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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ ☑ No ☐

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.

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

Indicate by check mark whether the ~~Registrant~~registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒☑

The aggregate number of shares of the ~~Registrant’s Common Stock,~~registrant’s common stock, no par value, outstanding on ~~October 26, 2017~~November 1, 2022 was ~~9,781,952.~~8,756,970.

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

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

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

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

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

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

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

Transaction costs related to issuing a debt instrument that embodies both liability and equity components are allocated to the liability and equity components in proportion to the allocation of the proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. Debt issuance costs are capitalized and presented as a deduction from the carrying value of the debt. Both debt discount and deferred debt issuance costs are amortized to interest expense over the expected life of the debt instrument using the effective interest method. Equity issuance costs are a reduction to the proceeds allocated to the equity component.

~~Common Share Repurchases~~

The Company primarily repurchases its common stock in the open market through share repurchase programs and from institutional investors in private transactions such as prepaid share repurchase forward contracts and share repurchase agreements.

A prepaid share repurchase forward contract is generally a contract that allows a party to buy from the counterparty a specified number of common shares at a specific time at a given forward price. The Company entered into such a contract and evaluated the characteristics of the forward contract to determine whether it met the definition of a derivative financial instrument pursuant to U.S. GAAP. The Company determined the forward contract is an equity contract on the Company’s common shares requiring physical settlement in common shares of the Company. As such, the transaction is recognized as a component of stockholders’ equity and there will be no recognition in earnings for changes in fair value in subsequent periods.

~~In general, the Company first allocates the purchase price or the prepayment amount to additionalpaid-in~~ ~~capital to the extent available and the remaining balance is allocated to retained income. Due to past and recent share repurchases, the Company’s additionalpaid-in~~ ~~capital has been exhausted and shall remain so until the Company fully recoups the total amount allocated to retained income.~~

~~Reclassifications.~~ ~~Certain reclassifications of prior year amounts have been made to conform to the current year presentation.~~

~~Note 3 — Recent Accounting Pronouncements~~

~~Accounting Standards Update No.~~ ~~2017-13.~~ ~~In September 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards UpdateNo. 2017-13~~ ~~(“ASU2017-13”),~~ ~~Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). ASU2017-13~~ ~~adds SEC paragraphs pursuant to the SEC Staff Announcement at the July 20, 2017 Emerging Issues Task Force meeting concerning the transition related to Accounting Standards UpdatesNo. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606) andNo. 2016-02,~~ ~~Leases (Topic 842). ASU2017-13~~ also supersedes SEC paragraphs pursuant to the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a Formula,” effective upon the initial adoption of Topic 606 and SEC Staff Announcement, “Lessor Consideration of Third-Party Value Guarantees,” effective upon the initial adoption of Topic 842. ASU~~2017-13~~ also rescinds three SEC Observer Comments effective upon the initial adoption of Topic 842. One SEC Staff Observer comment is being moved to Topic 842. The Company does not anticipate significant impact from this guidance.

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

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

~~Accounting Standards Update No.~~ ~~2017-09.~~ ~~In May 2017, the FASB issued Accounting Standards UpdateNo. 2017-09~~ ~~(“ASU2017-09”),~~ Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an application of modification accounting. ASU~~2017-09~~ ~~is effective for the Company beginning with the first quarter of 2018. Early adoption is permitted. This guidance will impact the future modification of the Company’s existing share-based awards.~~

~~Accounting Standards Update No.~~ ~~2017-08.~~ ~~In March 2017, the FASB issued Accounting Standards UpdateNo. 2017-08~~ ~~(“ASU2017-08”),~~ ~~Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20):~~ Premium Amortization on Purchased Callable Debt Securities, which amends guidance on the amortization period of premiums on certain purchased callable debt securities. Specifically, this update shortens the amortization period of certain purchased callable debt securities to the earliest call date. ASU~~2017-08~~ is effective for the Company beginning with the first quarter of 2019. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s consolidated financial statements.

~~Accounting Standards Update No.~~ ~~2017-05.~~ ~~In February 2017, the FASB issued Accounting Standards UpdateNo. 2017-05~~ ~~(“ASU2017-05”),~~ ~~Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20),~~ ~~which clarifies the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. In addition, ASU2017-15~~ eliminates the exception in the financial asset guidance for transfers of investments including equity method investments in real estate entities and supersedes the guidance in the Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest subsection (Topic 845). ASU~~2017-05~~ ~~is effective for the Company beginning with the first quarter of 2018. The Company is currently evaluating the impact of this guidance on the Company’s consolidated financial statements.~~

~~Accounting Standards Update No.~~ ~~2017-03.~~ ~~In January 2017, the FASB issued Accounting Standards UpdateNo. 2017-03~~ ~~(“ASU2017-03”),~~ Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323), which adds and amends SEC paragraphs pursuant to the SEC Staff Announcements at the September 22, 2016 and November 17, 2016 Emerging Issues Task Force meetings. The announcement made at the September 22, 2016 meeting provides the SEC staff view on the disclosure of the impact that recently issued accounting standards will have on a public entity’s financial statements when the standards are adopted in a future period. This announcement applies to ASU~~2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606); ASU2016-02,~~ ~~Leases (Topic 842); ASU2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326) and any subsequent amendments to guidance in the ASUs that are issued prior to the adoption of the aforementioned ASUs.~~

~~Accounting Standards Update No.~~ ~~2017-01.~~ ~~In January 2017, the FASB issued Accounting Standards UpdateNo. 2017-01~~ ~~(“ASU2017-01”),~~ Business Combinations (Topic 805), which clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. If the screen is not met, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output to be considered a business. ASU~~2017-01~~ is effective for the Company beginning with the first quarter of 2018. Early adoption is permitted under certain circumstances. When adopted, this guidance will impact how the Company determines whether a transaction should be accounted for as a business acquisition or disposal in a future period. The Company elected to adopt this standard in the fourth quarter of 2017.

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

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

~~Accounting Standards to be Adopted in Fiscal Year 2018~~

~~In January 2016, the FASB issued Accounting Standards UpdateNo. 2016-01~~ ~~(“ASU2016-01”),~~ ~~Financial Instruments – Overall (Subtopic825-10),~~ primarily requiring all equity investments other than those accounted for under the equity method of accounting or those that result in consolidation of the investee to be measured at fair value with changes in the fair value recognized through net income. The application of ASU~~2016-01~~ ~~could cause the Company to experience significant volatility in earnings. Under current accounting policy, the Company recognizes unrealized holding gains and losses onavailable-for-sale~~ ~~equity securities in stockholders’ equity as a component of accumulated other comprehensive income. In the year of adoption,available-for-sale~~ equity securities’ unrealized holding gains and losses reported in accumulated other comprehensive income at December 31, 2017 will be reclassified to beginning retained income. Any subsequent changes in fair value will be recognized in the consolidated statement of income. In addition, the classification of the Company’s equity securities with readily determinable fair values as~~“available-for-sale”~~ ~~in the consolidated balance sheet and related disclosures will be eliminated.~~

~~In May 2014, the FASB issued Accounting Standards UpdateNo. 2014-09~~ ~~(“ASU2014-09”),~~ Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU~~2014-09~~ ~~supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. ASU2014-09~~ also amends the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer to be consistent with the guidance in this ASU. ASU~~2014-09~~ permits two methods of adoption: a full retrospective method or a modified retrospective method. This standard could impact the timing and amounts of revenue recognized. The Company has identified and reviewed impacted revenue generating activities in accordance with the five-step revenue recognition model specified by this standard. The Company elects to use a modified retrospective method for transition to the new revenue recognition standard. Based on the Company’s assessment, the impact will be limited to the related disclosures of certain revenue generating activities as its primary source of revenue from insurance premiums is not within the scope of this new standard.

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

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

Note 4 —-- Investments

a)Available-for-Sale Fixed-Maturity Securities

The Company holds investments in fixed-maturity securities ~~and equity securities~~ that are classified asavailable-for-sale. At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the cost or amortized cost, allowance for credit loss, gross unrealized gains and losses, and estimated fair value of the Company’savailable-for-sale securities by security type were as follows:


	Cost or Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value		Cost or Amortized		Allowance for Credit		Gross Unrealized		Gross Unrealized			Estimated Fair
*As of September 30, 2017*
Fixed-maturity securities
										Cost		Loss		Gain		Loss			Value
As of September 30, 2022
U.S. Treasury and U.S. government agencies	$	47,348	$	5	$	(112	)	$	47,241	$	339,666	$	—	$	1	$	(9,814	)	$	329,853
Corporate bonds		121,459		1,862		(811	)		122,510		29,642		—		—		(1,410	)		28,232
State, municipalities, and political subdivisions		74,924		2,099		(83	)		76,940
States, municipalities, and political subdivisions											1,762		—		—		(11	)		1,751
Exchange-traded debt		9,293		194		(211	)		9,276		700		—		3		(2	)		701
Redeemable preferred stock		138		2		(5	)		135		107		—		—		(5	)		102

Total		253,162		4,162		(1,222	)		256,102	$	371,877	$	—	$	4	$	(11,242	)	$	360,639
Equity securities		58,242		5,361		(580	)		63,023

Totalavailable-for-sale securities	$	311,404	$	9,523	$	(1,802	)	$	319,125

*As of December 31, 2016*
Fixed-maturity securities
As of December 31, 2021
U.S. Treasury and U.S. government agencies	$	1,975	$	—	$	(36	)	$	1,939	$	17,046	$	—	$	64	$	(86	)	$	17,024
Corporate bonds		75,538		607		(1,641	)		74,504		21,913		—		632		(53	)		22,492
State, municipalities, and political subdivisions		78,018		776		(488	)		78,306
States, municipalities, and political subdivisions											1,759		—		49		—			1,808
Exchange-traded debt		11,463		36		(237	)		11,262		767		—		44		—			811
Redeemable preferred stock		237		3		(3	)		237		468		—		—		(20	)		448

Total		167,231		1,422		(2,405	)		166,248	$	41,953	$	—	$	789	$	(159	)	$	42,583
Equity securities		47,750		5,769		(484	)		53,035

Totalavailable-for-sale securities	$	214,981	$	7,191	$	(2,889	)	$	219,283

~~At September 30, 2017, fixed-maturity securities included $252 of U.S. Treasury securities related to a statutory deposit held in trust for the South Carolina Director of Insurance.~~

Expected maturities ~~will~~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, ~~2017~~2022 and December 31, ~~2016~~2021 are as follows:


	September 30, 2022				December 31, 2021
	Cost or		Estimated		Cost or		Estimated
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	124,676	$	124,402	$	10,734	$	10,826
Due after one year through five years		242,499		232,166		19,222		19,820
Due after five years through ten years		4,208		3,577		11,503		11,403
Due after ten years		494		494		494		534
	$	371,877	$	360,639	$	41,953	$	42,583

   Amortized
Cost    Estimated
Fair Value
As of September 30, 2017

Available-for-sale

Due in one year or less
   $ 30,082    $ 30,115
Due after one year through five years
   127,627    127,444
Due after five years through ten years
   66,146    67,853
Due after ten years
   29,307    30,690




   $ 253,162    $ 256,102

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

   Amortized
Cost    Estimated
Fair Value
As of December 31, 2016

Available-for-sale

Due in one year or less
   $ 2,656    $ 2,662
Due after one year through five years
   49,915    50,023
Due after five years through ten years
   90,360    89,332
Due after ten years
   24,300    24,231




   $ 167,231    $ 166,248

Sales ofAvailable-for-Sale Fixed-Maturity Securities

Proceeds received, and the gross realized gains and losses from sales ofavailable-for-sale fixed-maturity securities, for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were as follows:

   Proceeds    Gross
Realized
Gains    Gross
Realized
Losses
Three months ended September 30, 2017

Fixed-maturity securities
   $ 2,765    $ 97    $ (23 )






Equity securities
   $ 4,827    $ 223    $ (525 )






Three months ended September 30, 2016

Fixed-maturity securities
   $ 3,891    $ 196    $ —






Equity securities
   $ 5,000    $ 491    $ (104 )






Nine months ended September 30, 2017

Fixed-maturity securities
   $ 9,638    $ 126    $ (45 )






Equity securities
   $ 25,729    $ 3,058    $ (865 )






Nine months ended September 30, 2016

Fixed-maturity securities
   $ 37,415    $ 579    $ —






Equity securities
   $ 14,155    $ 850    $ (530 )


			Gross Realized		Gross Realized
	Proceeds		Gains		Losses
Three months ended September 30, 2022	$	200	$	—	$	(5	)
Three months ended September 30, 2021	$	4,158	$	94	$	(6	)
Nine months ended September 30, 2022	$	11,694	$	13	$	(439	)
Nine months ended September 30, 2021	$	18,838	$	671	$	(6	)

~~Other-than-temporary Impairment~~

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

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


	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of September 30, 2022	Loss			Value		Loss			Value		Loss			Value
U.S. Treasury and U.S. government agencies	$	(9,677	)	$	324,643	$	(137	)	$	2,233	$	(9,814	)	$	326,876
Corporate bonds		(1,164	)		26,947		(246	)		1,285		(1,410	)		28,232
States, municipalities, and political subdivisions		(11	)		1,751		—			—		(11	)		1,751
Exchange-traded debt		(2	)		517		—			—		(2	)		517
Redeemable preferred stock		(5	)		102		—			—		(5	)		102
Total available-for-sale securities	$	(10,859	)	$	353,960	$	(383	)	$	3,518	$	(11,242	)	$	357,478


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

At September 30, 2022 and December 31, 2021, there were 88 and 23 securities, respectively, in an unrealized loss position.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

The Company regularly reviews its individual investment securities for ~~other-than-temporary~~credit impairment. The Company considers various factors in determining whether a credit loss exists for each individual security, ~~is other-than-temporarily impaired,~~ including-

•

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

~~the length of time and~~ •

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

•

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

•

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

•

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

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



	2022		2021
Balance at January 1	$	—	$	588
Reductions for securities sold		—		(9	)
Balance at March 31	$	—	$	579
Reductions for securities exchanged		—		(579	)
Balance at June 30	$	—	$	—
Balance at September 30	$	—	$	—

b) Equity Securities

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


			Gross Unrealized		Gross Unrealized			Estimated Fair
	Cost		Gain		Loss			Value
September 30, 2022	$	36,639	$	1,873	$	(4,566	)	$	33,946
December 31, 2021	$	46,276	$	6,335	$	(871	)	$	51,740

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net (losses) gains recognized	$	(1,279	)	$	(916	)	$	(9,144	)	$	2,620
Exclude: Net realized (losses) gains recognized for securities sold		(932	)		953			(987	)		3,269
Net unrealized losses recognized	$	(347	)	$	(1,869	)	$	(8,157	)	$	(649	)

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

~~Fixed-maturity Securities~~

There was no impairment loss recognized for the three months ended September 30, 2017. For the nine months ended September 30, 2017, the Company recognized $100 of impairment losses related to the sale of two~~intent-to-sell~~ fixed-maturity securities. At September 30, 2017, two fixed-maturity securities were considered other-than-temporarily impaired due to their credit risk. The Company intends to hold these two fixed-maturity securities until maturity, but does not expect a full recovery of their carrying value.

In June 2016, the Company sold one impaired fixed-maturity security that was previously intended to hold until maturity due to uncertainties surrounding the issuer’s announced restructuring plan. Prior to the sale of this security, the remaining $202 of unrealized impairment loss was reclassified from comprehensive income and recognized in total other-than-temporary impairment losses in the Company’s consolidated statement of income. For the three months ended September 30, 2016, the Company recorded $531 of impairment loss, of which $180 was considered other-than-temporarily impaired due to a credit related loss and recorded in the consolidated statement of income, with the remaining amount of $351 related to~~non-credit~~ factors and recorded in other comprehensive income. For the nine months ended September 30, 2016, the Company recognized $675 of impairment loss in the consolidated statement of income, representing $206 of additional losses recorded during the period and the reclassification of $469 previously recorded in other comprehensive income. At September 30, 2016, one fixed-maturity security the Company intended to hold to maturity had a credit related loss.

~~The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in income from available for sale fixed-maturity securities.~~

   2017    2016
Balance at January 1
   $ 475    $ 111
Additional credit impairments on previously impaired securities
   —      293




Balance at March 31
   475    404
Credit impaired security fully disposed of for which there was no prior intent or requirement to sell
   —      (385 )
Reduction due to increase in expected cash flows recognized over the remaining life of the previously impaired security
   —      (19 )




Balance at June 30
   475    —
Credit impairment on impaired securities
   —      180




Balance at September 30
   $ 475    $ 180

~~Equity Securities~~

In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost, the length of time each security has been in an unrealized loss position, the extent of the decline and the near-term prospect for recovery. The Company recognized impairment losses of $474 and $44 in the consolidated statement of income for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, the Company recognized impairment losses of $764 and $766, respectively. At September 30, 2017 and 2016, the Company had four and 16 equity securities, respectively, that were other-than-temporarily impaired.

