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

Form 10-Q

 

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

For the quarterly period ended September 30, 20202021

OR

 

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

Commission File Number

001-34126  

001-34126

HCI Group, Inc.

(Exact name of Registrant as specified in its charter)

Florida

 

20-5961396

(State of Incorporation)

 

(IRS Employer
Identification No.)

5300 West Cypress Street, Suite 1003802 Coconut Palm Drive
Tampa, FL 3360733619
(Address, including zip code, of principal executive offices)

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

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Shares, no par value

HCI

New York Stock Exchange

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The aggregate number of shares of the Registrant’s Common Stock, no par value, outstanding on October 29, 2020November 3, 2021 was 7,982,057.10,250,656.


HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION

Item 1

Financial Statements

Consolidated Balance Sheets:

September 30, 20202021 (unaudited) and December 31, 20192020

1-2

Consolidated Statements of Income:

Three and nine months ended September 30, 20202021 and 20192020 (unaudited)

3

Consolidated Statements of Comprehensive Income:

Three and nine months ended September 30, 20202021 and 20192020 (unaudited)

4

Consolidated StatementsStatement of Equity:

Three months ended September 30, 2021 (unaudited)

5

Consolidated Statement of Stockholders’ Equity:

Three and nine months ended September 30, 2020 and 2019 (unaudited)

5-86

Consolidated Statement of Equity:

Nine months ended September 30, 2021 (unaudited)

7

Consolidated Statement of Stockholders’ Equity:

Nine months ended September 30, 2020 (unaudited)

8

Consolidated Statements of Cash Flows:

Nine months ended September 30, 20202021 and 20192020 (unaudited)

9-109-11

Notes to Consolidated Financial Statements (unaudited)

11-4312-52

Item 2

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

44-5752-67

Item 3

Quantitative and Qualitative Disclosures about Market Risk

58-5967-69

Item 4

Controls and Procedures

6069

PART II – OTHER INFORMATION

Item 1

Legal Proceedings

6170

Item 1A

Risk Factors

6170

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

62-6370

Item 3

Defaults upon Senior Securities

6371

Item 4

Mine Safety Disclosures

6371

Item 5

Other Information

6371

Item 6

Exhibits

64-6972-81

Signatures

7081

Certifications


PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Fixed-maturity securities, available for sale, at fair value (amortized cost: $91,166 and

   $199,954, respectively and allowance for credit losses: $596 and $0, respectively)

 

$

92,743

 

 

$

202,839

 

Equity securities, at fair value (cost: $39,861 and $31,863, respectively)

 

 

42,702

 

 

 

35,285

 

Short-term investments, at fair value

 

 

 

 

 

491

 

Limited partnership investments

 

 

27,497

 

 

 

28,346

 

Investment in unconsolidated joint venture, at equity

 

 

716

 

 

 

762

 

Assets held for sale

 

 

4,519

 

 

 

 

Real estate investments

 

 

70,566

 

 

 

73,763

 

Total investments

 

 

238,743

 

 

 

341,486

 

Cash and cash equivalents

 

 

410,691

 

 

 

229,218

 

Restricted cash

 

 

2,400

 

 

 

700

 

Accrued interest and dividends receivable

 

 

916

 

 

 

1,616

 

Income taxes receivable

 

 

2,711

 

 

 

1,040

 

Premiums receivable

 

 

28,505

 

 

 

20,255

 

Prepaid reinsurance premiums

 

 

42,170

 

 

 

17,983

 

Reinsurance recoverable, net of allowance for credit losses:

 

 

 

 

 

 

 

 

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

 

 

20,240

 

 

 

16,155

 

Unpaid losses and loss adjustment expenses (allowance: $90 and $0, respectively)

 

 

74,944

 

 

 

116,523

 

Deferred policy acquisition costs

 

 

29,701

 

 

 

21,663

 

Property and equipment, net

 

 

12,693

 

 

 

14,698

 

Intangible assets, net

 

 

3,723

 

 

 

4,192

 

Other assets

 

 

20,376

 

 

 

17,080

 

Total assets

 

$

887,813

 

 

$

802,609

 

(continued)


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Fixed-maturity securities, available for sale, at fair value (amortized cost: $45,016 
    and $
70,265, respectively and allowance for credit losses: $0 and $588, respectively)

 

$

46,053

 

 

$

71,722

 

Equity securities, at fair value (cost: $46,771 and $47,029, respectively)

 

 

50,223

 

 

 

51,130

 

Limited partnership investments

 

 

26,039

 

 

 

27,691

 

Investment in unconsolidated joint venture, at equity

 

 

370

 

 

 

705

 

Real estate investments

 

 

73,663

 

 

 

74,472

 

Total investments

 

 

196,348

 

 

 

225,720

 

Cash and cash equivalents

 

 

569,134

 

 

 

431,341

 

Restricted cash

 

 

2,400

 

 

 

2,400

 

Accrued interest and dividends receivable

 

 

463

 

 

 

588

 

Income taxes receivable

 

 

0

 

 

 

4,554

 

Premiums receivable, net (allowance: $3,756 and $2,053, respectively)

 

 

43,078

 

 

 

68,382

 

Prepaid reinsurance premiums

 

 

47,968

 

 

 

36,376

 

Reinsurance recoverable, net of allowance for credit losses:

 

 

 

 

 

 

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

 

 

9,658

 

 

 

14,127

 

Unpaid losses and loss adjustment expenses (allowance: $44 and $85, respectively)

 

 

39,468

 

 

 

71,019

 

Deferred policy acquisition costs

 

 

47,129

 

 

 

43,858

 

Property and equipment, net

 

 

13,946

 

 

 

12,767

 

Right-of-use assets - operating leases

 

 

2,576

 

 

 

4,002

 

Intangible assets, net

 

 

10,807

 

 

 

3,568

 

Funds held in trust for assumed business

 

 

79,965

 

 

 

0

 

Other assets

 

 

13,174

 

 

 

22,611

 

Total assets

 

$

1,076,114

 

 

$

941,313

 

(continued)

1


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – continued(Continued)

(Dollar amounts in thousands)

 

September 30,

 

 

December 31,

 

 

2020

 

 

2019

 

 

September 30,

 

 

December 31,

 

 

(Unaudited)

 

 

 

 

 

 

2021

 

 

2020

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

Losses and loss adjustment expenses

 

$

219,345

 

 

$

214,697

 

 

$

203,177

 

$

212,169

 

Unearned premiums

 

 

238,936

 

 

 

181,163

 

 

334,299

 

269,399

 

Advance premiums

 

 

17,083

 

 

 

5,589

 

 

19,062

 

11,370

 

Assumed reinsurance balances payable

 

 

92

 

 

 

76

 

 

88

 

87

 

Reinsurance payable on paid losses and loss adjustment expenses

 

4,727

 

0

 

Accrued expenses

 

 

15,855

 

 

 

10,059

 

 

15,187

 

10,181

 

Income tax payable

 

3,574

 

0

 

Deferred income taxes, net

 

 

8,866

 

 

 

4,008

 

 

3,708

 

11,925

 

Revolving credit facility

 

 

8,750

 

 

 

9,750

 

 

0

 

23,750

 

Long-term debt

 

 

155,675

 

 

 

163,695

 

 

78,083

 

156,511

 

Lease liabilities - operating leases

 

2,578

 

4,014

 

Other liabilities

 

 

23,479

 

 

 

28,029

 

 

 

31,372

 

 

40,771

 

Total liabilities

 

 

688,081

 

 

 

617,066

 

 

 

695,855

 

 

740,177

 

Commitments and contingencies (Note 21)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

7% Series A cumulative convertible preferred stock (no par value, none and

1,500,000 shares authorized at September 30, 2020 and December 31, 2019,

respectively, 0 shares issued or outstanding)

 

 

 

 

 

 

Series B junior participating preferred stock (no par value, none and

400,000 shares authorized at September 30, 2020 and December 31, 2019,

respectively,0 shares issued or outstanding)

 

 

 

 

 

 

Preferred stock (0 par value, 20,000,000 and 18,100,000 shares authorized

at September 30, 2020 and December 31, 2019, respectively, 0 shares issued

or outstanding)

 

 

 

 

 

 

Common stock (no par value, 40,000,000 shares authorized, 7,793,677 and

7,764,564 shares issued and outstanding at September 30, 2020 and

December 31, 2019, respectively)

 

 

 

 

 

 

Redeemable noncontrolling interest (Note 18)

 

 

87,731

 

 

 

0

 

Equity:

 

 

 

 

 

 

Common stock (0 par value, 40,000,000 shares authorized, 9,591,079 and 7,785,617
shares issued and outstanding at September 30, 2021 and December 31, 2020,
respectively)

 

0

 

0

 

Additional paid-in capital

 

 

 

 

 

 

 

39,905

 

0

 

Retained income

 

 

198,092

 

 

 

183,365

 

 

250,808

 

199,592

 

Accumulated other comprehensive income, net of taxes

 

 

1,640

 

 

 

2,178

 

 

 

799

 

 

1,544

 

Total stockholders’ equity

 

 

199,732

 

 

 

185,543

 

 

291,512

 

201,136

 

Total liabilities and stockholders’ equity

 

$

887,813

 

 

$

802,609

 

Noncontrolling interests

 

 

1,016

 

 

0

 

Total equity

 

 

292,528

 

 

201,136

 

Total liabilities, redeemable noncontrolling interest and equity

 

$

1,076,114

 

$

941,313

 

See accompanying Notes to Consolidated Financial Statements (unaudited).


2


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(Dollar amounts in thousands, except per share amounts)

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned

 

$

106,694

 

 

$

86,002

 

 

$

306,862

 

 

$

251,914

 

 

$

149,809

 

$

106,694

 

$

420,191

 

$

306,862

 

Premiums ceded

 

 

(44,231

)

 

 

(31,568

)

 

 

(109,304

)

 

 

(94,298

)

 

 

(55,577

)

 

 

(44,231

)

 

 

(145,112

)

 

 

(109,304

)

Net premiums earned

 

 

62,463

 

 

 

54,434

 

 

 

197,558

 

 

 

157,616

 

 

94,232

 

62,463

 

275,079

 

197,558

 

Net investment income

 

 

1,832

 

 

 

3,621

 

 

 

3,244

 

 

 

11,125

 

 

2,520

 

1,832

 

9,749

 

3,244

 

Net realized investment gains (losses)

 

 

177

 

 

 

(30

)

 

 

(632

)

 

 

(535

)

 

1,232

 

177

 

4,952

 

(632

)

Net unrealized investment gains (losses)

 

 

1,340

 

 

 

642

 

 

 

(581

)

 

 

7,261

 

Net unrealized investment (losses) gains

 

(1,869

)

 

1,340

 

(649

)

 

(581

)

Credit losses on investments

 

 

(70

)

 

 

0

 

 

 

(596

)

 

 

0

 

 

0

 

(70

)

 

0

 

(596

)

Policy fee income

 

 

895

 

 

 

811

 

 

 

2,571

 

 

 

2,406

 

 

1,000

 

895

 

2,962

 

2,571

 

Gain on involuntary conversion

 

 

36,969

 

 

 

0

 

 

 

36,969

 

 

 

0

 

 

0

 

36,969

 

0

 

36,969

 

Other

 

 

421

 

 

 

501

 

 

 

1,591

 

 

 

1,370

 

 

 

2,102

 

 

421

 

 

3,502

 

 

1,591

 

Total revenue

 

 

104,027

 

 

 

59,979

 

 

 

240,124

 

 

 

179,243

 

 

 

99,217

 

 

104,027

 

 

295,595

 

 

240,124

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

51,743

 

 

 

27,327

 

 

 

119,664

 

 

 

78,616

 

 

62,664

 

51,743

 

164,332

 

119,664

 

Policy acquisition and other underwriting expenses

 

 

14,210

 

 

 

10,988

 

 

 

39,027

 

 

 

30,738

 

 

23,340

 

14,210

 

69,574

 

39,027

 

General and administrative personnel expenses

 

 

9,871

 

 

 

7,951

 

 

 

27,969

 

 

 

23,313

 

 

11,537

 

9,871

 

31,733

 

27,969

 

Interest expense

 

 

2,856

 

 

 

2,907

 

 

 

8,846

 

 

 

10,128

 

 

1,664

 

2,856

 

5,743

 

8,846

 

Loss on repurchases of convertible senior notes

 

 

0

 

 

 

0

 

 

 

150

 

 

 

0

 

 

0

 

0

 

 

150

 

Loss on extinguishment of debt

 

 

98

 

 

 

0

 

 

 

98

 

 

 

0

 

 

0

 

98

 

0

 

98

 

Debt conversion expense

 

1,273

 

0

 

1,273

 

0

 

Other operating expenses

 

 

3,713

 

 

 

3,087

 

 

 

10,354

 

 

 

9,131

 

 

 

5,243

 

 

3,713

 

 

14,245

 

 

10,354

 

Total expenses

 

 

82,491

 

 

 

52,260

 

 

 

206,108

 

 

 

151,926

 

 

 

105,721

 

 

82,491

 

 

286,900

 

 

206,108

 

Income before income taxes

 

 

21,536

 

 

 

7,719

 

 

 

34,016

 

 

