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, 20232024
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
001-34126
HCI Group, Inc.
(Exact name of registrant as specified in its charter)
Florida | 20-5961396 | |
(State of Incorporation) | (IRS Employer |
3802 Coconut Palm Drive
Tampa, FL 33619
(Address, including zip code, of principal executive offices)
(813) 849-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange on Which Registered |
Common Shares, no par value |
| HCI |
| New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☑ | Non-accelerated filer ☐ | Smaller reporting company ☐ |
|
|
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate number of shares of the registrant’s common stock, no par value, outstanding on NovemberMay 1, 20232024 was 8,588,18310,476,413.
HCI GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Item 2 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4 |
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Item 1 |
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Item 1A |
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Item 2 |
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Item 3 |
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Item 4 |
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Item 5 |
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Item 6 |
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Certifications |
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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, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fixed-maturity securities, available-for-sale, at fair value (amortized cost: $427,063 |
| $ | 418,676 |
|
| $ | 483,901 |
| ||||||||
Equity securities, at fair value (cost: $41,244 and $36,272, respectively) |
|
| 39,940 |
|
|
| 34,583 |
| ||||||||
Fixed-maturity securities, available for sale, at fair value (amortized cost: $475,170 |
| $ | 470,805 |
|
| $ | 383,238 |
| ||||||||
Equity securities, at fair value (cost: $47,852 and $44,011, respectively) |
|
| 52,013 |
|
|
| 45,537 |
| ||||||||
Limited partnership investments |
|
| 23,174 |
|
|
| 25,702 |
|
|
| 24,015 |
|
|
| 23,583 |
|
Investment in unconsolidated joint venture, at equity |
|
| — |
|
|
| 18 |
| ||||||||
Real estate investments |
|
| 45,269 |
|
|
| 71,388 |
|
|
| 69,096 |
|
|
| 67,893 |
|
Total investments |
|
| 527,059 |
|
|
| 615,592 |
|
|
| 615,929 |
|
|
| 520,251 |
|
Cash and cash equivalents |
|
| 324,019 |
|
|
| 234,863 |
| ||||||||
Restricted cash |
|
| 2,987 |
|
|
| 2,900 |
| ||||||||
Cash and cash equivalents (a) |
|
| 655,384 |
|
|
| 536,478 |
| ||||||||
Restricted cash (a) |
|
| 3,303 |
|
|
| 3,287 |
| ||||||||
Receivable from maturities of fixed-maturity securities |
|
| 53,000 |
|
|
| — |
|
|
| — |
|
|
| 91,085 |
|
Accrued interest and dividends receivable |
|
| 3,891 |
|
|
| 1,952 |
|
|
| 4,052 |
|
|
| 3,507 |
|
Income taxes receivable |
|
| 4,375 |
|
|
| 2,807 |
| ||||||||
Premiums receivable, net (allowance: $3,581 and $5,362, respectively) |
|
| 42,121 |
|
|
| 34,998 |
| ||||||||
Income taxes receivable (a) |
|
| 651 |
|
|
| — |
| ||||||||
Deferred income taxes, net |
|
| — |
|
|
| 512 |
| ||||||||
Premiums receivable, net (allowance: $3,443 and $3,152, respectively) |
|
| 43,291 |
|
|
| 38,037 |
| ||||||||
Assumed premiums receivable |
|
| — |
|
|
| 19,954 |
| ||||||||
Prepaid reinsurance premiums |
|
| 97,225 |
|
|
| 66,627 |
|
|
| 34,125 |
|
|
| 86,232 |
|
Reinsurance recoverable, net of allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively) |
|
| 29,425 |
|
|
| 71,594 |
| ||||||||
Unpaid losses and loss adjustment expenses (allowance: $319 and $454, respectively) |
|
| 462,539 |
|
|
| 616,765 |
| ||||||||
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively) |
|
| 25,452 |
|
|
| 19,690 |
| ||||||||
Unpaid losses and loss adjustment expenses (allowance: $69 and $118, respectively) |
|
| 305,218 |
|
|
| 330,604 |
| ||||||||
Deferred policy acquisition costs |
|
| 45,032 |
|
|
| 45,522 |
|
|
| 45,152 |
|
|
| 42,910 |
|
Property and equipment, net |
|
| 28,768 |
|
|
| 17,910 |
|
|
| 29,314 |
|
|
| 29,251 |
|
Right-of-use assets - operating leases |
|
| 1,460 |
|
|
| 777 |
|
|
| 1,352 |
|
|
| 1,407 |
|
Intangible assets, net |
|
| 8,272 |
|
|
| 10,578 |
|
|
| 7,046 |
|
|
| 7,659 |
|
Funds withheld for assumed business |
|
| 44,761 |
|
|
| 48,772 |
|
|
| 14,181 |
|
|
| 30,087 |
|
Other assets |
|
| 48,698 |
|
|
| 31,671 |
|
|
| 57,184 |
|
|
| 50,365 |
|
Total assets |
| $ | 1,723,632 |
|
| $ | 1,803,328 |
|
| $ | 1,841,634 |
|
| $ | 1,811,316 |
|
(continued)
1
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets – (Continued)
(Dollar amounts in thousands)
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
|
|
| ||||
Liabilities and Equity |
|
|
|
|
|
|
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|
|
|
|
| ||||
Losses and loss adjustment expenses |
| $ | 709,089 |
|
| $ | 863,765 |
| ||||||||
Unearned premiums |
|
| 395,827 |
|
|
| 368,047 |
| ||||||||
Losses and loss adjustment expenses (a) |
| $ | 578,712 |
|
| $ | 585,073 |
| ||||||||
Unearned premiums (a) |
|
| 499,499 |
|
|
| 501,157 |
| ||||||||
Advance premiums |
|
| 32,250 |
|
|
| 18,587 |
|
|
| 26,518 |
|
|
| 15,895 |
|
Reinsurance payable on paid losses and loss adjustment expenses |
|
| 7,043 |
|
|
| 8,606 |
|
|
| — |
|
|
| 3,145 |
|
Ceded reinsurance premiums payable |
|
| 3 |
|
|
| 17,646 |
| ||||||||
Ceded reinsurance premiums payable (a) |
|
| 10,693 |
|
|
| 8,921 |
| ||||||||
Assumed premiums payable (a) |
|
| 2,681 |
|
|
| 850 |
| ||||||||
Accrued expenses |
|
| 25,934 |
|
|
| 14,534 |
|
|
| 24,699 |
|
|
| 19,722 |
|
Reinsurance recovered in advance on unpaid losses |
|
| — |
|
|
| 19,863 |
| ||||||||
Income tax payable |
|
| 23,184 |
|
|
| 7,702 |
| ||||||||
Deferred income taxes, net |
|
| 4,945 |
|
|
| 1,704 |
|
|
| 5,113 |
|
|
| — |
|
Revolving credit facility |
|
| 50,000 |
|
|
| — |
| ||||||||
Long-term debt |
|
| 208,331 |
|
|
| 211,687 |
|
|
| 184,744 |
|
|
| 208,495 |
|
Lease liabilities - operating leases |
|
| 1,457 |
|
|
| 721 |
| ||||||||
Other liabilities |
|
| 43,895 |
|
|
| 23,361 |
| ||||||||
Lease liabilities – operating leases |
|
| 1,357 |
|
|
| 1,408 |
| ||||||||
Other liabilities (a) |
|
| 36,564 |
|
|
| 35,623 |
| ||||||||
Total liabilities |
|
| 1,428,774 |
|
|
| 1,548,521 |
|
|
| 1,443,764 |
|
|
| 1,387,991 |
|
Commitments and contingencies (Note 21) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Redeemable noncontrolling interest (Note 18) |
|
| 93,801 |
|
|
| 93,553 |
|
|
| — |
|
|
| 96,160 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock (no par value, 40,000,000 shares authorized, 8,590,824 and 8,598,682 |
|
| — |
|
|
| — |
| ||||||||
Common stock (no par value, 40,000,000 shares authorized, 10,276,463 and 9,738,183 |
|
| — |
|
|
| — |
| ||||||||
Additional paid-in capital |
|
| 2,171 |
|
|
| — |
|
|
| 116,728 |
|
|
| 89,568 |
|
Retained income |
|
| 203,766 |
|
|
| 172,482 |
|
|
| 282,056 |
|
|
| 238,438 |
|
Accumulated other comprehensive loss, net of taxes |
|
| (5,997 | ) |
|
| (9,886 | ) |
|
| (3,102 | ) |
|
| (3,163 | ) |
Total stockholders’ equity |
|
| 199,940 |
|
|
| 162,596 |
|
|
| 395,682 |
|
|
| 324,843 |
|
Noncontrolling interests |
|
| 1,117 |
|
|
| (1,342 | ) |
|
| 2,188 |
|
|
| 2,322 |
|
Total equity |
|
| 201,057 |
|
|
| 161,254 |
|
|
| 397,870 |
|
|
| 327,165 |
|
Total liabilities, redeemable noncontrolling interest and equity |
| $ | 1,723,632 |
|
| $ | 1,803,328 |
|
| $ | 1,841,634 |
|
| $ | 1,811,316 |
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
2
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(Dollar amounts in thousands, except per share amounts)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross premiums earned |
| $ | 188,308 |
|
| $ | 181,713 |
|
| $ | 550,322 |
|
| $ | 541,762 |
|
| $ | 256,644 |
|
| $ | 180,068 |
|
Premiums ceded |
|
| (66,152 | ) |
|
| (74,741 | ) |
|
| (203,051 | ) |
|
| (184,108 | ) |
|
| (68,106 | ) |
|
| (70,509 | ) |
Net premiums earned |
|
| 122,156 |
|
|
| 106,972 |
|
|
| 347,271 |
|
|
| 357,654 |
|
|
| 188,538 |
|
|
| 109,559 |
|
Net investment income |
|
| 9,384 |
|
|
| 18,530 |
|
|
| 35,893 |
|
|
| 25,082 |
|
|
| 14,067 |
|
|
| 17,715 |
|
Net realized investment losses |
|
| (207 | ) |
|
| (884 | ) |
|
| (1,586 | ) |
|
| (1,204 | ) |
|
| — |
|
|
| (1,149 | ) |
Net unrealized investment (losses) gains |
|
| (1,041 | ) |
|
| (347 | ) |
|
| 385 |
|
|
| (8,157 | ) | ||||||||
Net unrealized investment gains |
|
| 2,635 |
|
|
| 529 |
| ||||||||||||||||
Policy fee income |
|
| 1,092 |
|
|
| 1,071 |
|
|
| 3,651 |
|
|
| 3,180 |
|
|
| 1,019 |
|
|
| 1,090 |
|
Other |
|
| 260 |
|
|
| 1,312 |
|
|
| 2,386 |
|
|
| 3,065 |
|
|
| 355 |
|
|
| 1,285 |
|
Total revenue |
|
| 131,644 |
|
|
| 126,654 |
|
|
| 388,000 |
|
|
| 379,620 |
|
|
| 206,614 |
|
|
| 129,029 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Losses and loss adjustment expenses |
|
| 66,726 |
|
|
| 139,794 |
|
|
| 189,181 |
|
|
| 299,328 |
|
|
| 79,922 |
|
|
| 60,565 |
|
Policy acquisition and other underwriting expenses |
|
| 22,768 |
|
|
| 24,678 |
|
|
| 68,106 |
|
|
| 80,949 |
|
|
| 22,139 |
|
|
| 22,720 |
|
General and administrative personnel expenses |
|
| 13,864 |
|
|
| 15,848 |
|
|
| 41,638 |
|
|
| 45,183 |
|
|
| 16,274 |
|
|
| 13,502 |
|
Interest expense |
|
| 2,827 |
|
|
| 2,813 |
|
|
| 8,295 |
|
|
| 4,929 |
|
|
| 3,149 |
|
|
| 2,801 |
|
Other operating expenses |
|
| 5,371 |
|
|
| 7,123 |
|
|
| 17,290 |
|
|
| 20,392 |
|
|
| 7,700 |
|
|
| 6,305 |
|
Total expenses |
|
| 111,556 |
|
|
| 190,256 |
|
|
| 324,510 |
|
|
| 450,781 |
|
|
| 129,184 |
|
|
| 105,893 |
|
Income (loss) before income taxes |
|
| 20,088 |
|
|
| (63,602 | ) |
|
| 63,490 |
|
|
| (71,161 | ) | ||||||||
Income tax expense (benefit) |
|
| 4,419 |
|
|
| (12,099 | ) |
|
| 15,146 |
|
|
| (13,907 | ) | ||||||||
Net income (loss) |
|
| 15,669 |
|
|
| (51,503 | ) |
|
| 48,344 |
|
|
| (57,254 | ) | ||||||||
Income before income taxes |
|
| 77,430 |
|
|
| 23,136 |
| ||||||||||||||||
Income tax expense |
|
| 20,474 |
|
|
| 5,343 |
| ||||||||||||||||
Net income |
|
| 56,956 |
|
|
| 17,793 |
| ||||||||||||||||
Net income attributable to redeemable noncontrolling |
|
| (2,349 | ) |
|
| (2,285 | ) |
|
| (7,010 | ) |
|
| (6,801 | ) |
|
| (10,149 | ) |
|
| (2,324 | ) |
Net (income) loss attributable to noncontrolling interests |
|
| (163 | ) |
|
| 2,829 |
|
|
| (396 | ) |
|
| 4,018 |
| ||||||||
Net income (loss) after noncontrolling interests |
| $ | 13,157 |
|
| $ | (50,959 | ) |
| $ | 40,938 |
|
| $ | (60,037 | ) | ||||||||
Basic earnings (loss) per share |
| $ | 1.53 |
|
| $ | (5.66 | ) |
| $ | 4.76 |
|
| $ | (6.26 | ) | ||||||||
Diluted earnings (loss) per share |
| $ | 1.34 |
|
| $ | (5.66 | ) |
| $ | 4.16 |
|
| $ | (6.26 | ) | ||||||||
Net loss (income) attributable to noncontrolling interests |
|
| 804 |
|
|
| (131 | ) | ||||||||||||||||
Net income after noncontrolling interests |
| $ | 47,611 |
|
| $ | 15,338 |
| ||||||||||||||||
Basic earnings per share |
| $ | 4.76 |
|
| $ | 1.78 |
| ||||||||||||||||
Diluted earnings per share |
| $ | 3.81 |
|
| $ | 1.54 |
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
3
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
(AmountsDollar amounts in thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) |
| $ | 15,669 |
|
| $ | (51,503 | ) |
| $ | 48,344 |
|
| $ | (57,254 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Change in unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net unrealized gains (losses) arising during the period |
|
| 850 |
|
|
| (5,969 | ) |
|
| 1,002 |
|
|
| (12,294 | ) |
Reclassification adjustment for net realized losses |
|
| 157 |
|
|
| 5 |
|
|
| 907 |
|
|
| 426 |
|
Net change in unrealized gains (losses) |
|
| 1,007 |
|
|
| (5,964 | ) |
|
| 1,909 |
|
|
| (11,868 | ) |
Deferred income taxes on above change |
|
| (255 | ) |
|
| (1,337 | ) |
|
| 2,126 |
|
|
| 154 |
|
Total other comprehensive income (loss), net of income taxes |
|
| 752 |
|
|
| (7,301 | ) |
|
| 4,035 |
|
|
| (11,714 | ) |
Comprehensive income (loss) |
|
| 16,421 |
|
|
| (58,804 | ) |
|
| 52,379 |
|
|
| (68,968 | ) |
Comprehensive (income) loss attributable to noncontrolling |
|
| (194 | ) |
|
| 3,095 |
|
|
| (542 | ) |
|
| 4,439 |
|
Comprehensive income (loss) after noncontrolling interests |
| $ | 16,227 |
|
| $ | (55,709 | ) |
| $ | 51,837 |
|
| $ | (64,529 | ) |
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net income |
| $ | 56,956 |
|
| $ | 17,793 |
|
Other comprehensive income: |
|
|
|
|
|
| ||
Change in unrealized gain on investments: |
|
|
|
|
|
| ||
Net unrealized gains arising during the period |
|
| 52 |
|
|
| 2,415 |
|
Reclassification adjustment for net realized losses |
|
| 32 |
|
|
| 738 |
|
Net change in unrealized gains |
|
| 84 |
|
|
| 3,153 |
|
Deferred income taxes on above change |
|
| (21 | ) |
|
| 1,810 |
|
Total other comprehensive income, net of income taxes |
|
| 63 |
|
|
| 4,963 |
|
Comprehensive income |
|
| 57,019 |
|
|
| 22,756 |
|
Comprehensive loss (income) attributable to noncontrolling interests |
|
| 802 |
|
|
| (306 | ) |
Comprehensive income after noncontrolling interests |
| $ | 57,821 |
|
| $ | 22,450 |
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
4
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
For the Three Months Ended September 30, 2023March 31, 2024
(Unaudited)
(Dollar amounts in thousands, except per share amount)
|
| Common Stock |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Total |
|
| Noncontrolling |
|
| Total |
| |||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||
Balance at June 30, 2023 |
|
| 8,594,764 |
|
| $ | — |
|
| $ | 1,062 |
|
| $ | 194,034 |
|
| $ | (6,718 | ) |
| $ | 188,378 |
|
| $ | 256 |
|
| $ | 188,634 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,345 |
|
|
| — |
|
|
| 15,345 |
|
|
| 324 |
|
|
| 15,669 |
|
Net income attributable to redeemable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,188 | ) |
|
| — |
|
|
| (2,188 | ) |
|
| (161 | ) |
|
| (2,349 | ) |
Total other comprehensive income, net of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 721 |
|
|
| 721 |
|
|
| 31 |
|
|
| 752 |
|
Forfeiture of restricted stock |
|
| (3,940 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dilution from subsidiary stock-based |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 667 |
|
|
| 667 |
|
Common stock dividends ($0.40 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,426 | ) |
|
| — |
|
|
| (3,426 | ) |
|
| — |
|
|
| (3,426 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,110 |
|
|
| — |
|
|
| — |
|
|
| 1,110 |
|
|
| — |
|
|
| 1,110 |
|
Additional paid-in capital shortfall |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at September 30, 2023 |
|
| 8,590,824 |
|
| $ | — |
|
| $ | 2,171 |
|
| $ | 203,766 |
|
| $ | (5,997 | ) |
| $ | 199,940 |
|
| $ | 1,117 |
|
| $ | 201,057 |
|
|
| Common Stock |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Total |
|
| Noncontrolling |
|
| Total |
| |||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||
Balance at December 31, 2023 |
|
| 9,738,183 |
|
| $ | — |
|
| $ | 89,568 |
|
| $ | 238,438 |
|
| $ | (3,163 | ) |
|
| 324,843 |
|
| $ | 2,322 |
|
| $ | 327,165 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57,085 |
|
|
| — |
|
|
| 57,085 |
|
|
| (129 | ) |
|
| 56,956 |
|
Net income attributable to |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,474 | ) |
|
| — |
|
|
| (9,474 | ) |
|
| (675 | ) |
|
| (10,149 | ) |
Total other comprehensive |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| 61 |
|
|
| 2 |
|
|
| 63 |
|
Cashless exercise of |
|
| 155,049 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeiture of restricted stock |
|
| (200 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase and retirement |
|
| (5,656 | ) |
|
| — |
|
|
| (556 | ) |
|
| — |
|
|
| — |
|
|
| (556 | ) |
|
| — |
|
|
| (556 | ) |
Conversion of senior notes |
|
| 389,087 |
|
|
| — |
|
|
| 23,449 |
|
|
| — |
|
|
| — |
|
|
| 23,449 |
|
|
| — |
|
|
| 23,449 |
|
Dilution from subsidiary |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 668 |
|
|
| 668 |
|
Common stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,993 | ) |
|
| — |
|
|
| (3,993 | ) |
|
| — |
|
|
| (3,993 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 881 |
|
|
| — |
|
|
| — |
|
|
| 881 |
|
|
| — |
|
|
| 881 |
|
Deemed dividend on warrant |
|
| — |
|
|
| — |
|
|
| 3,386 |
|
|
| — |
|
|
| — |
|
|
| 3,386 |
|
|
| — |
|
|
| 3,386 |
|
Balance at March 31, 2024 |
|
| 10,276,463 |
|
| $ | — |
|
| $ | 116,728 |
|
| $ | 282,056 |
|
| $ | (3,102 | ) |
| $ | 395,682 |
|
| $ | 2,188 |
|
| $ | 397,870 |
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
5
5
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Equity – (Continued)
For the Three Months Ended September 30, 2022
(Unaudited)
(Dollar amounts in thousands, except per share amount)
|
| Common Stock |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Total |
|
| Noncontrolling |
|
| Total |
| |||||||||||
|
| 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 | ) |
Net income attributable to redeemable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,113 | ) |
|
| — |
|
|
| (2,113 | ) |
|
| (172 | ) |
|
| (2,285 | ) |
Total other comprehensive loss, net of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,035 | ) |
|
| (7,035 | ) |
|
| (266 | ) |
|
| (7,301 | ) |
Forfeiture of restricted stock |
|
| (1,665 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase and retirement of common |
|
| (119,462 | ) |
|
| — |
|
|
| (6,179 | ) |
|
| — |
|
|
| — |
|
|
| (6,179 | ) |
|
| — |
|
|
| (6,179 | ) |
Dilution from subsidiary stock-based |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 852 |
|
|
| 852 |
|
Common stock dividends ($0.40 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,606 | ) |
|
| — |
|
|
| (3,606 | ) |
|
| — |
|
|
| (3,606 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,261 |
|
|
| — |
|
|
| — |
|
|
| 3,261 |
|
|
| — |
|
|
| 3,261 |
|
Balance at September 30, 2022 |
|
| 8,926,845 |
|
| $ | — |
|
| $ | 9,969 |
|
| $ | 175,056 |
|
| $ | (10,795 | ) |
| $ | 174,230 |
|
| $ | (1,056 | ) |
| $ | 173,174 |
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
6
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Equity – (Continued)
For the Nine Months Ended September 30,March 31, 2023
(Unaudited)
(Dollar amounts in thousands, except per share amount)
|
| Common Stock |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Total |
|
| Noncontrolling |
|
| Total |
| |||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||
Balance at December 31, 2022 |
|
| 8,598,682 |
|
| $ | — |
|
| $ | — |
|
| $ | 172,482 |
|
| $ | (9,886 | ) |
| $ | 162,596 |
|
| $ | (1,342 | ) |
| $ | 161,254 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 47,446 |
|
|
| — |
|
|
| 47,446 |
|
|
| 898 |
|
|
| 48,344 |
|
Net income attributable to redeemable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,508 | ) |
|
| — |
|
|
| (6,508 | ) |
|
| (502 | ) |
|
| (7,010 | ) |
Total other comprehensive income, net of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,889 |
|
|
| 3,889 |
|
|
| 146 |
|
|
| 4,035 |
|
Issuance of restricted stock |
|
| 13,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeiture of restricted stock |
|
| (6,360 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase and retirement of common |
|
| (14,498 | ) |
|
| — |
|
|
| (784 | ) |
|
| — |
|
|
| — |
|
|
| (784 | ) |
|
| — |
|
|
| (784 | ) |
Dilution from subsidiary stock-based |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,917 |
|
|
| 1,917 |
|
Common stock dividends ($1.20 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,295 | ) |
|
| — |
|
|
| (10,295 | ) |
|
| — |
|
|
| (10,295 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,596 |
|
|
| — |
|
|
| — |
|
|
| 3,596 |
|
|
| — |
|
|
| 3,596 |
|
Additional paid-in capital shortfall |
|
| — |
|
|
| — |
|
|
| (641 | ) |
|
| 641 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at September 30, 2023 |
|
| 8,590,824 |
|
| $ | — |
|
| $ | 2,171 |
|
| $ | 203,766 |
|
| $ | (5,997 | ) |
| $ | 199,940 |
|
| $ | 1,117 |
|
| $ | 201,057 |
|
|
| Common Stock |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Total |
|
| Noncontrolling |
|
| Total |
| |||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,150 | ) |
|
| — |
|
|
| (2,150 | ) |
|
| (174 | ) |
|
| (2,324 | ) |
Total other comprehensive |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,788 |
|
|
| 4,788 |
|
|
| 175 |
|
|
| 4,963 |
|
Issuance of restricted |
|
| 6,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeiture of restricted stock |
|
| (2,125 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase and retirement |
|
| (5,884 | ) |
|
| — |
|
|
| (305 | ) |
|
| — |
|
|
| — |
|
|
| (305 | ) |
|
| — |
|
|
| (305 | ) |
Dilution from subsidiary |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 631 |
|
|
| 631 |
|
Common stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,432 | ) |
|
| — |
|
|
| (3,432 | ) |
|
| — |
|
|
| (3,432 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,277 |
|
|
| — |
|
|
| — |
|
|
| 1,277 |
|
|
| — |
|
|
| 1,277 |
|
Additional paid-in capital |
|
| — |
|
|
| — |
|
|
| (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).