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

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

Securities with gross unrealized loss positions at September 30, 2017 and December 31, 2016, 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
As of September 30, 2017    Gross
Unrealized
Loss Estimated
Fair Value    Gross
Unrealized
Loss Estimated
Fair
Value    Gross
Unrealized
Loss Estimated
Fair Value
Fixed-maturity securities

U.S. Treasury and U.S. government agencies
   $ (112 ) $ 45,344    $ —   $ —      $ (112 ) $ 45,344
Corporate bonds
   (530 ) 49,789    (281 ) 15,346    (811 ) 65,135
State, municipalities, and political subdivisions
   (29 ) 4,332    (54 ) 3,889    (83 ) 8,221
Exchange-traded debt
   (209 ) 3,189    (2 ) 80    (211 ) 3,269
Redeemable preferred stock
   (5 ) 45    —   —      (5 ) 45






Total fixed-maturity securities
   (885 ) 102,699    (337 ) 19,315    (1,222 ) 122,014
Equity securities
   (545 ) 11,154    (35 ) 1,260    (580 ) 12,414






Totalavailable-for-sale securities
   $ (1,430 ) $ 113,853    $ (372 ) $ 20,575    $ (1,802 ) $ 134,428

At September 30, 2017, there were 127 securities in an unrealized loss position. Of these securities, 17 securities had been in an unrealized loss position for 12 months or longer. The gross unrealized loss of corporate bonds in an unrealized loss position for less than twelve months included $133 of other-than-temporary impairment losses related to~~non-credit~~ ~~factors.~~

   Less Than Twelve
Months    Twelve Months or Longer    Total
As of December 31, 2016    Gross
Unrealized
Loss Estimated
Fair
Value    Gross
Unrealized
Loss Estimated
Fair
Value    Gross
Unrealized
Loss Estimated
Fair
Value
Fixed-maturity securities

U.S. Treasury and U.S. government agencies
   $ (36 ) $ 1,939    $ —   $ —      $ (36 ) $ 1,939
Corporate bonds
   (1,546 ) 43,859    (95 ) 2,814    (1,641 ) 46,673
State, municipalities, and political subdivisions
   (441 ) 26,029    (47 ) 3,036    (488 ) 29,065
Exchange-traded debt
   (191 ) 4,980    (46 ) 1,954    (237 ) 6,934
Redeemable preferred stock
   (3 ) 47    —   —      (3 ) 47






Total fixed-maturity securities
   (2,217 ) 76,854    (188 ) 7,804    (2,405 ) 84,658
Equity securities
   (293 ) 10,042    (191 ) 3,209    (484 ) 13,251






Totalavailable-for-sale securities
   $ (2,510 ) $ 86,896    $ (379 ) $ 11,013    $ (2,889 ) $ 97,909

At December 31, 2016, there were 134 securities in an unrealized loss position. Of these securities, 20 securities had been in an unrealized loss position for 12 months or longer. The gross unrealized loss of corporate bonds in an unrealized loss position for twelve months or longer included $76 of other-than-temporary impairment losses related to~~non-credit~~ ~~factors.~~

~~b) Trading Securities~~

At September 30, 2017, the cost, net unrealized gains, and estimated fair value of the Company’s trading equity securities were $929, $74, and $1,003, respectively. There were no investments in trading equity securities at December 31, 2016.

~~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 ~~Trading~~Equity Securities

Proceeds received, and the gross realized gains and losses from sales of ~~trading~~ equity securities, for the three and nine months ended September 30, ~~2017~~2022 and 2021 were as follows:

   Proceeds    Gross
Realized
Gains    Gross
Realized
Losses
Three months ended September 30, 2017

Equity securities
   $ 580    $ 12    $ (10 )






Nine months ended September 30, 2017

Equity securities
   $ 580    $ 12    $ (10 )


			Gross Realized		Gross Realized
	Proceeds		Gains		Losses
Three months ended September 30, 2022	$	4,889	$	135	$	(1,067	)
Three months ended September 30, 2021	$	24,781	$	1,141	$	(188	)
Nine months ended September 30, 2022	$	29,316	$	1,988	$	(2,975	)
Nine months ended September 30, 2021	$	81,292	$	4,266	$	(997	)

~~The Company did not hold any trading equity security during 2016.~~

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 ~~all~~ decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships. ~~In August 2017, the Company entered into a subscription agreement with another limited partnership.~~ The following table provides information related to the Company’s investments in limited ~~partnerships.~~partnerships:


	September 30, 2022						December 31, 2021
	Carrying		Unfunded				Carrying		Unfunded
Investment Strategy	Value		Balance		(%) (a)		Value		Balance		(%) (a)
Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e)	$	4,120	$	—		15.37	$	6,076	$	2,085		15.37
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)		3,312		—		1.67		3,423		—		1.69
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(f)(g)		4,421		—		0.18		6,270		1,401		0.18
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(h)(i)		3,757		—		0.57		4,437		—		0.57
Value-oriented investments in mature real estate private equity funds and portfolios globally. (b)(j)		7,103		3,633		1.32		5,977		4,537		1.36
Risk-adjusted returns on credit and equity investments, primarily in private equity-owned companies. (b)(k)		2,692		2,629		1.07		1,950		3,050		0.47
Total	$	25,405	$	6,262			$	28,133	$	11,073

(a)

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

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

   September 30, 2017    December 31, 2016
Investment Strategy    Carrying
Value    Unfunded
Balance    (%)(a)    Carrying
Value    Unfunded
Balance    (%)(a)
Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e)
   $ 7,134    $ 5,505    15.37    $ 6,246    $ 6,428    16.50
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)
   7,630    1,746    1.76    7,358    1,360    1.76
Maximum long-term capital appreciation through long and short positions in equity and/or debt securities of publicly traded U.S. andnon-U.S. issuers, derivative instruments and certain other financial instruments. (f)
   —      —      —      11,333    —      66.58
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(g)(h)
   6,148    3,766    0.18    4,326    5,766    0.18
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(i)(j)
   86    4,914    0.62    —      —      —









Total
   $ 20,998    $ 15,931       $ 29,263    $ 13,554

(b)

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

(c)

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

(d)

The term has been extended for a second additional one-year period to June 30, 2023. Although the capital commitment period has ended, the general partner could still request an additional funding under certain circumstances.

(e)

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

(f)

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

(g)

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

(h)

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

(i)

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

(j)

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

(k)

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

~~(a)~~

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

~~(b)~~

~~(c)~~

~~Expected to have a10-year~~ ~~term and the capital commitment is expected to expire on September 3, 2019.~~

~~(d)~~

~~Expected to have a three-year term from the end of the capital commitment period, which is March 31, 2018.~~

~~(e)~~

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

~~(f)~~

~~The withdrawal was effective on February 15, 2017. As a result, the Company’s investment in this limited partnership was terminated.~~

~~(g)~~

~~Expected to have a10-year~~ ~~term and the capital commitment is expected to expire on June 30, 2020.~~

~~(h)~~

~~With the consent of a super majority of partners, the term of the fund may be extended for up to three additionalone-year~~ ~~periods.~~

~~(i)~~

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

~~(j)~~

~~Unless extended or terminated for reasons specified in the agreement, the capital commitment is expected to expire on December 1, 2018.~~

The following is the summary of aggregated ~~summarized~~ 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. ~~In applying the equity method of accounting, the Company uses the most recently available financial information provided by the general partner of each of these partnerships.~~ The financial statements of these limited partnerships are audited annually.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Operating results:
Total income	$	208,468		$	(13,796	)	$	724,413		$	359,885
Total expenses		(45,537	)		(24,828	)		(117,877	)		(105,548	)
Net income (loss)	$	162,931		$	(38,624	)	$	606,536		$	254,337


	September 30,		December 31,
	2022		2021
Balance sheet:
Total assets	$	5,488,857	$	5,855,616
Total liabilities	$	409,604	$	564,732

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 received total cash distributions of $2,768 and $7,149, respectively, including returns on investment of $371 and $2,417, respectively.

For the three and nine months ended September 30, 2021, the Company recognized net investment income of $1,132 and $3,491, respectively. During the three and nine months ended September 30, 2021, the Company

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Operating results:

Total income
   $ 71,854    $ 166,374    $ 301,604    $ 143,305
Total expenses
   (24,663 )    (54,577 )    (78,482 )    (184,598 )








Net income (loss)
   $ 47,191    $ 111,797    $ 223,122    $ (41,293 )

For the three and nine months ended September 30, 2017, the Company recognized net investment income of $392 and $1,724, respectively, for these investments. During the third quarter of 2017, the Company received in cash a return on investment totaling $428. During the nine-month period ended September 30, 2017, the Company received total cash distributions of ~~$12,612, representing $11,758~~$1,535 and $5,980, respectively, including returns on investment of ~~returned capital~~$553 and ~~$854 of return on investment. Included in the return of capital was $11,626 from one limited partnership the Company withdrew from in February 2017.~~$2,345, respectively.

For the three and nine months ended September 30, 2016, the Company recognized net investment income of $1,119 and $54, respectively. During the three and nine months ended September 30, 2016, the Company received cash distributions of $384 and $428, respectively, of return on investment. At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the Company’s net cumulative contributed capital to the partnerships ~~existing~~ at each respective balance sheet date totaled ~~$19,569~~$24,996 and ~~$31,946,~~$28,371, respectively, and the Company’s maximum exposure to loss aggregated ~~$20,998~~$25,405 and ~~$29,263,~~$28,133, respectively.

d) Investment in Unconsolidated Joint Venture

~~The Company~~Melbourne FMA, LLC, a wholly owned subsidiary, currently has an equity investment in FMKT Mel JV, ~~which is~~ a Florida limited liability company treated as a joint venture under U.S. GAAP. In March 2017, FMKT Mel JV sold a portion of its outparcel land for gross proceeds of $825 and recognized a $331 gain on sale of which $199 was allocated to the Company in accordance with the profit allocation specified in the operating agreement.

At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the Company’s maximum exposure to loss relating to ~~this~~the variable interest entity was ~~$1,664~~$18 and ~~$2,102,~~$363, respectively, representing the carrying value of the investment. ~~At September 30, 2017, there was $0~~In June 2022, the joint venture sold its last outparcel and recognized a gain of undistributed income from this equity method investment as compared with an undistributed loss, after an equity distribution, of $25 at December 31, 2016, the amounts of which were included in the Company’s consolidated retained income.

~~The limited liability company members received no cash distributions during~~$572. During the three ~~months ended September 30, 2017~~ and ~~2016. During the~~ nine months ended September 30, ~~2017,~~2022, the Company received a cash distribution of ~~$564, representing a combined distribution~~$840, including return on investment of ~~$147 in earnings~~$489. During the three and ~~$417 in capital as compared with no cash distribution during the~~ nine months ended September 30, ~~2016.~~ 2021, the Company received a cash distribution of $737, including return on investment of $114. At September 30, 2022 and December 31, 2021, there was no undistributed income from this equity method investment. The following tables provide ~~FMKT Mel JV’s~~FMJV’s summarized unaudited financial results and the unaudited financial positions:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2022		2021			2022			2021
Operating results:
Total revenues	$	—	$	540		$	572		$	540
Total expenses		—		(14	)		(22	)		(70	)
Net income	$	—	$	526		$	550		$	470
The Company’s share of net income*	$	—	$	473		$	495		$	423

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


	September 30,		December 31,
	2022		2021
Balance sheet:
Property and equipment, net	$	—	$	357
Cash		2		29
Other		18		18
Total assets	$	20	$	404

Members’ capital	$	20	$	404
Total members’ capital	$	20	$	404
Investment in unconsolidated joint venture, at equity**	$	18	$	363

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

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Operating results:

Total revenues and gain
   $ —      $ 235    $ 331    $ 949
Total expenses
   (18 )    (318 )    (83 )    (801 )








Net (loss) income
   $ (18 )    $ (83 )    $ 248    $ 148








The Company’s share of net (loss) income*
   $ (16 )    $ (75 )    $ 126    $ 153

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

   September 30,
2017    December 31,
2016
Balance Sheet:

Construction in progress - real estate
   $ 375    $ 334
Property and equipment, net
   1,213    1,654
Cash
   110    179
Other
   180    180




Total assets
   $ 1,878    $ 2,347




Accounts payable
   $ 15    $ 11
Other liabilities
   14    —
Members’ capital
   1,849    2,336




Total liabilities and members’ capital
   $ 1,878    $ 2,347




Investment in unconsolidated joint venture, at equity*
   $ 1,664    $ 2,102

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

e) Real Estate Investments

~~Real estate investments include office and retail space that is leased to tenants, wet and dry boat storage, one restaurant, and two marinas.~~ Real estate investments consist of the following as of September 30, ~~2017~~2022 and December 31, ~~2016.~~2021:


							September 30,			December 31,
	September 30, 2017			December 31, 2016			2022			2021
Land	$	20,422		$	17,592		$	38,327		$	39,720
Land improvements		9,904			9,336			12,138			11,917
Buildings		17,742			16,154
Buildings and building improvements								29,410			29,405
Tenant and leasehold improvements		996			872			1,554			1,511
Construction in progress*		—			3,404
Other		2,911			2,683			1,462			1,265

Total, at cost		51,975			50,041			82,891			83,818
Less: accumulated depreciation and amortization		(3,014	)		(1,955	)		(11,391	)		(9,922	)

Real estate investments	$	48,961		$	48,086		$	71,500		$	73,896

*	~~This project, which was developed by the Company’s consolidated variable interest entity, was completed in July 2017. The costs were reclassified to land, land improvement, and building.~~

In May 2022, the Company sold one outparcel in Sorrento, Florida for net proceeds of $667. On July 1, 2022, the Company closed on its agreement to sell 1.5 acres of land in Tampa, Florida for net proceeds of $14,500 to the Florida Department of Transportation (“FDOT”) in connection with an eminent domain proceeding for a planned road improvement project. See additional information under f) Net Investment Income (Loss) below. Depreciation and amortization expense related to real estate investments was ~~$374~~$480 and ~~$126~~$475 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$1,062~~$1,469 and ~~$314~~$1,445 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

f) Net Investment Income (Loss)

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Available-for-sale fixed-maturity securities	$	2,125		$	266		$	3,710		$	1,091
Equity securities		288			322			875			1,013
Investment expense		(117	)		(134	)		(367	)		(388	)
Limited partnership investments		1,265			1,132			3,064			3,491
Real estate investments		13,897			305			15,782			3,646
Net income from unconsolidated joint venture		—			473			495			423
Cash and cash equivalents		1,072			156			1,523			473
Net investment income	$	18,530		$	2,520		$	25,082		$	9,749

For the three months ended September 30, 2022, income from real estate investments included a net realized gain of $13,402 resulting from the sale of 1.5 acres of land in Tampa, Florida in July 2022 for net proceeds of $14,500 to the FDOT in connection with an eminent domain proceeding for a planned road improvement project. For the nine months ended September 30, 2022, in addition to the aforementioned sale of land, income from real estate investments included a net gain of $376 resulting from the sale of the outparcel described in e) Real Estate Investments and $451 of income from selling the liquor license previously owned by the Company’s restaurant business which was discontinued in 2020. For the nine months ended September 30, 2021, income from real estate investments included a net gain of $2,790 resulting from a legal settlement with The Kroger Co. in a lawsuit filed by a real estate subsidiary of the Company to enforce a guaranty of a commercial lease.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

~~f) Consolidated Variable Interest Entity~~g) Other Investments

~~The~~From time to time, the Company ~~has a commercial property~~may invest in ~~Riverview, Florida. The development project of this property was completed in July 2017 through a limited liability company treated under U.S. GAAP as a joint venture in which~~financial assets other than stocks, mutual funds and bonds. For the ~~Company’s subsidiary has a controlling financial interest~~three months ended September 30, 2022 and ~~as a result, it is the primary beneficiary. The following table summarizes the assets and liabilities~~2021, net realized gains related to ~~this variable interest entity which are included in~~other investments were $53 and $191, respectively, and $209 and $1,018 for the ~~accompanying consolidated balance sheets.~~

   September 30,
2017    December 31,
2016
Cash and cash equivalents
   $ 90    $ 65
Construction in progress included in real estate investments
   $ —      $ 3,404
Real estate investments
   $ 4,472    $ —
Other assets
   $ 139    $ —
Accrued expenses
   $ 59    $ 68
Other liabilities
   $ 42    $ 11

~~g) Net Investment Income~~

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

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Available-for-sale securities:

Fixed-maturity securities
   $ 1,532    $ 1,164    $ 4,172    $ 3,394
Equity securities
   790    817    2,461    2,552
Investment expense
   (176 )    (165 )    (526 )    (488 )
Limited partnership investments
   392    1,119    1,724    54
Real estate investments
   (292 )    (372 )    (856 )    (455 )
(Loss) income from unconsolidated joint venture
   (16 )    (75 )    126    153
Cash and cash equivalents
   648    285    1,415    755
Other
   —      12    6    35








Net investment income
   $ 2,878    $ 2,785    $ 8,522    $ 6,000

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

~~(Amounts in thousands, except share~~nine months ended September 30, 2022 and ~~per share amounts, unless otherwise stated)~~2021, respectively.

Note 6 —-- Fair Value Measurements

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

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Valuation Methodology

Cash and ~~cash equivalents~~Cash Equivalents

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

~~Available-for-sale~~Restricted Cash

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

Fixed-Maturity and Equity Securities

Estimated fair values of the Company’s~~available-for-sale~~ fixed-maturity and ~~trading~~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

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

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

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.

~~Limited Partnership Investments~~Revolving Credit Facility

~~As described in Note 4 — “Investments” under~~ ~~Limited Partnership Investments~~,From time to time, the Company has interests in limited partnerships which are private equity funds. Pursuant to U.S. GAAP, these funds are required to use fair value accounting; therefore, the estimated fair value approximates the carrying value of these funds.