 

27,317

 

Income tax expense

 

 

6,146

 

 

 

1,866

 

 

 

9,143

 

 

 

7,173

 

Net income

 

$

15,390

 

 

$

5,853

 

 

$

24,873

 

 

$

20,144

 

Basic earnings per share

 

$

1.97

 

 

$

0.73

 

 

$

3.21

 

 

$

2.49

 

Diluted earnings per share

 

$

1.70

 

 

$

0.73

 

 

$

3.03

 

 

$

2.49

 

(Loss) income before income taxes

 

(6,504

)

 

21,536

 

8,695

 

34,016

 

Income tax (benefit) expense

 

 

(1,636

)

 

 

6,146

 

 

2,888

 

 

9,143

 

Net (loss) income

 

(4,868

)

 

15,390

 

5,807

 

24,873

 

Net income attributable to redeemable noncontrolling
interest (Note 18)

 

(2,202

)

 

0

 

(5,175

)

 

0

 

Net loss attributable to noncontrolling interests

 

 

833

 

 

0

 

 

1,196

 

 

0

 

Net (loss) income after noncontrolling interests

 

$

(6,237

)

 

$

15,390

 

$

1,828

 

$

24,873

 

Basic (loss) earnings per share

 

$

(0.72

)

 

$

1.97

 

$

0.23

 

$

3.21

 

Diluted (loss) earnings per share

 

$

(0.72

)

 

$

1.70

 

$

0.22

 

$

3.03

 

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


3


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

15,390

 

 

$

5,853

 

 

$

24,873

 

 

$

20,144

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain (loss) on investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains arising during the period

 

 

247

 

 

 

447

 

 

 

56

 

 

 

4,777

 

Credit losses charged to income

 

 

70

 

 

 

0

 

 

 

596

 

 

 

0

 

Call and repayment gains charged to investment income

 

 

(15

)

 

 

(2

)

 

 

(231

)

 

 

(1

)

Reclassification adjustment for net realized losses (gains)

 

 

21

 

 

 

(26

)

 

 

(1,133

)

 

 

(59

)

Net change in unrealized gains (losses)

 

 

323

 

 

 

419

 

 

 

(712

)

 

 

4,717

 

Deferred income taxes on above change

 

 

(79

)

 

 

(83

)

 

 

174

 

 

 

(1,173

)

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

 

 

244

 

 

 

336

 

 

 

(538

)

 

 

3,544

 

Comprehensive income

 

$

15,634

 

 

$

6,189

 

 

$

24,335

 

 

$

23,688

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net (loss) income

 

$

(4,868

)

 

$

15,390

 

 

$

5,807

 

 

$

24,873

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized (loss) gain on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) arising during the period

 

 

(258

)

 

 

247

 

 

 

(341

)

 

 

56

 

Credit losses charged to income

 

 

0

 

 

 

70

 

 

 

0

 

 

 

596

 

Call and repayment gains charged to investment income

 

 

0

 

 

 

(15

)

 

 

(2

)

 

 

(231

)

Reclassification adjustment for net realized gains

 

 

(88

)

 

 

21

 

 

 

(665

)

 

 

(1,133

)

Net change in unrealized (losses) gains

 

 

(346

)

 

 

323

 

 

 

(1,008

)

 

 

(712

)

Deferred income taxes on above change

 

 

85

 

 

 

(79

)

 

 

247

 

 

 

174

 

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

 

 

(261

)

 

 

244

 

 

 

(761

)

 

 

(538

)

Comprehensive (loss) income

 

 

(5,129

)

 

 

15,634

 

 

 

5,046

 

 

 

24,335

 

Comprehensive loss attributable to noncontrolling interests

 

 

839

 

 

 

0

 

 

 

1,212

 

 

 

0

 

Comprehensive (loss) income after noncontrolling interests

 

$

(4,290

)

 

$

15,634

 

 

$

6,258

 

 

$

24,335

 

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


4


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended September 30, 20202021

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Accumulated

Other

Comprehensive

Income,

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

Balance at June 30, 2020

 

 

7,794,048

 

 

$

 

 

$

 

 

$

183,689

 

 

$

1,396

 

 

$

185,085

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15,390

 

 

 

 

 

 

15,390

 

Total other comprehensive income, net of

   income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

244

 

 

 

244

 

Issuance of restricted stock

 

 

2,680

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Forfeiture of restricted stock

 

 

(2,369

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Repurchase and retirement of common stock

 

 

(225

)

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

(12

)

Repurchase and retirement of common stock under

   share repurchase plan

 

 

(457

)

 

 

 

 

 

(20

)

 

 

 

 

 

 

 

 

(20

)

Common stock dividends ($0.40 per share)

 

 

 

 

 

 

 

 

 

 

 

(3,117

)

 

 

 

 

 

(3,117

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,162

 

 

 

 

 

 

 

 

 

2,162

 

Additional paid-in capital shortfall allocated

   to retained income

 

 

 

 

 

 

 

 

(2,130

)

 

 

2,130

 

 

 

 

 

 

 

Balance at September 30, 2020

 

 

7,793,677

 

 

$

 

 

$

 

 

$

198,092

 

 

$

1,640

 

 

$

199,732

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Income,

 

 

Total
Stockholders’

 

 


Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at June 30, 2021

 

 

8,265,640

 

 

$

 

 

$

 

 

$

215,612

 

 

$

1,054

 

 

$

216,666

 

 

$

1,383

 

 

$

218,049

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,346

)

 

 

 

 

 

(4,346

)

 

 

(522

)

 

 

(4,868

)

Net income attributable to redeemable
    noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(1,891

)

 

 

 

 

 

(1,891

)

 

 

(311

)

 

 

(2,202

)

Total other comprehensive loss, net of
    income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(255

)

 

 

(255

)

 

 

(6

)

 

 

(261

)

Issuance of restricted stock

 

 

2,340

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Forfeiture of restricted stock

 

 

(38,855

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Common stock issued on conversions
    of
4.25% senior notes

 

 

1,361,954

 

 

 

 

 

 

82,339

 

 

 

 

 

 

 

 

 

82,339

 

 

 

 

 

 

82,339

 

Dilution from subsidiary stock-based
    compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

472

 

 

 

472

 

Common stock dividends
    ($
0.40 per share)

 

 

 

 

 

 

 

 

 

 

 

(3,261

)

 

 

 

 

 

(3,261

)

 

 

 

 

 

(3,261

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,260

 

 

 

 

 

 

 

 

 

2,260

 

 

 

 

 

 

2,260

 

Additional paid-in capital shortfall
    adjustment allocated to retained
    income

 

 

 

 

 

 

 

 

(44,694

)

 

 

44,694

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

 

9,591,079

 

 

$

 

 

$

39,905

 

 

$

250,808

 

 

$

799

 

 

$

291,512

 

 

$

1,016

 

 

$

292,528

 

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


5


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended September 30, 20192020

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Accumulated

Other

Comprehensive

Income,

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Income,

 

 

Total
Stockholders’

 

Balance at June 30, 2019

 

 

8,053,573

 

 

$

 

 

$

0

 

 

$

184,739

 

 

$

1,755

 

 

 

186,494

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

Balance at June 30, 2020

 

7,794,048

 

$

 

$

 

$

183,689

 

$

1,396

 

$

185,085

 

Net income

 

 

 

 

 

 

 

 

 

 

 

5,853

 

 

 

 

 

 

5,853

 

 

 

 

 

15,390

 

 

15,390

 

Total other comprehensive income, net of

income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

336

 

 

 

336

 

 

 

 

 

 

244

 

244

 

Issuance of restricted stock

 

 

7,244

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

2,680

 

0

 

0

 

0

 

0

 

0

 

Forfeiture of restricted stock

 

 

(2,351

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

(2,369

)

 

0

 

0

 

0

 

0

 

0

 

Repurchase and retirement of common stock

 

(225

)

 

 

(12

)

 

 

 

(12

)

Repurchase and retirement of common stock under

share repurchase plan

 

 

(175,160

)

 

 

 

 

 

(7,185

)

 

 

 

 

 

 

 

 

(7,185

)

 

(457

)

 

 

(20

)

 

 

 

(20

)

Common stock dividends ($0.40 per share)

 

 

 

 

 

 

 

 

 

 

 

(3,171

)

 

 

 

 

 

(3,171

)

Common stock dividends ($0.40 per share)

 

 

 

 

(3,117

)

 

 

(3,117

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,746

 

 

 

 

 

 

 

 

 

1,746

 

 

 

 

2,162

 

 

 

2,162

 

Tax basis adjustment on equity method investment

 

 

 

 

 

 

 

 

132

 

 

 

 

 

 

 

 

 

132

 

Additional paid-in capital shortfall allocated

to retained income

 

 

 

 

 

 

 

 

5,307

 

 

 

(5,307

)

 

 

 

 

 

 

 

 

 

 

 

 

(2,130

)

 

 

2,130

 

 

 

 

 

Balance at September 30, 2019

 

 

7,883,306

 

 

$

 

 

$

 

 

$

182,114

 

 

$

2,091

 

 

$

184,205

 

Balance at September 30, 2020

 

 

7,793,677

 

$

 

$

 

$

198,092

 

$

1,640

 

$

199,732

 

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


6


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Nine Months Ended September 30, 20202021

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Accumulated

Other

Comprehensive

Income (Loss),

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

Balance at December 31, 2019

 

 

7,764,564

 

 

$

 

 

$

 

 

$

183,365

 

 

$

2,178

 

 

$

185,543

 

Net income

 

 

 

 

 

 

 

 

 

 

 

24,873

 

 

 

 

 

 

24,873

 

Total other comprehensive loss, net of

   income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(538

)

 

 

(538

)

Cumulative effect on adoption of credit loss standard

 

 

 

 

 

 

 

 

 

 

 

(453

)

 

 

 

 

 

(453

)

Exercise of common stock options

 

 

10,000

 

 

 

 

 

 

63

 

 

 

 

 

 

 

 

 

63

 

Issuance of restricted stock

 

 

192,680

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Forfeiture of restricted stock

 

 

(14,727

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Repurchase and retirement of common stock

 

 

(29,698

)

 

 

 

 

 

(1,338

)

 

 

 

 

 

 

 

 

(1,338

)

Repurchase and retirement of common stock under

    share repurchase plan

 

 

(129,142

)

 

 

 

 

 

(5,161

)

 

 

 

 

 

 

 

 

(5,161

)

Common stock dividends ($1.20 per share)

 

 

 

 

 

 

 

 

 

 

 

(9,279

)

 

 

 

 

 

(9,279

)

Stock-based compensation

 

 

 

 

 

 

 

 

6,022

 

 

 

 

 

 

 

 

 

6,022

 

Additional paid-in capital shortfall allocated

   to retained income

 

 

 

 

 

 

 

 

414

 

 

 

(414

)

 

 

 

 

 

 

Balance at September 30, 2020

 

 

7,793,677

 

 

$

 

 

$

 

 

$

198,092

 

 

$

1,640

 

 

$

199,732

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Income,

 

 

Total
Stockholders’

 

 


Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at December 31, 2020

 

 

7,785,617

 

 

$

 

 

$

 

 

$

199,592

 

 

$

1,544

 

 

$

201,136

 

 

$

 

 

$

201,136

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

6,692

 

 

 

 

 

 

6,692

 

 

 

(885

)

 

 

5,807

 

Net income attributable to redeemable
    noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(4,864

)

 

 

 

 

 

(4,864

)

 

 

(311

)

 

 

(5,175

)

Cumulative effect of change in
    accounting principle

 

 

 

 

 

 

 

 

 

 

 

(3,018

)

 

 

 

 

 

(3,018

)

 

 

 

 

 

(3,018

)

Total other comprehensive loss, net of
    income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(745

)

 

 

(745

)

 

 

(16

)

 

 

(761

)

Issuance of restricted stock

 

 

553,426

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Forfeiture of restricted stock

 

 

(49,965

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Cancellation of restricted stock

 

 

(142,760

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase and retirement of common
    stock

 

 

(17,193

)

 

 

 

 

 

(1,308

)

 

 

 

 

 

 

 

 

(1,308

)

 

 

 

 

 

(1,308

)

Issuance of common stock

 

 

100,000

 

 

 

 

 

 

5,410

 

 

 

 

 

 

 

 

 

5,410

 

 

 

 

 

 

5,410

 

Common stock issued on conversions
    of
4.25% senior notes

 

 

1,361,954

 

 

 

 

 

 

82,339

 

 

 

 

 

 

 

 

 

82,339

 

 

 

 

 

 

82,339

 

Dilution from subsidiary stock-based
    compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,228

 

 

 

2,228

 

Issuance of warrants, net of issuance
    costs (Note 18)

 

 

 

 

 

 

 

 

8,640

 

 

 

 

 

 

 

 

 

8,640

 

 

 

 

 

 

8,640

 

Common stock dividends
    ($
1.20 per share)

 

 

 

 

 

 

 

 

 

 

 

(9,713

)

 

 

 

 

 

(9,713

)

 

 

 

 

 

(9,713

)

Stock-based compensation

 

 

 

 

 

 

 

 

6,943

 

 

 

 

 

 

 

 

 

6,943

 

 

 