6
7
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Equity – (Continued)
For the Nine Months Ended September 30, 2022
(Unaudited)
(Dollar amounts in thousands, except per share amount)
|
| Common Stock |
|
| Additional |
|
| Retained |
|
| Accumulated |
|
| Total |
|
| Noncontrolling |
|
| Total |
| |||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Net of Tax |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||
Balance at December 31, 2021 |
|
| 10,131,399 |
|
| $ | — |
|
| $ | 76,077 |
|
| $ | 246,790 |
|
| $ | 498 |
|
| $ | 323,365 |
|
| $ | 1,138 |
|
| $ | 324,503 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53,753 | ) |
|
| — |
|
|
| (53,753 | ) |
|
| (3,501 | ) |
|
| (57,254 | ) |
Net income attributable to redeemable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,284 | ) |
|
| — |
|
|
| (6,284 | ) |
|
| (517 | ) |
|
| (6,801 | ) |
Total other comprehensive loss, net of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,293 | ) |
|
| (11,293 | ) |
|
| (421 | ) |
|
| (11,714 | ) |
Issuance of restricted stock |
|
| 7,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeiture of restricted stock |
|
| (5,630 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase and retirement of common |
|
| (1,056,997 | ) |
|
| — |
|
|
| (68,103 | ) |
|
| — |
|
|
| — |
|
|
| (68,103 | ) |
|
| — |
|
|
| (68,103 | ) |
Repurchase and retirement of common |
|
| (148,927 | ) |
|
| — |
|
|
| (8,063 | ) |
|
| — |
|
|
| — |
|
|
| (8,063 | ) |
|
| — |
|
|
| (8,063 | ) |
Dilution from subsidiary stock-based |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,245 |
|
|
| 2,245 |
|
Common stock dividends ($1.20 per |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,697 | ) |
|
| — |
|
|
| (11,697 | ) |
|
| — |
|
|
| (11,697 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 10,058 |
|
|
| — |
|
|
| — |
|
|
| 10,058 |
|
|
| — |
|
|
| 10,058 |
|
Balance at September 30, 2022 |
|
| 8,926,845 |
|
| $ | — |
|
| $ | 9,969 |
|
| $ | 175,056 |
|
| $ | (10,795 | ) |
| $ | 174,230 |
|
| $ | (1,056 | ) |
| $ | 173,174 |
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
8
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(AmountsDollar amounts in thousands)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) after noncontrolling interests |
| $ | 40,938 |
|
| $ | (60,037 | ) | ||||||||
Net income after noncontrolling interests |
| $ | 47,611 |
|
| $ | 15,338 |
| ||||||||
Net income attributable to noncontrolling interests |
|
| 7,406 |
|
|
| 2,783 |
|
|
| 9,345 |
|
|
| 2,455 |
|
Net income (loss) |
|
| 48,344 |
|
|
| (57,254 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by |
|
|
|
|
|
| ||||||||||
Net income |
|
| 56,956 |
|
|
| 17,793 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating |
|
|
|
|
|
| ||||||||||
Stock-based compensation expense |
|
| 5,813 |
|
|
| 12,709 |
|
|
| 1,582 |
|
|
| 2,106 |
|
Net accretion of discount on investments in fixed-maturity |
|
| (3,332 | ) |
|
| (922 | ) |
|
| (2,148 | ) |
|
| (1,845 | ) |
Depreciation and amortization |
|
| 6,201 |
|
|
| 5,659 |
|
|
| 1,003 |
|
|
| 2,230 |
|
Deferred income tax expense (benefit) |
|
| 5,367 |
|
|
| (9,880 | ) | ||||||||
Deferred income tax expense |
|
| 5,604 |
|
|
| 3,266 |
| ||||||||
Net realized investment losses |
|
| 1,586 |
|
|
| 1,204 |
|
|
| — |
|
|
| 1,149 |
|
Net unrealized investment (gains) losses |
|
| (385 | ) |
|
| 8,157 |
| ||||||||
Credit loss (recovery) expense - reinsurance recoverable |
|
| (135 | ) |
|
| 361 |
| ||||||||
Net income from unconsolidated joint venture |
|
| — |
|
|
| (495 | ) | ||||||||
Distribution received from unconsolidated joint venture |
|
| — |
|
|
| 489 |
| ||||||||
Net unrealized investment gains |
|
| (2,635 | ) |
|
| (529 | ) | ||||||||
Credit loss expense - reinsurance recoverable |
|
| (49 | ) |
|
| (1 | ) | ||||||||
Net income from limited partnership interests |
|
| (648 | ) |
|
| (3,064 | ) |
|
| (195 | ) |
|
| (553 | ) |
Distributions received from limited partnership interests |
|
| 844 |
|
|
| 2,417 |
|
|
| — |
|
|
| 303 |
|
Loss on extinguishment of debt |
|
| 177 |
|
|
| — |
|
|
| — |
|
|
| 177 |
|
Gain on involuntary conversion |
|
| — |
|
|
| (13,402 | ) | ||||||||
Gain on sales of real estate investments |
|
| (8,936 | ) |
|
| (376 | ) |
|
| — |
|
|
| (8,936 | ) |
Foreign currency remeasurement loss |
|
| 49 |
|
|
| 91 |
| ||||||||
Foreign currency remeasurement (gain) loss |
|
| (1 | ) |
|
| 1 |
| ||||||||
Other non-cash items |
|
| 72 |
|
|
| (38 | ) |
|
| (19 | ) |
|
| 71 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accrued interest and dividends receivable |
|
| (1,939 | ) |
|
| (1,679 | ) |
|
| (545 | ) |
|
| (573 | ) |
Income taxes |
|
| (1,568 | ) |
|
| (4,050 | ) |
|
| 14,831 |
|
|
| 2,100 |
|
Premiums receivable, net |
|
| (7,123 | ) |
|
| 16,395 |
|
|
| (5,254 | ) |
|
| (9,968 | ) |
Assumed premiums receivable |
|
| 19,954 |
|
|
| — |
| ||||||||
Prepaid reinsurance premiums |
|
| (30,598 | ) |
|
| (78,184 | ) |
|
| 52,107 |
|
|
| 39,564 |
|
Reinsurance recoverable |
|
| 196,530 |
|
|
| (876,707 | ) |
|
| 19,673 |
|
|
| 91,660 |
|
Deferred policy acquisition costs |
|
| 490 |
|
|
| 9,437 |
|
|
| (2,242 | ) |
|
| (1,110 | ) |
Funds withheld for assumed business |
|
| 4,011 |
|
|
| 6,403 |
|
|
| 15,906 |
|
|
| 3,498 |
|
Other assets |
|
| (18,153 | ) |
|
| (11,317 | ) |
|
| (6,657 | ) |
|
| (5,590 | ) |
Losses and loss adjustment expenses |
|
| (154,676 | ) |
|
| 964,677 |
|
|
| (6,361 | ) |
|
| (57,457 | ) |
Unearned premiums |
|
| 27,780 |
|
|
| 12,865 |
|
|
| (1,658 | ) |
|
| 19,786 |
|
Advance premiums |
|
| 13,663 |
|
|
| 14,901 |
|
|
| 10,623 |
|
|
| 7,247 |
|
Assumed reinsurance balances payable |
|
| 1,831 |
|
|
| — |
| ||||||||
Reinsurance payable on paid losses and loss adjustment expenses |
|
| (1,563 | ) |
|
| (971 | ) |
|
| (3,145 | ) |
|
| (1,563 | ) |
Reinsurance recovered in advance on unpaid losses |
|
| (19,863 | ) |
|
| — |
|
|
| — |
|
|
| (19,863 | ) |
Ceded reinsurance premiums payable |
|
| (17,643 | ) |
|
| (19,318 | ) |
|
| 1,772 |
|
|
| (3,523 | ) |
Accrued expenses and other liabilities |
|
| 32,956 |
|
|
| 3,631 |
|
|
| 11,056 |
|
|
| 19,669 |
|
Net cash provided by (used in) operating activities |
|
| 77,321 |
|
|
| (18,261 | ) | ||||||||
Net cash provided by operating activities |
|
| 181,989 |
|
|
| 99,109 |
|
(continued)
97
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows – (Continued)
(Unaudited)
(AmountsDollar amounts in thousands)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investments in limited partnership interests |
|
| (756 | ) |
|
| (1,357 | ) |
|
| (399 | ) |
|
| (170 | ) |
Distributions received from limited partnership interests |
|
| 3,088 |
|
|
| 4,732 |
|
|
| 162 |
|
|
| 1,602 |
|
Distribution received from unconsolidated joint venture |
|
| 18 |
|
|
| 351 |
|
|
| — |
|
|
| 18 |
|
Purchase of property and equipment |
|
| (5,184 | ) |
|
| (5,431 | ) |
|
| (946 | ) |
|
| (1,469 | ) |
Purchase of real estate investments |
|
| (2,320 | ) |
|
| (445 | ) |
|
| (5,244 | ) |
|
| (175 | ) |
Purchase of intangible assets |
|
| (1,786 | ) |
|
| (3,800 | ) | ||||||||
Purchase of fixed-maturity securities |
|
| (264,504 | ) |
|
| (393,145 | ) |
|
| (172,336 | ) |
|
| (160,152 | ) |
Purchase of equity securities |
|
| (15,989 | ) |
|
| (20,921 | ) |
|
| (7,679 | ) |
|
| (6,472 | ) |
Purchase of short-term and other investments |
|
| (81 | ) |
|
| (32 | ) |
|
| — |
|
|
| (10 | ) |
Compensation received for property relinquished through eminent domain |
|
| — |
|
|
| 14,500 |
| ||||||||
Proceeds from sales of real estate investments |
|
| 21,746 |
|
|
| 667 |
|
|
| — |
|
|
| 21,746 |
|
Proceeds from sales of fixed-maturity securities |
|
| 17,409 |
|
|
| 11,694 |
|
|
| 6,030 |
|
|
| 11,060 |
|
Proceeds from calls, repayments and maturities of fixed-maturity securities |
|
| 263,654 |
|
|
| 52,023 |
|
|
| 172,024 |
|
|
| 112,497 |
|
Proceeds from sales of equity securities |
|
| 10,385 |
|
|
| 29,316 |
|
|
| 3,516 |
|
|
| 3,754 |
|
Proceeds from sales, redemptions and maturities of short-term and other investments |
|
| 34 |
|
|
| 496 |
|
|
| — |
|
|
| 14 |
|
Net cash provided by (used in) investing activities |
|
| 25,714 |
|
|
| (311,352 | ) | ||||||||
Net cash used in investing activities |
|
| (4,872 | ) |
|
| (17,757 | ) | ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash dividends paid |
|
| (10,295 | ) |
|
| (11,774 | ) |
|
| (3,993 | ) |
|
| (3,432 | ) |
Cash dividends received under share repurchase forward contract |
|
| — |
|
|
| 77 |
| ||||||||
Net repayment under revolving credit facility |
|
| — |
|
|
| (15,000 | ) | ||||||||
Cash dividends paid to redeemable noncontrolling interest |
|
| (6,762 | ) |
|
| (5,508 | ) | ||||||||
Proceeds from issuance of long-term debt |
|
| 12,000 |
|
|
| 172,500 |
| ||||||||
Net borrowing under revolving credit facility |
|
| 50,000 |
|
|
| — |
| ||||||||
Cash dividends paid to redeemable noncontrolling interests |
|
| (2,923 | ) |
|
| (3,012 | ) | ||||||||
Repayment of long-term debt |
|
| (437 | ) |
|
| (754 | ) |
|
| (128 | ) |
|
| (258 | ) |
Redemption of long-term debt |
|
| (6,895 | ) |
|
| — |
|
|
| (466 | ) |
|
| (6,895 | ) |
Repurchases of common stock |
|
| (784 | ) |
|
| (68,103 | ) |
|
| (557 | ) |
|
| (305 | ) |
Repurchases of common stock under share repurchase plan |
|
| — |
|
|
| (8,063 | ) | ||||||||
Redemption of redeemable noncontrolling interest |
|
| (100,000 | ) |
|
| — |
| ||||||||
Purchase of noncontrolling interests |
|
| (300 | ) |
|
| (406 | ) |
|
| (33 | ) |
|
| (198 | ) |
Debt issuance costs |
|
| (279 | ) |
|
| (6,014 | ) |
|
| (99 | ) |
|
| — |
|
Net cash (used in) provided by financing activities |
|
| (13,752 | ) |
|
| 56,955 |
| ||||||||
Net cash used in financing activities |
|
| (58,199 | ) |
|
| (14,100 | ) | ||||||||
Effect of exchange rate changes on cash |
|
| (40 | ) |
|
| (86 | ) |
|
| 4 |
|
|
| (3 | ) |
Net increase (decrease) in cash, cash equivalents, and restricted cash |
|
| 89,243 |
|
|
| (272,744 | ) | ||||||||
Net increase in cash, cash equivalents, and restricted cash |
|
| 118,922 |
|
|
| 67,249 |
| ||||||||
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 237,763 |
|
|
| 631,343 |
|
|
| 539,765 |
|
|
| 237,763 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 327,006 |
|
| $ | 358,599 |
|
| $ | 658,687 |
|
| $ | 305,012 |
|
(continued)
108
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows – (Continued)
(Unaudited)
(AmountsDollar amounts in thousands)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 30, |
|
| March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash paid for income taxes |
| $ | 11,405 |
|
| $ | 100 |
|
| $ | 38 |
|
| $ | 35 |
|
Cash paid for interest |
| $ | 4,933 |
|
| $ | 1,665 |
|
| $ | 1,052 |
|
| $ | 739 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain (loss) on investments in available-for-sale securities, net of tax |
| $ | 4,035 |
|
| $ | (11,714 | ) | ||||||||
Unrealized gain on investments in available-for-sale securities, net of tax |
| $ | 63 |
|
| $ | 4,963 |
| ||||||||
Conversion of 4.25% Convertible Senior Notes |
| $ | 23,450 |
|
| $ | — |
| ||||||||
Sale of real estate investments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration receivable |
| $ | 125 |
|
| $ | — |
|
| $ | — |
|
| $ | 125 |
|
Long-term debt obligations assumed by the buyer |
| $ | 8,995 |
|
| $ | — |
|
| $ | — |
|
| $ | 8,995 |
|
Receivable from maturities of fixed-maturity securities |
| $ | 53,000 |
|
| $ | — |
| ||||||||
Purchase of real estate investments and intangible assets: |
|
|
|
|
|
| ||||||||||
Assumed liability |
| $ | 4 |
|
| $ | — |
| ||||||||
Acquisition of intangibles: |
|
|
|
|
|
| ||||||||||
Contingent consideration payable |
| $ | — |
|
| $ | 1,069 |
| ||||||||
Payable on purchases of equity securities |
| $ | 25 |
|
| $ | — |
|
See accompanying Notes to Consolidated Financial Statements (unaudited).
119
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar 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 each insurance 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 as well as efficiency for the operations of the insurance subsidiaries.subsidiaries and other insurance-related businesses. The Company also provides an attorney-in-fact (“AIF”) service. The Company's subsidiary, Core Risk Managers, LLC (“CRM”), serves as the AIF for Condo Owners Reciprocal Exchange (“CORE”), a reciprocal insurance exchange owned by its policyholders. Although the Company does not have any equity interest in CORE, the Company is required to consolidate CORE as its primary beneficiary. See Note 13 -- “Variable Interest Entity” for additional information. 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.
On April 19, 2023,Assumed Business
Citizens Assumption
During the first quarter of 2024, the Company incorporatedcontinued to participate in a new propertytake-out program through which the Company assumed insurance policies held by Citizens Property Insurance Corporation (“Citizens”), a Florida state-supported insurer. Approximately 9,800 policies were assumed by TypTap and casualty insurance subsidiary, Tailrow Insurance Company (“Tailrow”),CORE, representing approximately $87,800 in the State of Florida. Tailrow currently has no operations.annualized premiums written.
Note 2 -- Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements 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, 2023March 31, 2024 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, 2023.2024. 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, 20222023 included in the Company’s Form 10-K, which was filed with the SEC on March 10, 2023.8, 2024.
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.
10
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
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, allowance for credit
12
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
losses, and stock-based compensation expense involve significant judgments and estimates material to the Company’s consolidated financial statements.
In the case of assumed business, the Company relies entirely on the ceding insurance company to provide information about premiums, losses, and loss adjustment expenses. When the information is not available at the reporting date, the Company will make estimates based on all recent available data. Accordingly, the actual results could differ significantly from those estimates.
All significant intercompany balances and 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, 2024 and 2023, revenues from claims processing services were $40 and $708527, respectively. For
Noncontrolling Interests
A noncontrolling interest arises when the threeCompany has less than 100% of the voting rights and nine months ended September 30, 2022, revenues from claims processing services were $903economic interests in a subsidiary or a consolidated variable interest entity (“VIE”). The Company has noncontrolling interests attributable to TTIG and $2,282, respectively.CORE, a VIE consolidated by the Company under the VIE model. The noncontrolling interest related to TTIG is periodically adjusted for the expensing of TTIG’s stock-based awards granted to its employees, the interest’s share of TTIG’s net income or loss to common stockholders and change in other comprehensive income or loss. The noncontrolling interest related to CORE is periodically adjusted for CORE’s net surplus contribution and net income or loss since the Company has no equity interest in CORE.
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): Common Control Arrangements. 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 does not expect this update will have a material impact on its future 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, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Cash and cash equivalents |
| $ | 324,019 |
|
| $ | 234,863 |
|
| $ | 655,384 |
|
| $ | 536,478 |
|
Restricted cash |
|
| 2,987 |
|
|
| 2,900 |
|
|
| 3,303 |
|
|
| 3,287 |
|
Total |
| $ | 327,006 |
|
| $ | 237,763 |
|
| $ | 658,687 |
|
| $ | 539,765 |
|
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 and are not available for immediate business use. Funds withheld in an account for which the Company is a co-owner but not the named
11
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
beneficiary are not considered restricted cash and are included in funds withheld for assumed business on the consolidated balance sheets.
13
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
In connection with the sale of the retail shopping center investment property in Melbourne, Florida as described in Note 5 -- “Investments” under Real Estate Investments,to a non-affiliate, $87 of restricted cash was deposited in escrow in March 2023 with its release contingent on certainand released in February 2024 as post-sale conditions beingwere met.
Note 54 -- 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, 2023March 31, 2024 and December 31, 2022,2023, 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 |
|
| Allowance |
|
| Gross |
|
| Gross |
|
| Estimated |
|
| Cost or |
|
| Allowance |
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||||||||
|
| Cost |
|
| Loss |
|
| Gain |
|
| Loss |
|
| Value |
|
| Cost |
|
| Loss |
|
| Gain |
|
| Loss |
|
| Value |
| ||||||||||
As of September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
As of March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
U.S. Treasury and U.S. government agencies |
| $ | 398,492 |
|
| $ | — |
|
| $ | 2 |
|
| $ | (6,923 | ) |
| $ | 391,571 |
|
| $ | 444,189 |
|
| $ | — |
|
| $ | 23 |
|
| $ | (3,498 | ) |
| $ | 440,714 |
|
Corporate bonds |
|
| 27,672 |
|
|
| — |
|
|
| 1 |
|
|
| (1,425 | ) |
|
| 26,248 |
|
|
| 30,487 |
|
|
| — |
|
|
| 65 |
|
|
| (943 | ) |
|
| 29,609 |
|
States, municipalities, and political subdivisions |
|
| 405 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 405 |
| ||||||||||||||||||||
Exchange-traded debt |
|
| 494 |
|
|
| — |
|
|
| — |
|
|
| (42 | ) |
|
| 452 |
|
|
| 494 |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| 482 |
|
Total |
| $ | 427,063 |
|
| $ | — |
|
| $ | 3 |
|
| $ | (8,390 | ) |
| $ | 418,676 |
|
| $ | 475,170 |
|
| $ | — |
|
| $ | 88 |
|
| $ | (4,453 | ) |
| $ | 470,805 |
|
As of December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
U.S. Treasury and U.S. government agencies |
| $ | 463,648 |
|
| $ | — |
|
| $ | 59 |
|
| $ | (9,105 | ) |
| $ | 454,602 |
|
| $ | 359,630 |
|
| $ | — |
|
| $ | 224 |
|
| $ | (3,800 | ) |
| $ | 356,054 |
|
Corporate bonds |
|
| 28,378 |
|
|
| — |
|
|
| 20 |
|
|
| (1,205 | ) |
|
| 27,193 |
|
|
| 27,563 |
|
|
| — |
|
|
| 116 |
|
|
| (975 | ) |
|
| 26,704 |
|
States, municipalities, and political subdivisions |
|
| 1,389 |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| 1,383 |
| ||||||||||||||||||||
Exchange-traded debt |
|
| 683 |
|
|
| — |
|
|
| 2 |
|
|
| (52 | ) |
|
| 633 |
|
|
| 494 |
|
|
| — |
|
|
| — |
|
|
| (14 | ) |
|
| 480 |
|
Redeemable preferred stock |
|
| 99 |
|
|
| — |
|
|
| — |
|
|
| (9 | ) |
|
| 90 |
| ||||||||||||||||||||
Total |
| $ | 494,197 |
|
| $ | — |
|
| $ | 81 |
|
| $ | (10,377 | ) |
| $ | 483,901 |
|
| $ | 387,687 |
|
| $ | — |
|
| $ | 340 |
|
| $ | (4,789 | ) |
| $ | 383,238 |
|
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, 2023March 31, 2024 and December 31, 20222023 are as follows:
|
| September 30, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||||||||||||
|
| 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 |
| $ | 251,810 |
|
| $ | 250,533 |
|
| $ | 266,170 |
|
| $ | 265,353 |
|
| $ | 281,977 |
|
| $ | 280,304 |
|
| $ | 234,992 |
|
| $ | 234,025 |
|
Due after one year through five years |
|
| 171,795 |
|
|
| 165,188 |
|
|
| 223,153 |
|
|
| 214,307 |
|
|
| 189,861 |
|
|
| 187,529 |
|
|
| 148,935 |
|
|
| 145,758 |
|
Due after five years through ten years |
|
| 2,964 |
|
|
| 2,504 |
|
|
| 4,380 |
|
|
| 3,797 |
|
|
| 2,838 |
|
|
| 2,490 |
|
|
| 3,266 |
|
|
| 2,974 |
|
Due after ten years |
|
| 494 |
|
|
| 451 |
|
|
| 494 |
|
|
| 444 |
|
|
| 494 |
|
|
| 482 |
|
|
| 494 |
|
|
| 481 |
|
| $ | 427,063 |
|
| $ | 418,676 |
|
| $ | 494,197 |
|
| $ | 483,901 |
|
| $ | 475,170 |
|
| $ | 470,805 |
|
| $ | 387,687 |
|
| $ | 383,238 |
|
1412
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar amounts in thousands, except share and per share amounts, unless otherwise stated)
Securities on Deposit
The fair value of fixed-maturity securities on deposit with various regulatory authorities at September 30, 2023March 31, 2024 and December 31, 20222023 was $1,7601,668 and $1,1001,660, respectively.