~~Revolving Credit Facility~~

an amount outstanding under a revolving credit facility. The interest rate ~~on the Company’s revolving credit facility was~~is variable and is periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, ~~its~~ carrying value, ~~at December 31, 2016 approximated~~when outstanding, approximates fair value. ~~In February 2017, this credit facility was converted into a 3.95% three-year promissory note. See Note 8 — “Long-Term Debt” under~~~~3.95% Promissory Note.~~

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

~~Long-term debt~~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	~~Maturity~~ ~~Date~~	Valuation Methodology
8%4.75% Convertible Senior Notes	2042	*	~~Closing~~ Quoted price ~~listed on the New York Stock Exchange~~
~~3.875%~~4.25% Convertible Senior Notes	2037	~~2019~~	Quoted price ~~at September 30, 2017;~~
3.90% Promissory Note	2032	Discounted cash flow method/Level 3 inputs ~~at December 31, 2016~~
~~4.25% Convertible Senior Notes~~3.75% Callable Promissory Note		~~2037~~	~~Quoted price~~
~~3.95% Promissory Note~~2036		~~2020~~	Discounted cash flow method/Level 3 inputs
4%4.55% Promissory Note	2036	~~2031~~	Discounted cash flow method/Level 3 inputs
~~3.75% Promissory Note~~		~~2036~~	~~Discounted cash flow method/Level 3 inputs~~

*	~~Redeemed on April 3, 2017.~~

Assets Measured at Estimated Fair Value on a Recurring Basis

The following ~~table presents~~tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The ~~table indicates~~tables indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of September 30, ~~2017~~2022 and December 31, ~~2016:~~2021:


	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, 2017*
As of September 30, 2022
Financial Assets:
Cash and cash equivalents	$	292,438	$	—	$	—		$	292,438	$	355,699	$	—	$	—	$	355,699
Restricted cash										$	2,900	$	—	$	—	$	2,900
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies		45,739		1,502		—			47,241	$	321,520	$	8,333	$	—	$	329,853
Corporate bonds		121,516		994		—			122,510		28,232		—		—		28,232
State, municipalities, and political subdivisions		—		76,940		—			76,940		—		1,751		—		1,751
Exchange-traded debt		9,276		—		—			9,276		701		—		—		701
Redeemable preferred stock		135		—		—			135		102		—		—		102

Total fixed-maturity securities		176,666		79,436		—			256,102
Total available-for-sale securities										$	350,555	$	10,084	$	—	$	360,639
Equity securities		63,023		—		—			63,023	$	33,946	$	—	$	—	$	33,946

Totalavailable-for-sale securities		239,689		79,436		—			319,125

Trading equity securities		1,003		—		—			1,003

Total	$	533,130	$	79,436	$	—		$	612,566


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

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

   Fair Value Measurements Using
   (Level 1)    (Level 2)    (Level 3)    Total
As of December 31, 2016

Financial Assets:

Cash and cash equivalents
   $ 280,531    $ —      $ —      $ 280,531








Fixed-maturity securities:

U.S. Treasury and U.S. government agencies
   1,939    —      —      1,939
Corporate bonds
   73,519    985    —      74,504
State, municipalities, and political subdivisions
   —      78,306    —      78,306
Exchange-traded debt
   11,262    —      —      11,262
Redeemable preferred stock
   237    —      —      237








Total fixed-maturity securities
   86,957    79,291    —      166,248
Equity securities
   53,035    —      —      53,035








Totalavailable-for-sale securities
   139,992    79,291    —      219,283








Total
   $ 420,523    $ 79,291    $ —      $ 499,814

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

The following tables present fair value information for ~~assets and~~ liabilities that are carried on the consolidated balance ~~sheet~~sheets at amounts other than fair value as of September 30, ~~2017~~2022 and December 31, ~~2016.~~2021:

   Carrying    Fair Value Measurements Using    Estimated
   Value    (Level 1)    (Level 2)    (Level 3)    Fair Value
As of September 30, 2017

Financial Assets:

Limited partnership investments
   $ 20,998    $ —      $ —      $ 20,998    $ 20,998
Financial Liabilities:

Long-term debt:

3.875% Convertible senior notes
   $ 84,547    $ —      $ 88,874    $ —      $ 88,874
4.25% Convertible senior notes
   125,581    —      128,656    —      128,656
3.95% Promissory note
   9,317    —      —      9,361    9,361
4% Promissory note
   8,321    —      —      8,108    8,108
3.75% Promissory note
   8,545    —      —      7,984    7,984










Total long-term debt
   $ 236,311    $ —      $ 217,530    $ 25,453    $ 242,983


	Carrying		Fair Value Measurements Using						Estimated
	Value		(Level 1)		(Level 2)		(Level 3)		Fair Value
As of September 30, 2022
Financial Liabilities:
Long-term debt:
4.75% Convertible Senior Notes	$	166,859	$	—	$	134,388	$	—	$	134,388
4.25% Convertible Senior Notes		23,916		—		20,527		—		20,527
3.90% Promissory Note		9,031		—		—		8,058		8,058
3.75% Callable Promissory Note		6,881		—		—		6,137		6,137
4.55% Promissory Note		4,963		—		—		4,610		4,610
Total long-term debt	$	211,650	$	—	$	154,915	$	18,805	$	173,720

   Carrying    Fair Value Measurements Using    Estimated
   Value    (Level 1)    (Level 2)    (Level 3)    Fair Value
As of December 31, 2016

Financial Assets:

Limited partnership investments
   $ 29,263    $ —      $ —      $ 29,263    $ 29,263
Financial Liabilities:

Revolving credit facility
   $ 9,463    $ —      $ —      $ 9,463    $ 9,463
Long-term debt:

8% Senior notes
   $ 39,448    $ —      $ 41,618    $ —      $ 41,618
3.875% Convertible senior notes
   81,988    —      —      84,696    84,696
4% Promissory note
   8,660    —      —      8,664    8,664
3.75% Promissory note
   8,767    —      —      8,506    8,506










Total long-term debt
   $ 138,863    $ —      $ 41,618    $ 101,866    $ 143,484


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

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

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

Note ~~11 —~~13 -- Segment Information

The ~~Company’s businesses consist~~Company identifies its operating divisions or segments based on managerial emphasis, organizational structure and revenue source. In the first quarter of 2021, the Company reorganized its operations to focus on specific business segments, resulting in the creation of TTIG with a separate workforce, board of directors and financial reporting structure. Companies under TTIG include TypTap, TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company, Inc., the parent company of an India company, Exzeo Software Private Limited. TTIG and its subsidiaries are considered a new reporting segment known as TypTap Group. The Company has four ~~operating divisions:~~ reportable segments: HCPCI insurance operations, TypTap Group, real estate operations, and corporate and other. Due to their economic characteristics, the Company’s property and casualty insurance division and reinsurance ~~investment~~operations, excluding the insurance operations under TypTap Group, are grouped together into one reportable segment under HCPCI insurance operations. The TypTap Group segment includes its property and casualty insurance operations, information technology operations and its management company’s activities. The real estate operations segment includes companies engaged in operating commercial properties the Company owns for investment purposes or for use in its own operations. The corporate and ~~information technology.~~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 ~~performances~~performance based on revenue and operating income. ~~The Company aggregates its operating divisions into segments based on organizational structure and revenue source.~~

~~Due to their economic characteristics, the Company’s property and casualty insurance division and reinsurance division are grouped together into one reportable segment under insurance operations.~~ For the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, revenues from the ~~Company’s~~HCPCI insurance operations segment before intracompany elimination represented ~~96.1%~~60.5% and ~~94.8%~~73.9%, respectively, and revenues from the TypTap Group segment represented 29.9% and 24.0%, respectively, of total revenues of all operating segments. For the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, revenues from the ~~Company’s~~HCPCI insurance operations segment before intracompany elimination represented ~~96.4%~~66.6% and 76.4%, respectively, and revenues from the TypTap Group segment represented 28.7% and 20.7%, respectively, of total revenues of all operating ~~segments in each of the periods.~~segments. At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, HCPCI insurance operations’ total assets represented ~~90.7%~~55.9% and ~~87.9%~~58.7%, respectively, and TypTap Group’s total assets represented 36.7% and 29.3%, respectively, of the combined assets of all operating segments. There was no other operating division representing ten percent or more of the Company’s total revenues or combined assets. In addition, there was no other operating division representing ten percent or more of the greater,

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in ~~absolute amount, of the combined profits of all operating divisions reporting a profit or the combined losses of all operating divisions reporting a loss.~~ 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. ~~Othernon-reportable~~ ~~divisions are combined and disclosed in Corporate and Other.~~ 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, 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
Policy fee income		613			458			—		—			—			1,071
Gain on involuntary conversion		—			—			13,402		—			(13,402	)		—
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

(a)

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

(b)

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

(c)

Gross premiums earned under HCPCI Insurance Operations consist of $98,985 from HCPCI and $5,686 from a reinsurance company.

(d)

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

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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


Three Months Ended September 30, 2017	Insurance Operations			Corporate/ Other(a)			Reclassification/ Elimination			Consolidated
													HCPCI
													Insurance			TypTap			Real		Corporate/			Reclassification/
For Three Months Ended September 30, 2021													Operations			Group			Estate (a)		Other (b)			Elimination			Consolidated
Revenue:
Gross premiums earned													$	98,256		$	51,553		$	—	$	—		$	—		$	149,809
Premiums ceded														(36,955	)		(20,135	)		—		—			1,513			(55,577	)
Net premiums earned	$	43,964		$	—		$	—		$	43,964			61,301			31,418			—		—			1,513			94,232
Net investment income		2,563			623			(308	)		2,878
Net realized and unrealized investment (losses) gains		(226	)		74			—			(152	)
Net other-than-temporary impairment losses		(464	)		(10	)		—			(474	)
Net income from investment portfolio														831			102			—		172			778			1,883
Policy fee income		905			—			—			905			693			307			—		—			—			1,000
Other		85			2,706			(2,422	)		369			2,087			480			2,336		489			(3,290	)		2,102

Total revenue		46,827			3,393			(2,730	)		47,490			64,912			32,307			2,336		661			(999	)		99,217

Expenses:
Losses and loss adjustment expenses		89,231			—			—			89,231			36,928			24,224			—		—			1,512			62,664
Amortization of deferred policy acquisition costs		9,031			—			—			9,031			12,402			9,250			—		—			—			21,652
Other policy acquisition expenses														633			1,110			—		—			(55	)		1,688
Stock-based compensation expense														662			471			—		1,599			—			2,732
Interest expense		—			4,408			—			4,408			—			1			231		1,432			—			1,664
Depreciation and amortization		33			785			(494	)		324			18			342			576		171			(603	)		504
Other		7,155			5,595			(2,236	)		10,514

Debt conversion expense														—			—			—		1,273			—			1,273
Personnel and other operating expenses														5,234			7,214			814		2,135			(1,853	)		13,544
Total expenses		105,450			10,788			(2,730	)		113,508			55,877			42,612			1,621		6,610			(999	)		105,721

Loss before income taxes	$	(58,623	)	$	(7,395	)	$	—		$	(66,018	)

Income (loss) before income taxes													$	9,035		$	(10,305	)	$	715	$	(5,949	)	$	—		$	(6,504	)
Total revenue from non-affiliates (c)													$	65,629		$	32,701		$	1,997	$	402
Gross premiums written													$	118,280		$	55,987

Three Months Ended September 30, 2016    Insurance
Operations    Corporate/
Other(a)    Reclassification/
Elimination    Consolidated
Revenue:

Net premiums earned
   $ 63,300    $ —      $ —      $ 63,300
Net investment income
   2,316    989    (520 )    2,785
Net realized investment gains
   532    51    —      583
Net other-than-temporary impairment losses
   (225 )    1    —      (224 )
Policy fee income
   972    —      —      972
Gain on bargain purchase
   —      2,071    —      2,071
Other
   106    2,001    (1,786 )    321








Total revenue
   67,001    5,113    (2,306 )    69,808








Expenses:

Losses and loss adjustment expenses
   25,909    —      —      25,909
Amortization of deferred policy acquisition costs
   9,335    —      —      9,335
Interest expense
   —      2,672    —      2,672
Depreciation and amortization
   31    419    (147 )    303
Other
   8,426    5,293    (2,159 )    11,560








Total expenses
   43,701    8,384    (2,306 )    49,779








Income before income taxes
   $ 23,300    $ (3,271 )    $ —      $ 20,029

(a)

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

(b)

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

(c)

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

~~(a)~~

~~Other revenue under corporate and other primarily consisted of rental income from investment properties and revenue from restaurant and marina businesses.~~

3536

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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


Nine Months Ended September 30, 2017	Insurance Operations			Corporate/ Other(a)			Reclassification/ Elimination			Consolidated
													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	$	168,847		$	—		$	—		$	168,847			219,523			139,995			—		—			(1,864	)		357,654
Net investment income		7,153			2,099			(730	)		8,522
Net realized and unrealized investment gains		2,193			157			—			2,350
Net other-than-temporary impairment losses		(854	)		(10	)		—			(864	)
Net (loss) income from investment portfolio														(1,760	)		1,411			—		426			15,644			15,721
Policy fee income		2,721			—			—			2,721			1,895			1,285			—		—			—			3,180
Gain on involuntary conversion														—			—			13,402		—			(13,402	)		—
Other		428			8,063			(7,284	)		1,207			2,907			1,513			7,953		3,025			(12,333	)		3,065

Total revenue		180,488			10,309			(8,014	)		182,783			222,565			144,204			21,355		3,451			(11,955	)		379,620

Expenses:
Losses and loss adjustment expenses		142,425			—			—			142,425			165,915			129,833			—		—			3,580			299,328
Amortization of deferred policy acquisition costs		26,668			—			—			26,668			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		—			12,328			—			12,328			—			633			672		4,256			(632	)		4,929
Loss on repurchases of senior notes		—			743			—			743
Depreciation and amortization		94			2,227			(1,425	)		896			433			2,200			1,862		660			(1,819	)		3,336
Other		22,601			16,282			(6,589	)		32,294

Personnel and other operating expenses														29,296			24,516			3,516		5,173			(12,971	)		49,530
Total expenses		191,788			31,580			(8,014	)		215,354			247,453			192,466			6,050		16,767			(11,955	)		450,781

Loss before income taxes	$	(11,300	)	$	(21,271	)	$	—		$	(32,571	)

(Loss) income before income taxes													$	(24,888	)	$	(48,262	)	$	15,305	$	(13,316	)	$	—		$	(71,161	)
Total revenue from non-affiliates (d)													$	213,810		$	149,635		$	20,339	$	1,530
Gross premiums written													$	323,680		$	230,947

Nine Months Ended September 30, 2016    Insurance
Operations    Corporate/
Other(a)    Reclassification/
Elimination    Consolidated
Revenue:

Net premiums earned
   $ 180,275    $ —      $ —      $ 180,275
Net investment income
   5,802    876    (678 )    6,000
Net realized investment gains
   856    43    —      899
Net other-than-temporary impairment losses
   (1,426 )    (15 )    —      (1,441 )
Policy fee income
   2,967    —      —      2,967
Gain on repurchases of convertible senior notes
   —      153    —      153
Gain on bargain purchase
   —      2,071    —      2,071
Other
   543    5,808    (5,200 )    1,151








Total revenue
   189,017    8,936    (5,878 )    192,075








Expenses:

Losses and loss adjustment expenses
   79,261    —      —      79,261
Amortization of deferred policy acquisition costs
   28,674    —      —      28,674
Interest expense
   —      8,112    —      8,112
Depreciation and amortization
   131    1,191    (335 )    987
Other
   25,159    14,470    (5,543 )    34,086








Total expenses
   133,225    23,773    (5,878 )    151,120








Income before income taxes
   $ 55,792    $ (14,837 )    $ —      $ 40,955

(a)

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

(b)

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

(c)

Gross premiums earned under HCPCI Insurance Operations consist of $330,969 from HCPCI and $8,643 from a reinsurance company.

(d)

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

~~(a)~~

~~Other revenue under corporate and other primarily consisted of rental income from investment properties and revenue from restaurant and marina businesses.~~

3637

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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


	HCPCI
	Insurance			TypTap			Real		Corporate/			Reclassification/
For Nine Months Ended September 30, 2021	Operations			Group			Estate (a)		Other (b)			Elimination			Consolidated
Revenue:
Gross premiums earned	$	300,827		$	119,364		$	—	$	—		$	—		$	420,191
Premiums ceded		(104,236	)		(42,229	)		—		—			1,353			(145,112	)
Net premiums earned		196,591			77,135			—		—			1,353			275,079
Net income from investment portfolio		5,261			933			—		4,059			3,799			14,052
Policy fee income		2,106			856			—		—			—			2,962
Other		3,420			1,130			9,849		1,316			(12,213	)		3,502
Total revenue		207,378			80,054			9,849		5,375			(7,061	)		295,595
Expenses:
Losses and loss adjustment expenses		110,008			52,976			—		—			1,348			164,332
Amortization of deferred policy acquisition costs		43,906			20,541			—		—			—			64,447
Other policy acquisition expenses		2,170			3,071			—		—			(114	)		5,127
Stock-based compensation expense		2,360			2,438			—		4,431			—			9,229
Interest expense		—			91			972		4,950			(270	)		5,743
Depreciation and amortization		56			942			1,737		711			(1,841	)		1,605
Debt conversion expense		—			—			—		1,273			—			1,273
Personnel and other operating expenses		14,957			18,569			3,332		4,470			(6,184	)		35,144
Total expenses		173,457			98,628			6,041		15,835			(7,061	)		286,900
Income (loss) before income taxes	$	33,921		$	(18,574	)	$	3,808	$	(10,460	)	$	—		$	8,695
Total revenue from non-affiliates (c)	$	206,743		$	80,893		$	8,833	$	4,641
Gross premiums written	$	323,490		$	161,602

(a)

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

(b)

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

(c)

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

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


	September 30,			December 31,
	2022			2021
Segments:
HCPCI Insurance Operations	$	1,141,660		$	676,509
TypTap Group		813,543			369,600
Real Estate Operations		125,992			127,651
Corporate and Other		159,569			65,349
Consolidation and Elimination		(96,021	)		(62,252	)
Total assets	$	2,144,743		$	1,176,857

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

Note 14 -- Leases

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


	September 30,		December 31,
	2022		2021
Operating leases:
ROU assets	$	1,597	$	2,204
Liabilities	$	1,539	$	2,203
Finance leases:
ROU assets	$	80	$	86
Liabilities	$	17	$	31

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

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


		Renewal	Other Terms and
Class of Assets	Initial Term	Option	Conditions
Operating lease:
Office equipment	1 to 51 months	Yes	(a), (b)
Office space	3 to 9 years	Yes	(b), (c)
Finance lease:
Office equipment	3 to 5 years	Not applicable	(d)

(a)

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

(b)

There are no variable lease payments.