 

 

 

6,943

 

Additional paid-in capital shortfall
    adjustment allocated to retained
    income

 

 

 

 

 

 

 

 

(62,119

)

 

 

62,119

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

 

9,591,079

 

 

$

 

 

$

39,905

 

 

$

250,808

 

 

$

799

 

 

$

291,512

 

 

$

1,016

 

 

$

292,528

 

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


7


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Nine Months Ended September 30, 20192020

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Accumulated

Other

Comprehensive

(Loss) Income,

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Income,

 

 

Total
Stockholders’

 

Balance at December 31, 2018

 

 

8,356,730

 

 

$

 

 

$

0

 

 

$

182,894

 

 

$

(1,453

)

 

$

181,441

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

Balance at December 31, 2019

 

7,764,564

 

$

 

$

 

$

183,365

 

$

2,178

 

$

185,543

 

Net income

 

 

 

 

 

 

 

 

 

 

 

20,144

 

 

 

 

 

 

20,144

 

 

 

 

 

24,873

 

 

24,873

 

Total other comprehensive income, net of income

taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,544

 

 

 

3,544

 

Total other comprehensive loss, net of income taxes

 

 

 

 

 

(538

)

 

(538

)

Cumulative effect on adoption of credit loss standard

 

 

 

 

(453

)

 

 

 

 

(453

)

Exercise of common stock options

 

 

10,000

 

 

 

 

 

 

63

 

 

 

 

 

 

 

 

 

63

 

 

10,000

 

 

63

 

 

 

63

 

Issuance of restricted stock

 

 

180,404

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

192,680

 

0

 

0

 

0

 

0

 

0

 

Forfeiture of restricted stock

 

 

(271,243

)

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

(14,727

)

 

0

 

0

 

0

 

0

 

0

 

Repurchase and retirement of common stock

 

 

(24,849

)

 

 

 

 

 

(1,023

)

 

 

 

 

 

 

 

 

(1,023

)

 

(29,698

)

 

 

(1,338

)

 

 

 

(1,338

)

Repurchase and retirement of common stock

under share repurchase plan

 

 

(367,736

)

 

 

 

 

 

(15,191

)

 

 

 

 

 

 

 

 

(15,191

)

Common stock dividends ($1.20 per share)

 

 

 

 

 

 

 

 

 

 

 

(9,599

)

 

 

 

 

 

(9,599

)

Repurchase and retirement of common stock under
share purchase plan

 

(129,142

)

 

 

(5,161

)

 

 

 

(5,161

)

Common stock dividends ($1.20 per share)

 

 

 

 

(9,279

)

 

 

(9,279

)

Stock-based compensation

 

 

 

 

 

 

 

 

4,694

 

 

 

 

 

 

 

 

 

4,694

 

 

 

 

6,022

 

 

 

6,022

 

Tax basis adjustment on equity method investment

 

 

 

 

 

 

 

 

132

 

 

 

 

 

 

 

 

 

132

 

Additional paid-in capital shortfall allocated

to retained income

 

 

 

 

 

 

 

 

11,325

 

 

 

(11,325

)

 

 

 

 

 

 

 

 

 

 

 

 

414

 

 

(414

)

 

 

 

 

 

Balance at September 30, 2019

 

 

7,883,306

 

 

$

 

 

$

 

 

$

182,114

 

 

$

2,091

 

 

$

184,205

 

Balance at September 30, 2020

 

 

7,793,677

 

$

 

$

 

$

198,092

 

$

1,640

 

$

199,732

 

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


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows8


(Unaudited)

(Amounts in thousands)

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

24,873

 

 

$

20,144

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

6,022

 

 

 

4,694

 

Net (accretion of discounts) amortization of premiums on investments

   in fixed-maturity securities

 

 

(21

)

 

 

171

 

Depreciation and amortization

 

 

6,499

 

 

 

6,677

 

Deferred income tax expense

 

 

5,032

 

 

 

1,231

 

Net realized investment losses

 

 

632

 

 

 

535

 

Net unrealized investment losses (gains)

 

 

581

 

 

 

(7,261

)

Credit loss expense

 

 

596

 

 

 

 

Loss from unconsolidated joint venture

 

 

46

 

 

 

71

 

Net loss (income) from limited partnership interests

 

 

2,058

 

 

 

(1,308

)

Distributions received from limited partnership interests

 

 

650

 

 

 

3,647

 

Loss on repurchases of convertible senior notes

 

 

150

 

 

 

 

Loss on extinguishment of debt

 

 

98

 

 

 

 

Gain on involuntary conversion

 

 

(36,969

)

 

 

 

Foreign currency remeasurement loss.

 

 

40

 

 

 

31

 

Other non-cash items

 

 

(306

)

 

 

286

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accrued interest and dividends receivable

 

 

700

 

 

 

(282

)

Income taxes

 

 

(1,671

)

 

 

656

 

Premiums receivable

 

 

(8,250

)

 

 

(8,982

)

Prepaid reinsurance premiums

 

 

(24,187

)

 

 

(14,826

)

Reinsurance recoverable

 

 

37,404

 

 

 

(39,533

)

Deferred policy acquisition costs

 

 

(8,038

)

 

 

(6,628

)

Other assets

 

 

(3,552

)

 

 

(4,165

)

Losses and loss adjustment expenses

 

 

4,648

 

 

 

30,335

 

Unearned premiums

 

 

57,773

 

 

 

47,026

 

Advance premiums

 

 

11,494

 

 

 

5,454

 

Assumed reinsurance balances payable

 

 

16

 

 

 

(14

)

Accrued expenses and other liabilities

 

 

1,212

 

 

 

135

 

Net cash provided by operating activities

 

 

77,530

 

 

 

38,094

 

 

 

 

 

 

 

 

 

 


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income after noncontrolling interests

 

$

1,828

 

 

$

24,873

 

Net income attributable to noncontrolling interests

 

 

3,979

 

 

 

0

 

Net income

 

 

5,807

 

 

 

24,873

 

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

 

 

 

 

 

 

Stock-based compensation

 

 

9,229

 

 

 

6,022

 

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

 

 

180

 

 

 

(21

)

Depreciation and amortization

 

 

4,276

 

 

 

6,499

 

Deferred income tax (benefit) expense

 

 

(6,989

)

 

 

5,032

 

Net realized investment (gains) losses

 

 

(4,952

)

 

 

632

 

Net unrealized investment losses

 

 

649

 

 

 

581

 

Credit loss expense - investments

 

 

0

 

 

 

596

 

Credit loss expense - reinsurance recoverable

 

 

(41

)

 

 

(363

)

Net (income) loss from unconsolidated joint venture

 

 

(423

)

 

 

46

 

Distribution received from unconsolidated joint venture

 

 

114

 

 

 

0

 

Net (income) loss from limited partnership interests

 

 

(3,491

)

 

 

2,058

 

Distributions received from limited partnership interests

 

 

2,345

 

 

 

650

 

Loss on repurchases of convertible senior notes

 

 

0

 

 

 

150

 

Loss on extinguishment of debt

 

 

0

 

 

 

98

 

Debt conversion expense

 

 

1,273

 

 

 

0

 

Gain on involuntary conversion

 

 

0

 

 

 

(36,969

)

Foreign currency remeasurement loss

 

 

48

 

 

 

40

 

Other non-cash items

 

 

37

 

 

 

57

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accrued interest and dividends receivable

 

 

125

 

 

 

700

 

Income taxes

 

 

8,128

 

 

 

(1,671

)

Premiums receivable, net

 

 

25,304

 

 

 

(8,250

)

Prepaid reinsurance premiums

 

 

(11,592

)

 

 

(24,187

)

Reinsurance recoverable

 

 

36,061

 

 

 

37,404

 

Deferred policy acquisition costs

 

 

(3,271

)

 

 

(8,038

)

Funds held in trust for assumed business

 

 

(79,965

)

 

 

 

Other assets

 

 

5,727

 

 

 

(3,552

)

Losses and loss adjustment expenses

 

 

(8,992

)

 

 

4,648

 

Unearned premiums

 

 

64,900

 

 

 

57,773

 

Advance premiums

 

 

7,692

 

 

 

11,494

 

Assumed reinsurance balances payable

 

 

1

 

 

 

16

 

Reinsurance payable on paid losses and loss adjustment expenses

 

 

4,727

 

 

 

 

Accrued expenses and other liabilities

 

 

(8,236

)

 

 

1,212

 

Net cash provided by operating activities

 

 

48,671

 

 

 

77,530

 

(continued)

9


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows continued– (Continued)

(Unaudited)

(Amounts in thousands)

 

Nine Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in limited partnership interests

 

$

(2,951

)

 

$

(1,899

)

 

(837

)

 

(2,951

)

Distributions received from limited partnership interests

 

 

1,092

 

 

 

1,163

 

 

3,635

 

1,092

 

Distribution received from unconsolidated joint venture

 

623

 

0

 

Purchase of property and equipment

 

 

(5,928

)

 

 

(2,166

)

 

(2,583

)

 

(5,928

)

Purchase of real estate investments

 

 

(3,052

)

 

 

(10,475

)

 

(657

)

 

(3,052

)

Purchase of fixed-maturity securities

 

 

(30,200

)

 

 

(79,355

)

 

(10,504

)

 

(30,200

)

Purchase of equity securities

 

 

(27,175

)

 

 

(19,278

)

 

(72,707

)

 

(27,175

)

Purchase of short-term and other investments

 

 

 

 

 

(689

)

 

(1,161

)

 

0

 

Compensation received for property condemned through eminent domain

 

 

44,000

 

 

 

 

Compensation received for property relinquished through eminent domain

 

0

 

44,000

 

Proceeds from sales of fixed-maturity securities

 

 

79,284

 

 

 

5,225

 

 

18,838

 

79,284

 

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

 

 

60,870

 

 

 

50,738

 

 

16,734

 

60,870

 

Proceeds from sales of equity securities

 

 

17,385

 

 

 

34,345

 

 

81,292

 

17,385

 

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

investments

 

 

475

 

 

 

66,902

 

 

 

2,414

 

 

475

 

Net cash provided by investing activities

 

 

133,800

 

 

 

44,511

 

 

 

35,087

 

 

133,800

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends paid

 

 

(9,508

)

 

 

(9,829

)

 

(9,943

)

 

(9,508

)

Cash dividends received under share repurchase forward contract

 

 

229

 

 

 

230

 

 

230

 

229

 

Net (repayment) borrowing under revolving credit facility

 

 

(1,000

)

 

 

9,750

 

Net repayment under revolving credit facility

 

(23,750

)

 

(1,000

)

Proceeds from exercise of common stock options

 

 

63

 

 

 

63

 

 

0

 

63

 

Proceeds from issuance of redeemable noncontrolling interest and warrants

 

100,000

 

0

 

Issuance costs - redeemable noncontrolling interest

 

(6,262

)

 

0

 

Cash dividends paid to redeemable noncontrolling interest

 

(2,542

)

 

0

 

Proceeds from issuance of long-term debt

 

 

10,000

 

 

 

 

 

0

 

10,000

 

Repayment of long-term debt

 

 

(16,812

)

 

 

(90,980

)

 

(724

)

 

(16,812

)

Repurchases of convertible senior notes

 

 

(4,459

)

 

 

 

 

0

 

(4,459

)

Repurchases of common stock

 

 

(1,338

)

 

 

(1,023

)

 

(1,308

)

 

(1,338

)

Repurchases of common stock under share repurchase plan

 

 

(5,161

)

 

 

(15,191

)

 

0

 

(5,161

)

Purchase of noncontrolling interests

 

(58

)

 

0

 

Debt conversion expense paid

 

(1,414

)

 

0

 

Debt issuance costs

 

 

(165

)

 

 

(459

)

 

 

(152

)

 

 

(165

)

Net cash used in financing activities

 

 

(28,151

)

 

 

(107,439

)

Net cash provided by (used in) financing activities

 

 

54,077

 

 

(28,151

)

Effect of exchange rate changes on cash

 

 

(6

)

 

 

2

 

 

 

(42

)

 

 

(6

)

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

 

 

183,173

 

 

 

(24,832

)

Net increase in cash, cash equivalents, and restricted cash

 

137,793

 

183,173

 

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

 

 

229,918

 

 

 

240,158

 

 

 

433,741

 

 

229,918

 

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

 

$

413,091

 

 

$

215,326

 

 

$

571,534

 

$

413,091

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

6,137

 

 

$

5,285

 

Cash paid for interest

 

$

7,137

 

 

$

8,904

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

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

of tax

 

$

(538

)

 

$

3,544

 

Addition to property and equipment under capital lease

 

$

 

 

$

18

 

 

 

 

 

 

 

 

 

��

(continued)

10


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows – (Continued)

(Unaudited)

(Amounts in thousands)

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2021

 

 

2020

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for income taxes

 

$

1,748

 

 

$

6,137

 

Cash paid for interest

 

$

6,686

 

 

$

7,137

 

Non-cash investing and financing activities:

 

 

 

 

 

 

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

 

$

(761

)

 

$

(538

)

Receivable from maturities of fixed-maturity securities

 

$

18

 

 

$

0

 

Common stock issued on conversions of 4.25% senior notes

 

$

82,339

 

 

$

0

 

Warrants issued in Centerbridge transaction

 

$

9,217

 

 

$

0

 

Asset acquired under finance lease

 

$

7

 

 

$

0

 

Acquisition of intangibles:

 

 

 

 

 

 

Common stock issued

 

$

5,410

 

 

$

0

 

Contingent consideration payable

 

$

2,419

 

 

$

 

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

1011


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 1 -- Nature of Operations

HCI Group, Inc., together with its subsidiaries (“HCI” or the “Company”), is primarily engaged in the property and casualty insurance business through two Florida domiciled insurance companies, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”) and TypTap Insurance Company (“TypTap”). Both HCPCI isand TypTap are authorized to underwrite various homeowners’ property and casualty insurance products and allied lines business in the state of Florida. HCPCI also offers flood-endorsedFlorida and wind-only policies to Florida customers and has regulatory approval to underwrite residential property and casualty insurance in the states of Arkansas, California, Maryland, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina and Texas.  However, Florida is still HCPCI’s primary market. TypTap offers standalone flood and homeowners multi-peril policies. In October 2020, TypTap began applying to offer homeowners coverage in 20 states outside of Florida.several other states. The operations of both insurance subsidiaries are supported by HCI Group, Inc. and certain HCI subsidiaries. In particular,The Company emphasizes the Company is developinguse of internally developed technologies to collect and analyze claims and other supplemental data to generate savings and efficiency for the operations of the insurance subsidiaries.

