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, ~~2022~~2023


☐		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 ~~November~~May 1, ~~2022~~2023 was ~~8,756,970~~8,596,673.

HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page

	PART I – FINANCIAL INFORMATION


Item 1	Financial Statements
	Consolidated Balance Sheets:
	~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022	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)	~~5-8~~5-6
	Consolidated Statements of Cash Flows:
	~~Nine~~Three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	~~9-11~~7-9
	Notes to Consolidated Financial Statements (unaudited)	~~12-48~~10-37

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~49-64~~38-49

Item 3	Quantitative and Qualitative Disclosures About Market Risk	~~65-66~~50-51

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	~~68-69~~53-54

Item 3	Defaults Upon Senior Securities	6954

Item 4	Mine Safety Disclosures	6954

Item 5	Other Information	6954

Item 6	Exhibits	~~70-77~~55-59

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)

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).

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).

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).

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity

For the Three Months Ended ~~September 30, 2022~~March 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).

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).~~

~~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).

~~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).~~

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)

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 ~~both~~each insurance ~~subsidiaries~~subsidiary 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 ~~and~~as 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.

~~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.~~

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

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

Note 2 -- Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements ~~for~~of 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, 2022~~March 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, ~~2021~~2022 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)

~~determining~~In the ~~expected credit loss. For risk attributable~~case of assumed business, the Company relies entirely on the ceding insurance company to ~~disagreements between an insurer~~provide 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 with~~make estimates based on all recent available data. Accordingly, the ~~reinsurance recoverable balance.~~

~~Long-Term Debt~~actual results could differ significantly from those estimates.

~~Long-term debt includes debt instruments~~All 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 $~~903~~527 and $~~2,282~~1,007, 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, 2022~~March 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, 2022~~March 31, 2023 and December 31, ~~2021~~2022 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	)

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

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

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

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

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

•

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

•

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

•

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

•

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

•

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

There was

~~The table below summarizes the~~no balance or activity in the allowance for credit losses of available-for-sale fixed-maturity securities ~~for~~during the three ~~and nine~~ months ended ~~September 30, 2022~~March 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	)

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.

~~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.

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 $~~1,265~~553 and $~~3,064~~1,780, 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 $~~2,768~~1,905 and $~~7,149~~1,596, respectively, including returns on investment of $~~371~~303 and $~~2,417~~811, respectively.

~~For~~At 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 of~~partnerships at each respective balance sheet date totaled $~~1,132~~23,546 and $~~3,491~~24,978, 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.

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 distributions~~e) 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 $~~1,535~~18,500, 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 $553~~506 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 $28,371~~Net 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 a~~net realized gain of $~~572~~6,476~~. During~~ resulting from the ~~three and nine months ended September 30, 2022,~~sale of the ~~Company received~~retail shopping center investment property in Melbourne, Florida in March 2023 for a ~~cash distribution~~price of $~~840~~18,500, ~~including return on investment~~and also included a net realized gain of $~~489~~2,460~~. During~~ resulting from the ~~three and nine months ended September 30, 2021,~~sale of the ~~Company received~~retail shopping center investment property in Sorrento, Florida in March 2023 for a ~~cash distribution~~price of $~~737, including return on investment of $114~~13,418. ~~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.~~

~~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 $~~191~~81, ~~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 ~~investments~~available-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.

~~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.

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 the~~or 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 Offered~~Secured 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.

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, 2022~~March 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

~~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, 2022~~March 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, 2022~~as of March 31, 2023 are summarized in the table below:


~~Anchor tenant relationships~~		~~11.7~~ ~~years~~
In-place leases		~~9.8~~12.1 years
Policy renewal rights ~~- United~~		~~3.6~~3.1 years

In connection with the ~~Southeast Region assumed business~~sales 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 ~~recorded~~derecognized $2,200 of intangible assets, ~~of $4,869~~ ~~representing the renewal rights and non-compete agreement in exchange for consideration consisting of a~~ 6~~% commission~~net 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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, contingent liabilities related to renewal rights intangible assets were $~~3,488~~371 and $~~2,419, respectively, with the contingent liabilities~~are 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.~~

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

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 amount~~Notes. Accordingly, as of $~~172,500. The net proceeds of~~March 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

~~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~~ ~~4.75~~4.25% Convertible Senior Notes ~~is subject to conversion rate adjustments upon~~was 16.5486 shares of common stock for each $1 in principal amount, which was the ~~occurrence~~equivalent of ~~specified events (including payment of dividends above a specified amount) but will not be adjusted~~approximately $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

~~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 ~~4.7~~4.2 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, none~~31, 2023, in conjunction with the sale of the ~~holders~~retail 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 portion~~made 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, resulting~~note 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 ~~60.57~~Real 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.

~~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)~~

~~(Amounts~~discontinue flood insurance policies written in ~~thousands, except share~~Florida 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.