(c)

Rent escalation provisions exist.

(d)

There is a bargain purchase option.

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


	Leases
	Operating		Finance
Due in 12 months following September 30,
2022	$	917	$	15
2023		92		2
2024		96		—
2025		101		—
2026		106		—
Thereafter		393		—
Total lease payments		1,705		17
Less: interest		166		—
Total lease obligations	$	1,539	$	17

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

   September 30,
2017    December 31,
2016
Segment:

Insurance Operations
   $ 871,601    $ 651,927
Corporate and Other
   213,299    116,849
Consolidation and Elimination
   (55,647 )    (98,712 )




Total assets
   $ 1,029,253    $ 670,064


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2022			2021		2022		2021
Lease costs:
Finance lease costs:
Amortization – ROU assets*	$	4		$	4	$	14	$	13
Interest expense		—			—		—		1
Operating lease costs*		281			386		937		1,231
Short-term lease costs*		105			100		306		250
Total lease costs	$	390		$	490	$	1,257	$	1,495
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows – finance leases						$	—	$	1
Operating cash flows – operating leases						$	924	$	1,237
Financing cash flows – finance leases						$	14	$	14

	September 30,
	2022
Weighted-average remaining lease term:
Finance leases (in years)		1.3
Operating leases (in years)		4.3
Weighted-average discount rate:
Finance leases (%)		3.4	%
Operating leases (%)		4.0	%

* 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	Conditions
Operating lease:
Office space	1 to 3 years	Yes	(e)
Retail space	3 to 20 years	Yes	(e)
Boat docks/wet slips	1 to 12 months	Yes	(e)

(e)

There are no purchase options.

In July 2017, the Company received notice from the Internal Revenue Service stating the Company’s 2015 federal income tax return would be examined. The examination is currently in the process of gathering information.

Note ~~13 —~~16 -- Earnings Per Share

U.S. GAAP requires the Company to use thetwo-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.~~income or loss. For a majority-owned subsidiary, its basic and diluted earnings (loss) per share are first computed separately. Then, the Company’s proportionate share in that majority-owned subsidiary’s earnings is added to the computation of both basic and diluted earnings (loss) per share at a consolidated level.

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


	Three Months Ended								Three Months Ended
	September 30, 2022								September 30, 2021
	Loss			Shares (a)		Per Share			Loss			Shares (a)		Per Share
	(Numerator)			(Denominator)		Amount			(Numerator)			(Denominator)		Amount
Net loss	$	(51,503	)						$	(4,868	)
Less: Net income attributable to redeemable noncontrolling interest		(2,285	)							(2,202	)
Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities		2,829								774
Net loss attributable to HCI		(50,959	)							(6,296	)
Less: Loss attributable to participating securities		3,289								537
Basic Loss Per Share:
Loss allocated to common stockholders		(47,670	)		8,427	$	(5.66	)		(5,759	)		8,023	$	(0.72	)
Effect of Dilutive Securities: *
Stock options		—			—					—			—
Convertible senior notes		—			—					—			—
Warrants		—			—					—			—
Diluted Loss Per Share:
Loss available to common stockholders and assumed conversions	$	(47,670	)		8,427	$	(5.66	)	$	(5,759	)		8,023	$	(0.72	)


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

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 (loss) earnings per common share is presented below.~~

   Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
   Loss
(Numerator) Shares
(Denominator)    Per Share
Amount Income
(Numerator) Shares
(Denominator)    Per Share
Amount
Net (loss) income
   $ (40,546 )    $ 11,333
Less: Loss (income) attributable to participating securities
   2,737    (557 )





Basic (Loss) Earnings Per Share:

(Loss) income allocated to common stockholders
   (37,809 ) 8,519    $ (4.44 ) 10,776 9,209    $ 1.17




Effect of Dilutive Securities:

Stock options*
   —   —      —   62
Convertible senior notes*
   —   —      1,028 1,447





Diluted (Loss) Earnings Per Share:

(Loss) income available to common stockholders and assumed conversions
   $ (37,809 ) 8,519    $ (4.44 ) $ 11,804 10,718    $ 1.10

   Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
   Loss
(Numerator) Shares
(Denominator)    Per Share
Amount Income
(Numerator) Shares
(Denominator)    Per Share
Amount
Net (loss) income
   $ (18,984 )    $ 24,413
Less: Loss (income) attributable to participating securities
   1,236    (1,158 )





Basic (Loss) Earnings Per Share:

(Loss) income allocated to common stockholders
   (17,748 ) 8,648    $ (2.05 ) 23,255 9,395    $ 2.48




Effect of Dilutive Securities:

Stock options*
   —   —      —   62
Convertible senior notes*
   —   —      3,206 1,507





Diluted (Loss) Earnings Per Share:

(Loss) income available to common stockholders and assumed conversions
   $ (17,748 ) 8,648    $ (2.05 ) $ 26,461 10,964    $ 2.41


	Nine Months Ended								Nine Months Ended
	September 30, 2022								September 30, 2021
	Loss			Shares (a)		Per Share			Income			Shares (a)		Per Share
	(Numerator)			(Denominator)		Amount			(Numerator)			(Denominator)		Amount
Net (loss) income	$	(57,254	)						$	5,807
Less: Net income attributable to redeemable noncontrolling interest		(6,801	)							(5,175	)
Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities		4,018								1,191
Net (loss) income attributable to HCI		(60,037	)							1,823
Less: Loss (income) attributable to participating securities		3,855								(37	)
Basic (Loss) Earnings Per Share:
(Loss) income allocated to common stockholders		(56,182	)		8,972	$	(6.26	)		1,786			7,676	$	0.23
Effect of Dilutive Securities: *
Stock options		—			—					—			182
Convertible senior notes		—			—					—			—
Warrants		—			—					—			234
Diluted (Loss) Earnings Per Share:
(Loss) income available to common stockholders and assumed conversions	$	(56,182	)		8,972	$	(6.26	)	$	1,786			8,092	$	0.22

*	~~Excluded~~
(a)	Shares in ~~2017~~thousands.
*	For the nine months ended September 30, 2022, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect. For the nine months ended September 30, 2021, convertible senior notes were excluded due to anti-dilutive effect.

Note ~~15 —~~19 -- Stock-Based Compensation

2012 Omnibus Incentive ~~Plans~~Plan

The Company currently has outstanding stock-based awards granted under the ~~2007 Stock Option and Incentive~~ Plan ~~and the 2012 Omnibus Incentive Plan. Only the 2012 Plan~~which is currently active and available for future grants. ~~On March 17, 2017, the Company’s board of directors amended the 2012 Omnibus Incentive Plan and reduced the number of shares reserved under the plan from 5,000,000 shares to 3,000,000 shares.~~ At September 30, ~~2017,~~2022, there were ~~1,995,107~~1,110,605 shares available for grant.

Stock Options

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

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

A summary of the stock option activity for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 is as follows (option amounts not in thousands):

   Number of
Options    Weighted
Average
Exercise
Price    Weighted
Average
Remaining
Contractual
Term    Aggregate
Intrinsic
Value
Outstanding at January 1, 2017
   50,000    $ 4.02    2.3 years    $ 1,773
Granted
�� 110,000    $ 40.00



Outstanding at March 31, 2017
   160,000    $ 28.76    7.4 years    $ 2,591
Exercised
   (30,000 )    $ 2.50



Outstanding at June 30, 2017
   130,000    $ 34.82    8.7 years    $ 1,675



Outstanding at September 30, 2017
   130,000    $ 34.82    8.5 years    $ 639



Exercisable at September 30, 2017
   20,000    $ 6.30    3.9 years    $ 639



Outstanding at January 1, 2016
   110,000    $ 3.19    2.3 years    $ 3,482
Outstanding at March 31, 2016
   110,000    $ 3.19    2.1 years    $ 3,312



Outstanding at June 30, 2016
   110,000    $ 3.19    1.8 years    $ 2,650



Outstanding at September 30, 2016
   110,000    $ 3.19    1.6 years    $ 2,989



Exercisable at September 30, 2016
   110,000    $ 3.19    1.6 years    $ 2,989


					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number of		Exercise		Contractual	Intrinsic
	Options		Price		Term	Value
Outstanding at January 1, 2022		440,000	$	45.25	6.6 years	$	18,119
Outstanding at March 31, 2022		440,000	$	45.25	6.3 years	$	10,494
Outstanding at June 30, 2022		440,000	$	45.25	6.1 years	$	9,354
Outstanding at September 30, 2022		440,000	$	45.25	5.8 years	$	117
Exercisable at September 30, 2022		357,500	$	44.23	5.5 years	$	117

Outstanding at January 1, 2021		440,000	$	45.25	7.6 years	$	3,113
Outstanding at March 31, 2021		440,000	$	45.25	7.3 years	$	13,464
Outstanding at June 30, 2021		440,000	$	45.25	7.1 years	$	23,883
Outstanding at September 30, 2021		440,000	$	45.25	6.8 years	$	29,238
Exercisable at September 30, 2021		275,000	$	43.40	6.3 years	$	18,782

~~The aggregate intrinsic value and realized tax benefits of the options exercised during the nine months ended September 30, 2017 were $1,319 and $509.~~

There were no options exercised during the three and nine months ended September 30, ~~2016.~~2022 and 2021. For the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, the Company recognized ~~$79~~$162 and ~~$0, respectively, of compensation expense. For the nine months ended September 30, 2017 and 2016, the Company recognized $228 and $0,~~$221, respectively, of compensation expense which was included in ~~other operating~~general and administrative personnel expenses. For the nine months ended September 30, 2022 and 2021, the Company recognized $507 and $663, respectively, of compensation expense. Deferred tax benefits related to stock options were ~~$30~~$0 and $0$3 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$88~~$0 and $0$4 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, there was ~~$1,020~~$498 and ~~$0,~~$1,005, respectively, of unrecognized compensation expense related to nonvested stock options. The Company expects to recognize the remaining compensation expense over a weighted-average period of ~~3.3~~1.1 years.

~~The following table provides assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the stock options granted during the nine months ended September 30, 2017:~~


~~Expected dividend yield~~	~~3.53~~	%
~~Expected volatility~~	~~42.86~~	%
~~Risk-free interest rate~~	~~1.92~~	%
~~Expected life (in years)~~	5

Restricted Stock Awards

From time to time, the Company has granted and may grant restricted stock awards to ~~its~~certain executive officers, other employees and nonemployee directors in connection with their service to the Company. The terms of the Company’s outstanding restricted stock grants may include service,

~~HCI GROUP, INC. AND SUBSIDIARIES~~

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

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

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. ~~The determination of fair value with respect~~

HCI GROUP, INC. AND SUBSIDIARIES

Notes to ~~the awards concerning only performance or service-based conditions is based on the market value of the Company’s common stock on the grant date.~~Consolidated Financial Statements (unaudited)

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

Information with respect to the activity of unvested restricted stock awards during the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 is as follows:


	Number of Restricted Stock Awards			Weighted Average Grant Date Fair Value		Number of			Weighted
Nonvested at January 1, 2017		542,503		$	30.81
						Restricted			Average
						Stock			Grant Date
						Awards			Fair Value
Nonvested at January 1, 2022							679,997		$	39.72
Granted		45,000		$	40.15		4,000		$	70.58
Vested		(20,109	)	$	48.42		(50,667	)	$	50.68
Forfeited		(926	)	$	35.52		(3,265	)	$	45.85

Nonvested at March 31, 2017		566,468		$	30.92

Nonvested at March 31, 2022							630,065		$	39.00
Granted		109,936		$	44.05		3,000		$	67.30
Vested		(45,874	)	$	34.51		(51,125	)	$	45.04
Forfeited		(9,948	)	$	40.90		(700	)	$	45.61
Nonvested at June 30, 2022							581,240		$	38.61
Forfeited							(1,665	)	$	45.56
Nonvested at September 30, 2022							579,575		$	38.59

Nonvested at June 30, 2017		620,582		$	32.82

Forfeited		(12,344	)	$	32.34

Nonvested at September 30, 2017		608,238		$	32.83

Nonvested at January 1, 2016		620,513		$	30.33
Nonvested at January 1, 2021							423,787		$	43.79
Granted							548,086		$	36.95
Vested		(20,917	)	$	48.42		(41,250	)	$	42.18
Cancelled		(160,000	)	$	26.27		(141,600	)	$	43.76
Forfeited		(750	)	$	45.25		(2,050	)	$	45.67

Nonvested at March 31, 2016		438,846		$	30.93

Nonvested at March 31, 2021							786,973		$	39.11
Granted		102,440		$	32.21		3,000		$	76.00
Vested		(24,235	)	$	37.34		(68,541	)	$	43.80
Cancelled							(1,160	)	$	45.96
Forfeited		(5,147	)	$	42.20		(9,060	)	$	46.44

Nonvested at June 30, 2016		511,904		$	30.77

Vested		(2,000	)	$	37.68
Nonvested at June 30, 2021							711,212		$	38.71
Granted							2,340		$	96.60
Forfeited		(5,890	)	$	36.67		(38,855	)	$	38.05

Nonvested at September 30, 2016		504,014		$	30.67

Nonvested at September 30, 2021							674,697		$	38.95

The Company recognized compensation expense related to restricted stock, which is included in ~~other operating~~general and administrative personnel expenses, of ~~$1,144~~$3,099 and ~~$1,124~~$2,039 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$3,134~~$9,551 and ~~$3,072~~$6,280 for the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, there was approximately ~~$10,208~~$9,670 and ~~$7,531,~~$18,995, respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period of ~~35 months.~~ 2.2 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, ~~2017~~2022 and ~~2016.~~2021.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Deferred tax benefits recognized	$	230	$	420	$	1,521	$	879
Tax benefits realized for restricted stock and paid dividends	$	56	$	70	$	1,360	$	1,482
Fair value of vested restricted stock	$	—	$	—	$	4,871	$	4,742

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Deferred tax benefits recognized
   $ 403    $ 434    $ 1,097    $ 1,185
Tax benefits realized for restricted stock and paid dividends
   $ 49    $ 45    $ 1,232    $ 176
Fair value of vested restricted stock
   $ —      $ 75    $ 2,557    $ 1,993

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

Subsidiary Equity Plan

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

On October 17, 2017, the Company, through a wholly owned subsidiary, acquired commercial real estate in Tampa, Florida for a purchase price of $9,100. The acquired assets primarily consisted of land, building and~~in-place~~ ~~lease agreements. The Company incurred approximately $115 of acquisition-related costs and accounted for this transaction as an asset acquisition in accordance with ASU2017-01~~ ~~which the Company early adopted in the fourth quarter of 2017. As a result, all transaction-related costs were allocated among the assets acquired.~~

ITEM 2 –MANAGEMENT’SDISCUSSION 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 Form10-Q and in our Form10-K filed with the Securities and Exchange Commission (“SEC”) on ~~February 22, 2017.~~March 10, 2022. Unless the context requires otherwise, as used in this Form10-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.

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.

HCI Group, Inc. is a Florida-based InsurTech company ~~that, through its subsidiaries, is engaged~~with operations in ~~a variety of business activities, including~~ property and casualty insurance, reinsurance, real estate and information technology. ~~Based~~After the reorganization of our business in the first quarter of 2021, we now manage our operations in the following organizational segments, based on ~~our organizational structure, revenue sources,~~managerial emphasis and evaluation of financial and operating ~~performances by management, we manage four operating divisions, which includes the following operations:~~performances:

For the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, revenues from HCPCI insurance operations before intracompany elimination represented ~~96.1%~~60.5% and ~~94.8%~~73.9%, respectively, and revenues from TypTap Group represented 29.9% and 24.0%, respectively, of total revenues of all operating segments. For the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, revenues from HCPCI insurance operations before intracompany

elimination represented ~~96.4%~~66.6% and 76.4%, respectively, and revenues from TypTap Group represented 28.7% and 20.7%, respectively, of total

revenues of all operating ~~segments in each of the periods.~~segments. At September 30, ~~2017~~2022 and December 31, ~~2016,~~2021, HCPCI insurance operations’ total assets represented ~~90.7%~~55.9% and ~~89.8%~~58.7%, respectively, and TypTap Group’s total assets represented 36.7% and 29.3%, respectively, of the combined assets of all operating segments. ~~There was no other operating division representing ten percent or more of our total revenues or combined assets.~~ See Note ~~11 —~~13 -- “Segment Information” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form10-Q for additional information.

~~Our principal operating subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”), is a leading provider~~HCPCI provides various forms of ~~property and casualty~~residential insurance ~~in the state of Florida. HCPCI along with certain of our other subsidiaries currently provides property and casualty~~products such as homeowners insurance, ~~to homeowners, condominium owners, and tenants in the state of Florida. HCPCI offers flood-endorsed~~fire insurance, flood insurance and wind-only ~~policies to eligible new andpre-existing~~ ~~Florida customers. In addition,~~insurance. HCPCI was approved by the Florida Office of Insurance Regulation to write standalone flood insurance policies for Florida homeowners. HCPCI strives to offer insurance products at competitive rates, while pursuing profitability using selective underwriting criteria.

~~HCPCI began operations in 2007 by participating in a“take-out~~ ~~program,” which~~ is a legislatively mandated program designed to encourage private insurance companies to assume policies from Citizens Property Insurance Corporation, a Florida state-supported insurer. Our growth since inception has resulted primarily from a series of policy assumptions. This growth track has been beneficial to us although there are fewer policies available for assumption today as a result of increased competition in the Florida market. Thus, we plan to seek other opportunities to expand by providing new or additional product offerings in and outside the state of Florida. During 2017, HCPCI received regulatory approvalauthorized to write residential property and casualty insurance in the states of Arkansas, California, Connecticut, Florida, Maryland, Massachusetts, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina and Texas. Currently, Florida is HCPCI’s primary market.