In addition,the first quarter of 2021, the Company reorganized its operations to focus on specific business segments, resulting in the creation of TypTap Insurance Group, Inc. (“TTIG”) with a separate workforce, board of directors and financial reporting structure. In February 2021, TTIG received a capital investment from a third party representing a minority interest as described in Note 18 -- “Redeemable Noncontrolling Interest.” Companies under TTIG include TypTap, TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company, Inc., the parent company of an India company, Exzeo Software Private Limited. TTIG and its subsidiaries are considered a new reporting segment known as TypTap Group. The Company’s reportable segments now include HCPCI insurance operations, TypTap Group, real estate operations, and corporate and other. Real estate operations are conducted by Greenleaf Capital, LLC, the Company’s real estate subsidiary, which is primarily engaged in the businesses of owning and leasing real estate and operating marina facilities and 1 restaurant.facilities.

On February 5,Assumed Business

Effective December 31, 2020, HCPCI entered into a policy replacement agreement with AnchorUnited Property & Casualty Insurance Company, an insurance subsidiary of United Insurance Holdings Corporation (“Anchor”United”)., ceded a portion of its personal lines insurance business in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island to HCPCI. Under the reinsurance agreement, HCPCI provides 69.5% quota share reinsurance on all of United’s in-force, new and renewal policies in those states from December 31, 2020 through May 31, 2021. In exchange, HCPCI paid United an allowance of $4,400 towards already purchased catastrophe reinsurance and a provisional ceding commission of 25% of premium. That percentage could increase up to 31.5% depending on the direct loss ratio results from the reinsured business.

On January 18, 2021, the Company entered into a renewal rights agreement with United in connection with the assumed business. Under the agreement, Anchor cancelledthe Company acquired all itsrights to renew and/or replace United’s homeowners insurance policies at the end of their respective policy periods in the states of Connecticut, Massachusetts, New Jersey and Rhode Island. The policy replacement date is June 1, 2021 or such other date as mutually agreed by both parties. The agreement also contains a non-compete clause that does not permit United to engage in marketing, selling, writing, renewing, or servicing any homeowners insurance contracts in these states until July 1, 2024. In return, United received 100,000 shares of AprilHCI’s common stock and will receive a 6% commission on any replacement premium in excess of $80,000. The total commission will not exceed $3,100.

The Company and United agreed to postpone the policy replacement date under the renewal rights agreement to a later date and the Company, through HCPCI and TypTap, entered into a new quota share reinsurance agreement in June 2021 to provide 100% reinsurance on all of United’s in-force, new and renewal policies in those states from June 1, 2020 and HCPCI offered short-term replacement policies to those policyholders, who were under no obligation to accept them. The replacement policies had substantially2021 through May 31, 2022. Under the same terms and rates as the cancelled polices and would expire on the same dates the cancelled policies would have expired had they not been cancelled. Upon expirationnew agreement, each insurance subsidiary assumes 50% of the replacement policies, HCPCI will offer, but is not obligated to offer, renewals to those policyholders at its own ratesbusiness and terms. Total replacement policies issued by the Company on April 1, 2020 approximated 40,000.  

Risks and Uncertainties Caused by Novel Coronavirus (“COVID-19”)

On March 11, 2020, the World Health Organization (“WHO”) declared the outbreakpays United a ceding commission of COVID-19 a pandemic. COVID-19 is a respiratory illness caused by a virus that can spread from person to person. To contain the spread24% of COVID-19, measures have been undertaken in the United States of America and elsewhere around the world. These measures include, but are not limited to, domestic and international travel restrictions, temporary closure of nonessential businesses, cessation of public activity, and work-from-home orders, which has led to significantly reduced economic activity. To prevent the U.S. economy from further deterioration, several state and local governments have relaxed or lifted some of these measures even though infection rates remain above five percent, the level at which the WHO recommends rates fall below for at least 14 days before reopening. In Florida where the Company’s headquarters is located, a statewide stay-at-home order was issued and later lifted in May 2020. In response to the pandemic, the Company temporarily closed its offices in Florida and asked employees to work from home. The Company also closed temporarily its restaurant, but later decided to exit the business permanently in October 2020. Since then, some employees who have gone through the Company’s health safety training are allowed to alternate their work location between home and office. The Company quickly adjusted its technologies and infrastructure to support a remote workforce and maintain business continuity. As a provider of homeowners insurance, the Company continually prepares for disasters and catastrophic events, including events that could disrupt business continuity.premium.

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is intended to provide fast and direct economic assistance for American workers and families, small businesses, and to preserve jobs in American industries. The CARES Act includes, among other

1112


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The Company qualifies as a small business under the CARES Act but did not apply for any of the government loan programs.

At present, the Company’s insurance subsidiaries do not foresee a direct material impact from the outbreak of COVID-19 in terms of increased claims and losses. However, the resulting economic uncertainty is adversely affecting the results of the Company’s investment portfolios (See Note 5 – Investments). The Company generally holds or invests premiums collected from policyholders in the financial markets in order to earn income before claims need to be paid. Since the economic outlook started to deteriorate, the Company’s investments in limited partnerships, equity and fixed-maturity securities have decreased in value.

In addition, the Company’s insurance subsidiaries may experience difficulties collecting premiums from some policyholders. Policyholders with financial difficulties may decide not to renew insurance policies with the Company. Reinsurance companies with which the Company has contracted may also face liquidity issues and may not timely settle reinsurance balances that become due. Reinsurance costs have increased as reinsurers pay COVID-19 related claims worldwide and face the possibility of increases in the cost of capital needed to fund their operations.

Furthermore, due to the impact of the COVID-19 outbreak on retail business activities, rent payments due from the Company’s lessees may be delayed or not received. Some lessees, with the exception of all anchor tenants, have sought rent concessions in order to stay in business. In the near term, the Company determined there is 0 impairment to its real estate investments or intangible assets as the real estate market is inherently slower moving than equity and debt security markets. For other auxiliary operations such as restaurant and marina business, the temporary closure of these operations has no material impact on the Company’s results of operations.

It is too early to gauge the effectiveness of the CARES Act and any upcoming stimulus package in assisting targeted individuals and businesses and preventing further economic downturn. As of the date of issuance of these interim unaudited consolidated financial statements, the extent to which the COVID-19 pandemic may materially affect the Company’s financial condition, liquidity, or results of operations in the medium and long-term future remains uncertain and unquantifiable.

Note 2 -- Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements for HCI Group, Inc. and its majority-owned and controlled subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of September 30, 20202021 and the results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2020.2021. The accompanying unaudited consolidated financial statements and

12


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 20192020 included in the Company’s Form 10-K, which was filed with the SEC on March 6, 2020.12, 2021.

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

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

All significant intercompany balances and transactions have been eliminated.

Adoption of New Accounting Standards

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13 (“ASU 2016-13”), Financial Instruments – Credit Losses (Topic 326), effective January 1, 2020. This update amends guidance on the recognition and measurement of credit losses for assets held at amortized cost and available-for-sale debt securities. For assets held at amortized cost, ASU 2016-13 eliminates the probable initial recognition threshold and, instead, requires credit losses to be measured using the Current Expected Credit Loss (“CECL”) model. The CECL model requires the measurement of all expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts which incorporate forward-looking information. For available-for-sale debt securities, credit losses will continue to be measured in a manner similar to the current standard.

Effective January 1, 2020, the Company used a modified retrospective method for transition to the CECL model. The Company recognized a cumulative-effect adjustment of $453 related to reinsurance recoverable to beginning retained income with a corresponding entry to an allowance for credit losses account.  Any subsequent changes to the expected credit losses will be recognized in the Company’s consolidated statement of income.

Allowance for Credit Losses

Allowance for credit losses represents an estimation of potential losses that the Company may experience due to credit risk. The allowance for credit losses account is a contra account of a financial asset to reflect the net amount expected to be collected. Any increase or decrease in the allowance for credit losses related to investments is recognized and reflected as credit losses on investments in the Company’s consolidated statement of income. For all other financial assets, credit loss expense is included in other operating expenses. When the risk of credit loss becomes certain, the allowance for credit losses account will be written off against the financial asset. Under the CECL model, the Company measures all expected credit losses related to relevant financial assets based on historical experience, current conditions, and reasonable and supportable forecasts which incorporate forward-looking information. The Company primarily uses a discounted cash flow method

13


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

and a rating-based method in estimating credit losses at a reporting date for financial assets under the scope of the CECL model. The discounted cash flow method is a valuation method used to estimate the value of a financial asset based on its future cash flows. The Company uses this method to determine the expected credit losses for available-for-sale fixed-maturity securities. In addition, the Company elects not to measure an allowance for credit losses for accrued interest receivable as any uncollectible amount is adjusted to interest income on a monthly basis.2020-06.

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

Limited Partnership Investments

The Company has interests in limited partnerships that are not registered under the United States Securities Act of 1933, as amended, the securities laws of any state or the securities laws of any other jurisdictions. The partnership interests cannot be resold in the public market and any withdrawal is subject to the terms and conditions of the partnership agreement. The Company has no influence over partnership operating and financial policies. The Company uses the equity method to account for the investments with ownership interest greater than 5 percent. For the investments with ownership interest at 5 percent or less, the Company uses the net asset value method to estimate the fair value of these investments. The Company generally recognizes its share of the limited partnership’s earnings or losses on a three-month lag.  Due to the lag, the Company may record an adjustment to the Company’s most recent share of net asset value when the amount can be reasonably estimated and a significant adverse impact on the net asset value is expected as a result of a major economic event.

Net investment income or loss from limited partnerships represents a net aggregate amount of operating results allocated to the Company based on the percentage of ownership interest in each limited partnership.

Pursuant to U.S. GAAP, these limited partnerships which are private equity funds must measure their investments at fair value and reflect the unrealized gains and losses in the fair value of their investments on their statement of income. As a result, the carrying value of limited partnership investments at each reporting date approximates their estimated fair value.

Premium Receivable

Premium receivable represents the amount of premiums due from policyholders for insurance coverage.  Premiums are recorded as receivable in the Company’s general ledger on the effective date of the policy.  Premiums are billed to the policyholder 45-60 days in advance of the effective date. The policyholder is given a 30-day grace period after the effective date to pay the premium before the insurance coverage is cancelled.  If the policyholder does not pay the premium, the Company can cancel the policy and has no obligation to provide insurance coverage. Unpaid renewal policies are cancelled at midnight on the last day of the period for which

14


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

the policyholder has paid. The unearned premium liability for the cancelled policy is reversed along with the premium receivable balance. Therefore, there is 0 unpaid earned premium and credit loss associated with the cancelled policy.

However, when the 30-day grace period falls between two reporting periods, the premium receivable balance at the end of the first reporting period may potentially be overstated for not considering the policy that is subsequently cancelled during the following reporting period. To mitigate the overstatement issue, the Company estimates the monetary impact from the subsequent policy cancellation by multiplying the historical cancellation rate to the premium receivable balance at the reporting date. The premium receivable balance, together with the unearned premium liability is then reduced by the computed amount.

At September 30, 2020 and December 31, 2019, allowances for uncollectible premiums were $2,369 and $528, respectively.

Deferred Policy Acquisition Costs

Deferred policy acquisition costs (“DAC”) represent direct costs to acquire insurance contracts and consist of premium taxes and commissions paid to outside agents at the time of collection of the policy premium. DAC also includes a cash bonus and other related expenses in association with the successful transition of policies from Anchor for the replacement policies and issuance of renewal policies under the Company’s own rates and terms. DAC is amortized over the life of the related policy in relation to the amount of gross premiums earned.

The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value, which gives effect to the gross premium earned, related investment income, unpaid losses and loss adjustment expenses and certain other costs expected to be incurred as the premium is earned.