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 $~~907,541~~2,751 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 $2,424~~870, respectively, as reductions in losses and loss adjustment expenses. At ~~September 30, 2022~~March 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, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were $~~952,996~~596,700 and $~~76,650~~688,359, respectively. Approximately ~~74.7~~60.6% of the reinsurance recoverable balance at ~~September 30, 2022~~March 31, 2023 was receivable from ~~three~~six 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 ~~increases~~decreases in credit loss expense of $~~389~~1 and $~~361~~11 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 $~~451~~453 and $90454 at ~~September 30, 2022~~March 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 $~~3,843~~6,993 and $~~11,717~~1,484, respectively, related to these adjustments in the consolidated statements of income. ~~For the~~See 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.

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 ~~nine~~three months ended ~~September 30,~~March 31, 2022, $~~27,488~~6,849 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 $~~1,301~~1,207 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 $~~436~~626 and ceding commission payable of $581. At December 31, ~~2021,~~2022, the Company had a net balance of $~~4,486~~1,581 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 $~~4,017~~1,000~~, 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 lines~~policies 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. For~~Region, 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 $~~9,142~~12,162 ~~and $40,303, respectively.~~. At ~~September 30, 2022,~~March 31, 2023, the Company had a net balance of $~~8,038~~14,402 ~~receivable from~~due to United related to the Southeast Region, consisting of premiums ~~receivable~~payable of $~~12,676~~9,506~~, offset by~~ and payable on paid losses and loss adjustment expenses of $~~2,610~~6,417, 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 $~~2,028~~16, 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 ~~December~~March 31, ~~2021, there was an~~2023, the Company had a net amount ~~receivable from~~due to United of $~~23,325, net of a ceding commission of $8,835~~10,270 and ~~a catastrophe cost allowance of~~funds withheld for assumed business in trust accounts totaling $~~3,181~~45,274. 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, 2022~~March 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 $~~67,313~~45,274 and $~~73,716~~48,772, respectively.

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 ~~claim~~claims 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

~~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 $~~13,308~~3,867 ~~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. Loss~~reserves in response to litigation and claim severity. Losses and LAE ~~expenses~~ for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 included net estimated losses of approximately $~~18,715~~21,635 ~~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 ~~60.5~~61.2% and ~~73.9~~69.8%, respectively, and revenues from the TypTap Group segment represented ~~29.9~~36.5% 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~~ ~~20.7~~28.3%, respectively, of total revenues of all operating segments. At ~~September 30, 2022~~March 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.

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 $~~98,985~~92,456 from HCPCI and $~~5,686~~4,535 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.~~

~~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 $~~330,969~~118,303 from HCPCI and $~~8,643~~1,002 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:


	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

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 corporate~~The 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 revenue~~corresponding 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 to~~summarizes the Company’s ~~total assets on~~operating 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

~~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 ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, the Company recorded approximately $~~13,907~~5,343 ~~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 approximately~~and $~~2,888~~1,210, respectively, of income tax expense, which resulted in an effective tax ~~rate~~rates of ~~33.2~~23.1%. 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 ~~recognition~~release of ~~tax benefits attributable to restricted stock that vested~~valuation allowance established in ~~February and May~~2022 during the first quarter of ~~2022~~2023 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 ~~nine~~three months ended ~~September 30, 2022~~March 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

~~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 $~~2,285~~2,324 and $~~2,202~~2,248, respectively, consisting of accrued cash dividends of $~~1,499~~1,637 and $~~1,250~~1,342, respectively, and accretion related to increasing dividend rates of $~~786~~687 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 $2,217~~906, 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 $51.69~~under ~~this authorized~~the 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, 2022~~January 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, 2022~~March 17, 2023 to stockholders of record on ~~August 19, 2022~~February 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~~

~~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 ~~81,139,221~~81,016,355 shares of TTIG’s common stock outstanding, of which ~~6,139,221~~6,016,355 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 ~~2,893~~34,108 and ~~69,876~~21,744 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 $~~406~~127, respectively.

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 ~~1,110,605~~1,112,330 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.

~~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, 2022~~March 31, 2023 and ~~2021.~~2022. For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company recognized $~~162~~90 and $~~221~~184, respectively, of compensation expense related to stock options which ~~was~~is 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, and~~there 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 $1,005~~336, 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 ~~1.1~~10 ~~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 ~~nonemployee~~non-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 $~~3,099~~1,187 and $~~2,039~~3,268 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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there was approximately $~~9,670~~7,086 and $~~18,995~~8,048, 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 ~~2.2~~2.0 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, 2022~~March 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.

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 ~~Contracts~~Contract

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 ~~represents~~presents 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 $~~6,262~~5,501.

