000 and purchases of property and equipment of $1,469,000, offset by the proceeds from calls, repayments and maturities of fixed-maturity securities of $16,734,000,$112,497,000, the proceeds from sales of real estate investments of $21,746,000, the proceeds from sales of fixed-maturity and equity securities of $14,814,000, and distributions received from limited partnership investments of $3,635,000, offset$1,602,000. Net cash used in financing activities totaled $14,100,000, which was primarily due to the redemption of long-term debt of $6,895,000, $3,432,000 of cash dividend payments, cash dividends paid to redeemable noncontrolling interest of $3,012,000, $305,000 of share repurchases, and repayments of long-term debt of $258,000.

Cash Flows for the Three Months Ended March 31, 2022

Net cash provided by operating activities for the three months ended March 31, 2022 was approximately $57,349,000, which consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $7,936,000 less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $109,899,000 was primarily due to the purchases of fixed-maturity and equity securities of $83,211,000,$134,043,000, the purchase of intangible assets from United of $3,800,000, and the purchases of property and equipment of $2,583,000.$1,861,000, offset by the proceeds from sales of fixed-maturity and equity securities of $27,427,000, the proceeds from calls, repayments and maturities of fixed-maturity securities of $1,250,000, and distributions received from limited partnership investments of $785,000. Net cash provided byused in financing activities totaled $54,077,000,$7,328,000, which consisted of net proceeds of $93,738,000 from Centerbridge for investment in TTIG, offset by $9,713,000was primarily due to $4,046,000 of net cash dividend

46


payments, net repaymentcash dividends paid to redeemable noncontrolling interest of our revolving credit facility$2,508,000, $398,000 of $23,750,000,share repurchases, and $1,308,000 used in share repurchases.repayments of long-term debt of $249,000.

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.

61


At September 30, 2022,March 31, 2023, we had $394,585,000$562,171,000 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.

In the future, we may alter our investment policy aswith regard 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 30, 2022,March 31, 2023, we had unexpired capital commitments for limited partnerships in which we hold interests. Such commitments are not recognized in the consolidated financial statements but are required to be disclosed in the notes to the consolidated financial statements. See Note 2021 -- “Commitments and Contingencies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q 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 consolidated 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.

47


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 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 30, 2022, $1,109,823,000March 31, 2023, $728,148,000 of the total $1,201,842,000$806,308,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $92,019,000$78,160,000 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 30, 2022, $39,773,000March 31, 2023, $71,832,000 of the $92,019,000$78,160,000 in reserves for known cases relates to claims incurred during prior years.

62


Our Reserves increaseddecreased from $237,165,000$863,765,000 at December 31, 20212022 to $1,201,842,000$806,308,000 at September 30, 2022.March 31, 2023. The $964,677,000 increase$57,457,000 decrease is comprised of $1,078,310,000 in reserves established for the 2022 loss year, offset by reductions in our Reserves of $30,787,000$57,247,000 primarily specific to Hurricane Irma,Ian and Hurricane Michael, Hurricane Sally and Tropical Storm Eta,Irma, and reductions in our non-catastrophe Reserves of $59,085,000$34,781,000 for 2022 and $11,018,000 for 2021 and $23,761,000 for 2020 and prior loss years.years, offset by $45,589,000 in reserves established for the 2023 loss year. The Reserves established for 20222023 claims isare primarily driven by an allowance for those claims that have been incurred but not reported to the company as of September 30, 2022.March 31, 2023. The decrease of $82,846,000$103,046,000 specific to our 20212022 and prior loss-yearloss-years 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 30, 2022March 31, 2023 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 ContractsContract with Retrospective Provisions

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.

Due to Hurricane Ian, the balance of previously accrued benefits under one multi-year reinsurance contract with retrospective provisions was decreased by $12,600,000 during the third quarter of 2022. For the three months ended September 30,March 31, 2023 and 2022, and 2021, we accrued benefits of $3,843,000$6,993,000 and $1,364,000, respectively. For the nine months ended September 30, 2022 and 2021, we accrued benefits of $11,717,000 and $9,619,000,$1,484,000, respectively. The accrual of benefits was recognized as a reduction in ceded premiums.

48


As of September 30, 2022,March 31, 2023, we had $14,781,000$23,310,000 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.

We believe the credit risk associated with the collectability of these accrued benefits is minimal based on available information about eachthe reinsurer’s financial position and eachthe reinsurer’s demonstrated ability to comply with contract terms. In October 2022, we received $5,457,000 in connection with the previous two multi-year reinsurance contracts which were commuted in May 2022.

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 10, 2022.2023. For the ninethree months ended September 30, 2022,March 31, 2023, there have been no other material changes with respect to any of our critical accounting policies.

RECENT ACCOUNTING PRONOUNCEMENTS

There have been noFor information with respect to recent accounting pronouncements or changes in recent accountingand the impact of these pronouncements during the nine months ended September 30, 2022, as comparedon our unaudited consolidated financial statements, see Note 3 -- “Recent Accounting Pronouncements” to those described in our Annualconsolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

6349


10-K for the fiscal year ended December 31, 2021, that are of significance, or potential significance, to the Company.