DAC is reviewed to determine if it is recoverable from future premium income, including investment income. If such costs are determined to be unrecoverable, they are expensed at the time of determination. The amount of DAC considered recoverable could be reduced in the near term if the estimates of total revenues discussed above are reduced or permanently impaired as a result of the disposition of a line of business. The amount of amortization of DAC could be revised in the near term if any of the estimates discussed above are revised.

Note 3 – Recent Accounting Pronouncements

Accounting Standards Update No. 2020-01. In JanuaryAugust 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-01 (“ASU 2020-01”) Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This update, among others, clarifies the interaction of the accounting for equity securities under Topic 321 and investments under the equity method of accounting in Topic 323 when there is a change in level of ownership or degree of influence. ASU 2020-01 is effective for the Company beginning with the first quarter of 2021 and will be applied prospectively. Early adoption is permitted. This guidance will not have a material impact on the Company’s consolidated financial statements.

15


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. 2020-06. In August 2020, the FASB issued Accounting Standards Update No. 2020-06 (“ASU 2020-06”) Debt—Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 removes certain bifurcation models for convertible debt instruments and convertible preferred stock. Therefore, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. The amendments also remove three settlement conditions that are required for equity contracts to qualify for the derivative scope exception and amend the derivative scope exception guidance for contracts in an entity’s own equity. In addition, the amendments expand disclosure requirements for convertible instruments and simplify areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments.

13


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

Funds Held in Trust for Assumed Business

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

Redeemable Noncontrolling Interest

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

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

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

Noncontrolling Interests

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

Revenue from Claims Handling Services

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

14


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

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

Revenue related to claims handling services is included in other revenue in the consolidated statement of income. For the three and nine months ended September 30, 2021, revenues from claims handling services were $1,709 and $1,916, respectively. At September 30, 2021, other assets included $768 of amounts receivable attributable to this service.

Stock-Based Compensation

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

Reclassification

In response to the new reporting segment described in Note 1 -- “Nature of Operations,” the prior period segment information has been reclassified to conform with the current period presentation. TypTap and TypTap Management Company were removed from the segment previously referred to as Insurance Operations to form the new TypTap Group segment. The information technology companies which had previously been presented in the Corporate and Other segment were also added to the TypTap Group segment.

Note 3 -- Recent Accounting Pronouncements

Accounting Standards Update No. 2021-01. In January 2021, the FASB issued Accounting Standards Update No. 2021-01 (“ASU 2020-062021-01”) Reference Rate Reform (Topic 848). This update refines the scope of ASC 848 and clarifies some of its guidance as part of the Board’s monitoring of global reference rate reform activities. ASU 2021-01 permits entities to apply certain optional expedients to modifications of interest rate indexes used for margining, discounting or contract price alignment of certain derivatives in connection with reference rate reform activities under way in global financial markets. It also extends optional expedients to account for a

15


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

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

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

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

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Cash and cash equivalents

 

$

410,691

 

 

$

229,218

 

 

$

569,134

 

$

431,341

 

Restricted cash

 

 

2,400

 

 

 

700

 

 

 

2,400

 

 

2,400

 

Total

 

$

413,091

 

 

$

229,918

 

 

$

571,534

 

$

433,741

 

Restricted cash primarily represents funds held by certain states in which the Company’s insurance subsidiaries conduct business to meet regulatory requirements. To facilitate TypTap’s expansion plan to other states, the Company increased its funds held at the State of Florida by $1,700 during the third quarter of 2020.

16


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 5 -- Investments

a) Available-for-Sale Fixed-Maturity Securities

The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At September 30, 20202021 and December 31, 2019,2020, the cost or amortized cost, allowance for credit loss, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:

 

Cost or

Amortized

 

 

Allowance for Credit

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Estimated

Fair

 

 

Cost

 

 

Loss

 

 

Gain

 

 

Loss

 

 

Value

 

 

Cost or
Amortized

 

 

Allowance
for Credit

 

 

Gross
Unrealized

 

 

Gross
Unrealized

 

 

Estimated
Fair

 

As of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

 

Loss

 

 

Gain

 

 

Loss

 

 

Value

 

As of September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

11,629

 

 

$

 

 

$

253

 

 

$

 

 

$

11,882

 

 

$

12,870

 

$

 

$

103

 

$

(20

)

 

$

12,953

 

Corporate bonds

 

 

66,898

 

 

 

(564

)

 

 

1,619

 

 

 

(128

)

 

 

67,825

 

 

27,736

 

 

851

 

(62

)

 

28,525

 

State, municipalities, and political subdivisions

 

 

5,818

 

 

 

 

 

 

90

 

 

 

 

 

 

5,908

 

States, municipalities, and political subdivisions

 

1,757

 

 

60

 

 

1,817

 

Exchange-traded debt

 

 

6,786

 

 

 

(32

)

 

 

342

 

 

 

(1

)

 

 

7,095

 

 

2,185

 

 

104

 

 

2,289

 

Redeemable preferred stock

 

 

35

 

 

 

 

 

 

 

 

 

(2

)

 

 

33

 

 

 

468

 

 

 

 

2

 

 

(1

)

 

 

469

 

Total

 

$

91,166

 

 

$

(596

)

 

$

2,304

 

 

$

(131

)

 

$

92,743

 

 

$

45,016

 

$

 

$

1,120

 

$

(83

)

 

$

46,053

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

26,220

 

 

$

 

 

$

78

 

 

$

(3

)

 

$

26,295

 

 

$

13,759

 

$

 

$

210

 

$

(1

)

 

$

13,968

 

Corporate bonds

 

 

157,155

 

 

 

 

 

 

2,212

 

 

 

(3

)

 

 

159,364

 

 

49,957

 

(579

)

 

1,570

 

(17

)

 

50,931

 

State, municipalities, and political subdivisions

 

 

7,763

 

 

 

 

 

 

149

 

 

 

 

 

 

7,912

 

States, municipalities, and political subdivisions

 

3,023

 

 

60

 

(2

)

 

3,081

 

Exchange-traded debt

 

 

8,698

 

 

 

 

 

 

462

 

 

 

(15

)

 

 

9,145

 

 

3,491

 

(9

)

 

230

 

(5

)

 

3,707

 

Redeemable preferred stock

 

 

118

 

 

 

 

 

 

5

 

 

 

 

 

 

123

 

 

 

35

 

 

 

 

 

 

 

 

35

 

Total

 

$

199,954

 

 

$

 

 

$

2,906

 

 

$

(21

)

 

$

202,839

 

 

$

70,265

 

$

(588

)

 

$

2,070

 

$

(25

)

 

$

71,722

 

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities as of September 30, 20202021 and December 31, 20192020 are as follows:

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Cost or

 

 

Estimated

 

 

Cost or

 

 

Estimated

 

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

12,413

 

 

$

12,497

 

 

$

21,122

 

 

$

21,258

 

Due after one year through five years

 

 

23,548

 

 

 

24,209

 

 

 

43,561

 

 

 

44,339

 

Due after five years through ten years

 

 

7,250

 

 

 

7,444

 

 

 

2,731

 

 

 

3,060

 

Due after ten years

 

 

1,805

 

 

 

1,903

 

 

 

2,851

 

 

 

3,065

 

 

 

$

45,016

 

 

$

46,053

 

 

$

70,265

 

 

$

71,722

 

 

 

Amortized

 

 

Estimated

 

 

 

Cost

 

 

Fair Value

 

As of September 30, 2020

 

 

 

 

 

 

 

 

Due in one year or less

 

$

34,594

 

 

$

34,814

 

Due after one year through five years

 

 

48,555

 

 

 

49,329

 

Due after five years through ten years

 

 

3,109

 

 

 

3,410

 

Due after ten years

 

 

4,908

 

 

 

5,190

 

 

 

$

91,166

 

 

$

92,743

 

 

 

Amortized

 

 

Estimated

 

 

 

Cost

 

 

Fair Value

 

As of December 31, 2019

 

 

 

 

 

 

 

 

Due in one year or less

 

$

63,135

 

 

$

63,429

 

Due after one year through five years

 

 

125,833

 

 

 

127,660

 

Due after five years through ten years

 

 

6,896

 

 

 

7,350

 

Due after ten years

 

 

4,090

 

 

 

4,400

 

 

 

$

199,954

 

 

$

202,839

 

17


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Sales of Available-for-Sale Fixed-Maturity Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and nine months ended September 30, 20202021 and 20192020 were as follows:

 

 

 

 

 

Gross

Realized

 

 

Gross

Realized

 

 

Proceeds

 

 

Gains

 

 

Losses

 

 

 

 

 

Gross
Realized

 

 

Gross
Realized

 

 

Proceeds

 

 

Gains

 

 

Losses

 

Three months ended September 30, 2021

 

$

4,158

 

$

94

 

$

(6

)

Three months ended September 30, 2020

 

$

1,098

 

 

$

13

 

 

$

(34

)

 

$

1,098

 

$

13

 

$

(34

)

Three months ended September 30, 2019

 

$

2,240

 

 

$

27

 

 

$

(1

)

Nine months ended September 30, 2021

 

$

18,838

 

$

671

 

$

(6

)

Nine months ended September 30, 2020

 

$

79,284

 

 

$

1,743

 

 

$

(610

)

 

$

79,284

 

$

1,743

 

$

(610

)

Nine months ended September 30, 2019

 

$

5,225

 

 

$

61

 

 

$

(2

)

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

Securities with gross unrealized loss positions at September 30, 20202021 and December 31, 2019,2020, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:

 

 

Less Than Twelve Months

 

 

Twelve Months or Longer

 

 

Total

 

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

As of September 30, 2020

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

Corporate bonds

 

$

(128

)

 

$

4,759

 

 

$

 

 

$

 

 

$

(128

)

 

$

4,759

 

Exchange-traded debt

 

 

(1

)

 

 

252

 

 

 

0

 

 

 

0

 

 

 

(1

)

 

 

252

 

Redeemable preferred stock

 

 

(2

)

 

 

33

 

 

 

 

 

 

 

 

 

(2

)

 

 

33

 

Total

 

$

(131

)

 

$

5,044

 

 

$

 

 

$

 

 

$

(131

)

 

$

5,044

 

 

 

Less Than Twelve Months

 

 

Twelve Months or Longer

 

 

Total

 

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

As of September 30, 2021

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

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

 

$

(20

)

 

$

4,634

 

 

$

 

 

$

 

 

$

(20

)

 

$

4,634

 

Corporate bonds

 

 

(42

)

 

 

5,129

 

 

 

(20

)

 

 

331

 

 

 

(62

)

 

 

5,460

 

Redeemable preferred stock

 

 

(1

)

 

 

424

 

 

 

 

 

 

 

 

 

(1

)

 

 

424

 

Total available-for-sale securities

 

$

(63

)

 

$

10,187

 

 

$

(20

)

 

$

331

 

 

$

(83

)

 

$

10,518

 

 

 

Less Than Twelve Months

 

 

Twelve Months or Longer

 

 

Total

 

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

Gross

 

 

Estimated

 

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

As of December 31, 2020

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

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

 

$

(1

)

 

$

1,337

 

 

$

 

 

$

 

 

$

(1

)

 

$

1,337

 

Corporate bonds

 

 

(17

)

 

 

3,085

 

 

 

0

 

 

 

0

 

 

 

(17

)

 

 

3,085

 

States, municipalities, and political
   subdivisions

 

 

(2

)

 

 

1,268

 

 

 

0

 

 

 

0

 

 

 

(2

)

 

 

1,268

 

Exchange-traded debt

 

 

(5

)

 

 

336

 

 

 

0

 

 

 

0

 

 

 

(5

)

 

 

336

 

Total available-for-sale securities

 

$

(25

)

 

$

6,026

 

 

$

 

 

$

 

 

$

(25

)

 

$

6,026

 

At September 30, 2021 and December 31, 2020, there were 1332 and 12 securities, respectively, in an unrealized loss position. Of these securities, NaN had been in an unrealized loss position for 12 months or longer.

 

 

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, 2019

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

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

 

$

(3

)

 

$

2,292

 

 

$

 

 

$

 

 

$

(3

)

 

$

2,292

 

Corporate bonds

 

 

(3

)

 

 

4,597

 

 

 

0

 

 

 

0

 

 

 

(3

)

 

 

4,597

 

Exchange-traded debt

 

 

(15

)

 

 

345

 

 

 

0

 

 

 

0

 

 

 

(15

)

 

 

345

 

Total

 

$

(21

)

 

$

7,234

 

 

$

 

 

$

 

 

$

(21

)

 

$

7,234

 

At December 31, 2019, there were 8 securities in an unrealized loss position. Of these securities, NaN had been in an unrealized loss position for 12 months or longer.