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,March 31, 2024 and 2023 and 2022 were as follows:
|
|
|
|
| Gross |
|
| Gross |
| |||
|
| Proceeds |
|
| Gains |
|
| Losses |
| |||
Three months ended September 30, 2023 |
| $ | 5,326 |
|
| $ | — |
|
| $ | (157 | ) |
Three months ended September 30, 2022 |
| $ | 200 |
|
| $ | — |
|
| $ | (5 | ) |
Nine months ended September 30, 2023 |
| $ | 17,409 |
|
| $ | — |
|
| $ | (907 | ) |
Nine months ended September 30, 2022 |
| $ | 11,694 |
|
| $ | 13 |
|
| $ | (439 | ) |
|
|
|
|
| Gross |
|
| Gross |
| |||
|
| Proceeds |
|
| Gains |
|
| Losses |
| |||
Three months ended March 31, 2024 |
| $ | 6,030 |
|
| $ | 12 |
|
| $ | (44 | ) |
Three months ended March 31, 2023 |
| $ | 11,060 |
|
| $ | — |
|
| $ | (738 | ) |
Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities
Securities with gross unrealized loss positions at September 30, 2023March 31, 2024 and December 31, 2022,2023, 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, 2023 |
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
| ||||||||||||||||||||||||||||||
As of March 31, 2024 |
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
| ||||||||||||||||||||||||||||||
U.S. Treasury and U.S. government |
| $ | (387 | ) |
| $ | 188,662 |
|
| $ | (6,536 | ) |
| $ | 200,913 |
|
| $ | (6,923 | ) |
| $ | 389,575 |
|
| $ | (209 | ) |
| $ | 304,595 |
|
| $ | (3,289 | ) |
| $ | 131,299 |
|
| $ | (3,498 | ) |
| $ | 435,894 |
|
Corporate bonds |
|
| (120 | ) |
|
| 5,835 |
|
|
| (1,305 | ) |
|
| 20,278 |
|
|
| (1,425 | ) |
|
| 26,113 |
|
|
| (42 | ) |
|
| 4,736 |
|
|
| (901 | ) |
|
| 18,735 |
|
|
| (943 | ) |
|
| 23,471 |
|
Exchange-traded debt |
|
| (42 | ) |
|
| 452 |
|
|
| — |
|
|
| — |
|
|
| (42 | ) |
|
| 452 |
|
|
| (12 | ) |
|
| 482 |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| 482 |
|
Total available-for-sale securities |
| $ | (549 | ) |
| $ | 194,949 |
|
| $ | (7,841 | ) |
| $ | 221,191 |
|
| $ | (8,390 | ) |
| $ | 416,140 |
|
| $ | (263 | ) |
| $ | 309,813 |
|
| $ | (4,190 | ) |
| $ | 150,034 |
|
| $ | (4,453 | ) |
| $ | 459,847 |
|
|
| 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, 2022 |
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
| ||||||||||||||||||||||||||||||
As of December 31, 2023 |
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
| ||||||||||||||||||||||||||||||
U.S. Treasury and U.S. government |
| $ | (8,701 | ) |
| $ | 269,116 |
|
| $ | (404 | ) |
| $ | 4,644 |
|
| $ | (9,105 | ) |
| $ | 273,760 |
|
| $ | (22 | ) |
| $ | 3,464 |
|
| $ | (3,778 | ) |
| $ | 181,463 |
|
| $ | (3,800 | ) |
| $ | 184,927 |
|
Corporate bonds |
|
| (909 | ) |
|
| 23,028 |
|
|
| (296 | ) |
|
| 2,541 |
|
|
| (1,205 | ) |
|
| 25,569 |
|
|
| (8 | ) |
|
| 1,941 |
|
|
| (967 | ) |
|
| 19,418 |
|
|
| (975 | ) |
|
| 21,359 |
|
States, municipalities, and political |
|
| (6 | ) |
|
| 1,383 |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| 1,383 |
| ||||||||||||||||||||||||
Exchange-traded debt |
|
| (52 | ) |
|
| 463 |
|
|
| — |
|
|
| — |
|
|
| (52 | ) |
|
| 463 |
|
|
| (14 | ) |
|
| 481 |
|
|
| — |
|
|
| — |
|
|
| (14 | ) |
|
| 481 |
|
Redeemable preferred stock |
|
| (9 | ) |
|
| 90 |
|
|
| — |
|
|
| — |
|
|
| (9 | ) |
|
| 90 |
| ||||||||||||||||||||||||
Total available-for-sale securities |
| $ | (9,677 | ) |
| $ | 294,080 |
|
| $ | (700 | ) |
| $ | 7,185 |
|
| $ | (10,377 | ) |
| $ | 301,265 |
|
| $ | (44 | ) |
| $ | 5,886 |
|
| $ | (4,745 | ) |
| $ | 200,881 |
|
| $ | (4,789 | ) |
| $ | 206,767 |
|
At September 30, 2023March 31, 2024 and December 31, 2022,2023, there were 10083 and 8465 securities, respectively, in an unrealized loss position.
15
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-
13
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
There was no balance or activity in the allowance for credit losses of available-for-sale fixed-maturity securities during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
b) Equity Securities
The Company holds investments in equity securities measured at fair values which are readily determinable. At September 30, 2023March 31, 2024 and December 31, 2022,2023, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||
|
| Cost |
|
| Gain |
|
| Loss |
|
| Value |
| ||||
September 30, 2023 |
| $ | 41,244 |
|
| $ | 2,538 |
|
| $ | (3,842 | ) |
| $ | 39,940 |
|
December 31, 2022 |
| $ | 36,272 |
|
| $ | 2,078 |
|
| $ | (3,767 | ) |
| $ | 34,583 |
|
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| ||||
|
| Cost |
|
| Gain |
|
| Loss |
|
| Value |
| ||||
March 31, 2024 |
| $ | 47,852 |
|
| $ | 6,123 |
|
| $ | (1,962 | ) |
| $ | 52,013 |
|
December 31, 2023 |
| $ | 44,011 |
|
| $ | 3,945 |
|
| $ | (2,419 | ) |
| $ | 45,537 |
|
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, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net losses recognized |
| $ | (1,091 | ) |
| $ | (1,279 | ) |
| $ | (247 | ) |
| $ | (9,144 | ) |
Exclude: Net realized losses |
|
| (50 | ) |
|
| (932 | ) |
|
| (632 | ) |
|
| (987 | ) |
Net unrealized (losses) gains recognized |
| $ | (1,041 | ) |
| $ | (347 | ) |
| $ | 385 |
|
| $ | (8,157 | ) |
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net gains recognized |
| $ | 2,667 |
|
| $ | 114 |
|
Exclude: Net realized gains (losses) recognized for |
|
| 32 |
|
|
| (415 | ) |
Net unrealized gains recognized |
| $ | 2,635 |
|
| $ | 529 |
|
16
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 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, 2024 and 2023 and 2022 were as follows:
|
|
|
|
| Gross |
|
| Gross |
| |||
|
| Proceeds |
|
| Gains |
|
| Losses |
| |||
Three months ended September 30, 2023 |
| $ | 4,108 |
|
| $ | 215 |
|
| $ | (265 | ) |
Three months ended September 30, 2022 |
| $ | 4,889 |
|
| $ | 135 |
|
| $ | (1,067 | ) |
Nine months ended September 30, 2023 |
| $ | 10,385 |
|
| $ | 317 |
|
| $ | (949 | ) |
Nine months ended September 30, 2022 |
| $ | 29,316 |
|
| $ | 1,988 |
|
| $ | (2,975 | ) |
|
|
|
|
| Gross |
|
| Gross |
| |||
|
| Proceeds |
|
| Gains |
|
| Losses |
| |||
Three months ended March 31, 2024 |
| $ | 3,516 |
|
| $ | 173 |
|
| $ | (141 | ) |
Three months ended March 31, 2023 |
| $ | 3,754 |
|
| $ | 17 |
|
| $ | (432 | ) |
14
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar 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, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||
|
| Carrying |
|
| Unfunded |
|
|
|
|
| Carrying |
|
| Unfunded |
|
|
|
| ||||||
Investment Strategy |
| Value |
|
| Balance |
|
| (%) (a) |
|
| Value |
|
| Balance |
|
| (%) (a) |
| ||||||
Primarily in senior secured loans and, to a |
| $ | 3,385 |
|
| $ | — |
|
|
| 15.37 |
|
| $ | 4,146 |
|
| $ | — |
|
|
| 15.37 |
|
Value creation through active distressed debt |
|
| 2,312 |
|
|
| — |
|
|
| 1.25 |
|
|
| 2,528 |
|
|
| — |
|
|
| 1.66 |
|
High returns and long-term capital appreciation |
|
| 3,541 |
|
|
| — |
|
|
| 0.18 |
|
|
| 5,319 |
|
|
| — |
|
|
| 0.18 |
|
Value-oriented investments in less liquid and |
|
| 3,269 |
|
|
| — |
|
|
| 0.55 |
|
|
| 3,470 |
|
|
| — |
|
|
| 0.56 |
|
Value-oriented investments in mature real |
|
| 7,678 |
|
|
| 2,543 |
|
|
| 1.32 |
|
|
| 7,457 |
|
|
| 3,125 |
|
|
| 1.32 |
|
Risk-adjusted returns on credit and equity |
|
| 2,989 |
|
|
| 2,388 |
|
|
| 0.55 |
|
|
| 2,782 |
|
|
| 2,536 |
|
|
| 0.98 |
|
Total |
| $ | 23,174 |
|
| $ | 4,931 |
|
|
|
|
| $ | 25,702 |
|
| $ | 5,661 |
|
|
|
|
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||||||||||
|
| Carrying |
|
| Unfunded |
|
|
|
|
| Carrying |
|
| Unfunded |
|
|
|
| ||||||
Investment Strategy |
| Value |
|
| Balance |
|
| (%) (a) |
|
| Value |
|
| Balance |
|
| (%) (a) |
| ||||||
Primarily in senior secured loans and, to |
| $ | 3,415 |
|
| $ | — |
|
|
| 15.37 |
|
| $ | 3,295 |
|
| $ | — |
|
|
| 15.37 |
|
Value creation through active distressed |
|
| 2,176 |
|
|
| — |
|
|
| 1.24 |
|
|
| 2,271 |
|
|
| — |
|
|
| 1.25 |
|
High returns and long-term capital |
|
| 3,128 |
|
|
| — |
|
|
| 0.18 |
|
|
| 3,400 |
|
|
| — |
|
|
| 0.18 |
|
Value-oriented investments in less liquid |
|
| 3,368 |
|
|
| — |
|
|
| 0.55 |
|
|
| 3,306 |
|
|
| — |
|
|
| 0.55 |
|
Value-oriented investments in mature real |
|
| 7,690 |
|
|
| 2,543 |
|
|
| 1.32 |
|
|
| 7,590 |
|
|
| 2,543 |
|
|
| 1.32 |
|
Risk-adjusted returns on credit and equity |
|
| 4,238 |
|
|
| 1,263 |
|
|
| 0.55 |
|
|
| 3,721 |
|
|
| 1,662 |
|
|
| 0.55 |
|
Total |
| $ | 24,015 |
|
| $ | 3,806 |
|
|
|
|
| $ | 23,583 |
|
| $ | 4,205 |
|
|
|
|
17
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
15
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
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, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Operating results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total income |
| $ | 4,028 |
|
| $ | 208,468 |
|
| $ | 42,195 |
|
| $ | 724,413 |
| ||||||||
Total income* |
| $ | 3,066 |
|
| $ | 182,360 |
| ||||||||||||||||
Total expenses |
|
| (24,066 | ) |
|
| (45,537 | ) |
|
| (51,163 | ) |
|
| (117,877 | ) |
|
| (25,601 | ) |
|
| (2,257 | ) |
Net (loss) income |
| $ | (20,038 | ) |
| $ | 162,931 |
|
| $ | (8,968 | ) |
| $ | 606,536 |
|
| $ | (22,535 | ) |
| $ | 180,103 |
|
*Includes net change in unrealized gains or losses on investments.
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total assets |
| $ | 4,360,676 |
|
| $ | 5,119,695 |
|
| $ | 4,155,784 |
|
| $ | 4,072,501 |
|
Total liabilities |
| $ | 255,622 |
|
| $ | 430,354 |
|
| $ | 209,841 |
|
| $ | 220,525 |
|
For the three and nine months ended September 30,March 31, 2024 and 2023, the Company recognized net investment income from limited partnerships of $106195 and $648553, respectively. Included in net investment income for the three months ended March 31, 2024 was an estimated favorable change in net asset value of $100. During the three and nine months ended September 30,March 31, 2024 and 2023, the Company received total cash distributions of $915162 and $3,9321,905, respectively, including returns on investment of $4230 and $844, respectively.
For the three and nine months ended September 30, 2022, the Company recognized net investment income of $1,265 and $3,064, respectively. During the three and nine months ended September 30, 2022, the Company
18
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 of $2,768 and $7,149, respectively, including returns on investment of $371 and $2,417303, respectively.
At September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $22,64623,583 and $24,97823,346, respectively, and the Company’s maximum exposure to loss aggregated $23,17424,015 and $25,70223,583, respectively.
d) 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. In June 2022, the joint venture sold its last remaining outparcel and recognized a gain on sale of $572.
e)d) Real Estate Investments
Real estate investments consist of the following as of September 30, 2023March 31, 2024 and December 31, 2022:2023:
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Land |
| $ | 31,052 |
|
| $ | 38,327 |
|
Land improvements |
|
| 4,388 |
|
|
| 12,138 |
|
Buildings and building improvements |
|
| 12,544 |
|
|
| 29,410 |
|
Tenant and leasehold improvements |
|
| 1,846 |
|
|
| 1,742 |
|
Other |
|
| 1,603 |
|
|
| 1,649 |
|
Total, at cost |
|
| 51,433 |
|
|
| 83,266 |
|
Less: accumulated depreciation and amortization |
|
| (6,164 | ) |
|
| (11,878 | ) |
Real estate investments |
| $ | 45,269 |
|
| $ | 71,388 |
|
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Land |
| $ | 42,272 |
|
| $ | 42,272 |
|
Land improvements |
|
| 4,843 |
|
|
| 4,387 |
|
Buildings and building improvements |
|
| 18,593 |
|
|
| 18,594 |
|
Tenant and leasehold improvements |
|
| 1,978 |
|
|
| 1,869 |
|
Other |
|
| 8,076 |
|
|
| 7,168 |
|
Total, at cost |
|
| 75,762 |
|
|
| 74,290 |
|
Less: accumulated depreciation and amortization |
|
| (6,666 | ) |
|
| (6,397 | ) |
Real estate investments |
| $ | 69,096 |
|
| $ | 67,893 |
|
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.16
On March 31, 2023, the Company closed on its agreement to sell the retail shopping center investment property in Melbourne, Florida for a price of $18,500, and also closed on its agreement to sell the retail shopping center investment property in Sorrento, Florida for a price of $13,418.
On September 19, 2023, Grove Haines City, LLC, a real estate subsidiary of Greenleaf Capital, LLC, acquired vacant land in Haines City, Florida and its associated leases for $3,393, including acquisition costs of $100, and assumed a liability of $4. Of the total costs, $1,582 was recognized as real estate investments. See Note 8 -- “Intangible Assets, Net” for information about the acquired leases. The land will be developed into a retail shopping center to be anchored by a well-known grocery store chain. The transaction was determined to be an asset acquisition. Thus, acquisition-related costs were capitalized and allocated among the assets acquired.
Depreciation and amortization expense related to real estate investments was $233 and $480 for the three months ended September 30, 2023 and 2022, respectively, and $914 and $1,469 for the nine months ended September 30, 2023 and 2022, respectively.
19
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar amounts in thousands, except share and per share amounts, unless otherwise stated)
f)
Depreciation and amortization expense related to real estate investments was $269 and $453 for the three months ended March 31, 2024 and 2023, respectively.
e) Net Investment Income
Net investment income (loss), by source, is summarized as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Available-for-sale fixed-maturity |
| $ | 4,076 |
|
| $ | 2,125 |
|
| $ | 13,231 |
|
| $ | 3,710 |
|
| $ | 4,827 |
|
| $ | 4,035 |
|
Equity securities |
|
| 397 |
|
|
| 288 |
|
|
| 1,071 |
|
|
| 875 |
|
|
| 442 |
|
|
| 296 |
|
Investment expense |
|
| (126 | ) |
|
| (117 | ) |
|
| (380 | ) |
|
| (367 | ) |
|
| (79 | ) |
|
| (129 | ) |
Limited partnership investments |
|
| 106 |
|
|
| 1,265 |
|
|
| 648 |
|
|
| 3,064 |
|
|
| 195 |
|
|
| 553 |
|
Real estate investments |
|
| 248 |
|
|
| 13,897 |
|
|
| 9,811 |
|
|
| 15,782 |
|
|
| 1,493 |
|
|
| 9,293 |
|
Net income from unconsolidated joint |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 495 |
| ||||||||
Cash and cash equivalents |
|
| 4,683 |
|
|
| 1,072 |
|
|
| 11,512 |
|
|
| 1,523 |
|
|
| 7,189 |
|
|
| 3,667 |
|
Net investment income |
| $ | 9,384 |
|
| $ | 18,530 |
|
| $ | 35,893 |
|
| $ | 25,082 |
|
| $ | 14,067 |
|
| $ | 17,715 |
|
For the ninethree months ended September 30,March 31, 2023, income from real estate investments included a net realized gain of $6,476 resulting from the sale of the retail shopping center investment property in Melbourne, Florida in March 2023 for a price of $18,500, and also included a net realized gain of $2,460 resulting from the sale of the retail shopping center investment property in Sorrento, Florida in March 2023 for a price of $13,418.
For the three months ended September 30, 2022, income from real estate investments included a net 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 Florida Department of Transportation 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 and $451 of income from selling the liquor license previously owned by the Company’s discontinued restaurant business.
g)f) Other Investments
From time to time, the Company may invest in financial assets other than stocks, mutual funds, and bonds. For the three and nine months ended September 30,March 31, 2024 and 2023, net realized lossesgains related to other investments were $0 and $47, respectively. For the three and nine months ended September 30, 2022, net realized gains were $53 and $2094, respectively.
20
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 65 -- Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and other comprehensive income or loss, which for the Company includes changes in unrealized gains or losses of 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, 2023 |
|
| September 30, 2022 |
| ||||||||||||||||||
|
| Before |
|
| Income |
|
| Net of |
|
| Before |
|
| Income |
|
| Net of |
| ||||||
|
| Tax |
|
| Tax Effect |
|
| Tax |
|
| Tax |
|
| Tax Effect |
|
| Tax |
| ||||||
Net unrealized gains (losses) |
| $ | 850 |
|
| $ | 215 |
|
| $ | 635 |
|
| $ | (5,969 | ) |
| $ | 1,336 |
|
| $ | (7,305 | ) |
Reclassification adjustment for net |
|
| 157 |
|
|
| 40 |
|
|
| 117 |
|
|
| 5 |
|
|
| 1 |
|
|
| 4 |
|
Total other comprehensive income |
| $ | 1,007 |
|
| $ | 255 |
|
| $ | 752 |
|
| $ | (5,964 | ) |
| $ | 1,337 |
|
| $ | (7,301 | ) |
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||||||||||||||||
|
| Before |
|
| Income |
|
| Net of |
|
| Before |
|
| Income |
|
| Net of |
| ||||||
|
| Tax |
|
| Tax Effect |
|
| Tax |
|
| Tax |
|
| Tax Effect |
|
| Tax |
| ||||||
Net unrealized gains (losses) |
| $ | 1,002 |
|
| $ | (2,356 | ) |
| $ | 3,358 |
|
| $ | (12,294 | ) |
| $ | (262 | ) |
| $ | (12,032 | ) |
Reclassification adjustment for net |
|
| 907 |
|
|
| 230 |
|
|
| 677 |
|
|
| 426 |
|
|
| 108 |
|
|
| 318 |
|
Total other comprehensive income |
| $ | 1,909 |
|
| $ | (2,126 | ) |
| $ | 4,035 |
|
| $ | (11,868 | ) |
| $ | (154 | ) |
| $ | (11,714 | ) |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
|
| March 31, 2024 |
|
| March 31, 2023 |
| ||||||||||||||||||
|
| Before |
|
| Income |
|
| Net of |
|
| Before |
|
| Income |
|
| Net of |
| ||||||
|
| Tax |
|
| Tax Effect |
|
| Tax |
|
| Tax |
|
| Tax Effect |
|
| Tax |
| ||||||
Net unrealized gains |
| $ | 52 |
|
| $ | 13 |
|
| $ | 39 |
|
| $ | 2,415 |
|
| $ | (1,997 | ) |
| $ | 4,412 |
|
Reclassification adjustment for net |
|
| 32 |
|
|
| 8 |
|
| $ | 24 |
|
|
| 738 |
|
|
| 187 |
|
|
| 551 |
|
Total other comprehensive income |
| $ | 84 |
|
| $ | 21 |
|
| $ | 63 |
|
| $ | 3,153 |
|
| $ | (1,810 | ) |
| $ | 4,963 |
|
17
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 76 -- Fair Value Measurements
The Company records and discloses certain financial assets at their estimated fair values. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 | – | Unadjusted quoted prices in active markets for identical assets. |
Level 2 | – | Other inputs that are observable for the asset, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset. |
Level 3 | – | Inputs that are unobservable. |
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.
21
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 or deposited in escrow. Itsand the carrying value approximates fair value.
Fixed-Maturity and Equity Securities
Estimated fair values of the Company’s fixed-maturity and equity securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.
The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, which are level 2 inputs. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies, and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.
Revolving Credit Facility
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 Secured Overnight Financing Rate (“SOFR”) plus a ten
18
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
basis points adjustment plus a margin based on the debt-to-capital ratio. As a result, carrying value, when outstanding, approximates fair value.
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 |
| 2042 |
| Quoted price |
|
|
| Quoted price |
|
|
| |
|
|
| |
| 2036 |
| Discounted cash flow method/Level 3 inputs |
| 2033 |
| Discounted cash flow method/Level 3 inputs |
|
|
*Debt derecognized in March 2024. See Note 10 -- “Long-Term Debt” for additional information.
22
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Assets Measured at Estimated Fair Value on a Recurring Basis
The following 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, 2023March 31, 2024 and December 31, 2022:2023:
|
| 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, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
As of March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 324,019 |
|
| $ | — |
|
| $ | — |
|
| $ | 324,019 |
|
| $ | 655,384 |
|
| $ | — |
|
| $ | — |
|
| $ | 655,384 |
|
Restricted cash |
| $ | 2,987 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,987 |
|
| $ | 3,303 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,303 |
|
Fixed-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
U.S. Treasury and U.S. government agencies |
| $ | 383,780 |
|
| $ | 7,791 |
|
| $ | — |
|
| $ | 391,571 |
|
| $ | 432,781 |
|
| $ | 7,933 |
|
| $ | — |
|
| $ | 440,714 |
|
Corporate bonds |
|
| 26,248 |
|
|
| — |
|
|
| — |
|
|
| 26,248 |
|
|
| 23,188 |
|
|
| 6,421 |
|
|
| — |
|
|
| 29,609 |
|
State, municipalities, and political subdivisions |
|
| — |
|
|
| 405 |
|
|
| — |
|
|
| 405 |
| ||||||||||||||||
Exchange-traded debt |
|
| 452 |
|
|
| — |
|
|
| — |
|
|
| 452 |
|
|
| 482 |
|
|
| — |
|
|
| — |
|
|
| 482 |
|
Total available-for-sale securities |
| $ | 410,480 |
|
| $ | 8,196 |
|
| $ | — |
|
| $ | 418,676 |
|
| $ | 456,451 |
|
| $ | 14,354 |
|
| $ | — |
|
| $ | 470,805 |
|
Equity securities |
| $ | 39,940 |
|
| $ | — |
|
| $ | — |
|
| $ | 39,940 |
|
| $ | 52,013 |
|
| $ | — |
|
| $ | — |
|
| $ | 52,013 |
|
|
| Fair Value Measurements Using |
|
|
|
|
| Fair Value Measurements Using |
|
|
|
| ||||||||||||||||||||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Total |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Total |
| ||||||||
As of December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 234,863 |
|
| $ | — |
|
| $ | — |
|
| $ | 234,863 |
|
| $ | 536,478 |
|
| $ | — |
|
| $ | — |
|
| $ | 536,478 |
|
Restricted cash |
| $ | 2,900 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,900 |
|
| $ | 3,287 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,287 |
|
Fixed-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
U.S. Treasury and U.S. government agencies |
| $ | 446,233 |
|
| $ | 8,369 |
|
| $ | — |
|
| $ | 454,602 |
|
| $ | 348,145 |
|
| $ | 7,909 |
|
| $ | — |
|
| $ | 356,054 |
|
Corporate bonds |
|
| 27,193 |
|
|
| — |
|
|
| — |
|
|
| 27,193 |
|
|
| 20,267 |
|
|
| 6,437 |
|
|
| — |
|
|
| 26,704 |
|
State, municipalities, and political subdivisions |
|
| — |
|
|
| 1,383 |
|
|
| — |
|
|
| 1,383 |
| ||||||||||||||||
Exchange-traded debt |
|
| 633 |
|
|
| — |
|
|
| — |
|
|
| 633 |
|
|
| 480 |
|
|
| — |
|
|
| — |
|
|
| 480 |
|
Redeemable preferred stock |
|
| 90 |
|
|
| — |
|
|
| — |
|
|
| 90 |
| ||||||||||||||||
Total available-for-sale securities |
| $ | 474,149 |
|
| $ | 9,752 |
|
| $ | — |
|
| $ | 483,901 |
|
| $ | 368,892 |
|
| $ | 14,346 |
|
| $ | — |
|
| $ | 383,238 |
|
Equity securities |
| $ | 34,583 |
|
| $ | — |
|
| $ | — |
|
| $ | 34,583 |
|
| $ | 45,537 |
|
| $ | — |
|
| $ | — |
|
| $ | 45,537 |
|
19
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar 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, 2023March 31, 2024 and December 31, 2022:2023:
|
| 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, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
As of March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Revolving credit facility |
| $ | 50,000 |
|
| $ | — |
|
| $ | 50,000 |
|
| $ | — |
|
| $ | 50,000 |
| ||||||||||||||||||||
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
4.75% Convertible Senior Notes |
| $ | 167,948 |
|
| $ | — |
|
| $ | 162,630 |
|
| $ | — |
|
| $ | 162,630 |
| ||||||||||||||||||||
4.25% Convertible Senior Notes |
|
| 23,916 |
|
|
| — |
|
|
| 24,405 |
|
|
| — |
|
|
| 24,405 |
| ||||||||||||||||||||
5.50% Promissory Note |
|
| 11,759 |
|
|
| — |
|
|
| — |
|
|
| 10,955 |
|
|
| 10,955 |
| ||||||||||||||||||||
4.55% Promissory Note |
|
| 4,706 |
|
|
| — |
|
|
| — |
|
|
| 4,220 |
|
|
| 4,220 |
| ||||||||||||||||||||
4.75% Convertible Senior Notes |
| $ | 168,516 |
|
| $ | — |
|
| $ | 268,717 |
|
| $ | — |
|
| $ | 268,717 |
| ||||||||||||||||||||
5.50% Promissory Note |
|
| 11,654 |
|
|
| — |
|
|
| — |
|
|
| 11,327 |
|
|
| 11,327 |
| ||||||||||||||||||||
4.55% Promissory Note |
|
| 4,573 |
|
|
| — |
|
|
| — |
|
|
| 4,249 |
|
|
| 4,249 |
| ||||||||||||||||||||
Total long-term debt |
| $ | 208,329 |
|
| $ | — |
|
| $ | 187,035 |
|
| $ | 15,175 |
|
| $ | 202,210 |
|
| $ | 184,743 |
|
| $ | — |
|
| $ | 268,717 |
|
| $ | 15,576 |
|
| $ | 284,293 |
|
23
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 |
|
| 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 December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
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 |
| ||||||||||||||||||||
4.75% Convertible Senior Notes |
| $ | 168,230 |
|
| $ | — |
|
| $ | 215,114 |
|
| $ | — |
|
| $ | 215,114 |
| ||||||||||||||||||||
4.25% Convertible Senior Notes |
|
| 23,916 |
|
|
| — |
|
|
| 34,545 |
|
|
| — |
|
|
| 34,545 |
| ||||||||||||||||||||
5.50% Promissory Note |
|
| 11,707 |
|
|
| — |
|
|
| — |
|
|
| 11,512 |
|
|
| 11,512 |
| ||||||||||||||||||||
4.55% Promissory Note |
|
| 4,640 |
|
|
| — |
|
|
| — |
|
|
| 4,349 |
|
|
| 4,349 |
| ||||||||||||||||||||
Total long-term debt |
| $ | 211,674 |
|
| $ | — |
|
| $ | 152,640 |
|
| $ | 18,965 |
|
| $ | 171,605 |
|
| $ | 208,493 |
|
| $ | — |
|
| $ | 249,659 |
|
| $ | 15,861 |
|
| $ | 265,520 |
|
Note 87 -- Intangible Assets, Net
The Company’s intangible assets, net consist of the following:
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Anchor tenant relationships (a) |
| $ | — |
|
| $ | 1,761 |
|
In-place leases |
|
| 2,221 |
|
|
| 3,579 |
|
Policy renewal rights |
|
| 10,100 |
|
|
| 10,100 |
|
Non-compete agreements (b) |
|
| 314 |
|
|
| 314 |
|
Total, at cost |
|
| 12,635 |
|
|
| 15,754 |
|
Less: accumulated amortization |
|
| (4,363 | ) |
|
| (5,176 | ) |
Intangible assets, net |
| $ | 8,272 |
|
| $ | 10,578 |
|
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
In-place leases (a) |
|
| 2,221 |
|
|
| 2,221 |
|
Policy renewal rights - United |
|
| 10,100 |
|
|
| 10,100 |
|
Non-compete agreements - United (b) |
|
| 314 |
|
|
| 314 |
|
Total, at cost |
|
| 12,635 |
|
|
| 12,635 |
|
Less: accumulated amortization |
|
| (5,589 | ) |
|
| (4,976 | ) |
Intangible assets, net |
| $ | 7,046 |
|
| $ | 7,659 |
|
The remaining weighted-average amortization periods for the intangible assets as of September 30, 2023March 31, 2024 are summarized in the table below:
In-place leases |
|
|
Policy renewal rights - United |
|
|
In connection with the sales of the retail shopping center investment properties in Melbourne, Florida and Sorrento, Florida as described in Note 5 -- “Investments” under Real Estate Investments, the Company derecognized $2,200 of intangible assets, net on March 31, 2023.