FIGA Assessments

~~In October 2021,~~During 2022, the ~~Florida Office of Insurance Regulation~~FLOIR approved ~~a 2022 assessment~~assessments for the Florida Insurance Guaranty Association (“FIGA”) ~~which is necessary~~in order to secure funds for the payment of covered claims relating to the liquidation of ~~insolvent~~three insurance companies. The ~~2022~~FIGA 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 ~~0.70~~1% 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~~

~~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 payable~~end 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 policies~~Florida 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, 2022~~April 14, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on ~~December~~June 16, ~~2022~~2023 to stockholders of record on ~~November 18, 2022~~May 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 defined~~incorporated a new property and casualty insurance subsidiary, Tailrow Insurance Company (“Tailrow”), in the ~~credit agreement is set at~~ ~~67.5% and the borrowing capacity~~State 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 now~~reinsurance. We manage our operations in the following organizational segments, based on managerial emphasis and evaluation of financial and operating performances:

HCPCI Insurance Operations

▪

Property and casualty insurance

▪

Reinsurance and other auxiliary operations

TypTap Group

▪

Property and casualty insurance

▪

Information technology

Real Estate Operations

Other Operations

▪

Holding company operations

For the three months ended ~~September 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, 2022~~March 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 United~~will cease to offer flood insurance policies in ~~two states in December 2021, a third state in January 2022, and the fourth state in April~~2023. 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 ~~85,781~~102,839 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

homeowners coverage in 1929 states outside of Florida.

TypTap is ~~currently operating in 12 states. In addition~~also phasing out its flood insurance products during 2023 due to the ~~expansion in~~reduced 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 ~~developing~~designing 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 ~~one~~two Tampa office ~~building~~buildings 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 acres~~finalized the sales of ~~land~~two 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.

~~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.

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 ~~December~~June 16, ~~2022~~2023 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 defined~~incorporated a new property and casualty insurance subsidiary, Tailrow Insurance Company (“Tailrow”), in the ~~credit agreement is set at 67.5% and the borrowing capacity~~State 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, 2022~~March 31, 2023 to the Three Months Ended ~~September 30, 2021~~March 31, 2022

Our results of operations for the three months ended ~~September 30, 2022~~March 31, 2023 reflect net ~~loss~~income 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 ~~decrease~~increase 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 for~~The $1,143,000 increase was primarily attributable to the ~~three months ended September 30, 2022 compared to $98,256,000 for~~effect 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, 2022~~March 31, 2023 compared ~~to $29,046,000~~with $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 the~~effective June 1, 2022 ~~contract year due to~~and an increased overall reinsurance coverage amount as a result of premium growth and ~~expansion. In addition, ceded premiums were increased~~expansion, offset by a ~~reversal of $12,600,000 of previously accrued benefits~~net 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 ~~Contracts~~Contract 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 ~~decrease~~increase in ~~2022~~2023 primarily resulted from the growth in TypTap’s business, offset by an increase in premiums ceded to reinsurers as described above. We had approximately ~~214,000~~216,300 policies in force at ~~September 30, 2022 (excluding policies assumed from United)~~March 31, 2023 (direct and assumed) as compared with approximately ~~156,000~~283,900 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 $13,592,000~~an $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 ~~selling~~sales of fixed-maturity and equity securities during the three months ended ~~September 30, 2022 as opposed to~~March 31, 2023 compared with net realized ~~gains~~losses of approximately ~~$953,000~~$395,000 from ~~selling equity~~sales of these securities during the corresponding period in ~~2021.~~2022.

Net Unrealized Investment ~~Losses~~Gains for the three months ended ~~September 30, 2022 and 2021~~March 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 ~~decrease~~increase 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. ~~HCPCI~~The 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 ~~increase~~decrease was primarily attributable to ~~$42,346,000~~the lower number of ~~losses attributable~~Florida and non-Florida policies as well as fewer claims and less litigation related to ~~Hurricane Ian which struck~~Florida 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 to~~an increase in the ~~greater~~ number of ~~TypTap~~non-Florida policies, offset by a positive effect resulting from a decrease in ~~force, $2,064,000~~the amount of ~~additional losses from~~claims and litigation related to Florida policies ~~assumed from United or any subsequent renewal or replacement~~when 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 ~~payable~~paid to United, and premium taxes. Policy acquisition expenses for HCPCI ~~insurance operations~~Insurance Operations were ~~$12,081,000~~$10,276,000 for the three months ended ~~September 30, 2022~~March 31, 2023 compared ~~to $13,035,000~~with $19,765,000 for the three months ended ~~September 30, 2021.~~March 31, 2022. The decrease in amortized costs was primarily due to ~~amortization~~a 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 commission~~in amortized costs ~~related~~attributable 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 project~~projects to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The period-over-period ~~increase~~decrease 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 notes~~Convertible 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 ~~Benefits~~Expense 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 ~~third~~first quarter of ~~2022~~2023 and ~~an increase~~the 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, 2022~~March 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 ~~increase~~decrease was primarily ~~due~~attributable to the ~~increase~~decrease in losses and loss adjustment expenses due to ~~Hurricane Ian, offset in part by~~fewer 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, 2022~~March 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 ~~general~~reinsurance 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, 2022~~March 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 ~~increase~~decrease in ~~2022~~2023 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, 2022~~March 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 ~~increase~~decrease in ~~2022~~2023 was primarily attributable to the ~~increase~~decrease in losses and loss adjustment expenses ~~due to Hurricane Ian, offset by~~and the ~~increase in gross premiums earned.~~

~~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

~~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

~~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.