In 2021, HCPCI ~~expects to begin writing flood~~began providing quota share reinsurance on all in-force, new and renewal policies issued by United in the Northeast Region. HCPCI began renewing and/or replacing United policies in ~~those~~two states ~~during 2018.~~

~~TypTap Insurance Company was organized by HCI Group, Inc. and approved by the Florida Office of Insurance Regulation~~in December 2021, a third state in January ~~2016 to transact~~2022, and the fourth state in April 2022.

In February 2022, HCPCI entered into another reinsurance agreement with United where HCPCI provides 85% quota share reinsurance on all of United’s personal lines insurance business in the ~~state~~states of ~~Florida. TypTap~~Georgia, North Carolina, and South Carolina (collectively “Southeast Region”) from December 31, 2021 through May 31, 2022. Under this agreement, HCPCI paid United a catastrophe allowance of 9% of premium and a provisional ceding commission of 25% of premium. In September 2022, HCPCI began ~~writing standalone flood coverage to Florida homeowners~~renewing United’s policies in ~~March 2016.~~South Carolina.

~~We expect the flood insurance products offered by TypTap~~Reinsurance and ~~HCPCI to become significant contributors to future financial results.~~other auxiliary operations

We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd. We selectively retain risk in Claddaugh, ~~displacing~~reducing the ~~need for HCPCI to pay premiums to third party reinsurers.~~cost of third-party reinsurance. Claddaugh fully collateralizes its exposure to HCPCI and TypTap by depositing funds into a trust account. Claddaugh ~~also from time to time mitigates~~may mitigate a portion of its risk through retrocession ~~contracts.~~

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

~~Our real estate operations consist of multiple properties we own and operate. Properties used in operations consist~~TypTap, TTIG’s insurance subsidiary, has been the primary source of our ~~Tampa headquarters building~~organic growth in gross written premium since 2016. TypTap’s policies in force have increased from 6,721 in January 2018 to 85,781 at September 30, 2022. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently. As of November 2, 2022, TypTap has been approved to offer

homeowners coverage in 19 states outside of Florida. TypTap is currently operating in 12 states. In addition to the expansion in TypTap business, we also expect continued growth from the United policies assigned to TypTap through the renewal rights agreements acquired by HCI.

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

In June 2022, TypTap entered into a new reinsurance agreement with United where TypTap provides 100% quota share reinsurance on all of United’s personal lines insurance ~~operations site~~business in ~~Ocala, Florida. Properties held as investments include two retail shopping centers and~~the Southeast Region from June 1, 2022 through May 31, 2023. In exchange, TypTap pays United a ~~combined 24 acres~~ceding commission of ~~waterfront property where two marinas and one restaurant are located.~~16% of premium. Simultaneously, TypTap began renewing United’s policies in South Carolina.

In July 2017, we completed one real estate development and construction project described as a joint venture arrangement under U.S. GAAP, which we consolidate with our operations. In October 2017, we added commercial real estate in Tampa, Florida to our portfolio of real estate investments. See Note 4 — “Investments” and Note 18 — “Subsequent Event” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form~~10-Q~~ ~~for additional information.~~

Our information technology operations include a team of experienced software developers with extensive knowledge in developingweb-based products and applications for mobile devices. The operations, which are in Tampa, Florida and Noida, India, are focused on developing cloud-based, innovative products orand services that supportin-house operations as well as our ~~third party~~third-party relationships with our agency partners and claim vendors. These products include~~Proplet~~SAMSTM, ~~TypTap~~^HarmonyTM,~~SAMS~~^TM,~~Exzeo~~^®,~~Atlas Viewer~~^TM, AtlasViewer®and ~~CasaClue~~^ClaimColonyTM.

~~On October 17, 2017, we acquired commercial~~Our real estate operations consist of properties we own and use for our own operations and multiple properties we own and operate for investment purposes. Properties used in operations consist of one Tampa office building and an insurance operations site in Ocala, Florida. Our investment properties include retail shopping centers, one office building, two marinas, and undeveloped land near TTIG’s headquarters in Tampa, Florida.

In July 2022, we closed on our agreement to sell 1.5 acres of land in Tampa, Florida to the FDOT in connection with an eminent domain proceeding for ~~$9,215,000,~~a planned road improvement project. See Real Estate Investments under Note 4 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

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.

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

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

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

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

On October ~~19, 2017,~~5, 2022, 231,516 shares of restricted stock issued to employees vested one year subsequent to satisfaction of a market-based vesting condition on October 5, 2021. The restricted shares were granted in February 2021 with a grant date fair value of $36.57 per share. We repurchased and retired a total of 80,339 shares surrendered to satisfy payroll tax liabilities associated with the vesting of these restricted shares.

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

On October 13, 2022, our Board of Directors declared a quarterly dividend of ~~$0.35~~$0.40 per common share. The dividends are payable on December ~~15, 2017~~16, 2022 to stockholders of record on November ~~17, 2017.~~

On November 7, 2022, we executed an amendment to our revolving credit facility with Fifth Third Bank. Under the terms of the amendment, the maximum debt-to-capital ratio as defined in the credit agreement is set at 67.5% and the borrowing capacity of the line of credit is set at $50,000,000. This summary of the amendment is qualified in its entirety by reference to the Fourth Amendment to Credit Agreement, which is filed as Exhibit 10.61 to this Quarterly Report on Form 10-Q.

The following table summarizes our results of operations for the three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 (dollar amounts in thousands, except per share amounts):

Comparison of the Three Months ~~ended~~Ended September 30, ~~2017 with~~2022 to the Three Months ~~ended~~Ended September 30, ~~2016~~2021

Our results of operations for the three months ended September 30, ~~2017 reflected~~2022 reflect net ~~losses allocable to common stockholders~~loss of approximately ~~$40,546,000,~~$51,503,000 or ~~$4.44~~$5.66 loss per share, compared with ~~net income of~~ approximately ~~$11,333,000,~~$4,868,000 or ~~$1.10 earnings~~$0.72 loss per ~~diluted~~ share, for the three months ended September 30, ~~2016.~~2021. The quarter-over-quarter decrease was primarily due to a ~~$63,322,000~~$77,130,000 increase in losses and loss adjustment expenses, ~~which included $54,000,000 of estimated net losses from Hurricane Irma,~~a $4,311,000 increase in general and administrative personnel expenses, and a ~~$15,463,000~~$1,880,000 increase in ~~ceded premiums, which included $12,464,000 of adjustments to ceded premiums related to retrospective provisions. The losses in the quarter were~~other operating expenses, offset by ~~$25,472,000~~a $15,416,000 net increase in income from our investment portfolio (consisting of net investment income ~~tax benefits.~~and net realized and unrealized gains or losses) and a $12,740,000 increase in net premiums earned.

Gross Premiums Earned on a consolidated basis for the three months ended September 30, ~~2017~~2022 and ~~2016~~2021 were approximately ~~$88,669,000~~$181,713,000 and ~~$92,542,000,~~$149,809,000, respectively. ~~The decrease in 2017 was attributable to policy attrition as well as a rate decrease effective on new and renewal policies beginning in January 2016.~~

~~Premiums Ceded~~HCPCI gross premiums earned were $98,985,000 for the three months ended September 30, ~~2017~~2022 compared to $98,256,000 for the three months ended September 30, 2021. Gross premiums earned from the United insurance policies assumed were $15,597,000 for the three months ended September 30, 2022 compared to $29,046,000 for the three months ended September 30, 2021. TypTap’s gross premiums earned were $82,728,000 versus $51,553,000 for the same comparative period with the increase due to a greater number of policies in force from the organic growth in TypTap’s business and ~~2016~~from the business assumed from United beginning June 1, 2022.

Premiums Ceded for the three months ended September 30, 2022 and 2021 were approximately ~~$44,705,000~~$74,741,000 and ~~$29,242,000,~~$55,577,000, respectively, representing ~~50.4%~~41.1% and ~~31.6%~~37.1%, respectively, of gross premiums earned. The ~~$15,463,000~~$19,164,000 increase was primarily attributable to higher reinsurance costs for the ~~adjustment~~2022 contract year due to an increased overall reinsurance coverage amount as a result of ~~the~~premium growth and expansion. In addition, ceded premiums were increased by a reversal of $12,600,000 of previously accrued benefits ~~and deferred reinsurance premiums related~~attributable to retrospective provisions under ~~certain~~multi-year reinsurance contracts due to ~~increased losses caused by~~the effects of Hurricane ~~Irma.~~Ian.

Our premiums ceded represent ~~amounts paid to reinsurers~~costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance ~~treaties~~contracts or to assume a proportional share of losses as defined byin a quota share arrangement. For the three months ended September 30, 2017, premiums ceded included a net increase of approximately $12,465,000 related to the adjustment under the provisions of certain reinsurance contracts. For the three months ended September 30, 2016, premiums ceded reflected a net reduction of approximately $3,428,000 attributable to these reinsurance contract provisions. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned.

~~Net Premiums Written~~ ~~during~~ 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, ~~2017~~2022, premiums ceded included a decrease of $3,843,000 related to retrospective provisions compared with a decrease of $1,364,000 for the three months ended September 30, 2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and ~~2016~~Estimates.”

Net Premiums Written for the three months ended September 30, 2022 and 2021 totaled approximately ~~$50,168,000~~$116,440,000 and ~~$64,022,000,~~$118,689,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The ~~$13,854,000~~ decrease in ~~2017~~2022 resulted from ~~the~~an increase in premiums ceded ~~during the period~~to reinsurers as described above. We had approximately ~~141,000~~214,000 policies in force at September 30, ~~2017~~2022 (excluding policies assumed from United) as compared with approximately ~~145,000~~156,000 policies in force at September 30, ~~2016.~~2021.

Net Premiums Earned for the three months ended September 30, ~~2017~~2022 and ~~2016~~2021 were approximately ~~$43,964,000~~$106,972,000 and ~~$63,300,000,~~$94,232,000, 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, ~~2017~~2022 and ~~2016~~2021 (amounts in thousands):

Net ~~Other-Than-Temporary Impairment Losses~~Investment Income for the three months ended September 30, ~~2017~~2022 and ~~2016 were~~2021 was approximately ~~$474,000~~$18,530,000 and ~~$224,000,~~$2,520,000, respectively. ~~During the third quarter~~The $16,010,000 increase was primarily attributable to a $13,592,000 increase in income from real estate investments, a $1,859,000 increase in income from available-for-sale fixed-maturity securities and a $916,000 increase in interest income from cash and cash equivalents. See Net Investment Income (Loss) under Note 4 -- “Investments” to our unaudited consolidated financial statements under Item 1 of 2017, we recognized impairment losses specific to four equity securities. These equity securities were impaired because each security had been in an unrealized loss position for a length of time with no near-term prospect of recovery. During the quarter ended September 30, 2016, we recognized impairment losses specific to one fixed-maturity security and four equity securities.this Quarterly Report on Form 10-Q.

~~Our~~Net Realized Investment Losses ~~and Loss Adjustment Expenses~~~~amounted to approximately $89,231,000 and $25,909,000~~ for the three months ended September 30, ~~2017~~2022 were approximately $884,000 versus $1,232,000 of net realized investment gains for the three months ended September 30, 2021. The $2,116,000 decrease was primarily attributable to net realized losses of approximately $932,000 from selling equity securities during the three months ended September 30, 2022 as opposed to net realized gains of approximately $953,000 from selling equity securities during the corresponding period in 2021.

Net Unrealized Investment Losses for the three months ended September 30, 2022 and ~~2016,~~2021 were approximately $347,000 and $1,869,000, respectively. ~~During~~The decrease was primarily attributable to an overall improvement in the ~~third quarter of 2017, our~~equity market compared with the three months ended September 30, 2021.

Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $139,794,000 and $62,664,000 for the three months ended September 30, 2022 and 2021, respectively. HCPCI losses and loss adjustment expenses ~~included $54,000,000~~were $73,228,000 for the three months ended September 30, 2022 compared to $36,928,000 for the three months ended September 30, 2021. The increase was primarily attributable to $42,346,000 of ~~net estimated~~ losses ~~related~~attributable to Hurricane ~~Irma and approximately $2,500,000 of additional losses related to Hurricane Matthew. In addition, we continued to strengthen our loss reserves~~Ian which struck the Southeastern United States in ~~response to trends involving assignment of insurance benefits and related litigation. Our 2016 losses~~late September. Losses and loss adjustment expenses ~~reflected initially estimated~~for TypTap were $62,153,000 versus $24,224,000 for the same comparative period. The increase was attributable to $22,251,000 of losses attributable to Hurricane Ian, $6,750,000 of losses due to the greater number of TypTap policies in force, $2,064,000 of additional losses from ~~Hurricane Hermine~~policies assumed from United or any subsequent renewal or replacement of ~~approximately $2,500,000.~~United policies, and $6,818,000 of prior period loss development. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”

Policy Acquisition and Other Underwriting Expenses for the three months ended September 30, ~~2017~~2022 and ~~2016 of~~2021 were approximately ~~$9,926,000~~$24,678,000 and ~~$10,536,000,~~$23,340,000 on a consolidated basis, respectively, and primarily reflect the amortization of deferred acquisition costs such as commissions payable to agents for production and renewal of policies, catastrophe allowance payable to United, and premium taxes related to the policies that have renewed. The $610,000 decrease from the corresponding period in 2016 was primarily attributable to a decrease in commissions and premium taxes resulting from policy attrition and the effect of the rate decrease.

~~Salaries and Wages~~taxes. Policy acquisition expenses for HCPCI insurance operations were $12,081,000 for the three months ended September 30, ~~2017 and 2016 were approximately $4,605,000 and $5,945,000, respectively. The decrease from the corresponding period in 2016 was primarily attributable~~2022 compared to the capitalization of approximately $418,000 of payroll costs related to a software development project for internal use and lower bonuses for senior management. As of September 30, 2017, we had approximately 250 employees located at our offices in Florida compared with 243 employees as of September 30, 2016. We also had 81 employees located in Noida, India at September 30, 2017 versus 80 at September 30, 2016.

~~Interest Expense~~$13,035,000 for the three months ended September 30, ~~2017 and 2016~~2021. The decrease was ~~approximately $4,408,000 and $2,672,000, respectively. The~~due to amortization of decreased costs associated with the policies assumed from United or any subsequent renewal or replacement of United policies. An increase ~~was~~in policy acquisition costs primarily results from premium growth. TypTap Group policy acquisition expenses were $12,626,000 versus $10,360,000 for the same comparative period, with the increase attributable to amortization of increased commission costs related to the ~~net increase~~growth of TypTap’s policies in ~~long-term debt resulting from~~force over the ~~issuance of 4.25% Convertible Senior Notes in March 2017~~past 12 months.

~~Income Tax Benefit~~Administrative Personnel Expenses for the three months ended September 30, ~~2017~~2022 and 2021 were approximately $15,848,000 and $11,537,000, respectively. Our general and administrative personnel expenses include salaries, wages, payroll taxes, stock-based compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The period-over-period increase of $4,311,000 was primarily attributable to an increase in the headcount of temporary and full-time employees, merit increases for non-executive employees effective in late February 2022, and higher stock-based compensation expense.

Interest Expense for the three months ended September 30, 2022 and 2021 was approximately ~~$25,472,000~~$2,813,000 and $1,664,000, respectively. The increase primarily resulted from interest expense related to our 4.75% convertible senior notes issued in May 2022, offset by conversions of our 4.25% convertible senior notes during the second half of 2021.

Income Tax Benefits for the three months ended September 30, 2022 and 2021 were approximately $12,099,000 and $1,636,000, respectively, for state, federal, and foreign income taxes resulting in aneffective tax rates of 19.0% and 25.2%, respectively. The decrease in the effective tax rate was primarily attributable to a valuation allowance established during the third quarter of ~~38.6%. This compared with approximately $8,696,000 of income tax~~2022 and an increase in non-deductible compensation expense ~~for~~related to certain executive compensation, offset by the ~~three months ended September 30, 2016, resulting in an effective~~increased Florida corporate tax rate ~~of 43.4%.~~

The loss ratio applicable to the three months ended September 30, ~~2017~~2022 (losses and loss adjustment expenses incurred related to net premiums earned) was ~~203.0%~~130.7% compared with ~~40.9%~~66.5% for the three months ended September 30, ~~2016.~~2021. The increase was primarily due to the increase in ~~2017 was attributable to~~ losses ~~related~~and loss adjustment expenses due to Hurricane ~~Irma and decreased~~Ian, offset in part by the increase in net premiums earned.

The expense ratio applicable to the three months ended September 30, ~~2017~~2022 (defined as ~~underwriting~~total expenses ~~salaries~~excluding losses and ~~wages, interest and other operating~~loss adjustment expenses related to net premiums earned) was ~~55.2%~~47.2% compared with ~~37.7%~~45.7% for the three months ended September 30, ~~2016.~~2021. The increase in our expense ratio was primarily attributable to the increase in general and administrative personnel and other operating expenses, offset in part by the decrease in debt conversion expense.

The combined ratio (total of all expenses in relation to net premiums earned) is the measure of overall underwriting profitability before other income. Our combined ratio for the three months ended September 30, ~~2017~~2022 was ~~258.2%~~177.9% compared with ~~78.6%~~112.2% for the three months ended September 30, ~~2016.~~2021. The increase in 2022 was attributable to the factors described above.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the three months ended September 30, ~~2017~~2022 was ~~128.0%~~104.7% compared with ~~53.8%~~70.6% for the three months ended September 30, ~~2016.~~2021. The increase in 2022 was primarily attributable to the ~~combined impact of decreased~~increase in losses and loss adjustment expenses due to Hurricane Ian, offset by the increase in gross premiums ~~earned, increased operating expenses and losses from Hurricane Irma.~~earned.