In connection with the purchase of the investment property in Haines City, Florida as described in Note 5 -- “Investments” under Real Estate Investments, the Company recognized $1,811 of in-place lease intangible assets on September 19, 2023.
At September 30, 2023 and December 31, 2022, contingent liabilities related to renewal rights intangible assets were $371 and are included in other liabilities on the consolidated balance sheets.20
24
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar amounts in thousands, except share and per share amounts, unless otherwise stated)
At March 31, 2024 and December 31, 2023, contingent liabilities related to renewal rights intangible assets were $371, and are included in other liabilities on the consolidated balance sheets.
Note 98 -- Other Assets
The following table summarizes the Company’s other assets:
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Benefits receivable related to retrospective reinsurance contracts |
| $ | 37,296 |
|
| $ | 16,317 |
| ||||||||
Benefits receivable related to retrospective reinsurance contract |
| $ | 51,282 |
|
| $ | 44,289 |
| ||||||||
Reimbursement and fees receivable under TPA service |
|
| 5,335 |
|
|
| 7,303 |
|
|
| — |
|
|
| 629 |
|
Prepaid expenses |
|
| 3,376 |
|
|
| 2,826 |
|
|
| 2,551 |
|
|
| 2,882 |
|
Deposits |
|
| 448 |
|
|
| 491 |
|
|
| 418 |
|
|
| 409 |
|
Lease acquisition costs, net |
|
| 671 |
|
|
| 832 |
|
|
| 814 |
|
|
| 833 |
|
Other |
|
| 1,572 |
|
|
| 3,902 |
|
|
| 2,119 |
|
|
| 1,323 |
|
Total other assets |
| $ | 48,698 |
|
| $ | 31,671 |
|
| $ | 57,184 |
|
| $ | 50,365 |
|
Management reviewed the collectability of the reimbursement and fees receivable under third-party administrator (“TPA”) service as of September 30, 2023 and, considering the net balance due to the counterparty as well as the balance of funds withheld for assumed business as of September 30, 2023, determined that an allowance for credit losses is not necessary for the reimbursement and fees receivable under TPA service. See Note 23 -- “Subsequent Events” for additional information.
Note 109 -- Revolving Credit Facility
At September 30, 2023,As of March 31, 2024, the Company had $no50,000 borrowings outstanding under the credit facility.facility, which was used to partially fund the redemption of the TTIG Series A Preferred Stock held by Centerbridge Partners, L.P. (“Centerbridge”) on January 22, 2024. See Note 19 -- “Redeemable Noncontrolling Interest” for additional information. For the three months ended September 30,March 31, 2024 and 2023, and 2022, interest expense was $21738 and $25, respectively, including $2115 and $25 of amortization of issuance costs, respectively. For the nine months ended September 30, 2023 and 2022, interest expense was $69 and $176, respectively, including $68 and $74 of amortization of issuance costs, respectively. At September 30, 2023,March 31, 2024, the Company was in compliance with all required covenants and had available borrowing capacity of $50,00025,000.
On June 2, 2023, the Company executed an Amended Credit Agreement. Under the terms of this agreement, the expiry date of the revolving commitment was extended to December 31, 2024 and the maximum debt-to-capital ratio as defined in the Amended Credit Agreement is set at 65% beginning with the first quarter of 2024.
25
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 1110 -- Long-Term Debt
The following table summarizes the Company’s long-term debt:
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
4.75% Convertible Senior Notes, due June 1, 2042 |
| $ | 172,500 |
|
| $ | 172,500 |
|
4.25% Convertible Senior Notes, due March 1, 2037 |
|
| 23,916 |
|
|
| 23,916 |
|
3.90% Promissory Note, due through April 1, 2032 |
|
| — |
|
|
| 9,072 |
|
3.75% Callable Promissory Note, due through |
|
| — |
|
|
| 6,871 |
|
4.55% Promissory Note, due through August 1, 2036 |
|
| 4,768 |
|
|
| 4,968 |
|
5.50% Promissory Note, due through July 1, 2033 |
|
| 11,963 |
|
|
| — |
|
Finance lease liabilities, due through October 15, 2024 |
|
| 2 |
|
|
| 13 |
|
Total principal amount |
|
| 213,149 |
|
|
| 217,340 |
|
Less: unamortized issuance costs |
|
| (4,818 | ) |
|
| (5,653 | ) |
Total long-term debt |
| $ | 208,331 |
|
| $ | 211,687 |
|
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
4.75% Convertible Senior Notes, due June 1, 2042 |
| $ | 172,500 |
|
| $ | 172,500 |
|
4.25% Convertible Senior Notes, due March 1, 2037 (a) |
|
| — |
|
|
| 23,916 |
|
4.55% Promissory Note, due through August 1, 2036 |
|
| 4,631 |
|
|
| 4,700 |
|
5.50% Promissory Note, due through July 1, 2033 |
|
| 11,848 |
|
|
| 11,906 |
|
Finance lease liabilities, due through October 15, 2024 |
|
| 1 |
|
|
| 2 |
|
Total principal amount |
|
| 188,980 |
|
|
| 213,024 |
|
Less: unamortized issuance costs |
|
| (4,236 | ) |
|
| (4,529 | ) |
Total long-term debt |
| $ | 184,744 |
|
| $ | 208,495 |
|
21
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar 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, 2023,March 31, 2024, 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:date:
Due in 12 months following September 30, |
|
|
| |||||
2023 |
| $ | 512 |
| ||||
Due in 12 months following March 31, |
|
|
| |||||
2024 |
|
| 536 |
|
| $ | 524 |
|
2025 |
|
| 563 |
|
|
| 549 |
|
2026 |
|
| 197,008 |
|
|
| 577 |
|
2027 |
|
| 622 |
|
|
| 173,107 |
|
2028 |
|
| 638 |
| ||||
Thereafter |
|
| 13,908 |
|
|
| 13,585 |
|
Total |
| $ | 213,149 |
|
| $ | 188,980 |
|
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, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Contractual interest |
| $ | 2,522 |
|
| $ | 2,516 |
|
| $ | 7,386 |
|
| $ | 4,322 |
|
| $ | 2,118 |
|
| $ | 2,497 |
|
Non-cash expense (a) |
|
| 284 |
|
|
| 272 |
|
|
| 840 |
|
|
| 431 |
| ||||||||
Non-cash expense (b) |
|
| 293 |
|
|
| 279 |
| ||||||||||||||||
Total |
| $ | 2,806 |
|
| $ | 2,788 |
|
| $ | 8,226 |
|
| $ | 4,753 |
|
| $ | 2,411 |
|
| $ | 2,776 |
|
4.25% Convertible Senior Notes
The Company’s recent cash dividends on common stock have exceededDuring the first quarter of 2024, the Company notified the holders of its outstanding 4.25% Convertible Senior Notes due 2037 that the Company had elected to redeem the remaining $0.3523,916 per share, resulting in adjustments to the conversion rateprincipal balance of the 4.25%4.25% Convertible Senior Notes. Accordingly, asAs a result of September 30, 2023,this notice, the4.25% Convertible Senior Notes became immediately convertible into the Company’s common shares, with a redemption date of March 15, 2024. The conversion rate of the Company’s 4.25% Convertible Senior Notes was 16.57816.5892 shares of common stock for each $1$1 in principal amount, which was the equivalent of approximately $60.3260.25 per share. The Company converted $
2623,450
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
There wereaggregate principal of no4.25 unamortized debt issuance costs for the 4.25%% Convertible Senior Notes at September 30, 2023.for aggregate consideration of 389,087 shares of HCI’s common stock plus $1 cash consideration in lieu of fractional shares. The remaining 4.25% Convertible Senior Notes were redeemed for $466 on March 15, 2024.
4.75% Convertible Senior Notes
The conversion rate of the 4.75% Convertible Senior Notes issued in May 2022 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 effective interest rate for the 4.75%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%4.75% Convertible Senior Notes, the annual effective interest rate charged to earnings would have decreased to approximately 5.0%. As of September 30, 2023,March 31, 2024, the remaining amortization period of the debt issuance costs was expected to be 3.73.17 years for the 4.75%4.75% Convertible Senior Notes.
3.90% Promissory Note22
HCI GROUP, INC. AND SUBSIDIARIES
On March 31, 2023, in conjunction with the sale of the 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 $8,979 principal balance plus $16 of accrued interest at March 31, 2023.Notes to Consolidated Financial Statements (unaudited)
3.75% Callable Promissory Note(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
On March 31, 2023, the Company made an early repayment of the 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 note was collateralized by the retail shopping center investment property in Sorrento, Florida which was sold as described in Note 5 -- “Investments” under Real Estate Investments.
5.50% Promissory Note
On June 26, 2023, Gulf to Bay LM, LLC, a subsidiary of the Company, entered into a ten-year secured loan agreement for proceeds of $12,000. The loan is collateralized by the Company’s Clearwater, Florida real estate, which is owned by Gulf to Bay LM, LLC, and the lease agreements associated with this property. The loan bears a fixed annual interest rate of 5.50%. Approximately $74 of principal and interest is payable in 120 monthly installments. The promissory note may be repaid in full or in part after August 1, 2025 as long as the Company provides at least 30 days’ written notice and pays a prepayment consideration as specified in the loan agreement. The proceeds are used for real estate development projects or other general business purposes.
Note 1211 -- Reinsurance
Reinsurance obtained from other insurance companies
The Company cedes a portion of its homeowners’ insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and a portion of its flood insurance exposure under one quota share reinsurance agreement. Ceded premiums under most catastrophe excess of loss reinsurance contracts are subject to revision resulting from subsequent adjustments in total insured value. Under the terms of the quota share reinsurance agreement, the Company is entitled to a 30% ceding commission on ceded premiums written and a profit commission equal to 10% of net profit.
27
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
On January 12, 2023, HCPCI and TypTap received approval from the Florida Office of Insurance Regulation (“FLOIR”) to discontinue flood insurance policies written in Florida. Since the approval, the Company has cancelled or not renewed the majority of its flood insurance policies. However, the Company is required to continue providing flood insurance coverage to policyholders with open claims until criteria set by the FLOIR for cancellation and non-renewal are met. The reason for discontinuation is primarily attributable to the increased costs and reduced availability of flood reinsurance. The discontinuation does 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.
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, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Premiums Written: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct |
| $ | 198,265 |
|
| $ | 182,039 |
|
| $ | 585,671 |
|
| $ | 541,812 |
|
| $ | 211,895 |
|
| $ | 207,423 |
|
Assumed |
|
| — |
|
|
| 9,142 |
|
|
| (7,569 | ) |
|
| 12,815 |
|
|
| 43,091 |
|
|
| (7,569 | ) |
Gross written |
|
| 198,265 |
|
|
| 191,181 |
|
|
| 578,102 |
|
|
| 554,627 |
|
|
| 254,986 |
|
|
| 199,854 |
|
Ceded |
|
| (66,152 | ) |
|
| (74,741 | ) |
|
| (203,051 | ) |
|
| (184,108 | ) |
|
| (68,106 | ) |
|
| (70,509 | ) |
Net premiums written |
| $ | 132,113 |
|
| $ | 116,440 |
|
| $ | 375,051 |
|
| $ | 370,519 |
|
| $ | 186,880 |
|
| $ | 129,345 |
|
Premiums Earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Direct |
| $ | 188,308 |
|
| $ | 166,116 |
|
| $ | 543,159 |
|
| $ | 479,849 |
|
| $ | 189,675 |
|
| $ | 172,905 |
|
Assumed |
|
| — |
|
|
| 15,597 |
|
|
| 7,163 |
|
|
| 61,913 |
|
|
| 66,969 |
|
|
| 7,163 |
|
Gross earned |
|
| 188,308 |
|
|
| 181,713 |
|
|
| 550,322 |
|
|
| 541,762 |
|
|
| 256,644 |
|
|
| 180,068 |
|
Ceded |
|
| (66,152 | ) |
|
| (74,741 | ) |
|
| (203,051 | ) |
|
| (184,108 | ) |
|
| (68,106 | ) |
|
| (70,509 | ) |
Net premiums earned |
| $ | 122,156 |
|
| $ | 106,972 |
|
| $ | 347,271 |
|
| $ | 357,654 |
|
| $ | 188,538 |
|
| $ | 109,559 |
|
During the three and nine months ended September 30,March 31, 2024 and 2023, the Company recognized ceded losses of $2,9110 and $6,771, respectively, as reductions in losses and loss adjustment expenses. During the three and nine months ended September 30, 2022, the Company recognized ceded losses of $907,541 and $910,9282,751, respectively, as reductions in losses and loss adjustment expenses. At September 30, 2023March 31, 2024 and December 31, 2022,2023, there were 3358 and 4533 reinsurers, respectively, participating in the Company’s reinsurance program. Total net amounts recoverable and receivable from reinsurers at September 30, 2023March 31, 2024 and December 31, 20222023 were $491,964330,670 and $688,359350,294, respectively. Approximately 69.964.7% of the reinsurance recoverable balance at September 30, 2023March 31, 2024 was receivable from sixfour reinsurers. Based on all available information considered in the rating-based method, the Company recognized decreases in credit loss expense of $3349 and $1351 for the three and nine months ended September 30,March 31, 2024 and 2023, respectively. For the three and nine months ended September 30, 2022, the Company recognized increases in credit loss expense of $389 and $361, respectively. Allowances for credit losses related to the reinsurance recoverable balance were $31969 and $454118 at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
28
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
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. For the three and nine months ended September 30,March 31, 2024 and 2023, the Company recognized
23
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
reductions in premiums ceded of $6,993 and $20,979, respectively,in each of the respective periods, related to these adjustments in the consolidated statements of income. Due to the impact of Hurricane Ian during the third quarter of 2022, the balance of previously accrued benefits under the multi-year reinsurance contract with retrospective provisions was decreased by $12,600. For the three and nine months ended September 30, 2022, the Company recognized reductions in premiums ceded of $3,843 and $11,717, respectively. See Note 21 -- “Commitments and Contingencies” for additional information.
Amounts receivable pursuant to retrospective provisions are reflected in other assets. At September 30, 2023March 31, 2024 and December 31, 2022,2023, other assets included $37,29651,282 and $16,31744,289, 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.
Reinsurance provided to other insurance companies
InUnited
From 2021 to 2022, the Company, through HCPCI and TypTap, provided 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”) and. From 2022 to 2023, the Company’s insurance subsidiaries also provided 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”). TheseIn conjunction with these reinsurance agreements, the Company entered into renewal rights agreements with United which provided the Company with the right to renew and/or replace United’s insurance policies wereat the end of their respective policy periods. In February 2023, United’s Florida-domiciled residential insurance subsidiary was placed into receivership by the State of Florida due to its financial insolvency and, as a result, the Company ceased providing quota share reinsurance on United policies. The majority of the policies under these reinsurance agreements have been renewed and/or replaced by the Company. As
On February 14, 2024, upon approval from the receiver of United, TypTap received $15,000 from the financial reporting date, theretrust account that holds funds withheld for the assumed business on the Southeast Region quota share reinsurance agreement. In addition, $4,462 was no reinsurance provided to Unitedwithdrawn in February 2024 by the Company. However, additionalreceiver from the trust accounts to settle for paid losses may be incurred pertainingand LAE related to the previous coverage periods ofNortheast Region and the Southeast Region quota share reinsurance agreements.
For the threeAt March 31, 2024 and nine months ended September 30, 2023, assumed premiums written related to the Northeast Region’s insurance policies were $0, whereas for the three and nine months ended September 30, 2022, $0 and $27,488, respectively, of assumed premiums written related to the Northeast Region’s insurance policies were derecognized, which primarily resulted from the return of the unearned portion of assumed written premiums subsequent to the Company’s renewal and/or replacement of insurance policies in Massachusetts. At September 30,December 31, 2023, the Company had a net balance of $1,207582 due to United related to the Northeast Region, consisting of payable on paid losses and loss adjustment expenses of $626 andrepresenting ceding commission payable of $payable.581. At December 31, 2022, the Company had a net balance of $1,581 due to United related to the Northeast Region, consisting of payable on paid losses and loss adjustment expenses of $1,000 and ceding commission payable of $581. Effective December 30, 2022, the Company’s quota share reinsurance agreement to provide 100% reinsurance on United’s policies in the Northeast Region was commuted.
For the three and nine months ended September 30,March 31, 2023, $0 and $7,569, respectively, 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, whereas for the three and nine months ended September 30, 2022, assumed premiums written related to the Southeast Region’s insurance policies were $9,142 and $40,303, respectively.Region. At September 30, 2023,March 31, 2024, the Company had a net balance of $14,4021,438 due to United related to the Southeast Region, consisting of premiums payable of $9,5061,712 offset by ceding commission receivable of $274. At December 31, 2023, the Company had a net balance of $4,203 due to United related to the Southeast Region, consisting of premiums payable of $1,712 and payable on paid losses and loss adjustment expenses of $6,4172,765, 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
29
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
paid losses and loss adjustment expenses of $7,606 and ceding commission payable of $16, offset by premiums receivable of $101274.
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 September 30, 2023,March 31, 2024, the Company had a net amount due to United of $10,2742,020 and funds withheld for assumed business in trust accounts totaling $44,76114,181 for the benefit of policies assumed from United. The Company ceased providing TPA services to United in March 2023. The Company cannot predict the actions a
24
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
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. See Note 23 -- “Subsequent Events” for additional information.
At September 30, 2023March 31, 2024 and December 31, 2022,2023, the balance of funds withheld for assumed business related to the Company’s quota share reinsurance agreements with United was $44,76114,181 and $48,77230,087, respectively.
Citizens Assumption
Assumed premiums written related to Citizens policies were $43,091 for the three months ended March 31, 2024 as opposed to $0 for the three months ended March 31, 2023.
Note 1312 -- Losses and Loss Adjustment Expenses
The liability for losses and loss adjustment expenses (“LAE”) is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future 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 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 |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Net balance, beginning of period* |
| $ | 243,586 |
|
| $ | 196,414 |
|
| $ | 246,546 |
|
| $ | 172,410 |
|
| $ | 254,351 |
|
| $ | 246,546 |
|
Incurred, net of reinsurance, related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current period |
|
| 58,621 |
|
|
| 126,486 |
|
|
| 176,287 |
|
|
| 275,010 |
|
|
| 79,922 |
|
|
| 56,698 |
|
Prior periods |
|
| 8,105 |
|
|
| 13,308 |
|
|
| 12,894 |
|
|
| 24,318 |
|
|
| — |
|
|
| 3,867 |
|
Total incurred, net of reinsurance |
|
| 66,726 |
|
|
| 139,794 |
|
|
| 189,181 |
|
|
| 299,328 |
|
|
| 79,922 |
|
|
| 60,565 |
|
Paid, net of reinsurance, related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current period |
|
| (36,299 | ) |
|
| (45,732 | ) |
|
| (74,514 | ) |
|
| (102,155 | ) |
|
| (17,789 | ) |
|
| (11,110 | ) |
Prior periods |
|
| (27,782 | ) |
|
| (27,489 | ) |
|
| (114,982 | ) |
|
| (106,596 | ) |
|
| (43,059 | ) |
|
| (49,950 | ) |
Total paid, net of reinsurance |
|
| (64,081 | ) |
|
| (73,221 | ) |
|
| (189,496 | ) |
|
| (208,751 | ) |
|
| (60,848 | ) |
|
| (61,060 | ) |
Net balance, end of period |
|
| 246,231 |
|
|
| 262,987 |
|
|
| 246,231 |
|
|
| 262,987 |
|
|
| 273,425 |
|
|
| 246,051 |
|
Add: reinsurance recoverable before allowance for |
|
| 462,858 |
|
|
| 938,855 |
|
|
| 462,858 |
|
|
| 938,855 |
|
|
| 305,287 |
|
|
| 560,257 |
|
Gross balance, end of period |
| $ | 709,089 |
|
| $ | 1,201,842 |
|
| $ | 709,089 |
|
| $ | 1,201,842 |
|
| $ | 578,712 |
|
| $ | 806,308 |
|
* Net balance represents beginning-of-period liability for unpaid losses and LAE less beginning-of-period reinsurance recoverable for unpaid losses and LAE.
30
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
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, 2023, the Company recognized losses related to prior periods of $8,105 and $12,894, respectively, primarily to increase reserves in response to litigation. Losses and LAE for the three and nine months ended September 30, 2023March 31, 2024 included net estimated losses of approximately $16,22521,678 and $51,560, respectively, related to UnitedCitizens policies assumed, renewed and/or replaced. Lowerassumed. Excluding Citizens-related losses, lower losses and LAE for the three and nine months ended September 30, 2023 primarilyMarch 31, 2024 resulted from a decrease in claims and litigation related to Florida policies. During the third quarter of 2022, the Company incurred approximately $65,000 of losses resulting from Hurricane Ian.
3125
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 13 -- Variable Interest Entity
CORE, a Florida-domiciled reciprocal insurance exchange, is owned by its policyholders, referred to as subscribers, and was organized to offer commercial residential multiple peril and wind insurance products. Each subscriber owns part of CORE by buying an insurance policy and making a surplus contribution. CORE is managed by CRM, an AIF company which is a wholly-owned subsidiary of HCI. At the formation date of CORE, management determined that CORE is a variable interest entity (“VIE”).
Since HCI has the power to direct the activities of CORE that most significantly affect CORE’s economic performance and the obligation to absorb losses or the right to receive benefits from CORE via the subordinated surplus note and the management and service agreements, HCI is considered the primary beneficiary of CORE and is required to consolidate CORE. As HCI has no equity at risk, CORE’s equity and results of operations are included in noncontrolling interests.