18


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

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

the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;
the extent to which the market value of the security has been below its cost or amortized cost;
general market conditions and industry or sector specific factors and other qualitative factors;
nonpayment by the issuer of its contractually obligated interest and principal payments; and
the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

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

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

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

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

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

The table below summarizedsummarizes the activity in the allowance for credit losses of available-for-sale securities for the three and nine months ended on September 30, 2021 and 2020:

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

2020

 

Balance at January 1

 

$

0

 

 

$

588

 

$

0

 

Credit loss expense

 

 

439

 

 

 

439

 

Reductions for securities sold

 

 

(9

)

 

 

 

Balance at March 31

 

$

439

 

 

$

579

 

$

439

 

Credit loss expense

 

 

87

 

 

 

87

 

Reductions for securities exchanged

 

 

(579

)

 

 

 

Balance at June 30

 

$

526

 

 

$

0

 

$

526

 

Credit loss expense

 

 

70

 

 

 

0

 

 

70

 

Balance at September 30

 

$

596

 

 

$

0

 

$

596

 

b) Equity Securities

The Company holds investments in equity securities measured at fair values which are readily determinable. At September 30, 20202021 and December 31, 2019,2020, 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, 2020

 

$

39,861

 

 

$

3,903

 

 

$

(1,062

)

 

$

42,702

 

December 31, 2019

 

$

31,863

 

 

$

3,652

 

 

$

(230

)

 

$

35,285

 

 

 

 

 

 

Gross
Unrealized

 

 

Gross
Unrealized

 

 

Estimated
Fair

 

 

 

Cost

 

 

Gain

 

 

Loss

 

 

Value

 

September 30, 2021

 

$

46,771

 

 

$

4,592

 

 

$

(1,140

)

 

$

50,223

 

December 31, 2020

 

$

47,029

 

 

$

4,649

 

 

$

(548

)

 

$

51,130

 

19


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net gains (losses) recognized

 

$

1,521

 

 

$

586

 

 

$

(2,363

)

 

$

6,616

 

Exclude: Net realized gains (losses) recognized for

   securities sold

 

 

181

 

 

 

(56

)

 

 

(1,782

)

 

 

(645

)

Net unrealized gains (losses) recognized

 

$

1,340

 

 

$

642

 

 

$

(581

)

 

$

7,261

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net (losses) gains recognized

 

$

(916

)

 

$

1,521

 

 

$

2,620

 

 

$

(2,363

)

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

 

 

953

 

 

 

181

 

 

 

3,269

 

 

 

(1,782

)

Net unrealized (losses) gains recognized

 

$

(1,869

)

 

$

1,340

 

 

$

(649

)

 

$

(581

)

Sales of Equity Securities

Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and nine months ended September 30, 20202021 and 20192020 were as follows:

 

 

 

 

 

Gross

Realized

 

 

Gross

Realized

 

 

Proceeds

 

 

Gains

 

 

Losses

 

 

 

 

 

Gross
Realized

 

 

Gross
Realized

 

 

Proceeds

 

 

Gains

 

 

Losses

 

Three months ended September 30, 2021

 

$

24,781

 

$

1,141

 

$

(188

)

Three months ended September 30, 2020

 

$

4,930

 

 

$

244

 

 

$

(63

)

 

$

4,930

 

$

244

 

$

(63

)

Three months ended September 30, 2019

 

$

1,504

 

 

$

43

 

 

$

(99

)

Nine months ended September 30, 2021

 

$

81,292

 

$

4,266

 

$

(997

)

Nine months ended September 30, 2020

 

$

17,385

 

 

$

1,213

 

 

$

(2,995

)

 

$

17,385

 

$

1,213

 

$

(2,995

)

Nine months ended September 30, 2019

 

$

34,345

 

 

$

2,230

 

 

$

(2,875

)

20


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

c) Limited Partnership Investments

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

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

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)

 

$

6,100

 

 

$

2,085

 

 

 

15.37

 

 

$

8,131

 

 

$

2,085

 

 

 

15.37

 

Value creation through active distressed debt
   investing primarily in bank loans, public and
   private corporate bonds, asset-backed
   securities, and equity securities received in
   connection with debt restructuring. (b)(d)(e)

 

 

4,198

 

 

 

 

 

 

1.76

 

 

 

5,512

 

 

 

 

 

 

1.76

 

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

 

 

6,179

 

 

 

1,401

 

 

 

0.18

 

 

 

6,513

 

 

 

1,401

 

 

 

0.18

 

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

 

 

4,338

 

 

 

 

 

 

0.47

 

 

 

4,262

 

 

 

 

 

 

0.47

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

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)

 

$

8,879

 

 

$

2,085

 

 

 

15.37

 

 

$

9,659

 

 

$

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)

 

 

5,633

 

 

 

 

 

 

1.76

 

 

 

5,985

 

 

 

 

 

 

1.76

 

High returns and long-term capital appreciation

   through investments in the power, utility and

   energy industries, and in the infrastructure

   sector. (b)(f)(g)

 

 

6,640

 

 

 

1,401

 

 

 

0.18

 

 

 

9,188

 

 

 

1,391

 

 

 

0.18

 

Value-oriented investments in less liquid and

   mispriced senior and junior debts of private

   equity-backed companies. (b)(h)(i)

 

 

4,355

 

 

 

406

 

 

 

0.47

 

 

 

1,602

 

 

 

3,106

 

 

 

0.47

 

Value-oriented investments in mature real

   estate private equity funds and portfolio

   globally. (b)(j)

 

 

1,990

 

 

 

8,286

 

 

 

2.24

 

 

 

1,912

 

 

 

8,548

 

 

 

2.24

 

Total

 

$

27,497

 

 

$

12,178

 

 

 

 

 

 

$

28,346

 

 

$

15,130

 

 

 

 

 

(a)20

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

(b)

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

(c)

Expected to have a ten-year term. Although the capital commitment period has expired, there are still follow-on investments and pending commitments that require additional fundings.

(d)

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

(e)

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

(f)

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

(g)

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

(h)

Expected to have a six-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 was extended and is now expected to expire on December 1, 2020.

(j)

Expected to have an eight-year term from November 27, 2019.

21


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

 

 

5,224

 

 

 

5,494

 

 

 

2.24

 

 

 

3,273

 

 

 

6,818

 

 

 

2.24

 

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

 

 

0

 

 

 

5,000

 

 

 

0

 

 

 

 

 

 

 

 

 

 

Total

 

$

26,039

 

 

$

13,980

 

 

 

 

 

$

27,691

 

 

$

10,304

 

 

 

 

(a)
Represents the Company’s percentage investment in the fund at each balance sheet date.
(b)
Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.
(c)
Expected to have a ten-year term. Although the capital commitment period has expired, there are still follow-on investments and pending commitments that require additional fundings.
(d)
Expected to have a three-year term from June 30, 2018. The term has been extended for a one-year additional period to June 30, 2022. Although the capital commitment period has ended, the general partner could still request an additional funding of approximately $843 under certain circumstances.
(e)
At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods.
(f)
Expected to have a ten-year term. The capital commitment period has expired but the general partner may request additional funding for follow-on investment.
(g)
With the consent of a supermajority of partners, the term of the fund may be extended for up to three additional one-year periods.
(h)
Expected to have a six-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners.
(i)
The capital commitment period has ended but an additional funding may be requested.
(j)
Expected to have an eight-year term from November 27, 2019.
(k)
Expected to have an eight-year term after the final admission date.

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

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income

 

$

259,635

 

 

$

(100,043

)

 

$

(1,421,381

)

 

$

147,858

 

 

$

(13,796

)

 

$

259,635

 

$

359,885

 

$

(1,421,381

)

Total expenses

 

 

(26,637

)

 

 

(27,212

)

 

 

(107,157

)

 

 

(108,385

)

 

 

(24,828

)

 

 

(26,637

)

 

 

(105,548

)

 

 

(107,157

)

Net (loss) income

 

$

232,998

 

 

$

(127,255

)

 

$

(1,528,538

)

 

$

39,473

 

 

$

(38,624

)

 

$

232,998

 

$

254,337

 

$

(1,528,538

)

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Balance sheet:

 

 

 

 

 

 

Total assets

 

$

5,562,430

 

 

$

5,529,199

 

Total liabilities

 

$

505,843

 

 

$

612,048

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Balance Sheet:

 

 

 

 

 

 

 

 

Total assets

 

$

5,409,112

 

 

$

6,850,913

 

Total liabilities

 

$

638,784

 

 

$

549,562

 

21


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

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

For the three and nine months ended September 30, 2019, the Company recognized net investment income of $476 and $1,308, respectively. During the three and nine months ended September 30, 2019, the Company received total cash distributions of $724 and $4,810, respectively. Cash distributions representing return on investment were $31 and $3,647 for the three and nine months ended September 30, 2019, respectively. At September 30, 20202021 and December 31, 2019,2020, the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $28,976$26,474 and $27,117,$29,272, respectively, and the Company’s maximum exposure to loss aggregated $27,497$26,039 and $28,346,$27,691, respectively.

d) Investment in Unconsolidated Joint Venture

Melbourne FMA, LLC, a wholly owned subsidiary, currently has an equity investment in FMKT Mel JV, a Florida limited liability company treated as a joint venture under U.S. GAAP. At September 30, 20202021 and December 31, 2019,2020, the Company’s maximum exposure to loss relating to the variable interest entity was $716$370 and $762,$705, respectively, representing the carrying value of the investment. In September 2021, FMKT Mel JV sold one of its remaining outparcels and recognized a gain on sale of $540. During the three months ended September 30, 2021, the Company received a cash distribution of $737, including return on investment of $114. There were 0 cash distributions during the nine months ended September 30, 2020 and 2019.2020. At September 30, 20202021 and December 31, 2019,2020, there was 0 undistributed income from this equity method investment. The following tables provide FMJV’s summarized unaudited financial results and the unaudited financial positions:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating results:

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

540

 

 

$

 

 

$

540

 

 

$

 

Total expenses

 

 

(14

)

 

 

(19

)

 

 

(70

)

 

 

(51

)

Net income (loss)

 

$

526

 

 

$

(19

)

 

$

470

 

 

$

(51

)

The Company’s share of net income (loss)*

 

$

473

 

 

$

(18

)

 

$

423

 

 

$

(46

)

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues and gain

 

$

 

 

$

 

 

$

 

 

$

2

 

Total expenses

 

 

(19

)

 

 

(18

)

 

 

(51

)

 

 

(80

)

Net loss

 

$

(19

)

 

$

(18

)

 

$

(51

)

 

$

(78

)

The Company’s share of net loss*

 

$

(18

)

 

$

(17

)

 

$

(46

)

 

$

(71

)

*

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Balance sheet:

 

 

 

 

 

 

Property and equipment, net

 

$

362

 

 

$

705

 

Cash

 

 

37

 

 

 

70

 

Other

 

 

18

 

 

 

13

 

Total assets

 

$

417

 

 

$

788

 

 

 

 

 

 

 

 

Other liabilities

 

$

6

 

 

$

5

 

Members’ capital

 

 

411

 

 

 

783

 

Total liabilities and members’ capital

 

$

417

 

 

$

788

 

Investment in unconsolidated joint venture, at equity**

 

$

370

 

 

$

705

 

22

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

22


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,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Balance Sheet:

 

 

 

 

 

 

 

 

Property and equipment, net

 

$

714

 

 

$

741

 

Cash

 

 

90

 

 

 

102

 

Other

 

 

4

 

 

 

4

 

Total assets

 

$

808

 

 

$

847

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

$

12

 

 

$

 

Members’ capital

 

 

796

 

 

 

847

 

Total liabilities and members’ capital

 

$

808

 

 

$

847

 

Investment in unconsolidated joint venture, at equity**

 

$

716

 

 

$

762

 

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

**

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

e) Assets Held for Sale

On April 9, 2020, Greenleaf Capital, LLC decided to offer for sale its investment property in Riverview, Florida. The proceeds from the sale are expected to exceed the property’s carrying value of $4,519 and, accordingly, 0 impairment loss was recognized on the classification of this property as held for sale.

f) Real Estate Investments

Real estate investments consist of the following as of September 30, 20202021 and December 31, 2019.2020:

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Land

 

$

39,069

 

 

$

39,069

 

Land improvements

 

 

11,917

 

 

 

11,917

 

Buildings

 

 

29,405

 

 

 

29,115

 

Tenant and leasehold improvements

 

 

1,488

 

 

 

1,487

 

Other

 

 

1,229

 

 

 

1,465

 

Total, at cost

 

 

83,108

 

 

 

83,053

 

Less: accumulated depreciation and amortization

 

 

(9,445

)

 

 

(8,581

)

Real estate investments

 

$

73,663

 

 

$

74,472

 

For the nine months ended September 30, 2021, the Company incurred a $21 loss on disposal of assets related to a closure of a restaurant. Depreciation and amortization expense related to real estate investments was $475 and $431 for the three months ended September 30, 2021 and 2020, respectively, and $1,445 and $1,318 for the nine months ended September 30, 2021 and 2020, respectively.

g) Net Investment Income (Loss)

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Land

 

$

36,239

 

 

$

39,511

 

Land improvements

 

 

11,422

 

 

 

11,907

 

Buildings

 

 

23,006

 

 

 

24,086

 

Tenant and leasehold improvements

 

 

1,263

 

 

 

1,487

 

Other

 

 

6,442

 

 

 

3,489

 

Total, at cost

 

 

78,372

 

 

 

80,480

 

Less: accumulated depreciation and amortization

 

 

(7,806

)

 

 

(6,717

)

Real estate investments

 

$

70,566

 

 

$

73,763

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Available-for-sale fixed-maturity securities

 

$

266

 

 

$

771

 

 

$

1,091

 

 