Comparison of the Nine Months ~~ended~~Ended September 30, ~~2017 with~~2022 to the Nine Months ~~ended~~Ended September 30, ~~2016~~2021

Our results of operations for the nine months ended September 30, ~~2017~~2022 reflect net ~~losses allocable to common stockholders~~loss of approximately ~~$18,984,000,~~$57,254,000 or ~~$2.05~~$6.26 loss per share, compared with net income of approximately ~~$24,413,000,~~$5,807,000 or ~~$2.41~~$0.22 diluted earnings per ~~diluted~~ share, for the nine months ended September 30, ~~2016.~~2021. The period-over-period decrease was primarily due to a $134,996,000 increase in losses and loss adjustment expenses, a $13,450,000 increase in general and administrative personnel expenses, and an $11,375,000 increase in policy acquisition and other underwriting expenses, offset by an increase in net ~~estimated losses~~premiums earned of ~~approximately $54,000,000 resulting~~$82,575,000, a $1,669,000 net increase in income from ~~Hurricane Irma.~~our investment portfolio (consisting of net investment income and net realized and unrealized gains/losses), and an $814,000 decrease in interest expense.

Gross Premiums Earned on a consolidated basis for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were approximately ~~$270,376,000~~$541,762,000 and ~~$286,273,000,~~$420,191,000, respectively. ~~The decrease in 2017 was attributable to policy attrition as well as a rate decrease effective on new and renewal policies beginning in January 2016.~~

~~Premiums Ceded~~HCPCI gross premiums earned were $330,969,000 for the nine months ended September 30, ~~2017~~2022 compared to $300,827,000 for the nine months ended September 30, 2021. Gross premiums earned from the United insurance policies assumed were $61,913,000 for the nine months ended September 30, 2022 compared to $73,403,000 for the nine months ended September 30, 2021. TypTap’s gross premiums earned were $210,793,000 versus $119,364,000 for the same comparative period with the increase due to a greater number of policies in force from the organic growth in TypTap’s business and ~~2016~~from the business assumed from United beginning June 1, 2022.

Premiums Ceded for the nine months ended September 30, 2022 and 2021 were approximately ~~$101,529,000~~$184,108,000 and ~~$105,998,000,~~$145,112,000, respectively, representing ~~37.6%~~34.0% and ~~37.0%~~34.5%, respectively, of gross premiums earned. The ~~percentage~~$38,996,000 increase ~~from the corresponding period in 2016~~ was primarily attributable to higher reinsurance costs for the ~~adjustments related~~2022 contract year due to ~~the~~an increased overall reinsurance coverage amount as a result of premium growth and expansion. In addition, ceded premiums were increased by a reversal of $12,600,000 of previously accrued benefits attributable to retrospective provisions under ~~certain~~multi-year reinsurance contracts ~~offset in part by lower reinsurance costs as described earlier.~~ due to the effects of Hurricane Ian.

For the nine months ended September 30, ~~2017,~~2022, premiums ceded included a ~~net increase~~decrease of ~~approximately $5,509,000~~$11,717,000 related to ~~these provisions. For~~retrospective provisions compared with a net reduction of $9,619,000 for the nine months ended September 30, ~~2016, premiums ceded reflected a net reduction of approximately $9,250,000.~~2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”

Net Premiums Written for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 totaled approximately ~~$199,218,000~~$370,519,000 and ~~$202,307,000,~~$339,980,000, respectively. The ~~decrease~~$30,539,000 increase in ~~2017~~2022 resulted primarily from ~~a decrease of approximately $7,600,000 in gross premiums written combined with a decrease of approximately $4,500,000 in premiums ceded during~~ the ~~year.~~factors described earlier.

Net Premiums Earned for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were approximately ~~$168,847,000~~$357,654,000 and ~~$180,275,000,~~$275,079,000, respectively, and ~~reflected~~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, ~~2017~~2022 and ~~2016~~2021 (amounts in thousands):

Net Investment Income for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 was approximately ~~$8,522,000~~$25,082,000 and ~~$6,000,000,~~$9,749,000, respectively. The $15,333,000 increase was primarily attributable to a $12,136,000 increase in ~~2017 was primarily due to $1,724,000 of~~ income from ~~limited partnership~~real estate investments, ~~compared with $54,000 of~~a $2,619,000 increase in income ~~during the corresponding period~~from available-for-sale fixed-maturity securities and a $1,050,000 increase in ~~2016.~~interest income from cash and cash equivalents. See ~~Note 4 — “Investments” under~~Net Investment Income (Loss) under Note 4 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form10-Q.

Net ~~Other-Than-Temporary Impairment~~Unrealized Investment Losses for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were approximately ~~$864,000~~$8,157,000 and ~~$1,441,000,~~$649,000, respectively. ~~During~~The increase was primarily attributable to an overall deterioration in the equity market compared with the nine months ended September 30, ~~2017, we recognized impairment losses specific~~2021.

Our consolidated Losses and Loss Adjustment Expenses amounted to ~~two fixed-maturity securities~~approximately $299,328,000 and five equity securities. The fixed-maturity securities were subject to impairment resulting from our intention to sell these securities before their recovery. Five equity securities were impaired as a result of the length of time each security had been in an unrealized loss position with no near-term prospect of recovery. During the nine months ended September 30, 2016, we recognized impairment losses specific to two fixed-maturity securities and 16 equity securities.

~~Gain on Repurchases of Convertible Senior Notes~~$164,332,000 for the nine months ended September 30, ~~2016 was approximately $153,000. The gain was attributable to the repurchase of $13,010,000 in principal of our 3.875% Convertible Senior Notes during the first quarter of 2016.~~

~~Gain on bargain purchase~~2022 and 2021, respectively. HCPCI losses and loss adjustment expenses were $165,915,000 for the nine months ended September 30, ~~2016 was approximately $2,071,000, resulting from the August 2016 acquisition of one real estate business.~~

~~Our~~~~Losses and Loss Adjustment Expenses~~~~amounted~~2022 compared to ~~approximately $142,425,000 and $79,261,000, respectively,~~$110,008,000 for the nine months ended September 30, ~~2017~~2021. The increase was primarily attributable to $42,346,000 of losses from Hurricane Ian, and ~~2016. Our 2017~~a $14,928,000 net increase in losses attributable to the United policies due to an increase in the number of policies assumed from United or any subsequent renewal or replacement of United policies. Losses and loss adjustment expenses ~~included a net initial estimate of $54,000,000~~for TypTap were $129,833,000 versus $52,976,000 for the same comparative period. The increase was attributable to $22,251,000 of losses ~~related~~attributable to Hurricane ~~Irma and~~Ian, $36,500,000 of losses due to the greater number of TypTap policies in force, $7,015,000 of additional losses from policies assumed from United or any subsequent renewal or replacement of ~~approximately $2,500,000 related to Hurricane Matthew. In addition, our losses~~United policies, and ~~loss adjustment expenses reflected the continuation~~$10,990,000 of ~~reserve strengthening~~

~~in response to trends involving assignment of insurance benefits and related litigation. Compared with the corresponding~~prior period ~~in 2016, our losses and loss adjustment expenses were impacted by weather-related events including Hurricane Hermine.~~losses. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”

Policy Acquisition and Other Underwriting Expenses for the nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 were approximately ~~$29,645,000~~$80,949,000 and ~~$32,525,000,~~$69,574,000 on a consolidated basis, respectively. ~~The $2,880,000 decrease from the corresponding period in 2016 was primarily attributable to decreased commissions and premium taxes resulting from policy attrition and the effect of the rate decrease.~~

~~Salaries and Wages~~Policy acquisition expenses for HCPCI insurance operations were $48,429,000 for the nine months ended September 30, ~~2017 and 2016 were approximately $15,051,000 and $17,009,000, respectively. The $1,958,000 decrease from the corresponding period in 2016 was primarily attributable~~2022 compared to ~~the capitalization of approximately $1,360,000 of payroll costs related to a software development project for internal use and lower bonuses for senior management.~~

~~Loss on repurchases of Senior Notes~~$46,076,000 for the nine months ended September 30, ~~2017~~2021. The increase was ~~approximately $743,000, resulting~~due to amortization of increased costs associated with the policies assumed from United or any subsequent renewal or replacement of United policies. TypTap Group policy acquisition expenses were $32,633,000 versus $23,612,000 for the ~~early extinguishment~~same comparative period, with the increase attributable to amortization of ~~our 8% Senior Notes. See Note 8 — “Long-Term Debt” under 8% Senior Notes~~increased commission costs related to ~~our unaudited consolidated financial statements under Item 1~~the growth of ~~this Quarterly Report on Form10-Q.~~TypTap’s policies in force over the past 12 months and the policies assumed from United or any subsequent renewal or replacement of United policies.

~~Income Tax Benefit~~General and Administrative Personnel Expensesfor the nine months ended September 30, ~~2017~~2022 and 2021 were approximately $45,183,000 and $31,733,000, respectively. The period-over-period increase of $13,450,000 was ~~$13,587,000~~primarily attributable to an increase in the headcount of temporary and full-time employees, merit increases for non-executive employees effective in late February 2022, and higher stock-based compensation expense.

Interest Expense for the nine months ended September 30, 2022 and 2021 was approximately $4,929,000 and $5,743,000, respectively. The decrease primarily resulted from conversions of our 4.25% convertible senior notes during the second half of 2021, offset by interest expense related to our 4.75% convertible senior notes issued in May 2022.

Income Tax Benefit for the nine months ended September 30, 2022 was approximately $13,907,000 for state, federal, and foreign income taxes resulting in an effective tax rate of 19.5% for 2022. This compared with approximately $2,888,000 of income tax expense ~~of $16,542,000~~ for the nine months ended September 30, ~~2016,~~2021, resulting in an effective tax rate of ~~41.7%~~33.2% for ~~2017~~2021. The decrease in the effective tax rate was primarily attributable to a valuation

allowance established during the third quarter of 2022 and ~~40.4% for 2016.~~the recognition of tax benefits attributable to restricted stock that vested in February and May of 2022.

The loss ratio applicable to the nine months ended September 30, ~~2017~~2022 (losses and loss adjustment expenses incurred related to net premiums earned) was ~~84.3%~~83.7% compared with ~~44.0%~~59.7% for the nine months ended ~~June~~September 30, ~~2016.~~2021. The increase was primarily due to the increase in losses and loss adjustment expenses as further described above, ~~combined with the decrease~~offset in ~~net premiums earned which was driven in large~~ part by the increase in ~~ceded~~net premiums ~~due to the aforementioned adjustments.~~earned.

The expense ratio applicable to the nine months ended September 30, ~~2017~~2022 was ~~43.2%~~42.3% compared with ~~39.8%~~44.6% for the nine months ended September 30, ~~2016.~~2021. The ~~increase~~decrease in our expense ratio iswas primarily attributable to the ~~decrease~~increase in net premiums earned ~~as described above.~~and the decrease in debt conversion expense, offset in part by the increase in policy acquisition, underwriting and personnel expenses.

The combined ratio is the measure of overall underwriting profitability before other income. Our combined ratio for the nine months ended September 30, ~~2017~~2022 was ~~127.5%~~126.0% compared with ~~83.8%~~104.3% for the nine months ended September 30, ~~2016.~~2021. The increase in 2022 was attributable to the factors described above.

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

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

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

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

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

In the future, we anticipate our primary use of funds will be to pay claims, reinsurance premiums, interest, and dividends and to fund operating ~~expenses. In addition, we intend to continue investing in~~expenses and real estate ~~to maximize returns and diversify our sources of income, pursue acquisition opportunities, or consider other strategic opportunities.~~acquisitions.

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

The following table summarizes ~~our long-term debt’s~~the principal and interest payment obligations of our indebtedness at September 30, ~~2017:~~2022:

See Note ~~8 —~~10 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form~~10-Q~~ ~~for additional information.~~

Our limited partnership investments consist of four private equity funds managed by their general partners. 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. At September 30, 2017, there was an aggregate unfunded capital balance of $15,931,000. See~~Limited Partnership Investments~~ ~~under Note 4 — “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form10-Q~~ ~~for additional information.~~

In ~~December 2016, our~~March 2022, the Board ~~of Directors~~ approved a~~one-year~~ plan to repurchase up to $20,000,000 of common shares during 2022 under which we may purchase shares of common stock in open market purchases, block transactions and privately negotiated transactions in accordance with applicable federal securities laws. At September 30, ~~2017,~~2022, there was approximately ~~$13,818,000~~$11,941,000 available under the plan. See Note ~~14 — “Stockholders’ Equity”~~18 -- “Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form~~10-Q.~~ 10-Q for more information.

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 four of the remaining funds have expired, the general partners may request additional funds under certain circumstances. At September 30, 2022, there was an aggregate unfunded capital balance of $6,262,000. See Limited Partnership Investments under Note 4 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

~~We may contemplate the acquisition of land for future development through one~~Real estate has long been a significant component of our ~~existing joint ventures. Although~~overall investment portfolio. It diversifies our portfolio and helps offset the volatility of other higher-risk investments. Thus, we ~~have no outstanding commitment to fund any future project and we expect to finance future development projects with cash from~~may consider increasing our real estate ~~operations and through property financings, we may be required to make additional capital contributions when warranted.~~investment portfolio should an opportunity arise.

In October 2017, we used approximately $9,215,000, including acquisition-related costs, to purchase commercial real estate in Tampa, Florida. In addition, we completed our development project in Riverview, Florida in July 2017. We currently have ~~the option to acquire the joint venture partner’s~~a 90% equity interest in ~~this project.~~FMKT Mel JV, LLC, a Florida limited liability company for which we are not the primary beneficiary. In June 2022, FMKT Mel JV sold its last outparcel and recognized a net gain of $572,000. FMKT Mel JV distributed its earnings during the third quarter of 2022 and is expected to be liquidated by December 31, 2022.

Net cash used in operating activities for the nine months ended September 30, ~~2017~~2022 was approximately $18,261,000, which consisted primarily of cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments less cash received from net premiums written and reinsurance recoveries (of approximately $34,222,000). Net cash used in investing activities of $311,352,000 was primarily due to the purchases of fixed-maturity and equity securities of $414,066,000, the purchases of property and equipment of $5,431,000, and the purchase of intangible assets from United of $3,800,000, offset by the proceeds from calls, repayments and maturities of fixed-maturity securities of $52,023,000, the proceeds from sales of fixed-maturity and equity securities of $41,010,000, $14,500,000 of compensation received for the property relinquished through eminent domain, and distributions received from limited partnership investments of $4,732,000. Net cash provided by financing activities totaled $56,955,000, which was primarily due to the proceeds from issuance of 4.75% Convertible Senior Notes of $172,500,000, offset by $76,166,000 of share repurchases, net repayment of our revolving credit facility of $15,000,000, $11,697,000 of net cash dividend payments, debt issuance costs paid of $6,014,000, cash dividends paid to redeemable noncontrolling interest of $5,508,000, and repayments of long-term debt of $754,000.

Net cash provided by operating activities for the nine months ended September 30, ~~2017~~2021 was approximately ~~$51,393,000,~~$48,671,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately $38,484,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash ~~used in~~provided by investing activities of ~~$90,959,000~~$35,087,000 was primarily due to the ~~purchases~~proceeds from sales of~~available-for-sale~~ fixed-maturity and ~~trading~~equity securities of ~~$141,277,000,~~$100,130,000, the proceeds from calls, repayments and maturities of fixed-maturity securities of $16,734,000, and distributions received from limited partnership investments of ~~$2,623,000, and the real estate investments of $2,095,000,~~$3,635,000, offset by the ~~proceeds from sales~~purchases of~~available-for-sale~~ fixed-maturity and equity securities of ~~$35,367,000, the distributions of $11,758,000 from limited partnership investments~~$83,211,000, and the ~~redemptions~~purchases of property and ~~repayments~~equipment of ~~fixed-maturity securities of $8,786,000.~~$2,583,000. Net cash provided by financing activities totaled ~~$51,442,000,~~$54,077,000, which ~~was primarily due to the~~consisted of net proceeds of $93,738,000 from ~~issuance of 4.25% Convertible Senior Notes of $143,750,000,~~Centerbridge for investment in TTIG, offset by $40,250,000 used in the repurchases of our 8% senior notes, $4,975,000 of related underwriting and issuance costs, $36,825,000 used in our share repurchases and $9,724,000 of net cash dividend payments.

Net cash provided by operating activities for the nine months ended September 30, 2016 was approximately $91,893,000, which consisted primarily of cash received from net premiums written less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $46,875,000 was primarily due to the purchases of~~available-for-sale~~ ~~securities of $92,491,000, and the limited partnership investments of $4,670,000, offset by the proceeds from sales ofavailable-for-sale~~ securities of $51,570,000. Net cash used in financing activities totaled $20,868,000, which was primarily due to $11,347,000 used in the repurchases of our convertible senior notes, $18,023,000 used in our share repurchase plan and $8,807,000$9,713,000 of net cash dividend payments, ~~offset by $18,200,000~~net repayment of our revolving credit facility of $23,750,000, and $1,308,000 used in ~~aggregate proceeds from the issuance of two promissory notes.~~share repurchases.

The main objective of our investment policy is to maximize ourafter-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 ~~investments that are classified as available for sale or trading.~~fixed-maturity and equity securities.

At September 30, ~~2017,~~2022, we had ~~$320,128,000~~$394,585,000 of~~available-for-sale~~ fixed-maturity and ~~trading~~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.

With the exception of large national banks, it is our current policy not to maintain cash deposits of more than an aggregate of $10,000,000 in any one bank at any time. From time to time, we may have in excess of $10,000,000 of cash designated for investment and on deposit at a single national brokerage firm. In the future, we may alter our investment policy as to investments in federal, state and municipal obligations, preferred and common equity securities and real estate mortgages, as permitted by applicable law, including insurance regulations.