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 ~~and~~and/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 ~~100~~approximately 90 days of the claim receipt date.

Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.

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

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

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

The following table summarizes the principal and interest payment obligations of our indebtedness at ~~September 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 ~~Notes~~Notes**	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.
**	~~The~~At the option of the noteholders, we may be required to repurchase for cash ~~interest is payable semiannually in arrears~~all or any portion of the notes on ~~June~~March 1, ~~and December~~2027 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 Plan~~45

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.

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 ~~increasing~~expanding our real estate investment portfolio should an opportunity arise.

We ~~currently have~~had a 90% equity interest in FMKT Mel JV, LLC, a Florida limited liability company for which we ~~are~~were 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 be~~the 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 ~~Nine~~Three 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, 2021~~March 31, 2023

Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2023 was approximately ~~$48,671,000,~~$99,109,000, which consisted primarily of cash received from net premiums written, and reinsurance recoveries ~~(of~~of approximately ~~$38,484,000)~~$94,412,000 less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash ~~provided by~~used in investing activities of ~~$35,087,000~~$17,757,000 was primarily due to the ~~proceeds from sales~~purchases 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 by~~used 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 $9,713,000~~was primarily due to $4,046,000 of net cash dividend

payments, ~~net repayment~~cash 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.

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.

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, $1,109,823,000~~March 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, $39,773,000~~March 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.

Our Reserves ~~increased~~decreased from ~~$237,165,000~~$863,765,000 at December 31, ~~2021~~2022 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 ~~2022~~2023 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 ~~2021~~2022 and prior ~~loss-year~~loss-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, 2022~~March 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 ~~Contracts~~Contract 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.

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 ~~each~~the reinsurer’s financial position and ~~each~~the 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 ~~nine~~three 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 no~~For information with respect to recent accounting pronouncements ~~or changes in recent accounting~~and the impact of these pronouncements ~~during the nine months ended September 30, 2022, as compared~~on our unaudited consolidated financial statements, see Note 3 -- “Recent Accounting Pronouncements” to ~~those described in~~ our ~~Annual~~consolidated 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.~~

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our investment ~~portfolios~~portfolio at ~~September 30, 2022~~March 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 risk~~low-risk assets such as U.S. government bonds.

Our investment ~~portfolios are~~portfolio 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, 2022~~March 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, 2022~~March 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, 2022~~March 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, 2022~~March 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, 2022~~March 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

ITEM 1 – LEGAL PROCEEDINGS

~~The Company is~~We 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 under~~surrendered by employees to satisfy payroll tax liabilities associated with the ~~2022 repurchase plan approved by our Board~~vesting of ~~Directors~~restricted shares (dollar amounts in thousands, except share and per share amounts):

Total
Number
of Shares

Average
Price
Paid

Total
Number of
Shares
Purchased
as Part of
Publicly
Announced Plans

Maximum
Dollar
Value of Shares
That May Yet
Be Purchased
Under
The Plans

For the Month Ended

Purchased

Per Share

or Programs (a)

or Programs (b)

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 ~~stockholder~~stockholders except out of that part of its available and accumulated capital and surplus funds which is derived from realized net operating profits on its business and net realized capital gains. Additionally, a Florida domestic insurer may not make dividend payments or distributions to its ~~stockholder~~stockholders 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 Regulation~~FLOIR 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 Regulation~~FLOIR at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the ~~Florida Office of Insurance Regulation~~FLOIR or (2) 30 days after the ~~Florida Office of Insurance Regulation~~FLOIR has received notice of such dividend or distribution and has not disapproved it within such time.

During the ~~nine~~three 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.


~~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 Option~~Fifth 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.~~


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.


~~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.


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

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


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

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

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

10.129		Property Quota Share Reinsurance Contract effective June 1, 2022 issued to United Property and Casualty Insurance Company by TypTap Insurance Company. 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 ~~has~~have signed this report on behalf of the Company.


	HCI GROUP, INC.

~~November 9, 2022~~May 10, 2023	By:	/s/ Paresh Patel
		Paresh Patel
		Chief Executive Officer
		(Principal Executive Officer)

~~November 9, 2022~~May 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