CORE’s assets are legally restricted for the purpose of fulfilling obligations specific to CORE. The creditors of CORE have no legal right to pursue additional sources of payment from the Company. The following table summarizes the assets and liabilities related to CORE, a consolidated VIE, which are included in the accompanying consolidated balance sheets:
|
| March 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 44,411 |
|
| $ | 24,635 |
|
Restricted cash |
|
| 302 |
|
|
| 300 |
|
Income taxes receivable |
|
| 651 |
|
|
| — |
|
Other assets |
|
| 270 |
|
|
| 65 |
|
Total assets |
| $ | 45,634 |
|
| $ | 25,000 |
|
Liabilities: |
|
|
|
|
|
| ||
Losses and loss adjustment expenses |
| $ | 1,178 |
|
| $ | — |
|
Unearned premiums |
|
| 15,862 |
|
|
| — |
|
Ceded reinsurance premiums payable |
|
| 1,986 |
|
|
| — |
|
Assumed premiums payable |
|
| 236 |
|
|
| — |
|
Deferred income taxes, net |
|
| 342 |
|
|
| — |
|
Other liabilities |
|
| 183 |
|
|
| — |
|
Total liabilities |
| $ | 19,787 |
|
| $ | — |
|
|
|
|
|
|
|
|
26
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 14 -- Segment Information
The Company identifies its operating divisions or segments based on managerial emphasis, organizational structure and revenue source. The Company has fourfive reportable segments: HCPCI insurance operations, TypTap Group, reciprocal exchange operations, 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 and reciprocal exchange operations, 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 reciprocal exchange segment represents the insurance operations of CORE, a consolidated VIE. 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, 2024 and 2023, and 2022, revenues from the HCPCI insurance operations segment before intracompany elimination represented 64.4% and 60.5%, respectively, and revenues from the TypTap Group segment represented 34.1% and 29.9%, respectively, of total revenues of all operating segments. For the nine months ended September 30, 2023 and 2022, revenues from the HCPCI insurance operations segment before intracompany elimination represented 63.7% and 66.661.2%, respectively, and revenues from the TypTap Group segment represented 34.633.8% and 28.736.5%, respectively, of total revenues of all operating segments. At September 30, 2023March 31, 2024 and December 31, 2022,2023, HCPCI insurance operations’ total assets represented 56.653.1% and 53.455.3%, respectively, and TypTap Group’s total assets represented 34.634.9% and 37.933.6%, respectively, of the combined assets of all operating segments.
3227
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar 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 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||
|
| Insurance |
|
| TypTap |
|
| Real |
|
| Corporate/ |
|
| Reclassification/ |
|
|
|
| ||||||||||||||||||||||||||||||||||
For Three Months Ended September 30, 2023 |
| Operations |
|
| Group |
|
| Estate (a) |
|
| Other (b) |
|
| Elimination |
|
| Consolidated |
| ||||||||||||||||||||||||||||||||||
For Three Months Ended |
| HCPCI |
|
| TypTap |
|
| Reciprocal |
|
| Real |
|
| Corporate/ |
|
| Reclassification/ |
|
| Consolidated |
| |||||||||||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Gross premiums earned (c) |
| $ | 107,890 |
|
| $ | 86,233 |
|
| $ | — |
|
| $ | — |
|
| $ | (5,815 | ) |
| $ | 188,308 |
|
| $ | 155,382 |
|
| $ | 103,748 |
|
| $ | 3,625 |
|
| $ | — |
|
| $ | — |
|
| $ | (6,111 | ) |
| $ | 256,644 |
|
Premiums ceded |
|
| (43,751 | ) |
|
| (28,216 | ) |
|
| — |
|
|
| — |
|
|
| 5,815 |
|
|
| (66,152 | ) |
|
| (43,326 | ) |
|
| (28,673 | ) |
|
| (2,218 | ) |
|
| — |
|
|
| — |
|
|
| 6,111 |
|
|
| (68,106 | ) |
Net premiums earned |
|
| 64,139 |
|
|
| 58,017 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 122,156 |
|
|
| 112,056 |
|
|
| 75,075 |
|
|
| 1,407 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 188,538 |
|
Net income from investment portfolio |
|
| 3,373 |
|
|
| 3,210 |
|
|
| — |
|
|
| 1,735 |
|
|
| (182 | ) |
|
| 8,136 |
|
|
| 8,228 |
|
|
| 4,543 |
|
|
| 56 |
|
|
| — |
|
|
| 4,694 |
|
|
| (819 | ) |
|
| 16,702 |
|
Policy fee income |
|
| 533 |
|
|
| 559 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,092 |
|
|
| 504 |
|
|
| 515 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,019 |
|
Other |
|
| 3,949 |
|
|
| 1,184 |
|
|
| 2,355 |
|
|
| 526 |
|
|
| (7,754 | ) |
|
| 260 |
|
|
| 3,538 |
|
|
| 1,495 |
|
|
| — |
|
|
| 3,447 |
|
|
| 1,030 |
|
|
| (9,155 | ) |
|
| 355 |
|
Total revenue |
|
| 71,994 |
|
|
| 62,970 |
|
|
| 2,355 |
|
|
| 2,261 |
|
|
| (7,936 | ) |
|
| 131,644 |
|
|
| 124,326 |
|
|
| 81,628 |
|
|
| 1,463 |
|
|
| 3,447 |
|
|
| 5,724 |
|
|
| (9,974 | ) |
|
| 206,614 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Losses and loss adjustment expenses |
|
| 29,819 |
|
|
| 37,324 |
|
|
| — |
|
|
| — |
|
|
| (417 | ) |
|
| 66,726 |
|
|
| 39,014 |
|
|
| 40,553 |
|
|
| 1,268 |
|
|
| — |
|
|
| — |
|
|
| (913 | ) |
|
| 79,922 |
|
Amortization of deferred policy acquisition costs |
|
| 10,313 |
|
|
| 11,373 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21,686 |
|
|
| 10,136 |
|
|
| 10,795 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20,931 |
|
Other policy acquisition expenses |
|
| 581 |
|
|
| 527 |
|
|
| — |
|
|
| — |
|
|
| (26 | ) |
|
| 1,082 |
|
|
| 579 |
|
|
| 519 |
|
|
| 546 |
|
|
| — |
|
|
| — |
|
|
| (436 | ) |
|
| 1,208 |
|
Stock-based compensation expense |
|
| 419 |
|
|
| 730 |
|
|
| — |
|
|
| 691 |
|
|
| — |
|
|
| 1,840 |
|
|
| 369 |
|
|
| 701 |
|
|
| — |
|
|
| — |
|
|
| 512 |
|
|
| — |
|
|
| 1,582 |
|
Interest expense |
|
| — |
|
|
| 431 |
|
|
| 226 |
|
|
| 2,601 |
|
|
| (431 | ) |
|
| 2,827 |
|
|
| — |
|
|
| 1,500 |
|
|
| 812 |
|
|
| 223 |
|
|
| 2,926 |
|
|
| (2,312 | ) |
|
| 3,149 |
|
Depreciation and amortization |
|
| 141 |
|
|
| 1,036 |
|
|
| 329 |
|
|
| 160 |
|
|
| (238 | ) |
|
| 1,428 |
|
|
| 138 |
|
|
| 1,088 |
|
|
| — |
|
|
| 380 |
|
|
| 160 |
|
|
| (276 | ) |
|
| 1,490 |
|
Personnel and other operating expenses |
|
| 10,137 |
|
|
| 9,317 |
|
|
| 1,486 |
|
|
| 1,851 |
|
|
| (6,824 | ) |
|
| 15,967 |
|
|
| 11,748 |
|
|
| 9,970 |
|
|
| 54 |
|
|
| 1,434 |
|
|
| 3,733 |
|
|
| (6,037 | ) |
|
| 20,902 |
|
Total expenses |
|
| 51,410 |
|
|
| 60,738 |
|
|
| 2,041 |
|
|
| 5,303 |
|
|
| (7,936 | ) |
|
| 111,556 |
|
|
| 61,984 |
|
|
| 65,126 |
|
|
| 2,680 |
|
|
| 2,037 |
|
|
| 7,331 |
|
|
| (9,974 | ) |
|
| 129,184 |
|
Income (loss) before income taxes |
| $ | 20,584 |
|
| $ | 2,232 |
|
| $ | 314 |
|
| $ | (3,042 | ) |
| $ | — |
|
| $ | 20,088 |
|
| $ | 62,342 |
|
| $ | 16,502 |
|
| $ | (1,217 | ) |
| $ | 1,410 |
|
| $ | (1,607 | ) |
| $ | — |
|
| $ | 77,430 |
|
Total revenue from non-affiliates (d) |
| $ | 62,418 |
|
| $ | 63,957 |
|
| $ | 1,519 |
|
| $ | 1,692 |
|
|
|
|
|
|
|
| $ | 114,956 |
|
| $ | 88,083 |
|
| $ | 1,916 |
|
| $ | 2,606 |
|
| $ | 4,085 |
|
|
|
|
|
|
| ||||
Gross premiums written |
| $ | 127,334 |
|
| $ | 70,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 91,875 |
|
| $ | 143,624 |
|
| $ | 19,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
28
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
|
| HCPCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Insurance |
|
| TypTap |
|
| Real |
|
| Corporate/ |
|
| Reclassification/ |
|
|
|
| ||||||
For Three Months Ended March 31, 2023 |
| Operations |
|
| Group |
|
| Estate (a) |
|
| Other (b) |
|
| Elimination |
|
| Consolidated |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross premiums earned (c) |
| $ | 96,991 |
|
| $ | 87,612 |
|
| $ | — |
|
| $ | — |
|
| $ | (4,535 | ) |
| $ | 180,068 |
|
Premiums ceded |
|
| (40,195 | ) |
|
| (34,823 | ) |
|
| — |
|
|
| — |
|
|
| 4,509 |
|
|
| (70,509 | ) |
Net premiums earned |
|
| 56,796 |
|
|
| 52,789 |
|
|
| — |
|
|
| — |
|
|
| (26 | ) |
|
| 109,559 |
|
Net income from investment portfolio |
|
| 2,954 |
|
|
| 3,379 |
|
|
| — |
|
|
| 1,900 |
|
|
| 8,862 |
|
|
| 17,095 |
|
Gain from sales of real estate investments |
|
| — |
|
|
| — |
|
|
| 8,936 |
|
|
| — |
|
|
| (8,936 | ) |
|
| — |
|
Policy fee income |
|
| 563 |
|
|
| 527 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,090 |
|
Other |
|
| 4,653 |
|
|
| 1,643 |
|
|
| 2,923 |
|
|
| 595 |
|
|
| (8,529 | ) |
|
| 1,285 |
|
Total revenue |
|
| 64,966 |
|
|
| 58,338 |
|
|
| 11,859 |
|
|
| 2,495 |
|
|
| (8,629 | ) |
|
| 129,029 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Losses and loss adjustment expenses |
|
| 28,782 |
|
|
| 33,056 |
|
|
| — |
|
|
| — |
|
|
| (1,273 | ) |
|
| 60,565 |
|
Amortization of deferred policy acquisition |
|
| 9,621 |
|
|
| 11,863 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21,484 |
|
Other policy acquisition expenses |
|
| 655 |
|
|
| 611 |
|
|
| — |
|
|
| — |
|
|
| (30 | ) |
|
| 1,236 |
|
Stock-based compensation expense |
|
| 496 |
|
|
| 829 |
|
|
| — |
|
|
| 781 |
|
|
| — |
|
|
| 2,106 |
|
Interest expense |
|
| — |
|
|
| 431 |
|
|
| 203 |
|
|
| 2,598 |
|
|
| (431 | ) |
|
| 2,801 |
|
Depreciation and amortization |
|
| 139 |
|
|
| 956 |
|
|
| 627 |
|
|
| 202 |
|
|
| (537 | ) |
|
| 1,387 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| 177 |
|
|
| — |
|
|
| (177 | ) |
|
| — |
|
Personnel and other operating expenses |
|
| 9,919 |
|
|
| 9,433 |
|
|
| 1,554 |
|
|
| 1,589 |
|
|
| (6,181 | ) |
|
| 16,314 |
|
Total expenses |
|
| 49,612 |
|
|
| 57,179 |
|
|
| 2,561 |
|
|
| 5,170 |
|
|
| (8,629 | ) |
|
| 105,893 |
|
Income (loss) before income taxes |
| $ | 15,354 |
|
| $ | 1,159 |
|
| $ | 9,298 |
|
| $ | (2,675 | ) |
| $ | — |
|
| $ | 23,136 |
|
Total revenue from non-affiliates (d) |
| $ | 56,929 |
|
| $ | 61,286 |
|
| $ | 11,051 |
|
| $ | 1,926 |
|
|
|
|
|
|
| ||
Gross premiums written |
| $ | 85,153 |
|
| $ | 114,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
33
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
|
| HCPCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Insurance |
|
| TypTap |
|
| Real |
|
| Corporate/ |
|
| Reclassification/ |
|
|
|
| ||||||
For Three Months Ended September 30, 2022 |
| Operations |
|
| Group |
|
| Estate (a) |
|
| Other (b) |
|
| Elimination |
|
| Consolidated |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross premiums earned (c) |
| $ | 104,671 |
|
| $ | 82,728 |
|
| $ | — |
|
| $ | — |
|
| $ | (5,686 | ) |
| $ | 181,713 |
|
Premiums ceded |
|
| (46,157 | ) |
|
| (33,236 | ) |
|
| — |
|
|
| — |
|
|
| 4,652 |
|
|
| (74,741 | ) |
Net premiums earned |
|
| 58,514 |
|
|
| 49,492 |
|
|
| — |
|
|
| — |
|
|
| (1,034 | ) |
|
| 106,972 |
|
Net income from investment portfolio |
|
| 1,143 |
|
|
| 1,144 |
|
|
| — |
|
|
| 1,338 |
|
|
| 13,674 |
|
|
| 17,299 |
|
Gain on involuntary conversion |
|
| — |
|
|
| — |
|
|
| 13,402 |
|
|
| — |
|
|
| (13,402 | ) |
|
| — |
|
Policy fee income |
|
| 613 |
|
|
| 458 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,071 |
|
Other |
|
| 1,246 |
|
|
| 512 |
|
|
| 2,785 |
|
|
| 717 |
|
|
| (3,948 | ) |
|
| 1,312 |
|
Total revenue |
|
| 61,516 |
|
|
| 51,606 |
|
|
| 16,187 |
|
|
| 2,055 |
|
|
| (4,710 | ) |
|
| 126,654 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Losses and loss adjustment expenses |
|
| 73,228 |
|
|
| 62,153 |
|
|
| — |
|
|
| — |
|
|
| 4,413 |
|
|
| 139,794 |
|
Amortization of deferred policy acquisition costs |
|
| 11,333 |
|
|
| 12,176 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,509 |
|
Other policy acquisition expenses |
|
| 748 |
|
|
| 450 |
|
|
| — |
|
|
| — |
|
|
| (29 | ) |
|
| 1,169 |
|
Stock-based compensation expense |
|
| 1,049 | �� |
|
| 869 |
|
|
| — |
|
|
| 2,212 |
|
|
| — |
|
|
| 4,130 |
|
Interest expense |
|
| — |
|
|
| 222 |
|
|
| 221 |
|
|
| 2,591 |
|
|
| (221 | ) |
|
| 2,813 |
|
Depreciation and amortization |
|
| 166 |
|
|
| 865 |
|
|
| 651 |
|
|
| 186 |
|
|
| (596 | ) |
|
| 1,272 |
|
Personnel and other operating expenses |
|
| 14,240 |
|
|
| 8,497 |
|
|
| 1,583 |
|
|
| 1,526 |
|
|
| (8,277 | ) |
|
| 17,569 |
|
Total expenses |
|
| 100,764 |
|
|
| 85,232 |
|
|
| 2,455 |
|
|
| 6,515 |
|
|
| (4,710 | ) |
|
| 190,256 |
|
(Loss) income before income taxes |
| $ | (39,248 | ) |
| $ | (33,626 | ) |
| $ | 13,732 |
|
| $ | (4,460 | ) |
| $ | — |
|
| $ | (63,602 | ) |
Total revenue from non-affiliates (d) |
| $ | 55,801 |
|
| $ | 55,803 |
|
| $ | 15,848 |
|
| $ | 1,440 |
|
|
|
|
|
|
| ||
Gross premiums written |
| $ | 119,400 |
|
| $ | 71,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
34
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, 2023 |
| Operations |
|
| Group |
|
| Estate (a) |
|
| Other (b) |
|
| Elimination |
|
| Consolidated |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross premiums earned (c) |
| $ | 306,671 |
|
| $ | 258,916 |
|
| $ | — |
|
| $ | — |
|
| $ | (15,265 | ) |
| $ | 550,322 |
|
Premiums ceded |
|
| (124,399 | ) |
|
| (93,887 | ) |
|
| — |
|
|
| — |
|
|
| 15,235 |
|
|
| (203,051 | ) |
Net premiums earned |
|
| 182,272 |
|
|
| 165,029 |
|
|
| — |
|
|
| — |
|
|
| (30 | ) |
|
| 347,271 |
|
Net income from investment portfolio |
|
| 10,720 |
|
|
| 10,191 |
|
|
| — |
|
|
| 5,262 |
|
|
| 8,519 |
|
|
| 34,692 |
|
Gain from sales of real estate investments |
|
| — |
|
|
| — |
|
|
| 8,936 |
|
|
| — |
|
|
| (8,936 | ) |
|
| — |
|
Policy fee income |
|
| 1,647 |
|
|
| 2,004 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,651 |
|
Other |
|
| 12,319 |
|
|
| 4,017 |
|
|
| 7,410 |
|
|
| 1,798 |
|
|
| (23,158 | ) |
|
| 2,386 |
|
Total revenue |
|
| 206,958 |
|
|
| 181,241 |
|
|
| 16,346 |
|
|
| 7,060 |
|
|
| (23,605 | ) |
|
| 388,000 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Losses and loss adjustment expenses |
|
| 86,254 |
|
|
| 105,317 |
|
|
| — |
|
|
| — |
|
|
| (2,390 | ) |
|
| 189,181 |
|
Amortization of deferred policy acquisition costs |
|
| 29,934 |
|
|
| 34,658 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 64,592 |
|
Other policy acquisition expenses |
|
| 1,853 |
|
|
| 1,735 |
|
|
| — |
|
|
| — |
|
|
| (74 | ) |
|
| 3,514 |
|
Stock-based compensation expense |
|
| 1,413 |
|
|
| 2,217 |
|
|
| — |
|
|
| 2,183 |
|
|
| — |
|
|
| 5,813 |
|
Interest expense |
|
| — |
|
|
| 1,292 |
|
|
| 496 |
|
|
| 7,799 |
|
|
| (1,292 | ) |
|
| 8,295 |
|
Depreciation and amortization |
|
| 421 |
|
|
| 3,022 |
|
|
| 1,282 |
|
|
| 566 |
|
|
| (1,011 | ) |
|
| 4,280 |
|
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| 177 |
|
|
| — |
|
|
| (177 | ) |
|
| — |
|
Personnel and other operating expenses |
|
| 28,972 |
|
|
| 28,688 |
|
|
| 4,541 |
|
|
| 5,295 |
|
|
| (18,661 | ) |
|
| 48,835 |
|
Total expenses |
|
| 148,847 |
|
|
| 176,929 |
|
|
| 6,496 |
|
|
| 15,843 |
|
|
| (23,605 | ) |
|
| 324,510 |
|
Income (loss) before income taxes |
| $ | 58,111 |
|
| $ | 4,312 |
|
| $ | 9,850 |
|
| $ | (8,783 | ) |
| $ | — |
|
| $ | 63,490 |
|
Total revenue from non-affiliates (d) |
| $ | 181,587 |
|
| $ | 192,654 |
|
| $ | 13,895 |
|
| $ | 5,353 |
|
|
|
|
|
|
| ||
Gross premiums written |
| $ | 353,032 |
|
| $ | 225,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
35
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 |
|
Gain on involuntary conversion |
|
| — |
|
|
| — |
|
|
| 13,402 |
|
|
| — |
|
|
| (13,402 | ) |
|
| — |
|
Policy fee income |
|
| 1,895 |
|
|
| 1,285 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,180 |
|
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 |
|
Income (loss) 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
29
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table presents segment assets reconciled to the Company’s total assets on the consolidated balance sheets:
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Segments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
HCPCI Insurance Operations |
| $ | 935,294 |
|
| $ | 912,233 |
|
| $ | 921,327 |
|
| $ | 933,116 |
|
TypTap Group |
|
| 632,103 |
|
|
| 704,429 |
|
|
| 669,986 |
|
|
| 623,366 |
|
Reciprocal Exchange Operations |
|
| 47,776 |
|
|
| 25,000 |
| ||||||||
Real Estate Operations |
|
| 109,246 |
|
|
| 126,001 |
|
|
| 131,893 |
|
|
| 132,257 |
|
Corporate and Other |
|
| 191,084 |
|
|
| 159,378 |
|
|
| 334,304 |
|
|
| 233,952 |
|
Consolidation and Elimination |
|
| (144,095 | ) |
|
| (98,713 | ) |
|
| (263,652 | ) |
|
| (136,375 | ) |
Total assets |
| $ | 1,723,632 |
|
| $ | 1,803,328 |
|
| $ | 1,841,634 |
|
| $ | 1,811,316 |
|
3630
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 15 -- 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, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Operating leases: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
ROU assets |
| $ | 1,460 |
|
| $ | 777 |
|
| $ | 1,352 |
|
| $ | 1,407 |
|
Liabilities |
| $ | 1,457 |
|
| $ | 721 |
|
| $ | 1,357 |
|
| $ | 1,408 |
|
Finance leases: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
ROU assets |
| $ | 6 |
|
| $ | 80 |
|
| $ | 1 |
|
| $ | 1 |
|
Liabilities |
| $ | 2 |
|
| $ | 13 |
|
| $ | 1 |
|
| $ | 2 |
|
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 lease has an initial term of 5.25 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 |
| 36 to 63months |
| Yes |
| (a) |
Office space |
| 5 to 9 years |
| Yes |
| (a), (b) |
Finance lease: |
|
|
|
|
|
|
Office equipment |
|
|
| Not applicable |
| (c) |
As of September 30, 2023,March 31, 2024, maturities of lease liabilities were as follows:
|
| Leases |
|
| Leases |
| ||||||||||
|
| Operating |
|
| Finance |
|
| Operating |
|
| Finance |
| ||||
Due in 12 months following September 30, |
|
|
|
|
|
| ||||||||||
2023 |
| $ | 283 |
|
| $ | 2 |
| ||||||||
Due in 12 months following March 31, |
|
|
|
|
|
| ||||||||||
2024 |
|
| 292 |
|
|
| — |
|
| $ | 287 |
|
| $ | 1 |
|
2025 |
|
| 302 |
|
|
| — |
|
|
| 296 |
|
|
| — |
|
2026 |
|
| 311 |
|
|
| — |
|
|
| 306 |
|
|
| — |
|
2027 |
|
| 246 |
|
|
| — |
|
|
| 316 |
|
|
| — |
|
2028 |
|
| 160 |
|
|
| — |
| ||||||||
Thereafter |
|
| 278 |
|
|
| — |
|
|
| 219 |
|
|
| — |
|
Total lease payments |
|
| 1,712 |
|
|
| 2 |
|
|
| 1,584 |
|
|
| 1 |
|
Less: interest |
|
| 255 |
|
|
| — |
|
|
| 227 |
|
|
| — |
|
Total lease obligations |
| $ | 1,457 |
|
| $ | 2 |
|
| $ | 1,357 |
|
| $ | 1 |
|
3731
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar 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, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Lease costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Finance lease costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Amortization – ROU assets* |
| $ | 6 |
|
| $ | 4 |
|
| $ | 14 |
|
| $ | 14 |
|
| $ | — |
|
| $ | 4 |
|
Operating lease costs* |
|
| 74 |
|
|
| 281 |
|
|
| 203 |
|
|
| 937 |
|
|
| 68 |
|
|
| 52 |
|
Short-term lease costs* |
|
| 94 |
|
|
| 105 |
|
|
| 261 |
|
|
| 306 |
|
|
| 92 |
|
|
| 93 |
|
Total lease costs |
| $ | 174 |
|
| $ | 390 |
|
| $ | 478 |
|
| $ | 1,257 |
|
| $ | 160 |
|
| $ | 149 |
|
Cash paid for amounts included in the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Operating cash flows – operating leases |
|
|
|
|
|
| $ | 144 |
|
| $ | 924 |
|
| $ | 70 |
|
| $ | 44 |
| |||
Financing cash flows – finance leases |
|
|
|
|
|
| $ | 11 |
|
| $ | 14 |
|
| $ | 1 |
|
| $ | 4 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| September 30, |
|
|
|
|
|
|
|
|
|
| March 31, |
|
|
|
| |||||||
|
| 2023 |
|
|
|
|
|
|
|
|
| 2024 |
|
|
|
| ||||||||
Weighted-average remaining lease term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Finance leases (in years) |
|
| 1.0 |
|
|
|
|
|
|
|
|
|
|
| 0.5 |
|
|
|
| |||||
Operating leases (in years) |
|
| 5.9 |
|
|
|
|
|
|
|
|
|
|
| 5.4 |
|
|
|
| |||||
Weighted-average discount rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Finance leases (%) |
|
| 2.4 | % |
|
|
|
|
|
|
|
|
|
|
| 2.4 | % |
|
|
| ||||
Operating leases (%) |
|
| 6.1 | % |
|
|
|
|
|
|
|
|
|
|
| 6.0 | % |
|
|
|
* 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 |
|
|
Operating lease: |
|
|
|
|
|
|
Office space | 1 to 3 years | Yes | (d) | |||
Retail space |
| 3 to |
| Yes |
| (d) |
Boat docks/wet slips |
| 1 to 12 months |
| Yes |
| (d) |
Note 16 -- Income Taxes
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, 2022,2023, management concluded, based on the evaluation of the positive and negative evidence, that it wasis more likely than not that the deferred tax assets would notwill be realized and therefore recorded ano valuation allowance.allowance on the Company’s deferred tax assets is required. The Company evaluates the realizability of its deferred tax assets each quarter, and during the first quarteras of 2023,March 31, 2024, 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 three and nine months ended September 30, 2023, approximately $657 and $1,841, respectively, of valuation allowance was released through income tax expense.realized.