As of September 30, ~~2017,~~2022, we had unexpired capital commitments for ~~four~~ limited partnerships in which we hold interests. Such commitments are not recognized in the financial statements but are required to be disclosed in the notes to the financial statements. See Note ~~16 —~~20 -- “Commitments and Contingencies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form10-Q ~~and Contractual Obligations and Commitment below~~ for additional information.

~~The following table summarizes our material contractual obligations and commitments as of September 30, 2017 (amounts in thousands):~~

We have prepared our consolidated financial statements ~~and related disclosures~~ in accordance with accounting principles generally accepted in the United States of ~~America.~~America (“U.S. GAAP”). The preparation of these consolidated financial statements ~~and related disclosures~~ requires us to make ~~judgments, assumptions~~estimates and ~~estimates~~judgments to develop amounts reflected and disclosed in our ~~consolidated~~ financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. Actual results may differ from these estimates and such differences may be material.

We believe our critical accounting policies and estimates are those related to losses and loss adjustment expenses, amounts receivable with respect to reinsurers, reinsurance with retrospective provisions, deferred income taxes, and stock-based compensation expense. These policies are critical to the portrayal of our financial condition and operating results. They require management to make judgments and estimates about inherently uncertain matters. Material estimates that are particularly susceptible to significant change in the near term are related to our losses and loss adjustment ~~expense reserves,~~expenses, which include amounts estimated for claims incurred but not yet ~~reported,~~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, ~~balance and~~ reinsurance ~~contracts~~ with retrospective ~~provisions.~~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.

Our ~~gross~~ liability for losses and loss adjustment expense (“Reserves”) is specific to property insurance, which is our insurance ~~division’s~~subsidiaries’ only line of business. The Reserves include both case reserves on reported claims and our reserves for incurred but not reported (“IBNR”) losses. At each

period end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are adjusted.

The IBNR represents our estimate of the ultimate cost of all claims that have occurred but have not been reported to us, and in some cases may not yet be known to the insured, and future development of reported claims. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At September 30, ~~2017, $213,825,000~~2022, $1,109,823,000 of the total ~~$344,672,000~~$1,201,842,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining ~~$130,847,000~~$92,019,000 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, ~~2017, $16,688,000~~2022, $39,773,000 of the ~~$130,847,000~~$92,019,000 in reserves for known cases relates to claims incurred during prior years.

Our Reserves increased from ~~$70,492,000~~$237,165,000 at December 31, ~~2016~~2021 to ~~$344,672,000~~$1,201,842,000 at September 30, ~~2017.~~2022. The ~~$274,180,000~~$964,677,000 increase ~~in our Reserves~~ is comprised of ~~$297,047,000~~$1,078,310,000 in reserves ~~related to claims occurring in~~established for the ~~2017~~2022 loss year, offset by reductions in our Reserves of ~~$13,765,000~~$30,787,000 specific to Hurricane Irma, Hurricane Michael, Hurricane Sally and Tropical Storm Eta, and reductions in our non-catastrophe Reserves of $59,085,000 for ~~2016~~2021 and ~~$9,102,000~~$23,761,000 for ~~2015~~2020 and prior loss years. The ~~$297,047,000 in~~ Reserves established for ~~2017~~2022 claims is primarily driven by ~~losses from Hurricane Irma, an allowance for subsequent development of claims reported for the accident year, and~~ an allowance for those claims that have been incurred but not reported to the company as of September 30, ~~2017.~~2022. The decrease of ~~$22,867,000~~$82,846,000 specific to our ~~2016~~2021 and prior loss-year reserves is ~~primarily~~ due to settlement of claims related to those loss years.

Based on all information known to us, we consider our Reserves at September 30, ~~2017~~2022 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made, and the liabilities may deviate substantially from prior estimates.

Our reinsurance recoverable balance represents an estimate of the amount of paid and unpaid losses and loss adjustment expenses that is recoverable from reinsurers. These estimates are determined in a manner consistent with the terms of the applicable reinsurance contracts and based on the ultimate losses and loss adjustment expenses we expect to incur. Given the uncertainty of the ultimate amounts of losses and loss adjustment expenses, the estimates may vary significantly from the eventual outcome.

~~Certain of~~From time to time, our reinsurance contracts may include retrospective provisions that adjust premiums ~~increase the amount of future coverage, or result in a profit commission~~ 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 ~~gives rise to an increase in future coverage or~~ 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.

~~As described in Note 9 — “Reinsurance”~~Due to ~~our unaudited consolidated financial statements under Item 1~~Hurricane Ian, the balance of ~~this Quarterly Report on Form10-Q,~~ ~~we adjusted the balances of~~previously accrued benefits ~~and deferred~~under one multi-year reinsurance ~~premiums~~contract with retrospective provisions was decreased by $12,600,000 during the third quarter of ~~2017 due to the impact of Hurricane Irma.~~2022. For the three months ended September 30, 2017, we derecognized $9,300,000 of net accrued benefits. For the three months ended September 30, 2017, we recognized $3,163,000 in ceded premiums, including the reversal of the majority of reinsurance costs deferred in prior periods. In contrast, for the three months ended September 30, 2016,2022 and 2021, we accrued benefits of $2,490,000. For the three months ended September 30, 2016, we deferred recognition of $937,000 in ceded premiums. In combination, for the three months ended September 30, 2017, we recognized a net increase in ceded premiums of $12,464,000 as opposed to a net reduction in ceded premiums of $3,428,000 for the three months ended September 30, 2016.

$3,843,000 and $1,364,000, respectively. For the nine months ended September 30, 2017, we derecognized $3,841,000 of net accrued benefits. For the nine months ended September 30, 2017, we recognized ceded premiums of $1,667,000, including the reversal of the majority of previously deferred reinsurance costs. By comparison,2022 and 2021, we accrued benefits of ~~$11,120,000 for the nine months ended September 30, 2016. For the nine months ended September 30, 2016, we~~$11,717,000 and $9,619,000, respectively. The accrual of benefits was recognized net ceded premiums of $1,871,000, representing amortization of $3,085,000 of previously deferred reinsurance costs for increased coverage offset by $1,214,000 of ceded premiums deferred for the period. In combination, for the nine months ended September 30, 2017, we recognizedas a ~~net increase in ceded premiums of $5,508,000 as opposed to a net~~ reduction in ceded premiums of $9,250,000 for the nine months ended September 30, 2016. In June 2016, we received cash totaling $37,800,000 in connection with the benefits accrued for two retrospective reinsurance contracts that were terminated effective May 31, 2016. In September 2016, we received a cash payment of $5,716,000 under the terms of one retrospective reinsurance contract which terminated May 31, 2016.premiums.

As of September 30, ~~2017,~~2022, we had ~~$1,969,000~~$14,781,000 of accrued benefits, ~~and $484,000 of ceded premiums deferred, amounts~~the amount that would be charged to earnings in the event we experience a catastrophic loss that exceeds the coverage ~~limits~~limit provided under such agreements and in the period that the increased coverage is applicable. At December 31, 2016, we had $5,810,000 of accrued benefits and $2,152,000 of ceded premiums deferred related to these agreements.agreement.

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

The above and other accounting estimates and their related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form10-K, which we filed with the SEC on ~~February 22, 2017.~~March 10, 2022. For the nine months ended September 30, ~~2017,~~2022, there have been no other material changes with respect to any of our critical accounting policies.

~~For information with respect to~~There have been no recent accounting pronouncements ~~and~~or changes in recent accounting pronouncements during the ~~impact~~nine months ended September 30, 2022, as compared to those described in our Annual Report on Form

10-K for the fiscal year ended December 31, 2021, that are of ~~these pronouncements on our consolidated financial statements, see Note 3~~significance, or potential significance, to ~~our Notes to Consolidated Financial Statements.~~

Our investment ~~portfolio~~portfolios at September 30, ~~2017~~2022 included fixed-maturity and equity securities, the ~~primary~~ purposes of which are not for ~~value preservation.~~speculation. Our main objective is to maximizeafter-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~~Board of ~~directors.~~Directors. From time to time, our investment committee may decide to invest in low risk assets such as U.S. government bonds.

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

We classify our fixed-maturity securities ~~and the majority of equity securities~~ asavailable-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.

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, ~~2017~~2022 (amounts in thousands):

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.

The following table presents the composition of our fixed-maturity securities, by rating, at September 30, ~~2017~~2022 (amounts in thousands):

Our equity investment portfolio at September 30, ~~2017~~2022 included common stocks, perpetual preferred stocks, mutual funds and ~~exchange traded~~exchange-traded funds. We may incur losses due to adverse changes in equity security prices. We manage the risk primarily through industry and issuer diversification and asset mix.

The following table illustrates the composition of our equity securities at September 30, ~~2017~~2022 (amounts in thousands):

At September 30, ~~2017,~~2022, we did not have any material exposure to foreign currency related risk.

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.

There have been no changes in our internal controls over financial reporting during the quarter ended September 30, ~~2017~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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

There have been no material changes ~~from~~in the risk factors previously disclosed in the section entitled “Risk Factors” in our Form10-K, which was filed with the SEC on ~~February 22, 2017.~~

All information related to sales of unregistered securities ~~had~~have been reported in ~~a current report~~Current Report on Form~~8-K.~~ 8-K filings.

The table below summarizes the number of common shares repurchased ~~during~~under the ~~three months ended September 30, 2017 under a share~~2022 repurchase plan approved by our Board of Directors (dollar amounts in thousands, except share and per share amounts):

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

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

Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the Florida Office of Insurance Regulation (1) if the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire

net operating profits and realized net capital gains derived during the immediately preceding calendar year, (2) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (3) the insurer files a notice of the dividend or distribution with the Florida Office of Insurance Regulation at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the Florida Office of Insurance Regulation or (2) 30 days after the Florida Office of Insurance Regulation has received notice of such dividend or distribution and has not disapproved it within such time.

During the nine months ended September 30, ~~2017, HCPCI~~2022, our insurance subsidiaries paid ~~a $18,000,000 dividend~~dividends of $12,000,000 to HCI.

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

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.


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


			Page
			~~Page~~
	PART I – FINANCIAL INFORMATION
~~Item 1~~	~~Financial Statements~~
Item 1	Financial Statements
	Consolidated Balance Sheets:
	September 30, ~~2017~~2022 (unaudited) and December 31, ~~2016~~2021			1-2
	Consolidated Statements of Income:
	Three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)			3
	Consolidated Statements of Comprehensive Income:
	Three and nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)			4
	Consolidated Statements of Equity:
	Three and nine months ended September 30, 2022 and 2021 (unaudited)		5-8
	Consolidated Statements of Cash Flows:
	Nine months ended September 30, ~~2017~~2022 and ~~2016~~2021 (unaudited)			~~5-6~~	9-11
	~~Consolidated Statements of Stockholders’ Equity:~~ ~~Nine months ended September 30, 2017 and 2016 (unaudited)~~			~~7-8~~
	Notes to Consolidated Financial Statements (unaudited)			~~9-44~~
		12-48

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations			~~45-60~~
		49-64

Item 3	Quantitative and Qualitative Disclosures ~~about~~About Market Risk			~~61-62~~
		65-66

Item 4	Controls and Procedures			63	67


	PART II – OTHER INFORMATION

~~Item 1~~	~~Legal Proceedings~~			63

Item 1A1	~~Risk Factors~~Legal Proceedings			63
		68

Item 1A	Risk Factors		68

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds			~~64-65~~
		68-69
~~Item 3~~	~~Defaults upon Senior Securities~~			65

Item 3	Defaults Upon Senior Securities		69

Item 4	Mine Safety Disclosures			65
		69
~~Item 5~~	~~Other Information~~			65

Item 65	~~Exhibits~~Other Information			66
		69
~~Signatures~~
~~Certifications~~Item 6	Exhibits		70-77

Signatures			78

Certifications


	September 30, 2017		December 31, 2016
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $253,162 and $167,231, respectively)	$	256,102	$	166,248
Equity securities, available for sale, at fair value (cost: $58,242 and $47,750, respectively)		63,023		53,035
Equity securities, trading, at fair value (cost: $929 and $0, respectively)		1,003		—
Limited partnership investments, at equity		20,998		29,263
Investment in unconsolidated joint venture, at equity		1,664		2,102
Real estate investments (Note 4 – Consolidated Variable Interest Entity)		48,961		48,086

Total investments		391,751		298,734
Cash and cash equivalents (Note 4 – Consolidated Variable Interest Entity)		292,438		280,531
Accrued interest and dividends receivable		2,241		1,654
Income taxes receivable		24,081		2,811
Premiums receivable		27,179		17,276
Prepaid reinsurance premiums		28,352		24,554
Reinsurance recoverable:
Paid losses and loss adjustment expenses		17		—
Unpaid losses and loss adjustment expenses		213,729		—
Deferred policy acquisition costs		21,150		16,639
Property and equipment, net		12,356		11,374
Intangible assets, net		4,498		4,899
Deferred income taxes, net		—		250
Other assets (Note 4 – Consolidated Variable Interest Entity)		11,461		11,342

Total assets	$	1,029,253	$	670,064


		(continued)


	September 30,		December 31,
	2022		2021
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $371,877 and $41,953, respectively and allowance for credit losses: $0 and $0, respectively)	$	360,639	$	42,583
Equity securities, at fair value (cost: $36,639 and $46,276, respectively)		33,946		51,740
Limited partnership investments		25,405		28,133
Investment in unconsolidated joint venture, at equity		18		363
Real estate investments		71,500		73,896
Total investments		491,508		196,715
Cash and cash equivalents		355,699		628,943
Restricted cash		2,900		2,400
Accrued interest and dividends receivable		2,032		353
Income taxes receivable		8,134		4,084
Premiums receivable, net (allowance: $4,573 and $1,750, respectively)		51,762		68,157
Prepaid reinsurance premiums		104,539		26,355
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)		14,592		11,985
Unpaid losses and loss adjustment expenses (allowance: $451 and $90, respectively)		938,404		64,665
Deferred policy acquisition costs		48,258		57,695
Property and equipment, net		17,749		14,232
Right-of-use assets - operating leases		1,597		2,204
Intangible assets, net		13,651		10,636
Funds withheld for assumed business		67,313		73,716
Other assets		26,605		14,717
Total assets	$	2,144,743	$	1,176,857

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

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


													Three Months Ended						Nine Months Ended
	Three Months Ended September 30,						Nine Months Ended September 30,						September 30,						September 30,
	2017			2016			2017			2016			2022			2021			2022			2021
Revenue
Gross premiums earned	$	88,669		$	92,542		$	270,376		$	286,273		$	181,713		$	149,809		$	541,762		$	420,191
Premiums ceded		(44,705	)		(29,242	)		(101,529	)		(105,998	)		(74,741	)		(55,577	)		(184,108	)		(145,112	)

Net premiums earned		43,964			63,300			168,847			180,275			106,972			94,232			357,654			275,079
Net investment income		2,878			2,785			8,522			6,000			18,530			2,520			25,082			9,749
Net realized and unrealized investment (losses) gains		(152	)		583			2,350			899
Net other-than-temporary impairment losses recognized in income:
Total other-than-temporary impairment losses		(474	)		(575	)		(864	)		(1,211	)
Portion of loss recognized in other comprehensive income, before taxes		—			351			—			(230	)

Net other-than-temporary impairment losses		(474	)		(224	)		(864	)		(1,441	)
Net realized investment (losses) gains														(884	)		1,232			(1,204	)		4,952
Net unrealized investment losses														(347	)		(1,869	)		(8,157	)		(649	)
Policy fee income		905			972			2,721			2,967			1,071			1,000			3,180			2,962
Gain on repurchases of convertible senior notes		—			—			—			153
Gain on bargain purchase		—			2,071			—			2,071
Other		369			321			1,207			1,151			1,312			2,102			3,065			3,502

Total revenue		47,490			69,808			182,783			192,075			126,654			99,217			379,620			295,595

Expenses
Losses and loss adjustment expenses		89,231			25,909			142,425			79,261			139,794			62,664			299,328			164,332
Policy acquisition and other underwriting expenses		9,926			10,536			29,645			32,525			24,678			23,340			80,949			69,574
Salaries and wages		4,605			5,945			15,051			17,009
General and administrative personnel expenses														15,848			11,537			45,183			31,733
Interest expense		4,408			2,672			12,328			8,112			2,813			1,664			4,929			5,743
Loss on repurchases of senior notes		—			—			743			—
Debt conversion expense														—			1,273			—			1,273
Other operating expenses		5,338			4,717			15,162			14,213			7,123			5,243			20,392			14,245

Total operating expenses		113,508			49,779			215,354			151,120

Total expenses														190,256			105,721			450,781			286,900
(Loss) income before income taxes		(66,018	)		20,029			(32,571	)		40,955			(63,602	)		(6,504	)		(71,161	)		8,695
Income tax (benefit) expense		(25,472	)		8,696			(13,587	)		16,542			(12,099	)		(1,636	)		(13,907	)		2,888

Net (loss) income	$	(40,546	)	$	11,333		$	(18,984	)	$	24,413			(51,503	)		(4,868	)		(57,254	)		5,807

Net income attributable to redeemable noncontrolling interest (Note 17)														(2,285	)		(2,202	)		(6,801	)		(5,175	)
Net loss attributable to noncontrolling interests														2,829			833			4,018			1,196
Net (loss) income after noncontrolling interests													$	(50,959	)	$	(6,237	)	$	(60,037	)	$	1,828
Basic (loss) earnings per share	$	(4.44	)	$	1.17		$	(2.05	)	$	2.48		$	(5.66	)	$	(0.72	)	$	(6.26	)	$	0.23

Diluted (loss) earnings per share	$	(4.44	)	$	1.10		$	(2.05	)	$	2.41		$	(5.66	)	$	(0.72	)	$	(6.26	)	$	0.22