$

3,529

 

Equity securities

 

 

322

 

 

 

336

 

 

 

1,013

 

 

 

970

 

Investment expense

 

 

(134

)

 

 

(125

)

 

 

(388

)

 

 

(367

)

Limited partnership investments

 

 

1,132

 

 

 

689

 

 

 

3,491

 

 

 

(2,058

)

Real estate investments

 

 

305

 

 

 

(34

)

 

 

3,646

 

 

 

(299

)

Net income (loss) from unconsolidated
   joint venture

 

 

473

 

 

 

(18

)

 

 

423

 

 

 

(46

)

Cash and cash equivalents

 

 

156

 

 

 

212

 

 

 

473

 

 

 

1,513

 

Short-term investments

 

 

 

 

 

1

 

 

 

 

 

 

2

 

Net investment income

 

$

2,520

 

 

$

1,832

 

 

$

9,749

 

 

$

3,244

 

In July 2020,For the nine months ended September 30, 2021, income from real estate investments included a portionnet gain of undeveloped land$2,790 resulting from a legal settlement with The Kroger Co. in a carrying value of $443 was acquiredlawsuit filed by the Florida Department of Transportation (“FDOT”) as parta real estate subsidiary of the agreement describedCompany to enforce a guaranty of a commercial lease.

h) Other Investments

From time to time, the Company may invest in Note 9 – “Propertyfinancial assets other than stocks, mutual funds and Equipment, Net.”bonds. For the three and nine months ended September 30, 2021, net realized gains related to other investments were

23


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Depreciation

$191 and amortization expense$1,018, respectively. There were net realized gains of $17 related to real estateother investments was $431 and $379 for the three months ended September 30, 2020 and 2019, respectively, and $1,318 and $1,133 for the nine months ended September 30, 2020 and 2019, respectively. During the second quarter of 2020, the Company classified the investment property as described earlier to assets held for sale.2020.

g) Net Investment Income (Loss)

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Available-for-sale fixed-maturity securities

 

$

771

 

 

$

1,637

 

 

$

3,529

 

 

$

4,794

 

Equity securities

 

 

336

 

 

 

305

 

 

 

970

 

 

 

979

 

Investment expense

 

 

(125

)

 

 

(114

)

 

 

(367

)

 

 

(349

)

Limited partnership investments

 

 

689

 

 

 

476

 

 

 

(2,058

)

 

 

1,308

 

Real estate investments

 

 

(34

)

 

 

(28

)

 

 

(299

)

 

 

173

 

Loss from unconsolidated joint venture

 

 

(18

)

 

 

(17

)

 

 

(46

)

 

 

(71

)

Cash and cash equivalents

 

 

212

 

 

 

1,354

 

 

 

1,513

 

 

 

3,908

 

Short-term investments

 

 

1

 

 

 

8

 

 

 

2

 

 

 

383

 

Net investment income

 

$

1,832

 

 

$

3,621

 

 

$

3,244

 

 

$

11,125

 

Note 6 -- Comprehensive Income (Loss)

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

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

 

Before

 

 

Income Tax

 

 

Net of

 

 

Before

 

 

Income Tax

 

 

Net of

 

 

 

Tax

 

 

Effect

 

 

Tax

 

 

Tax

 

 

Effect

 

 

Tax

 

Net unrealized (losses) gains

 

$

(258

)

 

$

(63

)

 

$

(195

)

 

$

247

 

 

$

61

 

 

$

186

 

Credit losses on investments

 

 

0

 

 

 

0

 

 

 

0

 

 

 

70

 

 

 

17

 

 

 

53

 

Call and repayment gains charged to
   investment income

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(15

)

 

 

(4

)

 

 

(11

)

Reclassification adjustment for realized
   (gains) losses

 

 

(88

)

 

 

(22

)

 

 

(66

)

 

 

21

 

 

 

5

 

 

 

16

 

Total other comprehensive (losses) gains

 

$

(346

)

 

$

(85

)

 

$

(261

)

 

$

323

 

 

$

79

 

 

$

244

 

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

 

Before

 

 

Income Tax

 

 

Net of

 

 

Before

 

 

Income Tax

 

 

Net of

 

 

 

Tax

 

 

Effect

 

 

Tax

 

 

Tax

 

 

Effect

 

 

Tax

 

Net unrealized (losses) gains

 

$

(341

)

 

$

(83

)

 

$

(258

)

 

$

56

 

 

$

14

 

 

$

42

 

Credit losses on investments

 

 

0

 

 

 

0

 

 

 

0

 

 

 

596

 

 

 

146

 

 

 

450

 

Call and repayment gains charged to
   investment income

 

 

(2

)

 

 

(1

)

 

 

(1

)

 

 

(231

)

 

 

(56

)

 

 

(175

)

Reclassification adjustment for realized
   gains

 

 

(665

)

 

 

(163

)

 

 

(502

)

 

 

(1,133

)

 

 

(278

)

 

 

(855

)

Total other comprehensive losses

 

$

(1,008

)

 

$

(247

)

 

$

(761

)

 

$

(712

)

 

$

(174

)

 

$

(538

)

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

 

 

 

 

 

Income Tax

 

 

 

 

 

 

 

 

 

 

Income Tax

 

 

 

 

 

 

 

Before

 

 

Expense

 

 

Net of

 

 

Before

 

 

Expense

 

 

Net of

 

 

 

Tax

 

 

(Benefit)

 

 

Tax

 

 

Tax

 

 

(Benefit)

 

 

Tax

 

Unrealized gains arising during the period

 

$

247

 

 

$

61

 

 

$

186

 

 

$

447

 

 

$

90

 

 

$

357

 

Change in allowance for credit losses

 

 

70

 

 

 

17

 

 

 

53

 

 

 

 

 

 

 

 

 

 

Call and repayment (gains) losses charged to

   investment income

 

 

(15

)

 

 

(4

)

 

 

(11

)

 

 

(2

)

 

 

 

 

 

(2

)

Reclassification adjustment for realized

   gains

 

 

21

 

 

 

5

 

 

 

16

 

 

 

(26

)

 

 

(7

)

 

 

(19

)

Total other comprehensive gains

 

$

323

 

 

$

79

 

 

$

244

 

 

$

419

 

 

$

83

 

 

$

336

 

24


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

 

 

 

 

 

Income Tax

 

 

 

 

 

 

 

 

 

 

Income Tax

 

 

 

 

 

 

 

Before

 

 

Expense

 

 

Net of

 

 

Before

 

 

Expense

 

 

Net of

 

 

 

Tax

 

 

(Benefit)

 

 

Tax

 

 

Tax

 

 

(Benefit)

 

 

Tax

 

Unrealized (losses) gains arising during the

   period

 

$

56

 

 

$

14

 

 

$

42

 

 

$

4,777

 

 

$

1,188

 

 

$

3,589

 

Change in allowance for credit losses

 

 

596

 

 

 

146

 

 

 

450

 

 

 

 

 

 

 

 

 

 

Call and repayment gains charged to

   investment income

 

 

(231

)

 

 

(56

)

 

 

(175

)

 

 

(1

)

 

 

 

 

 

(1

)

Reclassification adjustment for

   realized gains

 

 

(1,133

)

 

 

(278

)

 

 

(855

)

 

 

(59

)

 

 

(15

)

 

 

(44

)

Total other comprehensive (losses) gains

 

$

(712

)

 

$

(174

)

 

$

(538

)

 

$

4,717

 

 

$

1,173

 

 

$

3,544

 

Note 7 -- 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:

Level 1

-

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

Level 2

-

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

Level 3

-

Inputs that are unobservable.

24


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 equivalentsCash Equivalents

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

Restricted cashCash

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

Short-term investmentsFixed-Maturity and Equity Securities

Short-term investments consist of certificates of deposit with maturities of 91 to 365 days. Due to their short maturity, the carrying value approximates fair value.  

Fixed-maturity and equity securities

Estimated fair values of the Company’s fixed-maturity and equity securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are

25


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

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

Revolving Credit Facility

The Company’s revolving credit facility is a variable-rate loan. The interest rate is periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, its carrying value approximates fair value.

Long-term debtLong-Term Debt

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

Maturity

Date

Valuation Methodology

4.25%4.25% Convertible senior notes

2037

Quoted price

3.90%3.90% Promissory note

2032

Discounted cash flow method/Level 3 inputs

4% Promissory3.75% Callable promissory note

20312036

Discounted cash flow method/Level 3 inputs

3.75% Callable promissory4.55% Promissory note

2036

Discounted cash flow method/Level 3 inputs

4.55% Promissory note

2036

Discounted cash flow method/Level 3 inputs

2625


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Assets Measured at Estimated Fair Value on a Recurring Basis

The following table presents information about the Company’s financial assets measured at estimated fair value on a recurring basis. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of September 30, 20202021 and December 31, 2019:2020:

 

Fair Value Measurements Using

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

 

Fair Value Measurements Using

 

 

 

 

As of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

As of September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

410,691

 

 

$

 

 

$

 

 

$

410,691

 

 

$

569,134

 

$

 

$

 

$

569,134

 

Restricted cash

 

$

2,400

 

 

$

 

 

$

 

 

$

2,400

 

 

$

2,400

 

$

 

$

 

$

2,400

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

10,144

 

 

$

1,738

 

 

$

 

 

$

11,882

 

 

$

10,253

 

$

2,700

 

$

 

$

12,953

 

Corporate bonds

 

 

67,825

 

 

 

 

 

 

 

 

 

67,825

 

 

28,525

 

 

 

28,525

 

State, municipalities, and political subdivisions

 

 

 

 

 

5,908

 

 

 

 

 

 

5,908

 

 

 

1,817

 

 

1,817

 

Exchange-traded debt

 

 

7,095

 

 

 

 

 

 

 

 

 

7,095

 

 

2,289

 

 

 

2,289

 

Redeemable preferred stock

 

 

33

 

 

 

 

 

 

 

 

 

33

 

 

 

469

 

 

 

 

 

 

469

 

Total available-for-sale securities

 

$

85,097

 

 

$

7,646

 

 

$

 

 

$

92,743

 

 

$

41,536

 

$

4,517

 

$

 

$

46,053

 

Equity securities

 

$

42,702

 

 

$

 

 

$

 

 

$

42,702

 

 

$

50,223

 

$

 

$

 

$

50,223

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

431,341

 

 

$

 

 

$

 

 

$

431,341

 

Restricted cash

 

$

2,400

 

 

$

 

 

$

 

 

$

2,400

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

11,236

 

 

$

2,732

 

 

$

 

 

$

13,968

 

Corporate bonds

 

 

50,931

 

 

 

 

 

 

 

 

 

50,931

 

State, municipalities, and political subdivisions

 

 

 

 

 

3,081

 

 

 

 

 

 

3,081

 

Exchange-traded debt

 

 

3,707

 

 

 

 

 

 

 

 

 

3,707

 

Redeemable preferred stock

 

 

35

 

 

 

 

 

 

 

 

 

35

 

Total available-for-sale securities

 

$

65,909

 

 

$

5,813

 

 

$

 

 

$

71,722

 

Equity securities

 

$

51,130

 

 

$

 

 

$

 

 

$

51,130

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

229,218

 

 

$

 

 

$

 

 

$

229,218

 

Restricted cash

 

$

700

 

 

$

 

 

$

 

 

$

700

 

Short-term investments

 

$

491

 

 

$

 

 

$

 

 

$

491

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

25,294

 

 

$

1,001

 

 

$

 

 

$

26,295

 

Corporate bonds

 

 

159,364

 

 

 

 

 

 

 

 

 

159,364

 

State, municipalities, and political subdivisions

 

 

 

 

 

7,912

 

 

 

 

 

 

7,912

 

Exchange-traded debt

 

 

9,145

 

 

 

 

 

 

 

 

 

9,145

 

Redeemable preferred stock

 

 

123

 

 

 

 

 

 

 

 

 

123

 

Total available-for-sale securities

 

$

193,926

 

 

$

8,913

 

 

$

 

 

$

202,839

 

Equity securities

 

$

35,285

 

 

$

 

 

$

 

 

$

35,285

 

27


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Assets and Liabilities Carried at Other Than Estimated Fair Value

The following tables present fair value information for assets and liabilities that are carried on the consolidated balance sheetsheets at amounts other than fair value as of September 30, 20202021 and December 31, 2019:2020:

 

Carrying

 

 

Fair Value Measurements Using

 

 

Estimated

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Fair Value

 

 

Carrying

 

 

Fair Value Measurements Using

 

 

Estimated

 

As of September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Fair Value

 

As of September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

8,750

 

 

$

 

 

$

8,750

 

 

$

 

 

$

8,750

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.25% Convertible senior notes

 

$

132,901

 

 

$

 

 

$

141,984

 

 

$

 

 

$

141,984

 

3.90% Promissory note

 

 

9,698

 

 

 

 

 

 

 

 

 

9,684

 

 

 

9,684

 

3.75% Callable promissory note

 

 

7,586

 

 

 

 

 

 

 

 

 

7,651

 

 

 

7,651

 

4.55% Promissory note

 

 

5,442

 

 

 

 

 

 

 

 

 

5,528

 

 

 

5,528

 

4.25% Convertible senior notes

 