3832
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar amounts in thousands, except share and per share amounts, unless otherwise stated)
During the three months ended September 30,March 31, 2024 and 2023, the Company recorded approximately $4,41920,474 and $5,343, respectively, of income tax expense, which resulted in an effective tax raterates of 22.026.4%. During the three months ended September 30, 2022, the Company recorded approximately $ and 12,099 of income tax benefit, which resulted in an effective tax rate of 19.023.1%., respectively. The increase in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to the increase in non-deductible compensation, partially offset bya lower prior year effective tax rate resulting from the release of the valuation allowance established in 2022 during the third quarter of 2023.
During the nine months ended September 30, 2023, the Company recorded approximately $15,146 of income tax expense, which resulted in an effective tax rate of 23.9%. During the nine months ended September 30, 2022, the Company recorded approximately $13,907 of income tax benefit, which resulted in an effective tax rate of 19.5%. The increase in the effective tax rate in 2023 as compared with the corresponding period in the prior year was primarily attributable to the increase in non-deductible compensation, partially offset by the release of valuation allowance established in 2022 during the nine months of 2023 and the recognition of tax benefits attributable to restricted stock that vested in February and May 2023. 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 non-deductiblenondeductible and tax-exempt items.
Note 17 -- 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.
39
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 numerator and denominator of the basic and diluted earnings per common share is presented below:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||||||||||||||||
|
| Income |
|
| Shares (a) |
|
| Per Share |
|
| Loss |
|
| Shares (a) |
|
| Per Share |
| ||||||
|
| (Numerator) |
|
| (Denominator) |
|
| Amount |
|
| (Numerator) |
|
| (Denominator) |
|
| Amount |
| ||||||
Net income (loss) |
| $ | 15,669 |
|
|
|
|
|
|
|
| $ | (51,503 | ) |
|
|
|
|
|
| ||||
Less: Net income attributable to redeemable |
|
| (2,349 | ) |
|
|
|
|
|
|
|
| (2,285 | ) |
|
|
|
|
|
| ||||
Less: TypTap Group’s net (income) loss |
|
| (163 | ) |
|
|
|
|
|
|
|
| 2,829 |
|
|
|
|
|
|
| ||||
Net income (loss) attributable to HCI |
|
| 13,157 |
|
|
|
|
|
|
|
|
| (50,959 | ) |
|
|
|
|
|
| ||||
Less: (Income) loss attributable to |
|
| (411 | ) |
|
|
|
|
|
|
|
| 3,289 |
|
|
|
|
|
|
| ||||
Basic Earnings (Loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) allocated to common |
|
| 12,746 |
|
|
| 8,317 |
|
| $ | 1.53 |
|
|
| (47,670 | ) |
|
| 8,427 |
|
| $ | (5.66 | ) |
Effect of Dilutive Securities: * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock options |
|
| — |
|
|
| 88 |
|
|
|
|
|
| — |
|
|
| — |
|
|
|
| ||
Convertible senior notes |
|
| 1,927 |
|
|
| 2,538 |
|
|
|
|
|
| — |
|
|
| — |
|
|
|
| ||
Warrants |
|
| — |
|
|
| 32 |
|
|
|
|
|
| — |
|
|
| — |
|
|
|
| ||
Diluted Earnings (Loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) available to common |
| $ | 14,673 |
|
|
| 10,975 |
|
| $ | 1.34 |
|
| $ | (47,670 | ) |
|
| 8,427 |
|
| $ | (5.66 | ) |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||
|
| March 31, 2024 |
|
| March 31, 2023 |
| ||||||||||||||||||
|
| Income |
|
| Shares (a) |
|
| Per Share |
|
| Income |
|
| Shares (a) |
|
| Per Share |
| ||||||
|
| (Numerator) |
|
| (Denominator) |
|
| Amount |
|
| (Numerator) |
|
| (Denominator) |
|
| Amount |
| ||||||
Net income |
| $ | 56,956 |
|
|
|
|
|
|
|
| $ | 17,793 |
|
|
|
|
|
|
| ||||
Less: Net income attributable to |
|
| (10,149 | ) |
|
|
|
|
|
|
|
| (2,324 | ) |
|
|
|
|
|
| ||||
Less: Net loss (income) |
|
| 804 |
|
|
|
|
|
|
|
|
| (131 | ) |
|
|
|
|
|
| ||||
Net income attributable to HCI |
|
| 47,611 |
|
|
|
|
|
|
|
|
| 15,338 |
|
|
|
|
|
|
| ||||
Less: Income attributable to |
|
| (1,218 | ) |
|
|
|
|
|
|
|
| (564 | ) |
|
|
|
|
|
| ||||
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income allocated to common |
|
| 46,393 |
|
|
| 9,751 |
|
| $ | 4.76 |
|
|
| 14,774 |
|
|
| 8,278 |
|
| $ | 1.78 |
|
Effect of Dilutive Securities: * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock options |
|
| — |
|
|
| 280 |
|
|
|
|
|
| — |
|
|
| 45 |
|
|
|
| ||
Convertible senior notes |
|
| 1,640 |
|
|
| 2,282 |
|
|
|
|
|
| 1,921 |
|
|
| 2,537 |
|
|
|
| ||
Warrants |
|
| — |
|
|
| 305 |
|
|
|
|
|
| — |
|
|
| — |
|
|
|
| ||
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income available to common |
| $ | 48,033 |
|
|
| 12,618 |
|
| $ | 3.81 |
|
| $ | 16,695 |
|
|
| 10,860 |
|
| $ | 1.54 |
|
* For the three months ended September 30, 2022, convertible senior notes, stock options, andMarch 31, 2023, warrants were excluded due to anti-dilutive effect.
33
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||||||||||||||||||
|
| Income |
|
| Shares (a) |
|
| Per Share |
|
| Loss |
|
| Shares (a) |
|
| Per Share |
| ||||||
|
| (Numerator) |
|
| (Denominator) |
|
| Amount |
|
| (Numerator) |
|
| (Denominator) |
|
| Amount |
| ||||||
Net income (loss) |
| $ | 48,344 |
|
|
|
|
|
|
|
| $ | (57,254 | ) |
|
|
|
|
|
| ||||
Less: Net income attributable to redeemable |
|
| (7,010 | ) |
|
|
|
|
|
|
|
| (6,801 | ) |
|
|
|
|
|
| ||||
Less: TypTap Group’s net (income) loss |
|
| (396 | ) |
|
|
|
|
|
|
|
| 4,018 |
|
|
|
|
|
|
| ||||
Net income (loss) attributable to HCI |
|
| 40,938 |
|
|
|
|
|
|
|
|
| (60,037 | ) |
|
|
|
|
|
| ||||
Less: (Income) loss attributable to |
|
| (1,395 | ) |
|
|
|
|
|
|
|
| 3,855 |
|
|
|
|
|
|
| ||||
Basic Earnings (Loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) allocated to common |
|
| 39,543 |
|
|
| 8,299 |
|
| $ | 4.76 |
|
|
| (56,182 | ) |
|
| 8,972 |
|
| $ | (6.26 | ) |
Effect of Dilutive Securities: * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock options |
|
| — |
|
|
| 68 |
|
|
|
|
|
| — |
|
|
| — |
|
|
|
| ||
Convertible senior notes |
|
| 5,771 |
|
|
| 2,538 |
|
|
|
|
|
| — |
|
|
| — |
|
|
|
| ||
Diluted Earnings (Loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income (loss) available to common |
| $ | 45,314 |
|
|
| 10,905 |
|
| $ | 4.16 |
|
| $ | (56,182 | ) |
|
| 8,972 |
|
| $ | (6.26 | ) |
* For the nine months ended September 30, 2023, warrants were excluded due to anti-dilutive effect. For the nine months ended
40
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar amounts in thousands, except share and per share amounts, unless otherwise stated)
September 30, 2022, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect.
Note 18 -- Redeemable Noncontrolling Interest
On January 22, 2024, TTIG entered into a Stock Redemption Agreement with Centerbridge which allowed TTIG to redeem all of the TTIG Series A Preferred Stock held by Centerbridge. The redemption totaled $100,000 plus accrued and unpaid dividends of approximately $2,923. At redemption, the difference between the consideration transferred of $102,923 and the redemption date carrying value of $96,695 is recorded as a deemed dividend and is included in net income attributable to redeemable noncontrolling interest which is subtracted from net income when calculating income available to common stockholders.
The following table summarizes the activity of redeemable noncontrolling interest during the ninethree months ended September 30, 2023March 31, 2024 and 2022:2023:
|
| 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 |
|
Increase (decrease): |
|
|
|
|
|
| ||
Accrued cash dividends |
|
| 1,875 |
|
|
| 1,500 |
|
Accretion - increasing dividend rates |
|
| 462 |
|
|
| 768 |
|
Balance at June 30 |
| $ | 95,202 |
|
| $ | 91,963 |
|
Increase (decrease): |
|
|
|
|
|
| ||
Accrued cash dividends |
|
| 1,876 |
|
|
| 1,499 |
|
Accretion - increasing dividend rates |
|
| 473 |
|
|
| 786 |
|
Dividends paid |
|
| (3,750 | ) |
|
| (3,000 | ) |
Balance at September 30 |
| $ | 93,801 |
|
| $ | 91,248 |
|
On July 3, 2023, 1,000,000 voting shares of TTIG's Series A-1 Preferred Stock were exchanged for 1,000,000 non-voting shares of TTIG's Series A-2 Preferred Stock. The exchange did not change the number of shares of TTIG capital stock issued and outstanding.
|
| 2024 |
|
| 2023 |
| ||
Balance at January 1 |
| $ | 96,160 |
|
| $ | 93,553 |
|
Increase (decrease): |
|
|
|
|
|
| ||
Accrued cash dividends |
|
| 424 |
|
|
| 1,637 |
|
Accretion - increasing dividend rates |
|
| 111 |
|
|
| 687 |
|
Adjustment to maximum redemption value |
|
| 6,228 |
|
|
| — |
|
Dividends paid |
|
| (2,923 | ) |
|
| (3,012 | ) |
Redemption |
|
| (100,000 | ) |
|
| — |
|
Balance at March 31 |
| $ | — |
|
| $ | 92,865 |
|
For the three months ended September 30, 2023 and 2022,March 31, 2024, net income attributable to redeemable noncontrolling interest was $2,349 and $2,28510,149, respectively, consisting of accrued cash dividends of $1,876424 and, accretion related to increasing dividend rates of $1,499111, respectively,an adjustment to maximum redemption value of $6,228, and a deemed dividend resulting from warrant modifications of $3,386. See Note 19 -- “Equity” for additional information regarding the modifications to the warrants held by Centerbridge. For the three months ended March 31, 2023, net income attributable to redeemable noncontrolling interest was $2,324, consisting of accrued cash dividends of $1,637 and accretion related to increasing dividend rates of $473687 and $786, respectively. For the nine months ended September 30, 2023 and 2022, net income attributable to redeemable noncontrolling interest was $7,010 and $6,801, respectively, consisting of accrued cash dividends of $5,388 and $4,341, respectively, and accretion related to increasing dividend rates of $1,622 and $2,460, respectively..
41
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 19 -- Equity
Stockholders’ Equity
Common Stock
The Company’s 2022 stock repurchase planOn January 22, 2024, a new shelf registration statement on Form S-3 (the “Shelf Registration”) was completed and no new stock repurchase plan has been approved by the Board of Directors.
In March 2022,filed, replacing the Company’s Boardold universal shelf registration statement filed in September 2023. The new Shelf Registration permits the Company to offer and sell its common stock, preferred stock, debt securities, warrants, and stock purchase contracts and units, from time to time, subject to market conditions and its capital needs. The Shelf Registration will also enable Centerbridge to sell all or a portion of Directors authorizedthe amended and restated warrant or the shares issuable pursuant to the warrant. As a planpart of the Shelf Registration, the Company also announced the implementation of an “at-the-market” facility (the “ATM facility”) under which the Company would have the ability to repurchaseraise up to $20,00075,000 through the issuance of new shares of common stock into the Company’s common shares before commissions and fees during 2022. During the three months ended September 30, 2022, the Company repurchased and retired a total of market if it were to so choose.119,462 shares at a weighted average price per share of $51.69 under this authorized 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 3, 2023January 24, 2024, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends were paid on SeptemberMarch 15, 20232024 to stockholders of record on August 18, 2023February 16, 2024.
34
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
Warrants
In connection with the redemption of the TTIG Series A Preferred Stock held by Centerbridge in January 2024, HCI, for the benefit of TTIG, extended the expiration dates of 450,000 of the underlying warrant shares, which will now expire in 150,000 share increments on December 31, 2026, December 31, 2027, and December 31, 2028. The remaining 300,000 share warrants retained their original expiration date of February 26, 2025 and were exercised on March 11, 2024 through a cashless transaction. The warrant modifications resulted in a $3,386 increase in the fair value of the warrants, which is recorded as a deemed dividend by decreasing retained income and increasing additional paid-in capital. The amount of deemed dividend is included in net income attributable to redeemable noncontrolling interest which is subtracted from net income when calculating net income available to common stockholders.
At September 30, 2023,March 31, 2024, there were warrants outstanding and exercisable, held by Centerbridge, to purchase 750,000450,000 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 in May 2022, the Company used $66,853 of the net proceeds to repurchase and retire an aggregate of 1,037,600 shares of its common stock from institutional investors at a price of $64.43 per share.
Noncontrolling Interests
At September 30, 2023, there were 80,471,174 shares of TTIG���s common stock outstanding, of which 5,471,174 shares were not owned by HCI.TTIG
During the three and nine months ended September 30,March 31, 2024 and 2023, TTIG repurchased and retired a total of 2,34322,787 and 65,15134,108 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, 2024 and 2023 was $333 and $240, respectively. During the three and nine months ended September 30, 2022, TTIG repurchased and retired a total of 2,893 and 69,876 shares, respectively, of its common stock. The total cost of purchasing noncontrolling interests during the three and nine months ended September 30, 2022 was $17 and $406198, respectively.
42
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Furthermore, TTIG repurchased and retired a total ofAt March 31, 2024, there were 43,51180,329,238 shares of itsTTIG’s common stock outstanding, of which 5,329,238 shares were not owned by HCI.
CORE
As described in Note 13 -- “Variable Interest Entity,” the Company has no equity interest at risk in CORE and CORE receives surplus contributions from former TTIG employees forits subscribers in addition to policy premiums. The surplus contribution is payable to CORE on or prior to the initial effective date of coverage and on or prior to the effective date of all endorsements generating an additional premium. The surplus contribution made during a total costpolicy term may be returned on a pro-rata basis to a subscriber in the event of $85policy cancellation. CORE, organized in November 2023, did not write any policies during the three months ended September 30, 2023. The total cost included the fair valuefirst quarter of TTIG common stock and the $26 inducement cost aiming to curtail the spread of share ownership.2024.
Note 20 -- Stock-Based Compensation
2012 Omnibus Incentive Plan
The Company currently has outstanding stock-based awards granted under the Plan which is currently active and available for future grants. At September 30, 2023,March 31, 2024, there were 959,565962,406 shares available for grant.
Stock Options
Stock options granted and outstanding under the incentive plan generally vest over a period of four years, except for those with market conditions, and are exercisable over the contractual term of ten years.
35
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar 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, 2024 and 2023 and 2022 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, 2023 |
|
| 440,000 |
|
| $ | 45.25 |
|
| 5.6 years |
| $ | — |
|
Outstanding at March 31, 2023 |
|
| 440,000 |
|
| $ | 45.25 |
|
| 5.3 years |
| $ | 3,146 |
|
Outstanding at June 30, 2023 |
|
| 440,000 |
|
| $ | 45.25 |
|
| 5.1 years |
| $ | 7,863 |
|
Grant |
|
| 150,000 |
|
| $ | 70.00 |
|
|
|
|
|
| |
Outstanding at September 30, 2023 |
|
| 590,000 |
|
| $ | 51.54 |
|
| 6.1 years |
| $ | 3,978 |
|
Exercisable at September 30, 2023 |
|
| 412,500 |
|
| $ | 45.07 |
|
| 4.7 years |
| $ | 3,805 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
|
|
|
|
|
|
|
|
| Weighted |
|
|
| |||
|
|
|
|
| Weighted |
|
| Average |
|
|
| |||
|
|
|
|
| Average |
|
| Remaining |
| Aggregate |
| |||
|
| Number of |
|
| Exercise |
|
| Contractual |
| Intrinsic |
| |||
|
| Options |
|
| Price |
|
| Term |
| Value |
| |||
Outstanding at January 1, 2024 |
|
| 590,000 |
|
| $ | 51.54 |
|
| 5.9 years |
| $ | 21,156 |
|
Outstanding at March 31, 2024 |
|
| 590,000 |
|
| $ | 51.54 |
|
| 5.6 years |
| $ | 38,077 |
|
Exercisable at March 31, 2024 |
|
| 590,000 |
|
| $ | 51.54 |
|
| 5.6 years |
| $ | 38,077 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
|
On September 15, 2023, the Company awarded its chief executive officer, Paresh Patel, an option with market-based vesting conditions to purchase 150,000 shares of its common stock.
There were no options exercised during the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023. For the three months ended September 30,March 31, 2024 and 2023, and 2022, the Company recognized $13314 and $16290, respectively, of compensation expense related to stock options which is included in general and administrative personnel expenses. For the nine months ended September 30, 2023 and 2022, the Company recognized $There were 299no and $507, respectively, of compensation expense. Deferreddeferred tax benefits related to stock options wererecognized for the three months ended March 31, 2024 and 2023. At March 31, 2024 and December 31, 2023, there was $0 for the three and nine months ended September 30, 2023 and 2022. At September 30, 2023 and December 31, 2022, there was $1,911and $33614, 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 1.4 years.
43
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table provides assumptions used in the pricing model to estimate the fair value of the stock options granted during the three and nine months ended September 30, 2023:
| ||||
|
| |||
|
| |||
|
| |||
|
|
Restricted Stock Awards
From time to time, the Company has granted and may grant restricted stock awards to certain executive officers, other employees, and 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.
Information with respect to the activity of unvested restricted stock awards during the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 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, 2024 |
|
| 271,417 |
|
| $ | 37.12 |
| ||||||||
Vested |
|
| (29,690 | ) |
| $ | 56.05 |
| ||||||||
Forfeited |
|
| (200 | ) |
| $ | 51.87 |
| ||||||||
Nonvested at March 31, 2024 |
|
| 241,527 |
|
| $ | 34.78 |
| ||||||||
|
| Awards |
|
| Fair Value |
|
|
|
|
|
|
| ||||
Nonvested at January 1, 2023 |
|
| 342,459 |
|
| $ | 39.86 |
|
|
| 342,459 |
|
| $ | 39.86 |
|
Granted |
|
| 6,000 |
|
| $ | 51.76 |
|
|
| 6,000 |
|
| $ | 51.76 |
|
Vested |
|
| (40,352 | ) |
| $ | 54.83 |
|
|
| (40,352 | ) |
| $ | 54.83 |
|
Forfeited |
|
| (2,125 | ) |
| $ | 40.33 |
|
|
| (2,125 | ) |
| $ | 40.33 |
|
Nonvested at March 31, 2023 |
|
| 305,982 |
|
| $ | 38.11 |
|
|
| 305,982 |
|
| $ | 38.11 |
|
Granted |
|
| 7,000 |
|
| $ | 58.52 |
| ||||||||
Vested |
|
| (34,689 | ) |
| $ | 45.56 |
| ||||||||
Forfeited |
|
| (295 | ) |
| $ | 55.41 |
| ||||||||
Nonvested at June 30, 2023 |
|
| 277,998 |
|
| $ | 37.68 |
| ||||||||
Forfeited |
|
| (3,940 | ) |
| $ | 66.73 |
| ||||||||
Nonvested at September 30, 2023 |
|
| 274,058 |
|
| $ | 37.26 |
| ||||||||
|
|
|
|
|
| |||||||||||
Nonvested at January 1, 2022 |
|
| 679,997 |
|
| $ | 39.72 |
| ||||||||
Granted |
|
| 4,000 |
|
| $ | 70.58 |
| ||||||||
Vested |
|
| (50,667 | ) |
| $ | 50.68 |
| ||||||||
Forfeited |
|
| (3,265 | ) |
| $ | 45.85 |
| ||||||||
Nonvested at March 31, 2022 |
|
| 630,065 |
|
| $ | 39.00 |
| ||||||||
Granted |
|
| 3,000 |
|
| $ | 67.30 |
| ||||||||
Vested |
|
| (51,125 | ) |
| $ | 45.04 |
| ||||||||
Forfeited |
|
| (700 | ) |
| $ | 45.61 |
| ||||||||
Nonvested at June 30, 2022 |
|
| 581,240 |
|
| $ | 38.61 |
| ||||||||
Forfeited |
|
| (1,665 | ) |
| $ | 45.56 |
| ||||||||
Nonvested at September 30, 2022 |
|
| 579,575 |
|
| $ | 38.59 |
|
4436
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(AmountsDollar amounts in thousands, except share and per share amounts, unless otherwise stated)
The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $977867 and $3,0991,187 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and $3,297 and $9,551 for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023March 31, 2024 and December 31, 2022,2023, there was approximately $5,1063,165 and $8,0484,043, 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 1.71.4 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, 2023March 31, 2024 and 2022.2023.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Deferred tax benefits recognized |
| $ | 214 |
|
| $ | 230 |
|
| $ | 731 |
|
| $ | 1,521 |
|
| $ | 99 |
|
| $ | 263 |
|
Tax benefits realized for restricted stock and |
| $ | 28 |
|
| $ | 56 |
|
| $ | 848 |
|
| $ | 1,360 |
|
| $ | 511 |
|
| $ | 299 |
|
Fair value of vested restricted stock |
| $ | — |
|
| $ | — |
|
| $ | 3,793 |
|
| $ | 4,871 |
|
| $ | 1,664 |
|
| $ | 2,213 |
|
Subsidiary Equity Plan
For the three months ended September 30,March 31, 2024 and 2023, and 2022, TypTap Group recognized compensation expense related to its stock-based awards of $730701 and $869829, respectively. For the nine months ended September 30,At March 31, 2024 and December 31, 2023, and 2022, TypTap Group recognized compensation expense related to its stock-based awards ofthere was $2,2173,696 and $2,651, respectively. At September 30, 2023 and December 31, 2022, there was $5,206 and $7,8764,438, respectively, of unrecognized compensation expense related to nonvested subsidiary restricted stock and stock options.
Note 21 -- Commitments and Contingencies
Obligations under One Multi-Year Reinsurance Contract
As of September 30, 2023,March 31, 2024, the Company has a contractual obligation related to one multi-year reinsurance contract entered into effective June 1, 2022. The contract may be cancelled only with the other party’s consent or when its experience account is positive at the end of each contract year. The future minimum aggregate premium amount payable to the reinsurer is $91,350 due in the 12 months following September 30, 2023.June 2024.
Capital Commitments
As described in Note 54 -- “Investments” under Limited Partnership Investments, the Company is contractually committed to capital contributions for limited partnership interests. At September 30, 2023,March 31, 2024, there was an aggregate unfunded balance of $4,9313,806.
FIGA Assessments
During 2022, the FLOIR approved assessments for the Florida Insurance Guaranty Association (“FIGA”) in order to secure funds for the payment of covered claims relating to the liquidation of three insurance companies. The FIGA assessments are levied on collected premiums of all covered lines of business except auto insurance.
45
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The surcharges, which are collectible from a policyholder, are assessed on new and renewal policies with specified effective dates.