Dividends per share	$	0.35		$	0.30		$	1.05		$	0.90


	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Loss,			Total Stockholders’			Noncontrolling			Total
	Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity
Balance at 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 noncontrolling interest		—			—		—			(2,113	)		—			(2,113	)		(172	)		(2,285	)
Total other comprehensive loss, net of income taxes		—			—		—			—			(7,035	)		(7,035	)		(266	)		(7,301	)
Forfeiture of restricted stock		(1,665	)		—		—			—			—			—			—			—
Repurchase and retirement of common stock under share repurchase plan		(119,462	)		—		(6,179	)		—			—			(6,179	)		—			(6,179	)
Dilution from subsidiary stock-based compensation		—			—		—			—			—			—			852			852
Common stock dividends ($0.40 per share)		—			—		—			(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


	Amortized Cost		Estimated Fair Value
*As of September 30, 2017*
Available-for-sale
Due in one year or less	$	30,082	$	30,115
Due after one year through five years		127,627		127,444
Due after five years through ten years		66,146		67,853
Due after ten years		29,307		30,690

	$	253,162	$	256,102


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended September 30, 2017
Fixed-maturity securities	$	2,765	$	97	$	(23	)

Equity securities	$	4,827	$	223	$	(525	)

Three months ended September 30, 2016
Fixed-maturity securities	$	3,891	$	196	$	—

Equity securities	$	5,000	$	491	$	(104	)

Nine months ended September 30, 2017
Fixed-maturity securities	$	9,638	$	126	$	(45	)

Equity securities	$	25,729	$	3,058	$	(865	)

Nine months ended September 30, 2016
Fixed-maturity securities	$	37,415	$	579	$	—

Equity securities	$	14,155	$	850	$	(530	)


	Less Than Twelve Months					Twelve Months or Longer					Total
As of September 30, 2017	Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	(112	)	$	45,344	$	—		$	—	$	(112	)	$	45,344
Corporate bonds		(530	)		49,789		(281	)		15,346		(811	)		65,135
State, municipalities, and political subdivisions		(29	)		4,332		(54	)		3,889		(83	)		8,221
Exchange-traded debt		(209	)		3,189		(2	)		80		(211	)		3,269
Redeemable preferred stock		(5	)		45		—			—		(5	)		45

Total fixed-maturity securities		(885	)		102,699		(337	)		19,315		(1,222	)		122,014
Equity securities		(545	)		11,154		(35	)		1,260		(580	)		12,414

Totalavailable-for-sale securities	$	(1,430	)	$	113,853	$	(372	)	$	20,575	$	(1,802	)	$	134,428


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended September 30, 2017
Equity securities	$	580	$	12	$	(10	)

Nine months ended September 30, 2017
Equity securities	$	580	$	12	$	(10	)


	September 30, 2017						December 31, 2016
Investment Strategy	Carrying Value		Unfunded Balance		(%)(a)		Carrying Value		Unfunded Balance		(%)(a)
Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e)	$	7,134	$	5,505		15.37	$	6,246	$	6,428		16.50
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)		7,630		1,746		1.76		7,358		1,360		1.76
Maximum long-term capital appreciation through long and short positions in equity and/or debt securities of publicly traded U.S. andnon-U.S. issuers, derivative instruments and certain other financial instruments. (f)		—		—		—		11,333		—		66.58
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(g)(h)		6,148		3,766		0.18		4,326		5,766		0.18
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(i)(j)		86		4,914		0.62		—		—		—

Total	$	20,998	$	15,931			$	29,263	$	13,554


	September 30, 2017		December 31, 2016
Balance Sheet:
Construction in progress - real estate	$	375	$	334
Property and equipment, net		1,213		1,654
Cash		110		179
Other		180		180

Total assets	$	1,878	$	2,347

Accounts payable	$	15	$	11
Other liabilities		14		—
Members’ capital		1,849		2,336

Total liabilities and members’ capital	$	1,878	$	2,347

Investment in unconsolidated joint venture, at equity*	$	1,664	$	2,102


	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016
	Before Tax		Income Tax Expense (Benefit)		Net of Tax		Before Tax			Income Tax Expense (Benefit)			Net of Tax
Unrealized gain arising during the period	$	2,155	$	831	$	1,324	$	2,234		$	862		$	1,372
Other-than-temporary impairment loss		474		183		291		224			86			138
Call and repayment losses charged to investment income		—		—		—		3			1			2
Reclassification adjustment for realized losses (gains)		226		87		139		(583	)		(225	)		(358	)

Total other comprehensive income	$	2,855	$	1,101	$	1,754	$	1,878		$	724		$	1,154


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


	September 30, 2017			December 31, 2016
8% Senior Notes, redeemed in April 2017	$	—		$	40,250
3.875% Convertible Senior Notes, due March 15, 2019		89,990			89,990
4.25% Convertible Senior Notes, due March 1, 2037		143,750			—
3.95% Promissory note, due through February 17, 2020		9,417			—
4% Promissory note, due through February 1, 2031		8,468			8,821
3.75% Promissory note, due through September 1, 2036		8,692			8,924

Total principal amount		260,317			147,985
Less: unamortized discount and issuance costs		(24,006	)		(9,122	)

Total long-term debt	$	236,311		$	138,863


Due in 12 months following September 30,
2022	$	1,036
2023		1,065
2024		1,106
2025		1,151
2026		197,615
Thereafter		15,622
Total	$	217,595


Due in 12 months following September 30,
2017	$	1,039
2018		91,070
2019		9,815
2020		906
2021		144,693
Thereafter		12,794

Total	$	260,317


~~Convertible Senior Notes~~		~~Interest Payment Terms~~
~~3.875% Convertible Notes, due March 15, 2019~~		~~Semiannually in arrears: March 15 and September 15~~
~~4.25% Convertible Notes, due March 1, 2037~~		~~Semiannually in arrears: March 1 and September 1~~


	September 30, 2017			December 31 2016
Principal amount	$	233,740		$	89,990
Unamortized discount		(18,790	)		(6,795	)

Liability component – net carrying value before issuance costs	$	214,950		$	83,195

Equity component – conversion, net of offering costs	$	31,051		$	15,900


Three Months Ended September 30, 2016	Insurance Operations			Corporate/ Other(a)			Reclassification/ Elimination			Consolidated
Revenue:
Net premiums earned	$	63,300		$	—		$	—		$	63,300
Net investment income		2,316			989			(520	)		2,785
Net realized investment gains		532			51			—			583
Net other-than-temporary impairment losses		(225	)		1			—			(224	)
Policy fee income		972			—			—			972
Gain on bargain purchase		—			2,071			—			2,071
Other		106			2,001			(1,786	)		321

Total revenue		67,001			5,113			(2,306	)		69,808

Expenses:
Losses and loss adjustment expenses		25,909			—			—			25,909
Amortization of deferred policy acquisition costs		9,335			—			—			9,335
Interest expense		—			2,672			—			2,672
Depreciation and amortization		31			419			(147	)		303
Other		8,426			5,293			(2,159	)		11,560

Total expenses		43,701			8,384			(2,306	)		49,779

Income before income taxes	$	23,300		$	(3,271	)	$	—		$	20,029


Nine Months Ended September 30, 2016	Insurance Operations			Corporate/ Other(a)			Reclassification/ Elimination			Consolidated
Revenue:
Net premiums earned	$	180,275		$	—		$	—		$	180,275
Net investment income		5,802			876			(678	)		6,000
Net realized investment gains		856			43			—			899
Net other-than-temporary impairment losses		(1,426	)		(15	)		—			(1,441	)
Policy fee income		2,967			—			—			2,967
Gain on repurchases of convertible senior notes		—			153			—			153
Gain on bargain purchase		—			2,071			—			2,071
Other		543			5,808			(5,200	)		1,151

Total revenue		189,017			8,936			(5,878	)		192,075

Expenses:
Losses and loss adjustment expenses		79,261			—			—			79,261
Amortization of deferred policy acquisition costs		28,674			—			—			28,674
Interest expense		—			8,112			—			8,112
Depreciation and amortization		131			1,191			(335	)		987
Other		25,159			14,470			(5,543	)		34,086

Total expenses		133,225			23,773			(5,878	)		151,120

Income before income taxes	$	55,792		$	(14,837	)	$	—		$	40,955


	September 30, 2017			December 31, 2016
Segment:
Insurance Operations	$	871,601		$	651,927
Corporate and Other		213,299			116,849
Consolidation and Elimination		(55,647	)		(98,712	)

Total assets	$	1,029,253		$	670,064


	Three Months Ended September 30, 2017								Three Months Ended September 30, 2016
	Loss (Numerator)			Shares (Denominator)		Per Share Amount			Income (Numerator)			Shares (Denominator)		Per Share Amount
Net (loss) income	$	(40,546	)						$	11,333
Less: Loss (income) attributable to participating securities		2,737								(557	)

Basic (Loss) Earnings Per Share:
(Loss) income allocated to common stockholders		(37,809	)		8,519	$	(4.44	)		10,776			9,209	$	1.17

Effect of Dilutive Securities:
Stock options*		—			—					—			62
Convertible senior notes*		—			—					1,028			1,447

Diluted (Loss) Earnings Per Share:
(Loss) income available to common stockholders and assumed conversions	$	(37,809	)		8,519	$	(4.44	)	$	11,804			10,718	$	1.10


		Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2017			50,000		$	4.02		2.3 years	$	1,773
Granted	��		110,000		$	40.00

Outstanding at March 31, 2017			160,000		$	28.76		7.4 years	$	2,591
Exercised			(30,000	)	$	2.50

Outstanding at June 30, 2017			130,000		$	34.82		8.7 years	$	1,675

Outstanding at September 30, 2017			130,000		$	34.82		8.5 years	$	639

Exercisable at September 30, 2017			20,000		$	6.30		3.9 years	$	639

Outstanding at January 1, 2016			110,000		$	3.19		2.3 years	$	3,482
Outstanding at March 31, 2016			110,000		$	3.19		2.1 years	$	3,312

Outstanding at June 30, 2016			110,000		$	3.19		1.8 years	$	2,650

Outstanding at September 30, 2016			110,000		$	3.19		1.6 years	$	2,989

Exercisable at September 30, 2016			110,000		$	3.19		1.6 years	$	2,989


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


Due in 12 months following September 30,
2017*	$	21,971
2018*		2,571
2019*		1,929

Total	$	26,471


													Three Months Ended						Nine Months Ended
	Three Months Ended September 30,						Nine Months Ended September 30,						September 30,						September 30,
	2017			2016			2017			2016			2022			2021			2022			2021
Revenue
Gross premiums earned	$	88,669		$	92,542		$	270,376		$	286,273		$	181,713		$	149,809		$	541,762		$	420,191
Premiums ceded		(44,705	)		(29,242	)		(101,529	)		(105,998	)		(74,741	)		(55,577	)		(184,108	)		(145,112	)

Net premiums earned		43,964			63,300			168,847			180,275			106,972			94,232			357,654			275,079
Net investment income		2,878			2,785			8,522			6,000			18,530			2,520			25,082			9,749
Net realized and unrealized investment (losses) gains		(152	)		583			2,350			899
Net other-than-temporary impairment losses recognized in income:
Total other-than-temporary impairment losses		(474	)		(575	)		(864	)		(1,211	)
Portion of loss recognized in other comprehensive income, before taxes		—			351			—			(230	)

Net other-than-temporary impairment losses		(474	)		(224	)		(864	)		(1,441	)
Net realized investment (losses) gains														(884	)		1,232			(1,204	)		4,952
Net unrealized investment losses														(347	)		(1,869	)		(8,157	)		(649	)
Policy fee income		905			972			2,721			2,967			1,071			1,000			3,180			2,962
Gain on repurchases of convertible senior notes		—			—			—			153
Gain on bargain purchase		—			2,071			—			2,071
Other income		369			321			1,207			1,151			1,312			2,102			3,065			3,502

Total revenue		47,490			69,808			182,783			192,075			126,654			99,217			379,620			295,595

Expenses
Losses and loss adjustment expenses		89,231			25,909			142,425			79,261			139,794			62,664			299,328			164,332
Policy acquisition and other underwriting expenses		9,926			10,536			29,645			32,525			24,678			23,340			80,949			69,574
Salaries and wages		4,605			5,945			15,051			17,009
General and administrative personnel expenses														15,848			11,537			45,183			31,733
Interest expense		4,408			2,672			12,328			8,112			2,813			1,664			4,929			5,743
Loss on repurchases of senior notes		—			—			743			—
Debt conversion expense														—			1,273			—			1,273
Other operating expenses		5,338			4,717			15,162			14,213			7,123			5,243			20,392			14,245

Total operating expenses		113,508			49,779			215,354			151,120

Total expenses														190,256			105,721			450,781			286,900
(Loss) income before income taxes		(66,018	)		20,029			(32,571	)		40,955			(63,602	)		(6,504	)		(71,161	)		8,695
Income tax (benefit) expense		(25,472	)		8,696			(13,587	)		16,542			(12,099	)		(1,636	)		(13,907	)		2,888

Net (loss) income	$	(40,546	)	$	11,333		$	(18,984	)	$	24,413			(51,503	)		(4,868	)		(57,254	)		5,807

Net loss (income) attributable to noncontrolling interests														544			(1,369	)		(2,783	)		(3,979	)
Net (loss) income after noncontrolling interests													$	(50,959	)	$	(6,237	)	$	(60,037	)	$	1,828
Ratios to Net Premiums Earned:
Loss Ratio		202.96	%		40.93	%		84.35	%		43.97	%		130.68	%		66.50	%		83.69	%		59.74	%
Expense Ratio		55.22	%		37.71	%		43.19	%		39.86	%		47.18	%		45.69	%		42.35	%		44.56	%

Combined Ratio		258.18	%		78.64	%		127.54	%		83.83	%		177.86	%		112.19	%		126.04	%		104.30	%

Ratios to Gross Premiums Earned:
Loss Ratio		100.63	%		28.00	%		52.68	%		27.69	%		76.93	%		41.83	%		55.25	%		39.11	%
Expense Ratio		27.38	%		25.79	%		26.97	%		25.10	%		27.77	%		28.74	%		27.96	%		29.17	%

Combined Ratio		128.01	%		53.79	%		79.65	%		52.79	%		104.70	%		70.57	%		83.21	%		68.28	%

(Loss) Earnings Per Share Data:
Basic	$	(4.44	)	$	1.17		$	(2.05	)	$	2.48		$	(5.66	)	$	(0.72	)	$	(6.26	)	$	0.23

Diluted	$	(4.44	)	$	1.10		$	(2.05	)	$	2.41		$	(5.66	)	$	(0.72	)	$	(6.26	)	$	0.22


		Maturity Date	~~Interest~~ Payment Due Date
~~3.875%~~ 4.75% Convertible Senior ~~Notes~~Notes*	June 2042	~~March 2019~~	~~March 15~~ June 1 and ~~September 15~~December 1**
4.25% Convertible Senior Notes		March 2037	March 1 and September 1
4% 3.75% Callable Promissory Note	Through September 2036	~~Through February 2031~~	1st day of each month
~~3.75% Callable~~ 4.55% Promissory Note	Through August 2036	~~Through September 2036~~	1st day of each month
~~3.95%~~ 3.90% Promissory Note	Through April 2032	~~Through February 2020~~	17^th 1st day of each month
Finance leases	Through October 2024	Various
Revolving credit facility	Through December 2023	January 1, April 1, July 1, October 1


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


	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating lease (1)	$	614		147		279		188		—
Service agreement (1)		107		23		50		34		—
Reinsurance contracts (2)		26,471		21,971		2,571		1,929		—
Unfunded capital commitments (3)		15,931		15,931		—		—		—
Long-term debt obligations (4)		300,645		12,163		116,816		155,828		15,838

Total	$	343,768		50,235		119,716		157,979		15,838


Hypothetical Change in Interest Rates	Estimated Fair Value		Change in Estimated Fair Value			Percentage Increase (Decrease) in Estimated Fair Value			Estimated Fair Value		Change in Estimated Fair Value			Percentage Increase (Decrease) in Estimated Fair Value
300 basis point increase	$	232,088	$	(24,014	)		(9.38	)%	$	344,606	$	(16,033	)		-4.45	%
200 basis point increase		240,087		(16,015	)		(6.25	)%		349,950		(10,689	)		-2.96	%
100 basis point increase		248,092		(8,010	)		(3.13	)%		355,294		(5,345	)		-1.48	%
100 basis point decrease		264,115		8,013			3.13	%		365,983		5,344			1.48	%
200 basis point decrease		271,506		15,404			6.02	%		371,323		10,684			2.96	%
300 basis point decrease		275,881		19,779			7.72	%		376,653		16,014			4.44	%


											% of Total				% of Total
									Amortized		Amortized		Estimated		Estimated
Comparable Rating	Amortized Cost		% of Total Amortized Cost		Estimated Fair Value		% of Total Estimated Fair Value		Cost		Cost		Fair Value		Fair Value
AAA	$	2,521		1	$	2,527		1	$	97,275		26	$	97,154		27
AA+, AA, AA-		70,830		28		71,256		28		245,206		66		235,391		65
A+, A, A-		93,220		37		93,630		37		13,041		3		12,388		3
BBB+, BBB, BBB-		57,523		23		59,024		23		14,542		4		13,913		4
BB+, BB, BB-		9,446		4		9,647		4
B+, B, B-		6,133		2		6,130		2
CCC+, CC and Not rated		13,489		5		13,888		5		1,813		1		1,793		1

Total	$	253,162		100	$	256,102		100	$	371,877		100	$	360,639		100

Unadjusted quoted prices in active markets for identical ~~assets or liabilities.~~assets.

Other inputs that are observable for the asset, ~~or liability,~~ either directly or indirectly such as quoted prices for identical ~~or similar~~ assets ~~or liabilities~~ that are not observable throughout the full ~~term.~~term of the asset.

Inputs that are unobservable.