64


ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our investment portfoliosportfolio at September 30, 2022March 31, 2023 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 risklow-risk assets such as U.S. government bonds.

Our investment portfolios areportfolio is 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.portfolio.

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 30, 2022March 31, 2023 (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

 

$

344,606

 

 

$

(16,033

)

 

 

-4.45

%

 

$

509,109

 

 

$

(15,647

)

 

 

-2.98

%

200 basis point increase

 

 

349,950

 

 

 

(10,689

)

 

 

-2.96

%

 

 

514,325

 

 

 

(10,431

)

 

 

-1.99

%

100 basis point increase

 

 

355,294

 

 

 

(5,345

)

 

 

-1.48

%

 

 

519,540

 

 

 

(5,216

)

 

 

-0.99

%

100 basis point decrease

 

 

365,983

 

 

 

5,344

 

 

 

1.48

%

 

 

529,972

 

 

 

5,216

 

 

 

0.99

%

200 basis point decrease

 

 

371,323

 

 

 

10,684

 

 

 

2.96

%

 

 

535,188

 

 

 

10,432

 

 

 

1.99

%

300 basis point decrease

 

 

376,653

 

 

 

16,014

 

 

 

4.44

%

 

 

540,404

 

 

 

15,648

 

 

 

2.98

%

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.

6550


The following table presents the composition of our fixed-maturity securities, by rating, at September 30, 2022March 31, 2023 (amounts in thousands):

 

 

 

 

% of Total

 

 

 

 

 

% of Total

 

 

Cost or

 

 

% 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

 

$

97,275

 

 

 

26

 

 

$

97,154

 

 

 

27

 

 

$

157,981

 

 

 

30

 

 

$

158,007

 

 

 

30

 

AA+, AA, AA-

 

 

245,206

 

 

 

66

 

 

 

235,391

 

 

 

65

 

 

 

346,475

 

 

 

65

 

 

 

340,322

 

 

 

65

 

A+, A, A-

 

 

13,041

 

 

 

3

 

 

 

12,388

 

 

 

3

 

 

 

14,158

 

 

 

3

 

 

 

13,698

 

 

 

3

 

BBB+, BBB, BBB-

 

 

14,542

 

 

 

4

 

 

 

13,913

 

 

 

4

 

 

 

11,291

 

 

 

2

 

 

 

11,001

 

 

 

2

 

CCC+, CC and Not rated

 

 

1,813

 

 

 

1

 

 

 

1,793

 

 

 

1

 

BB+, BB, BB-

 

 

1,994

 

 

 

 

 

 

1,728

 

 

 

 

Total

 

$

371,877

 

 

 

100

 

 

$

360,639

 

 

 

100

 

 

$

531,899

 

 

 

100

 

 

$

524,756

 

 

 

100

 

Equity Price Risk

Our equity investment portfolio at September 30, 2022March 31, 2023 included common stocks, perpetual preferred stocks, mutual funds and exchange-traded funds. We may incur potential 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 30, 2022March 31, 2023 (amounts in thousands):

 

 

 

 

% of Total

 

 

 

 

 

% of Total

 

 

Estimated

 

 

Estimated

 

 

Estimated

 

 

Estimated

 

 

Fair Value

 

 

Fair Value

 

 

Fair Value

 

 

Fair Value

 

Stocks by sector:

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

$

6,294

 

 

 

18

 

 

$

7,605

 

 

 

20

 

Financial

 

 

4,984

 

 

 

15

 

 

 

4,481

 

 

 

12

 

Technology

 

 

1,664

 

 

 

5

 

 

 

1,901

 

 

 

5

 

Communications

 

 

1,706

 

 

 

5

 

Other (1)

 

 

2,481

 

 

 

7

 

 

 

998

 

 

 

3

 

 

 

15,423

 

 

 

45

 

 

 

16,691

 

 

 

45

 

Mutual funds and exchange-traded funds by type:

 

 

 

 

 

 

 

 

 

 

 

 

Debt

 

 

15,468

 

 

 

46

 

 

 

16,799

 

 

 

45

 

Equity

 

 

2,319

 

 

 

7

 

 

 

3,749

 

 

 

10

 

Alternative

 

 

736

 

 

 

2

 

 

 

176

 

 

 

 

 

 

18,523

 

 

 

55

 

 

 

20,724

 

 

 

55

 

Total

 

$

33,946

 

 

 

100

 

 

$

37,415

 

 

 

100

 

(1)
Represents an aggregate of less than 5% sectors.

Foreign Currency Exchange Risk

At September 30, 2022,March 31, 2023, we did not have any material exposure to foreign currency related risk.

6651


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 30, 2022March 31, 2023 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.

6752


PART II – OTHER INFORMATION

The Company isWe are 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

There have been no material changes 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 10, 2022.2023.

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

(a)
Sales of Unregistered Securities and Use of Proceeds

All information related to sales of unregistered securities have been reported in Current Report on Form 8-K filings.None.