In April 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 will be levied at 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 October 1, 2023 through September 30, 2024 and continuing until the end of the assessment year in which the Series 2023A Bonds issued by the Florida Insurance Assistance Interlocal Agency have been paid in full.Assessments
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, 2023,March 31, 2024, the FIGA assessments payable by the Company were $1,2261,651.
37
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 22 -- Related Party Transaction
HCPCI and TypTap have reinstatement premium protection reinsurance contracts (“RPP”) with various reinsurers. For one of the RPP contracts, Oxbridge Reinsurance Limited (“Oxbridge”) participates as a subscribing reinsurer. One of the Company’s non-employee directors, Jay Madhu, serves as Oxbridge’s chairman of its board of directors and chief executive officer and is an investor in that company. Under the contracts, Oxbridge agrees to indemnify HCPCI and TypTap for a portion of reinstatement premium which HCPCI or TypTap pays or becomes liable to pay to reinstate reinsurance protection. The $1,099 premium, a competitive market rate, will be paid over four installments, each of which is to be deposited into a trust account in order to fully collateralize Oxbridge’s obligations. Trust assets may be withdrawn by HCPCI and TypTap or the trust beneficiaries in the event amounts are due under the 2023-2024 RPP contracts.
Note 23 -- Subsequent Events
On October 2, 2023,April 1, 2024, the Company repaid $2,000 to the line of credit, reducing the outstanding balance under the revolving credit facility to $48,000.
On April 17, 2024, the Company awarded Paresh Patel, its Chief Executive Officer, 200,000 restricted shares of common stock. The shares will vest equally over a period of four years, with vesting dates of March 15, 2025, 2026, 2027, and 2028, under the condition that the price per share reaches $53,000200 receivablefor a period of 30 consecutive trading days.
On April 23, 2024, CORE assumed 148 policies from maturities of fixed-maturity securities was collected by the Company.Citizens, representing approximately $15,700 in annualized premiums written.
On October 13, 2023April 24, 2024, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on December 15, 2023June 21, 2024 to stockholders of record on NovemberMay 17, 20232024.
In connection with the Southeast Region quota share reinsurance provided to United by the Company, the receiver of United had requested a total withdrawal of $13,482 from a trust account holding funds withheld for assumed business. The withdrawal was in settlement of unearned premiums of $7,496, losses and LAE of $2,310, claims handling fees of $4,875, less ceding commission of $1,199. Of the total withdrawal, the Company received $4,875 in payment for reimbursement and fees receivable under TPA service on October 26, 2023.
On November 3, 2023, the Company executed a Second Amended and Restated Credit Agreement with Fifth Third Bank, National Association. The amendment extends the term of the line of credit until November 3, 2028 and increases the borrowing capacity to $75,000, $50,000 of which may be used to refinance the Company’s redeemable noncontrolling interest on or prior to March 31, 2025. The maximum debt-to-capital ratio is set at 67.5%.38
46
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, 2023.8, 2024. 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 InsurTechinsurance company with operations in property and casualty insurance, information technology services, insurance management, real estate and reinsurance. We utilize innovative technology to promote efficiency, refine risk assessment and enhance experiences for clients throughout the insurance process. We manage our operations in the following organizational segments, based on managerial emphasis and evaluation of financial and operating performances:
39
For the three months ended September 30,March 31, 2024 and 2023, and 2022, revenues from HCPCI insurance operations before intracompany elimination represented 64.4% and 60.5%, respectively, and revenues from TypTap Group
47
represented 34.1% and 29.9%, respectively, of total revenues of all operating segments. For the nine months ended September 30, 2023 and 2022, revenues from HCPCI insurance operations before intracompany elimination represented 63.7% and 66.6%61.2%, respectively, and revenues from TypTap Group represented 34.6%33.8% and 28.7%36.5%, respectively, of total revenues of all operating segments. At September 30, 2023March 31, 2024 and December 31, 2022,2023, HCPCI insurance operations’ total assets represented 56.6%53.1% and 53.4%55.3%, respectively, and TypTap Group’s total assets represented 34.6%34.9% and 37.9%33.6%, respectively, of the combined assets of all operating segments. See Note 14 -- “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 has historically providedprovides 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.
Due to the reduced availability and affordability of flood reinsurance coverage, HCPCI will cease to offer flood insurance policies in 2023. The discontinuation does not have a material impact to HCPCI’s results of operations as the gross premiums earned from such policies comprised less than 1% of total HCPCI gross premiums earned during 2022.
Reinsurance and other auxiliary operations
We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd (“Claddaugh”). We selectively retain risk in Claddaugh, reducing the cost of third-party reinsurance. Claddaugh fully collateralizes its exposure to HCPCI and TypTapaffiliates 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 2023-2024 treaty year. Currently, Claddaugh does not provide reinsurance to non-affiliates. Other auxiliary operations also include claim adjusting and processing services.
TypTap Group
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 usinguses internally developed technologysoftware technologies to collectdrive efficiency in claim processing and analyze claims and other supplemental data tosettlements, identify profitable underwriting opportunities, generate savings and efficiency forstreamline operations across its insurance operations. In addition, software is also used to analyze potential and current properties based on statistical models for catastrophic events, allowing us to pursue the optimal candidates for insurance coverage.
Property and Casualty Insurance
TypTap, TTIG’s insurance subsidiary, has been the primary source of our organic growth in gross written premium since 2016.premium. TypTap’s policies in force have increased from 6,721 in January 2018 to 89,83199,608 at September 30, 2023.March 31, 2024. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently. As of November 1, 2023,Since TypTap has been approvedbegan applying for approval to offer homeowners coverage in 30 states outside of Florida.
48
Florida in October 2020, TypTap is also phasing out its flood insurance products during 2023 due to the reduced availability and affordability of flood reinsurance coverage. The discontinuation does not have a material impact to TypTap’s results of operations as the gross premiums earnedhas received approvals from such policies comprised less than 5% of total TypTap gross premiums earned during 2022.31 states.
Information Technology
Our information technology operations include a team of experienced software developers with extensive knowledge in designing and creating web-based 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
40
operations as well as our third-party relationships with our agency partners and claim vendors. These products include SAMSTM, HarmonyTM, AtlasViewer® and ClaimColonyTM.
Reciprocal Exchange Operations
This segment encompasses the reciprocal exchange operations under our management. Condo Owners Reciprocal Exchange (“CORE”), organized in November 2023 to offer commercial residential multiple peril and wind insurance products, is owned by its policyholders, referred to as subscribers, who gain ownership by buying an insurance policy. The subscribers then assume one another’s risks by exchanging insurance contracts, so they are both the insurers and the insureds. The daily operations of CORE are directly or indirectly conducted by Core Risk Managers, LLC (“CRM”), an AIF company. Such daily operations include general administration, marketing, underwriting, accounting, policy administration, claim adjusting, and information technology. CRM is permitted to outsource any of these services to other HCI subsidiaries. See Note 13 -- “Variable Interest Entity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
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. Properties used in operations consist of two Tampa office buildings and an insurance operations site in Ocala, Florida. Our investment properties include retail shopping centers, two marinas, and undeveloped land near TTIG’s headquarters in Tampa Florida.
In March 2023, we finalized the sales of two retail shopping center investment properties in Melbourne and Sorrento, Florida. In September 2023, we purchased vacant land in Haines City, Florida which will be developed into a retail shopping center to be anchored by a well-known grocery store chain. See Real Estate Investments under Note 5 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.City.
Other Operations
Holding company operations
Activities of our holding company, HCI Group, Inc., plus other companies that do not meet the quantitative and qualitative thresholds for a reportable segment comprise the operations of this segment.
Recent Events
On October 13, 2023,April 1, 2024, we repaid $2,000,000 to the line of credit, reducing the amount outstanding under the revolving credit facility to $48,000,000.
On April 17, 2024, we awarded Paresh Patel, our Chief Executive Officer, 200,000 restricted shares of common stock. The shares will vest equally over a period of four years, with vesting dates of March 15, 2025, 2026, 2027, and 2028, under the condition that the price per share reaches $200 for a period of 30 consecutive trading days.
On April 23, 2024, CORE assumed 148 policies from Citizens, representing approximately $15,700,000 in annualized premiums written.
On April 24, 2024, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on December 15, 2023June 21, 2024 to stockholders of record on NovemberMay 17, 2023.
On November 3, 2023, we executed a Second Amended and Restated Credit Agreement with Fifth Third Bank, National Association. The amendment extends the term of the line of credit until November 3, 2028 and increases the borrowing capacity to $75,000,000, $50,000,000 of which may be used to refinance our redeemable noncontrolling interest on or prior to March 31, 2025. The maximum debt-to-capital ratio is set at 67.5%.2024.
4941
RESULTS OF OPERATIONS
The following table summarizes our results of operations for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (dollar amounts in thousands, except per share amounts):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross premiums earned |
| $ | 188,308 |
|
| $ | 181,713 |
|
| $ | 550,322 |
|
| $ | 541,762 |
|
| $ | 256,644 |
|
| $ | 180,068 |
|
Premiums ceded |
|
| (66,152 | ) |
|
| (74,741 | ) |
|
| (203,051 | ) |
|
| (184,108 | ) |
|
| (68,106 | ) |
|
| (70,509 | ) |
Net premiums earned |
|
| 122,156 |
|
|
| 106,972 |
|
|
| 347,271 |
|
|
| 357,654 |
|
|
| 188,538 |
|
|
| 109,559 |
|
Net investment income |
|
| 9,384 |
|
|
| 18,530 |
|
|
| 35,893 |
|
|
| 25,082 |
|
|
| 14,067 |
|
|
| 17,715 |
|
Net realized investment losses |
|
| (207 | ) |
|
| (884 | ) |
|
| (1,586 | ) |
|
| (1,204 | ) |
|
| — |
|
|
| (1,149 | ) |
Net unrealized investment gains (losses) |
|
| (1,041 | ) |
|
| (347 | ) |
|
| 385 |
|
|
| (8,157 | ) | ||||||||
Net unrealized investment gains |
|
| 2,635 |
|
|
| 529 |
| ||||||||||||||||
Policy fee income |
|
| 1,092 |
|
|
| 1,071 |
|
|
| 3,651 |
|
|
| 3,180 |
|
|
| 1,019 |
|
|
| 1,090 |
|
Other income |
|
| 260 |
|
|
| 1,312 |
|
|
| 2,386 |
|
|
| 3,065 |
|
|
| 355 |
|
|
| 1,285 |
|
Total revenue |
|
| 131,644 |
|
|
| 126,654 |
|
|
| 388,000 |
|
|
| 379,620 |
|
|
| 206,614 |
|
|
| 129,029 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Losses and loss adjustment expenses |
|
| 66,726 |
|
|
| 139,794 |
|
|
| 189,181 |
|
|
| 299,328 |
|
|
| 79,922 |
|
|
| 60,565 |
|
Policy acquisition and other underwriting expenses |
|
| 22,768 |
|
|
| 24,678 |
|
|
| 68,106 |
|
|
| 80,949 |
|
|
| 22,139 |
|
|
| 22,720 |
|
General and administrative personnel expenses |
|
| 13,864 |
|
|
| 15,848 |
|
|
| 41,638 |
|
|
| 45,183 |
|
|
| 16,274 |
|
|
| 13,502 |
|
Interest expense |
|
| 2,827 |
|
|
| 2,813 |
|
|
| 8,295 |
|
|
| 4,929 |
|
|
| 3,149 |
|
|
| 2,801 |
|
Other operating expenses |
|
| 5,371 |
|
|
| 7,123 |
|
|
| 17,290 |
|
|
| 20,392 |
|
|
| 7,700 |
|
|
| 6,305 |
|
Total expenses |
|
| 111,556 |
|
|
| 190,256 |
|
|
| 324,510 |
|
|
| 450,781 |
|
|
| 129,184 |
|
|
| 105,893 |
|
Income (loss) before income taxes |
|
| 20,088 |
|
|
| (63,602 | ) |
|
| 63,490 |
|
|
| (71,161 | ) | ||||||||
Income tax expense (benefit) |
|
| 4,419 |
|
|
| (12,099 | ) |
|
| 15,146 |
|
|
| (13,907 | ) | ||||||||
Net income (loss) |
|
| 15,669 |
|
|
| (51,503 | ) |
|
| 48,344 |
|
|
| (57,254 | ) | ||||||||
Income before income taxes |
|
| 77,430 |
|
|
| 23,136 |
| ||||||||||||||||
Income tax expense |
|
| 20,474 |
|
|
| 5,343 |
| ||||||||||||||||
Net income |
|
| 56,956 |
|
|
| 17,793 |
| ||||||||||||||||
Net income attributable to noncontrolling interests |
|
| (2,512 | ) |
|
| 544 |
|
|
| (7,406 | ) |
|
| (2,783 | ) |
|
| (9,345 | ) |
|
| (2,455 | ) |
Net income (loss) after noncontrolling interests |
| $ | 13,157 |
|
| $ | (50,959 | ) |
| $ | 40,938 |
|
| $ | (60,037 | ) | ||||||||
Net income after noncontrolling interests |
| $ | 47,611 |
|
| $ | 15,338 |
| ||||||||||||||||
Ratios to Net Premiums Earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loss Ratio |
|
| 54.62 | % |
|
| 130.68 | % |
|
| 54.48 | % |
|
| 83.69 | % |
|
| 42.39 | % |
|
| 55.28 | % |
Expense Ratio |
|
| 36.70 | % |
|
| 47.18 | % |
|
| 38.97 | % |
|
| 42.35 | % | ||||||||
Combined Ratio |
|
| 91.32 | % |
|
| 177.86 | % |
|
| 93.45 | % |
|
| 126.04 | % | ||||||||
Expense Ratio (excluding interest expense) |
|
| 24.46 | % |
|
| 38.82 | % | ||||||||||||||||
Combined Ratio (excluding interest expense) |
|
| 66.85 | % |
|
| 94.10 | % | ||||||||||||||||
Ratios to Gross Premiums Earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loss Ratio |
|
| 35.43 | % |
|
| 76.93 | % |
|
| 34.38 | % |
|
| 55.25 | % |
|
| 31.14 | % |
|
| 33.63 | % |
Expense Ratio |
|
| 23.81 | % |
|
| 27.77 | % |
|
| 24.59 | % |
|
| 27.96 | % | ||||||||
Combined Ratio |
|
| 59.24 | % |
|
| 104.70 | % |
|
| 58.97 | % |
|
| 83.21 | % | ||||||||
Earnings (Loss) Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Expense Ratio (excluding interest expense) |
|
| 17.97 | % |
|
| 23.62 | % | ||||||||||||||||
Combined Ratio (excluding interest expense) |
|
| 49.11 | % |
|
| 57.25 | % | ||||||||||||||||
Earnings Per Share Data: |
|
|
|
|
|
| ||||||||||||||||||
Basic |
| $ | 1.53 |
|
| $ | (5.66 | ) |
| $ | 4.76 |
|
| $ | (6.26 | ) |
| $ | 4.76 |
|
| $ | 1.78 |
|
Diluted |
| $ | 1.34 |
|
| $ | (5.66 | ) |
| $ | 4.16 |
|
| $ | (6.26 | ) |
| $ | 3.81 |
|
| $ | 1.54 |
|
Comparison of the Three Months Ended September 30, 2023March 31, 2024 to the Three Months Ended September 30, 2022March 31, 2023
Our results of operations for the three months ended September 30, 2023March 31, 2024 reflect net income of approximately $15,669,000$56,956,000 or $1.34$3.81 diluted earnings per share, compared with net loss of approximately $51,503,000$17,793,000 or $5.66 loss$1.54 diluted earnings per share, for the three months ended September 30, 2022.March 31, 2023. The quarter-over-quarter increase was primarily due to an $78,979,000 increase in net premiums earned, offset by a $73,068,000 decrease$19,357,000 increase in losses and loss adjustment expenses, a $8,589,000 decrease in premiums ceded, a $6,595,000$15,131,000 increase in gross premiums earned,income tax expense, and a $1,984,000 decrease$2,772,000 increase in general and administrative personnel expenses, and a $5,646,000 decrease in policy acquisition, underwriting, personnel, and other operating expenses, offset by a $9,162,000 net decrease in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains or losses).
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expenses.
Revenue
Gross Premiums Earned on a consolidated basis for the three months ended September 30,March 31, 2024 and 2023 and 2022 were approximately $188,308,000$256,644,000 and $181,713,000,$180,068,000, respectively. The $6,595,000$76,576,000 increase was primarily
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attributable to the policies assumed from Citizens and the effect of premium rate increases, offset in part by a reduction inincreases. Gross premiums earned from the number of policies in force.assumed were $66,969,000 for the three months ended March 31, 2024 compared with $7,163,000 for the three months ended March 31, 2023. HCPCI gross premiums earned were $102,075,000$149,271,000 for the three months ended September 30, 2023March 31, 2024 compared with $98,985,000$92,456,000 for the three months ended September 30, 2022. TypTap’sMarch 31, 2023. TypTap gross premiums earned were $86,233,000 for the three months ended September 30, 2023March 31, 2024 were $103,748,000 compared with $82,728,000$87,612,000 for the same comparative period in 2022.three months ended March 31, 2023. CORE gross premiums earned were $3,625,000 for the three months ended March 31, 2024.
Premiums Ceded for the three months ended September 30,March 31, 2024 and 2023 and 2022 were approximately $66,152,000$68,106,000 and $74,741,000,$70,509,000, respectively, representing 35.1%26.5% and 41.1%39.2%, respectively, of gross premiums earned. The $8,589,000$2,403,000 decrease was primarily attributable to a $12,600,000 reversalthe expiration and discontinuation of flood reinsurance in September 2022the second quarter of previously accrued benefits attributable to retrospective provisions under multi-year reinsurance contracts due to the effects of Hurricane Ian, offset by higher reinsurance costs for the 2023-2024 contract year and an increased overall reinsurance coverage amount for Florida.2023.
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,March 31, 2024 and 2023, premiums ceded included a decrease of $6,993,000 related to retrospective provisions compared with a decreasein each of $3,843,000 for the three months ended September 30, 2022.respective periods. See “Economic Impact of Reinsurance ContractsContract with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”
Net Premiums Written for the three months ended September 30,March 31, 2024 and 2023 and 2022 totaled approximately $132,113,000$186,880,000 and $116,440,000,$129,345,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The increase in 20232024 primarily resulted from athe policies assumed from Citizens and the decrease in premiums ceded to reinsurers and a reduction in the number of policies in force as described above. We had approximately 194,000250,500 policies in force at September 30, 2023March 31, 2024 (direct and assumed) as compared with approximately 246,000216,300 policies in force at September 30, 2022.March 31, 2023.
Net Premiums Earned for the three months ended September 30,March 31, 2024 and 2023 and 2022 were approximately $122,156,000$188,538,000 and $106,972,000,$109,559,000, 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, 2024 and 2023 and 2022 (amounts(dollar amounts in thousands):
|
| Three Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net Premiums Written |
| $ | 132,113 |
|
| $ | 116,440 |
|
Increase in Unearned Premiums |
|
| (9,957 | ) |
|
| (9,468 | ) |
Net Premiums Earned |
| $ | 122,156 |
|
| $ | 106,972 |
|
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|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net Premiums Written |
| $ | 186,880 |
|
| $ | 129,345 |
|
Decrease (Increase) in Unearned Premiums |
|
| 1,658 |
|
|
| (19,786 | ) |
Net Premiums Earned |
| $ | 188,538 |
|
| $ | 109,559 |
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Net Investment Income for the three months ended September 30,March 31, 2024 and 2023 and 2022 was approximately $9,384,000$14,067,000 and $18,530,000,$17,715,000, respectively. The third quarter of 2022Net investment income for the three months ended March 31, 2023 included a $13,402,000net realized gain of $8,936,000 from the sale of two real estate investment property.properties. Excluding the real estate gain in the prior year quarter, net investment income increased by approximately $4,256,000.to $14,067,000 from $8,779,000. The increase was primarily attributable to a $5,562,000 increase in interest income from cash, cash equivalents andhigher balances of fixed-maturity securities offset by a $1,159,000 decrease in income from limited partnership investments.and cash combined with higher yields. See Net Investment Income under Note 54 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
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Net Realized Investment Losses for the three months ended March 31, 2024 were $0 compared with approximately $1,149,000 of net realized losses for the three months ended March 31, 2023, which included net realized losses of approximately $1,153,000 from sales of fixed-maturity and equity securities.
Net Unrealized Investment LossesGains for the three months ended September 30,March 31, 2024 and 2023 were $2,635,000 and 2022 were approximately $1,041,000 and $347,000,$529,000, respectively. The increase was primarily attributable to an overall deteriorationimprovement in the equity market compared with the three months ended September 30, 2022.market.
Expenses
Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $66,726,000$79,922,000 and $139,794,000$60,565,000 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively. The losses and loss adjustment expenses of HCPCI Insurance Operations were $29,819,000$39,014,000 and $73,228,000$28,782,000 for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively. The decreaseincrease was primarily attributable to a reductionCitizens policies assumed in losses related to catastrophic events furthered by a lower number of policies in force and lower claims and litigation frequency. In addition, the thirdfourth quarter of 2022 which included $42,346,000 of losses related to Hurricane Ian.2023. Losses and loss adjustment expenses for TypTap were $37,324,000$40,553,000 compared with $62,153,000$33,056,000 for the same comparative period. The decreaseincrease was primarily attributable to lower incurred losses recorded for Hurricane Ian during the third quarter of 2023. Such losses were $3,850,000 compared with $22,251,000 during the corresponding period of 2022. Reductionspolicies assumed from Citizens in the amount of claimsDecember 2023 and litigation related to Florida policies also accounted for a portion of the decrease in lossJanuary 2024. Losses and loss adjustment expenses.expenses for CORE were $1,268,000 for the three months ended March 31, 2024, resulting from the policies assumed from Citizens in February 2024. 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, 2024 and 2023 and 2022 were approximately $22,768,000$22,139,000 and $24,678,000$22,720,000 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 commission and catastrophe allowance paid to United, and premium taxes. PolicyAmortized policy acquisition expenses for HCPCI Insurance Operations were $10,894,000$10,136,000 for the three months ended September 30, 2023March 31, 2024 compared with $12,081,000$9,621,000 for the three months ended September 30, 2022.March 31, 2023. The decrease in amortized costsincrease was primarily due to a reductionthe effect of policies in force. TypTap Grouppremium rate increases. TypTap's amortized policy acquisition expenses were $11,900,000$10,795,000 compared with $12,626,000$11,863,000 for the same comparative period, with the increase due to higher amortized costs attributable to the accelerated transition of United policies, offsetperiod. The decrease was driven by lower policy acquisition costs in Florida resulting fromrelated to lower commissions.commission rates.
General and Administrative Personnel Expenses for the three months ended September 30,March 31, 2024 and 2023 and 2022 were approximately $13,864,000$16,274,000 and $15,848,000,$13,502,000, 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 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 quarter-over-quarter decreaseperiod-over-period increase of $1,984,000$2,772,000 was primarily attributable to an increase in employee incentive bonus and merit increases for employees effective in late February 2024, offset by a decrease in stock-based compensation expense.
Interest Expense for the three months ended March 31, 2024 and 2023 was approximately $3,149,000 and $2,801,000, respectively. The increase primarily resulted from interest expense and an increase in recovered and capitalized payroll costs,related to line of credit borrowing, offset by an adjustment to increase employee incentive bonuses, an increase in the headcount of temporary and full-time employees and merit increasesa lower interest expense for non-executive employees effective in late February 2023.our 4.25% Convertible Senior Notes.
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Income Tax Expense for the three months ended September 30,March 31, 2024 and 2023 was approximately $4,419,000$20,474,000 and $5,343,000, respectively, for state, federal, and foreign income taxes compared with $12,099,000 of income tax benefit for the three months ended September 30, 2022, resulting in effective tax rates of 22.0%26.4% and 19.0%23.1%, respectively. The increase in the effective tax rate was primarily attributable to the increase in non-deductible compensation, partially offset bya lower prior year effective tax rate resulting from the release of valuation allowance established in 2022 during the third quarter of 2023.
Ratios:
The loss ratio applicable to the three months ended September 30, 2023March 31, 2024 (losses and loss adjustment expenses incurred related to net premiums earned) was 54.6%42.4% compared with 130.7%55.3% for the three months ended September 30, 2022.March 31, 2023. The decrease was primarily attributable to the decreaseincrease in net premiums earned, offset in part by the increase in losses and loss adjustment expenses due to fewer claims and less litigation related to Florida policies, and higher average premium per policy as compared withto the thirdfirst quarter of 2022 which was affected by Hurricane Ian.2023.
The expense ratio applicable to the three months ended September 30, 2023March 31, 2024 (defined as total expenses excluding losses and loss adjustment expenses and interest expense related to net premiums earned) was 36.7%24.5% compared with 47.2%38.8% for the three months ended September 30, 2022.March 31, 2023. The decrease in our expense ratio was primarily attributable to the increase in net premiums earned, offset by the decreaseincrease in policy acquisition, underwriting,general and administrative personnel expenses and the increase in other operating expenses.
The combined ratio (total of all expenses excluding interest expense 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, 2023March 31, 2024 was 91.3%66.9% compared with 177.9%94.1% for the three months ended September 30, 2022.March 31, 2023. The decrease in 20232024 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, 2023 was 59.2% compared with 104.7% for the three months ended September 30, 2022. The decrease in 2023 was primarily attributable to the increase in gross premiums earned, the decrease in losses and loss adjustment expenses, and the decrease in policy acquisition, underwriting, personnel, and other operating expenses.
Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022
Our results of operations for the nine months ended September 30, 2023 reflect net income of approximately $48,344,000 or $4.16 diluted earnings per share, compared with net loss of approximately $57,254,000 or $6.26 loss per share, for the nine months ended September 30, 2022. The period-over-period increase was primarily due to a $110,147,000 decrease in losses and loss adjustment expenses, a $18,972,000 net increase in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains or losses), a $12,843,000 decrease in policy acquisition and other underwriting expenses, and a $6,647,000 decrease in personnel and other operating expenses, offset by a $18,943,000 increase in premiums ceded and a $3,366,000 increase in interest expense.
Revenue
Gross Premiums Earned on a consolidated basis for the nine months ended September 30, 2023 and 2022 were approximately $550,322,000 and $541,762,000, respectively. The $8,560,000 increase was primarily attributable to the effect of premium rate increases, offset by a reduction in the number of policies in force. Gross premiums earned from the United insurance policies assumed were $7,163,000 for the nine months ended September 30, 2023 compared with $61,913,000 for the nine months ended September 30, 2022. HCPCI gross
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premiums earned were $291,406,000 for the nine months ended September 30, 2023 compared with $330,969,000 for the nine months ended September 30, 2022. TypTap’s gross premiums earned were $258,916,000 compared with $210,793,000 for the same comparative period in 2022.
Premiums Ceded for the nine months ended September 30, 2023 and 2022 were approximately $203,051,000 and $184,108,000, respectively, representing 36.9% and 34.0%, respectively, of gross premiums earned. The $18,943,000 increase was primarily attributable to higher reinsurance costs for the 2023-2024 contract year and an increased overall reinsurance coverage amount for Florida, offset by a higher reduction in premiums ceded attributable to retrospective provisions under reinsurance contracts.
For the nine months ended September 30, 2023, premiums ceded included a decrease of $20,979,000 related to retrospective provisions compared with a decrease of $11,717,000 for the nine months ended September 30, 2022. 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, 2023 and 2022 totaled approximately $375,051,000 and $370,519,000, respectively. The increase in 2023 primarily resulted from the factors described earlier.
Net Premiums Earned for the nine months ended September 30, 2023 and 2022 were approximately $347,271,000 and $357,654,000, 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, 2023 and 2022 (amounts in thousands):
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net Premiums Written |
| $ | 375,051 |
|
| $ | 370,519 |
|
Increase in Unearned Premiums |
|
| (27,780 | ) |
|
| (12,865 | ) |
Net Premiums Earned |
| $ | 347,271 |
|
| $ | 357,654 |
|
Net Investment Income for the nine months ended September 30, 2023 and 2022 was approximately $35,893,000 and $25,082,000, respectively. The $10,811,000 increase was attributable to a $9,989,000 increase in interest income from cash and cash equivalents, a $9,521,000 increase in income from available-for-sale fixed-maturity securities, offset by a $5,971,000 decrease in income from real estate investments and a $2,416,000 decrease in income from limited partnership investments. See Net Investment Income under Note 5 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
Net Realized Investment Losses for the nine months ended September 30, 2023 and 2022 were approximately $1,586,000 and $1,204,000, respectively. The increase was primarily attributable to net realized losses of approximately $1,539,000 from sales of fixed-maturity and equity securities during the nine months ended September 30, 2023 compared with net realized losses of approximately $1,413,000 from sales of these securities during the corresponding period in 2022. In addition, there was a net realized gain of approximately $209,000 from sales of other investments during the corresponding period in 2022.
Net Unrealized Investment Gains for the nine months ended September 30, 2023 were approximately $385,000 compared with approximately $8,157,000 of net unrealized investment losses for the nine months ended
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September 30, 2022. The increase was primarily attributable to an overall improvement in the equity market compared with the nine months ended September 30, 2022.
Expenses
Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $189,181,000 and $299,328,000 for the nine months ended September 30, 2023 and 2022, respectively. The losses and loss adjustment expenses of HCPCI Insurance Operations were $86,254,000 and $165,915,000 for the nine months ended September 30, 2023 and 2022, respectively. The decrease was primarily attributable to the lower number of policies in force as well as fewer claims and less litigation related to Florida policies as compared with the corresponding period of 2022 which included $42,346,000 of losses from Hurricane Ian. Furthermore, losses related to United policies assumed, renewed and/or replaced were lower by $28,565,000. Losses and loss adjustment expenses for TypTap were $105,317,000 compared with $129,833,000 for the same comparative period. The decrease was primarily attributable to lower incurred losses recorded for Hurricane Ian during the nine months ended September 30, 2023. Such losses were $4,980,000 compared with $22,251,000 for the corresponding period in 2022. In addition, losses from United-related po1icies were $10,102,000 lower. 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, 2023 and 2022 were approximately $68,106,000 and $80,949,000 on a consolidated basis, respectively. Policy acquisition expenses for HCPCI Insurance Operations were $31,787,000 for the nine months ended September 30, 2023 compared with $48,429,000 for the nine months ended September 30, 2022. The decrease in amortized costs was primarily due to a reduction of policies in force. TypTap Group policy acquisition expenses were $36,393,000 compared with $32,633,000 for the same comparative period, with the increase due to higher amortized costs attributable to the accelerated transition of United policies, offset by lower policy acquisition costs in Florida resulting from lower commissions.
General and Administrative Personnel Expenses for the nine months ended September 30, 2023 and 2022 were approximately $41,638,000 and $45,183,000, respectively. The period-over-period decrease of $3,545,000 was primarily attributable to a decrease in stock-based compensation expense and an increase in recovered and capitalized payroll costs, offset by an adjustment to increase employee incentive bonuses, an increase in the headcount of temporary and full-time employees and merit increases for non-executive employees effective in late February 2023.
Interest Expense for the nine months ended September 30, 2023 and 2022 was approximately $8,295,000 and $4,929,000, respectively. The increase primarily resulted from interest expense related to our 4.75% Convertible Senior Notes issued in May 2022, partially offset by decreased interest expense from a reduction in promissory notes on our real estate investments.
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Income Tax Expense for the nine months ended September 30, 2023 was approximately $15,146,000 for state, federal, and foreign income taxes compared with $13,907,000 of income tax benefit for the nine months ended September 30, 2022, resulting in effective tax rates of 23.9% and 19.5%, respectively. The increase in the effective tax rate was primarily attributable to the increase in non-deductible compensation, partially offset by the release of valuation allowance established in 2022 during the nine months of 2023 and the recognition of tax benefits attributable to restricted stock that vested in February and May 2023.
Ratios:
The loss ratio applicable to the nine months ended September 30, 2023 (losses and loss adjustment expenses incurred related to net premiums earned) was 54.5% compared with 83.7% for the nine months ended September 30, 2022. The decrease was primarily attributable to the decrease in losses and loss adjustment expenses due to fewer claims and less litigation related to Florida policies, and higher average premium per policy as compared with the corresponding period in 2022.
The expense ratio applicable to the nine months ended September 30, 2023 was 39.0% compared with 42.3% for the nine months ended September 30, 2022. The decrease in our expense ratio was primarily attributable to the increase in reinsurance costs and the increase in interest expense, offset by the decrease in policy acquisition, underwriting, personnel, and other operating expenses.
The combined ratio is the measure of overall underwriting profitability before other income. Our combined ratio for the nine months ended September 30, 2023 was 93.5% compared with 126.0% for the nine months ended September 30, 2022. The decrease in 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 nine months ended September 30, 2023 was 59.0% compared with 83.2% for the nine months ended September 30, 2022. The decrease in 2023 was primarily attributable to the decrease in losses and loss adjustment expenses and the decrease in policy acquisition, underwriting, personnel, and other operating expenses, offset in part by the increase in interest expense.
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/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
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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 approximately 90100 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.
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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, 2023:March 31, 2024:
| Maturity Date |
| Payment Due Date |
4.75% Convertible Senior Notes* | June 2042 |
| June 1 and December |
|
|
| |
4.55% Promissory Note | Through August 2036 |
| 1st day of each month |
5.50% Promissory Note | Through July 2033 |
| 1st day of each month |
Finance leases | Through October 2024 |
| Various |
Revolving credit | Through |
| 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. |
|
|
|
|
See Note 1110 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
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 remaining funds have expired, the general partners may request additional funds under certain circumstances. At September 30, 2023,March 31, 2024, there was an aggregate unfunded capital balance of $4,931,000.$3,806,000. See Limited Partnership Investments under Note 54 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
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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 assets. Thus, we may consider expanding our real estate investment portfolio should an opportunity arise.
We had a 90% equity interest in FMKT Mel JV, LLC, a Florida limited liability company for which we were not the primary beneficiary. Following the sale of its last remaining outparcel in June 2022, FMKT Mel JV distributed its earnings during the third quarter of 2022 and the subsidiary was liquidated in December 2022. In January 2023, we received the final distribution of $18,000 from FMKT Mel JV.
Sources and Uses of Cash
Cash Flows for the NineThree Months Ended September 30, 2023March 31, 2024
Net cash provided by operating activities for the ninethree months ended September 30, 2023March 31, 2024 was approximately $77,321,000,$181,989,000, which consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $206,901,000$19,151,000 less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of $25,714,000 was primarily due to the proceeds from calls, repayments and maturities of fixed-maturity securities of $263,654,000, the proceeds from sales of fixed-maturity and equity securities of $27,794,000, the proceeds from sales of real estate investments of $21,746,000, and distributions received from limited partnership investments of $3,088,000, offset by the purchases of fixed-maturity and equity securities of $280,493,000, the purchases of property and equipment of $5,184,000, the purchases of real estate investments of $2,296,000, and the purchase of intangible assets of $1,810,000. Net cash used in financing activities totaled $13,752,000, which was primarily due to $10,295,000 of cash dividend payments, the redemption of long-term debt of $6,895,000, cash dividends paid to redeemable noncontrolling interest of $6,762,000, $784,000 of share repurchases, and repayments of long-term debt of $437,000, offset by the proceeds from issuance of long-term debt of $12,000,000.
Cash Flows for the Nine 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$4,872,000 was primarily due to the purchases of fixed-maturity and equity securities of $414,066,000, the$180,015,000 and purchases of property and equipmentreal estate investments of $5,431,000, and the purchase of intangible assets from United of $3,800,000,$5,244,000, offset by the proceeds from calls, repayments and maturities of fixed-maturity securities of $52,023,000,$172,024,000 and the proceeds from sales of fixed-maturity and equity securities of $41,010,000, $14,500,000$9,546,000. Net cash used in financing activities totaled $58,199,000, which was primarily due to the redemption of compensation receivedredeemable noncontrolling interests of $100,000,000, $3,993,000 of cash dividend payments, and cash dividends paid to redeemable noncontrolling interest of $2,923,000, offset by $50,000,000 of net borrowing under the line of credit agreement.
Cash Flows for the Three Months Ended March 31, 2023
Net cash provided by operating activities for the three months ended March 31, 2023 was approximately $99,109,000, which consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $94,412,000 less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $17,757,000 was primarily due to the purchases of fixed-maturity and equity securities of $166,624,000 and purchases of property relinquished through eminent domain,and equipment of $1,469,000, offset by the proceeds from calls, repayments and maturities of fixed-maturity securities of $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 $4,732,000.$1,602,000. Net cash provided byused in financing activities totaled $56,955,000,$14,100,000, which was primarily due to the proceeds from issuanceredemption of 4.75% Convertible Senior Noteslong-term debt of $172,500,000, offset by $76,166,000$6,895,000, $3,432,000 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,$3,012,000, $305,000 of share repurchases, and repayments of long-term debt of $754,000.
58
$258,000.
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, 2023,March 31, 2024, we had $458,616,000$522,818,000 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.
47
In the future, we may alter our investment policy with 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, 2023,March 31, 2024, 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 21 -- “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.
59
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, 2023, $645,523,000March 31, 2024, $514,553,000 of the total $709,089,000$578,712,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $63,566,000$64,159,000 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, 2023, $54,457,000March 31, 2024, $57,137,000 of the $63,566,000$64,159,000 in reserves for known cases relates to claims incurred during prior years.
48
Our Reserves decreased from $863,765,000$585,073,000 at December 31, 20222023 to $709,089,000$578,712,000 at September 30, 2023.March 31, 2024. The $154,676,000$6,361,000 decrease is comprised of reductions in our catastrophe Reserves of $151,242,000$26,404,000 primarily specific to Hurricane Ian and Hurricane Irma, and reductions in our non-catastrophe Reserves of $77,742,000$24,974,000 for 20222023 and $27,465,000$17,116,000 for 20212022 and prior loss years, offset by $101,773,000$62,133,000 in reserves established for the 20232024 loss year. The Reserves established for 20232024 claims are primarily driven by an allowance for those claims that have been incurred but not reported to the company as of September 30, 2023.March 31, 2024. The decrease of $256,449,000$68,494,000 specific to our 20222023 and prior 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, 2023March 31, 2024 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made, and the liabilities may deviate substantially from prior estimates.
Economic Impact of Reinsurance ContractsContract with Retrospective Provisions
From time to time, our reinsurance contracts may include retrospective provisions that adjust premiums in the event losses are minimal or zero. In accordance with accounting principles generally accepted in the United States of America, we will recognize an asset in the period in which the absence of loss experience obligates the reinsurer to pay cash or other consideration under the contract. In the event that a loss arises, we will derecognize such asset in the period in which a loss arises. Such adjustments to the asset, which accrue throughout the contract term, will negatively impact our operating results when a catastrophic loss event occurs during the contract term.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, we accrued benefits of $6,993,000 and $3,843,000, respectively. Forin each of the nine months ended September 30, 2023 and 2022, we accrued benefits of $20,979,000 and $11,717,000, respectively.respective periods. The accrual of benefits was recognized as a reduction in ceded premiums.
As of September 30, 2023,March 31, 2024, we had $37,296,000$51,282,000 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 agreements.agreement.
We believe the credit risk associated with the collectability of these accrued benefits is minimal based on available information about the reinsurer’s financial position and the reinsurer’s demonstrated ability to comply with contract terms.
60
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, 2023.8, 2024. For the ninethree months ended September 30, 2023,March 31, 2024, there have been no other material changes with respect to any of our critical accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our unaudited consolidated financial statements, see Note 3 -- “Recent Accounting Pronouncements” to our consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.None.
6149
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investment portfolio at September 30, 2023March 31, 2024 included fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by outside investment advisors and are overseen by the investment committee appointed by our Board of Directors. From time to time, our investment committee may decide to invest in low-risk assets such as U.S. government bonds.
Our investment 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 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, 2023 (amountsMarch 31, 2024 (dollar amounts in thousands):
Hypothetical Change in Interest Rates |
| Estimated |
|
| Change in |
|
| Percentage |
|
| Estimated |
|
| Change in |
|
| Percentage |
| ||||||
300 basis point increase |
| $ | 406,801 |
|
| $ | (11,875 | ) |
|
| -2.84 | % |
| $ | 459,419 |
|
| $ | (11,386 | ) |
|
| -2.42 | % |
200 basis point increase |
|
| 410,759 |
|
|
| (7,917 | ) |
|
| -1.89 | % |
|
| 463,214 |
|
|
| (7,591 | ) |
|
| -1.61 | % |
100 basis point increase |
|
| 414,717 |
|
|
| (3,959 | ) |
|
| -0.95 | % |
|
| 467,009 |
|
|
| (3,796 | ) |
|
| -0.81 | % |
100 basis point decrease |
|
| 422,634 |
|
|
| 3,958 |
|
|
| 0.95 | % |
|
| 474,601 |
|
|
| 3,796 |
|
|
| 0.81 | % |
200 basis point decrease |
|
| 426,593 |
|
|
| 7,917 |
|
|
| 1.89 | % |
|
| 478,397 |
|
|
| 7,592 |
|
|
| 1.61 | % |
300 basis point decrease |
|
| 430,553 |
|
|
| 11,877 |
|
|
| 2.84 | % |
|
| 482,193 |
|
|
| 11,388 |
|
|
| 2.42 | % |
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.
6250
The following table presents the composition of our fixed-maturity securities, by rating, at September 30, 2023 (amountsMarch 31, 2024 (dollar amounts in thousands):
|
| Cost or |
|
| % 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 |
| $ | 40,592 |
|
|
| 10 |
|
| $ | 40,566 |
|
|
| 10 |
|
| $ | 164,580 |
|
|
| 35 |
|
| $ | 164,525 |
|
|
| 35 |
|
AA+, AA, AA- |
|
| 360,750 |
|
|
| 84 |
|
|
| 353,762 |
|
|
| 84 |
|
|
| 281,466 |
|
|
| 59 |
|
|
| 278,025 |
|
|
| 59 |
|
A+, A, A- |
|
| 12,615 |
|
|
| 3 |
|
|
| 12,032 |
|
|
| 3 |
|
|
| 14,901 |
|
|
| 3 |
|
|
| 14,576 |
|
|
| 3 |
|
BBB+, BBB, BBB- |
|
| 11,110 |
|
|
| 3 |
|
|
| 10,676 |
|
|
| 3 |
|
|
| 12,226 |
|
|
| 3 |
|
|
| 12,024 |
|
|
| 3 |
|
B+, B, B- |
|
| 1,996 |
|
|
| — |
|
|
| 1,640 |
|
|
| — |
| ||||||||||||||||
CCC+, CC and Not rated |
|
| 1,997 |
|
|
| — |
|
|
| 1,655 |
|
|
| — |
| ||||||||||||||||
Total |
| $ | 427,063 |
|
|
| 100 |
|
| $ | 418,676 |
|
|
| 100 |
|
| $ | 475,170 |
|
|
| 100 |
|
| $ | 470,805 |
|
|
| 100 |
|
Equity Price Risk
Our equity investment portfolio at September 30, 2023March 31, 2024 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, 2023 (amountsMarch 31, 2024 (dollar amounts in thousands):
|
|
|
|
| % of Total |
|
|
|
|
| % of Total |
| ||||
|
| Estimated |
|
| Estimated |
|
| Estimated |
|
| Estimated |
| ||||
|
| Fair Value |
|
| Fair Value |
|
| Fair Value |
|
| Fair Value |
| ||||
Stocks by sector: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Financial |
| $ | 6,873 |
|
|
| 13 |
| ||||||||
Consumer |
| $ | 6,462 |
|
|
| 16 |
|
|
| 8,404 |
|
|
| 16 |
|
Financial |
|
| 3,985 |
|
|
| 10 |
| ||||||||
Technology |
|
| 2,968 |
|
|
| 7 |
|
|
| 4,751 |
|
|
| 9 |
|
Other (1) |
|
| 2,376 |
|
|
| 7 |
|
|
| 2,445 |
|
|
| 6 |
|
|
| 15,791 |
|
|
| 40 |
|
|
| 22,473 |
|
|
| 44 |
| |
Mutual funds and exchange-traded funds by type: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt |
|
| 17,891 |
|
|
| 45 |
|
|
| 21,974 |
|
|
| 42 |
|
Equity |
|
| 6,135 |
|
|
| 15 |
|
|
| 7,503 |
|
|
| 14 |
|
Alternative |
|
| 123 |
|
|
| — |
|
|
| 63 |
|
|
| — |
|
|
| 24,149 |
|
|
| 60 |
|
|
| 29,540 |
|
|
| 56 |
| |
Total |
| $ | 39,940 |
|
|
| 100 |
|
| $ | 52,013 |
|
|
| 100 |
|
Foreign Currency Exchange Risk
At September 30, 2023,March 31, 2024, we did not have any material exposure to foreign currency related risk.
6351
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, 2023March 31, 2024 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.
6452
PART II – OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
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, 2023.8, 2024.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
None.The table below summarizes the number of common shares surrendered by employees to satisfy payroll tax liabilities associated with the vesting of restricted shares (dollar amounts in thousands, except share and per share amounts):
|
| Total |
|
| Average |
|
| Total |
|
| Maximum |
| ||||
For the Month Ended |
| Purchased |
|
| Per Share |
|
| or Programs |
|
| or Programs |
| ||||
January 31, 2024 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
February 29, 2024 |
|
| 5,656 |
|
| $ | 98.21 |
|
|
| — |
|
| $ | — |
|
March 31, 2024 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 5,656 |
|
| $ | 98.21 |
|
|
| — |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
6553
Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its 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 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 FLOIR if (1) 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 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 FLOIR or (2) 30 days after the FLOIR has received notice of such dividend or distribution and has not disapproved it within such time.
During the ninethree months ended September 30, 2023,March 31, 2024, our insurance subsidiaries paid dividends of $10,000,000$11,000,000 to HCI.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURES
None.
ITEM 5 – OTHER INFORMATION
None.
6654
ITEM 6 – EXHIBITS
The following documents are filed as part of this report:
EXHIBIT |
| |
NUMBER |
| DESCRIPTION |
| ||
3.1 |
| |
| ||
3.1.1 |
| |
|
|
|
3.1.2 |
| |
|
|
|
3.2 |
| |
| ||
4.1 |
| |
|
|
|
4.2 |
| |
|
|
|
4.3 |
| |
|
|
|
4.6 |
| |
| ||
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 |
| |
|
|
|
4.11 |
| |
|
|
|
10.1 |
| |
|
|
|
10.2 |
| |
|
|
|
10.3 |
| |
|
|
|
6755
10.4 |
| |
|
|
|
10.5** |
| |
|
|
|
10.7** |
| |
|
|
|
10.8 |
| |
|
|
|
10.9 |
| |
|
|
|
10.10 |
| |
|
|
|
10.11 |
| |
|
|
|
10.12 |
| |
|
|
|
10.13 |
| |
|
|
|
10.14 |
| |
|
|
|
10.15 |
| |
|
|
|
6856
10.16 |
| |
|
|
|
10.17 |
| |
|
|
|
10.18 |
| |
|
|
|
10.19 |
| |
|
|
|
10.20 |
| |
|
|
|
10.21 |
| |
|
|
|
10.22 |
| |
|
|
|
10.23 |
| |
|
|
|
10.24 |
| |
|
|
|
10.25 |
|
6957
|
| |
|
|
|
10.26 |
| |
|
|
|
10.27 |
| |
|
|
|
10.28 |
| |
|
|
|
10.29 |
| |
|
|
|
10.30 |
| |
|
|
|
10.31 |
| |
|
|
|
10.32 |
| |
|
|
|
10.33 |
| |
|
|
|
10.34 |
| |
|
|
|
10.35 |
| |
|
|
|
7058
10.36 |
| |
|
|
|
10.37 |
| |
|
|
|
10.38 |
| |
|
|
|
10.39 |
| |
10.40 | ||
10.41 | ||
10.42 | ||
10.43 | ||
10.44 | ||
10.45 | ||
|
|
|
10.48** |
| |
|
|
|
10.49** |
| |
|
|
|
10.51** |
| |
|
|
|
10.52** |
| |
|
|
|
10.53 |
| |
|
|
|
59
|
| Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated September 15, 2023. |
|
|
|
10.57** |
| |
|
|
|
10.58 |
| |
|
|
|
10.62 |
| |
|
|
|
10.63 |
| Security and Pledge Agreement and Revolving Credit Promissory Note, dated June 2, 2023, between HCI Group, Inc. and Fifth Third Bank. Incorporated by reference to Exhibits 99.2, and 99.3 to our Form 8-K filed June 8, 2023. |
|
|
|
10.64 | Second Amended and Restated Credit Agreement, Second Amended and Restated Security and Pledge Agreement, and Renewed, Amended and Restated Revolving Credit Promissory Note, dated November 3, 2023, between HCI Group, Inc. and Fifth Third Bank. Incorporated by reference to Exhibits 99.1, 99.2, and 99.3 to our Form 8-K filed November 9, 2023. | |
10.65 | ||
10.66** | ||
10.67** | ||
10.105** |
| |
|
|
|
71
10.106** |
| |
|
|
|
10.124 |
| |
|
|
|
10.125 |
| |
|
|
|
10.126 |
| |
|
|
|
60
10.127 |
| |
|
|
|
10.128 |
| |
|
|
|
10.129 |
| |
|
|
|
31.1 |
| |
|
|
|
31.2 |
| |
|
|
|
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 |
|
|
|
97** | ||
101.INS |
| Inline XBRL Instance Document |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension |
|
| |
|
| |
|
| |
|
| |
|
|
|
104 |
| Cover Page Interactive Data File |
** Management contract or compensatory plan.
7261
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 have signed this report on behalf of the Company.
HCI GROUP, INC. | |||
| By: | /s/ Paresh Patel | |
Paresh Patel | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
| 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.
7362