(b)
Repurchases of Securities

The table below summarizes the number of common shares repurchased undersurrendered by employees to satisfy payroll tax liabilities associated with the 2022 repurchase plan approved by our Boardvesting of Directorsrestricted 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)

 

July 31, 2022

 

 

2,668

 

 

$

65.74

 

 

 

2,668

 

 

$

17,941

 

August 31, 2022

 

 

55,201

 

 

$

54.35

 

 

 

55,201

 

 

$

14,941

 

September 30, 2022

 

 

61,593

 

 

$

48.71

 

 

 

61,593

 

 

$

11,941

 

 

 

 

119,462

 

 

$

51.69

 

 

 

119,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

 

 

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

 

 

or Programs

 

January 31, 2023

 

 

 

 

$

 

 

 

 

 

$

 

February 28, 2023

 

 

5,884

 

 

$

51.76

 

 

 

 

 

$

 

March 31, 2023

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

5,884

 

 

$

51.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working Capital Restrictions and Other Limitations on the 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.

6853


Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholderstockholders 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 stockholderstockholders without prior approval of the Florida Office of Insurance Regulation (“FLOIR”) 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 RegulationFLOIR if (1) if the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards to 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 RegulationFLOIR 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 RegulationFLOIR or (2) 30 days after the Florida Office of Insurance RegulationFLOIR has received notice of such dividend or distribution and has not disapproved it within such time.

During the ninethree months ended September 30, 2022,March 31, 2023, our insurance subsidiaries paid dividends of $12,000,000$10,000,000 to HCI.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

None.

ITEM 5 – OTHER INFORMATION

None.

6954


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-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. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 9, 2022.

  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.

  4.9

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.

7055


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**

HCI Group, Inc. 2012 Omnibus Incentive Plan as revised April 26, 2022. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed 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

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). Incorporated by reference to Exhibit 10.131 to our Form 10-Q filed August 9, 2022.

10.9

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). Incorporated by reference to Exhibit 10.132 to our Form 10-Q filed August 9, 2022.

10.10

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). Incorporated by reference to Exhibit 10.133 to our Form 10-Q filed August 9, 2022.

10.11

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). Incorporated by reference to Exhibit 10.134 to our Form 10-Q filed August 9, 2022.

10.12

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). Incorporated by reference to Exhibit 10.135 to our Form 10-Q filed August 9, 2022.

10.13

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). Incorporated by reference to Exhibit 10.136 to our Form 10-Q filed August 9, 2022.

10.14

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). Incorporated by reference to Exhibit 10.137 to our Form 10-Q filed August 9, 2022.

10.15

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). Incorporated by reference to Exhibit 10.138 to our Form 10-Q filed August 9, 2022.

7156


10.16

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). Incorporated by reference to Exhibit 10.139 to our Form 10-Q filed August 9, 2022.

10.17

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). Incorporated by reference to Exhibit 10.140 to our Form 10-Q filed August 9, 2022.

10.18

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). Incorporated by reference to Exhibit 10.141 to our Form 10-Q filed August 9, 2022.

10.19

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). Incorporated by reference to Exhibit 10.142 to our Form 10-Q filed August 9, 2022.

10.20

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). Incorporated by reference to Exhibit 10.143 to our Form 10-Q filed August 9, 2022.

10.21

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). Incorporated by reference to Exhibit 10.144 to our Form 10-Q filed August 9, 2022.

10.22

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). Incorporated by reference to Exhibit 10.145 to our Form 10-Q filed August 9, 2022.

10.23

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. Incorporated by reference to Exhibit 10.146 to our Form 10-Q filed August 9, 2022.

10.24

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. Incorporated by reference to Exhibit 10.147 to our Form 10-Q filed August 9, 2022.

72


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.

7357


10.45

Flood Property Catastrophe Excess of Loss Reinsurance Contract effective 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.

10.48**

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 the corresponding numbered exhibit to our Form 10-Q 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.

10.61

Fourth Amendment to Credit Agreement and Modification of Note and Other Loan Documents, dated November 7, 2022. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed November 9, 2022.

10.88**10.62

Nonqualified Stock OptionFifth Amendment to Credit Agreement between Paresh Patel and HCI Group, Inc.Modification of Other Loan Documents, dated January 7, 2017. Incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 11, 2017.

10.99**

Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 7, 2017.December 1, 2022. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed January 11, 2017.December 7, 2022.

10.101**

Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated February 8, 2018. Incorporated by reference to 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 99.2 to our Form 8-K filed February 14, 2018.

74


10.103**

Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 15, 2019. Incorporated by reference to 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 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.

75


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$4M 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.

76


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.

58


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. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 9, 2022.

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.

7759


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 hashave signed this report on behalf of the Company.

HCI GROUP, INC.

November 9, 2022May 10, 2023

By:

 /s/ Paresh Patel

Paresh Patel

Chief Executive Officer

(Principal Executive Officer)

November 9, 2022May 10, 2023

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.

7860