$

56,227

 

$

 

$

103,490

 

$

 

$

103,490

 

3.90% Promissory note

 

9,371

 

 

 

10,598

 

10,598

 

3.75% Callable promissory note

 

7,241

 

 

 

7,986

 

7,986

 

4.55% Promissory note

 

 

5,208

 

 

 

 

 

 

6,159

 

 

6,159

 

Total long-term debt

 

$

155,627

 

 

$

 

 

$

141,984

 

 

$

22,863

 

 

$

164,847

 

 

$

78,047

 

$

 

$

103,490

 

$

24,743

 

$

128,233

 

 

 

Carrying

 

 

Fair Value Measurements Using

 

 

Estimated

 

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Fair Value

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

9,750

 

 

$

 

 

$

9,750

 

 

$

 

 

$

9,750

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.25% Convertible senior notes

 

$

134,075

 

 

$

 

 

$

147,375

 

 

$

 

 

$

147,375

 

3.95% Promissory note

 

 

8,875

 

 

 

 

 

 

 

 

 

8,887

 

 

 

8,887

 

4% Promissory note

 

 

7,237

 

 

 

 

 

 

 

 

 

7,409

 

 

 

7,409

 

3.75% Callable promissory note

 

 

7,837

 

 

 

 

 

 

 

 

 

7,861

 

 

 

7,861

 

4.55% Promissory note

 

 

5,611

 

 

 

 

 

 

 

 

 

5,802

 

 

 

5,802

 

Total long-term debt

 

$

163,635

 

 

$

 

 

$

147,375

 

 

$

29,959

 

 

$

177,334

 

Note 8 – Deferred Policy Acquisition Costs

In connection with the transition of insurance policies from Anchor described in Note 1 – “Nature of Operations,” the Company incurred $3,023 of direct costs, consisting of a bonus to Anchor of $2,898 and other related expenses of $125. The Company agreed to pay Anchor a cash bonus of $50 per $1,000 of premium for all policies in forces at June 1, 2020 that were in compliance with the conditions stated in the agreement.

Note 9 – Property and Equipment, Net

On April 2, 2020, Greenleaf Capital, LLC entered into a purchase and sale agreement with Tampa-Coconut Palms Office Building Exchange, LLC to acquire an office building in Tampa, Florida for a purchase price of $4,000 in cash. The building will be used as the Company’s secondary site in the Tampa Bay area. The transaction was completed on May 18, 2020 and accounted for as an asset acquisition.

On July 24, 2020, the FDOT exercised the power of eminent domain under the Florida Constitution in order to acquire for a highway expansion project the property in Tampa, Florida where the Company’s headquarters is located for compensation of $44,000, net of $3,500 in legal and related expenses. Under the terms of the agreement, the FDOT assumed all contracts associated with this property, including the leases with existing tenants. In addition, the Company agreed to donate a small portion of a separate tract of nearby undeveloped land it owns to the FDOT for the same expansion project. The Company will have no later than

2826


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

July 24, 2023 to vacate the property. In connection with this transaction, the Company recognized a gain from involuntary conversion of $36,969. In addition, the Company used a portion

 

 

Carrying

 

 

Fair Value Measurements Using

 

 

Estimated

 

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Fair Value

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

23,750

 

 

$

 

 

$

23,750

 

 

$

 

 

$

23,750

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.25% Convertible senior notes

 

$

133,964

 

 

$

 

 

$

147,236

 

 

$

 

 

$

147,236

 

3.90% Promissory note

 

 

9,617

 

 

 

 

 

 

 

 

 

10,044

 

 

 

10,044

 

3.75% Callable promissory note

 

 

7,502

 

 

 

 

 

 

 

 

 

7,747

 

 

 

7,747

 

4.55% Promissory note

 

 

5,385

 

 

 

 

 

 

 

 

 

5,809

 

 

 

5,809

 

Total long-term debt

 

$

156,468

 

 

$

 

 

$

147,236

 

 

$

23,600

 

 

$

170,836

 

Note 8 -- Intangible Assets, Net

The Company’s intangible assets, net consist of the proceeds to repayfollowing:

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Anchor tenant relationships (a)

 

$

1,761

 

 

$

1,761

 

In-place leases

 

 

4,215

 

 

 

4,215

 

Policy renewal rights - United

 

 

7,634

 

 

 

 

Non-compete agreement - United (b)

 

 

195

 

 

 

 

Total, at cost

 

 

13,805

 

 

 

5,976

 

Less: accumulated amortization

 

 

(2,998

)

 

 

(2,408

)

Intangible assets, net

 

$

10,807

 

 

$

3,568

 

The remaining weighted-average amortization periods for the 4% Promissory Note as described in Note 12 – “Long-Term Debt.”

Note 10 – Other Assets

The following table summarizes the Company’s other assets.

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Benefits receivable related to retrospective

   reinsurance contract

 

$

6,240

 

 

$

9,480

 

Prepaid expenses

 

 

2,735

 

 

 

2,107

 

Deposits

 

 

3,446

 

 

 

1,678

 

Lease acquisition costs, net

 

 

468

 

 

 

566

 

Right-of-use assets – operating leases

 

 

5,668

 

 

 

484

 

Other

 

 

1,819

 

 

 

2,765

 

Total other assets

 

$

20,376

 

 

$

17,080

 

Note 11 – Revolving Credit Facility

During the first quarter of 2020, the Company borrowed an additional amount of $14,000 for general business purposes. On August 11, 2020, the Company repaid the amount of $15,000 of its outstanding balance. For the three months endedintangible assets at September 30, 2020 and 2019, interest expense was $108 and $132, respectively, including $39 of amortization of issuance costs2021 are summarized in each of the periods. For the nine months ended September 30, 2020 and 2019, interest expense was $423 and $328, respectively, including $118 of amortization of issuance costs in each of the periods. At September 30, 2020, the Company was in compliance with all required covenants, and there were $8,750 of borrowings outstanding.table below:

Anchor tenant relationships*

12.6 years

In-place leases

9.9 years

Policy renewal rights - United

 (c)

Note 12 – Long-Term Debt

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

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

4.25% Convertible senior notes, due March 1, 2037

 

$

139,200

 

 

$

143,750

 

3.95% Promissory note, due through February 17, 2020

 

 

 

 

 

8,881

 

4% Promissory note, due through July 29, 2020

 

 

 

 

 

7,345

 

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

 

 

7,695

 

 

 

7,955

 

4.55% Promissory note, due through August 1, 2036

 

 

5,529

 

 

 

5,704

 

3.90% Promissory note, due through April 1, 2032

 

 

9,861

 

 

 

 

Finance lease liabilities, due through August 15, 2023

 

 

48

 

 

 

60

 

Total principal amount

 

 

162,333

 

 

 

173,695

 

Less: unamortized discount and issuance costs

 

 

(6,658

)

 

 

(10,000

)

Total long-term debt

 

$

155,675

 

 

$

163,695

 

2927


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

(a)
An anchor tenant is a tenant that attracted more customers than other tenants.
(b)
The entire amount was fully amortized in June 2021.
(c)
Will be amortized over four years after the policy replacement date.

The Company recorded intangible assets of $7,829 representing the renewal rights and non-compete agreement described in Note 1 -- “Nature of Operations” in exchange for 100,000 shares of HCI’s common stock and contingent consideration which is a 6% commission on any replacement premium in excess of $80,000. The contingent consideration was estimated at $2,419 which was included in other liabilities on the consolidated balance sheet. Due to the postponement of the renewal and/or replacement of United’s policies as described in Note 1 -- "Nature of Operations,” amortization of the policy renewal rights intangible asset has yet to begin.

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

Note 9 -- Other Assets

The following table summarizes the Company’s other assets:

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Benefits receivable related to retrospective reinsurance contracts

 

$

1,819

 

 

$

10,920

 

Prepaid expenses

 

 

3,493

 

 

 

2,365

 

Deposits

 

 

969

 

 

 

445

 

Lease acquisition costs, net

 

 

521

 

 

 

453

 

Other

 

 

6,372

 

 

 

8,428

 

Total other assets

 

$

13,174

 

 

$

22,611

 

Note 10 -- Revolving Credit Facility

In March 2021, the Company repaid the entire credit facility balance of $23,750. For the three months ended September 30, 2021 and 2020, interest expense was $24 and $108, respectively, including $25 and $39 of amortization of issuance costs, respectively. For the nine months ended September 30, 2021 and 2020, interest expense was $153 and $423, respectively, including $74 and $118 of amortization of issuance costs, respectively. At September 30, 2021, the Company was in compliance with all required covenants with 0 borrowings outstanding. The borrowing capacity of the facility is now $65,000.

28


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 11 -- Long-Term Debt

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

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

4.25% Convertible senior notes, due March 1, 2037

 

$

56,409

 

 

$

139,200

 

3.90% Promissory note, due through April 1, 2032

 

 

9,519

 

 

 

9,777

 

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

 

 

7,337

 

 

 

7,607

 

4.55% Promissory note, due through August 1, 2036

 

 

5,287

 

 

 

5,470

 

Finance lease liabilities, due through October 15, 2024

 

 

36

 

 

 

43

 

Total principal amount

 

 

78,588

 

 

 

162,097

 

Less: unamortized discount and issuance costs*

 

 

(505

)

 

 

(5,586

)

Total long-term debt

 

$

78,083

 

 

$

156,511

 

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

The following table summarizes future maturities of long-term debt as of September 30, 2020,2021, which takes into consideration the assumption that the 4.25%4.25% Convertible Senior Notes are repurchased at the earliest call date.

Due in 12 months following September 30,

 

 

 

2021

 

$

57,409

 

2022

 

 

1,036

 

2023

 

 

1,065

 

2024

 

 

1,106

 

2025

 

 

1,151

 

Thereafter

 

 

16,821

 

Total

 

$

78,588

 

Due in 12 months following September 30,

 

 

 

 

2020

 

$

960

 

2021

 

 

140,198

 

2022

 

 

1,034

 

2023

 

 

1,063

 

2024

 

 

1,106

 

Thereafter

 

 

17,972

 

Total

 

$

162,333

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

Contractual interest

 

$

1,421

 

 

$

1,736

 

 

$

4,832

 

 

$

5,374

 

Non-cash expense (a)

 

 

219

 

 

 

1,053

 

 

 

758

 

 

 

3,174

 

Capitalized interest (b)

 

 

 

 

 

(41

)

 

 

 

 

 

(125

)

 

 

$

1,640

 

 

$

2,748

 

 

$

5,590

 

 

$

8,423

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual interest

 

$

1,736

 

 

$

1,835

 

 

$

5,374

 

 

$

6,229

 

Non-cash expense (a)

 

 

1,053

 

 

 

1,018

 

 

 

3,174

 

 

 

3,807

 

Capitalized interest (b)

 

 

(41

)

 

 

(78

)

 

 

(125

)

 

 

(236

)

 

 

$

2,748

 

 

$

2,775

 

 

$

8,423

 

 

$

9,800

 

(a)
Includes amortization of debt discount and issuance costs. Amortization of debt discount discontinued effective January 1, 2021. See Adoption of New Accounting Standards in Note 2 -- “Summary of Significant Accounting Policies” for additional information.
(b)
Interest was capitalized for a construction project.

29


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

(a)

Includes amortization of debt discount and issuance costs.

(b)

Interest was capitalized for a construction project.

Convertible Senior Notes

4.25% Convertible Notes. The Company’s recent cash dividends on common stock have exceeded $0.35$0.35 per share, resulting in adjustments to the conversion rate of the 4.25% Convertible Notes. Accordingly, as of September 30, 2020,2021, the conversion rate of the Company’s 4.25%4.25% Convertible Notes was 16.4216.4668 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $60.91$60.73 per share. In June 2020,

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

During the third quarter of 2021, the Company repurchased an aggregate of $4,550 in principalentered into various agreements with certain holders of the 4.25% Convertible Notes whereby the holders converted $82,480 in aggregate principal of 4.25% Convertible Notes for aggregate consideration of 1,356,835 shares of HCI’s common stock and $1,414 of cash consideration. These transactions were accounted for as induced conversions based on the limited period of time the offers were open and the inclusion of cash consideration being one of the conversion options specified in the indenture. As such, the Company recognized a $150 loss fromdebt conversion expense of $1,273 during the repurchases.three months ended September 30, 2021 consisting of the difference between the fair value of all consideration transferred and the fair value of common stock issued.

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

As of September 30, 2020,2021, the remaining amortization period of the debt discountissuance costs for the 4.25% Convertible Notes was expected to be 1.4 years.5 months.

4% Promissory Note

On July 29, 2020, the Company made an early repayment of its 4% Promissory Note totaling $7,062 in principal plus accrued interest. As a result, the Company incurred $98 of loss on extinguishment of debt. The note was collateralized by the Company’s Tampa, Florida headquarters which was acquired by the FDOT in the eminent domain proceedings as described in Note 9 – “Property and Equipment, Net.”

3.95% Promissory Note

In February 2020, the Company repaid its 3.95% Promissory Note for $8,891 including principal and unpaid interest payable at maturity date.

30


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

12 -- Reinsurance

3.90% Promissory Note

On February 28, 2020, the Company entered into a loan agreement with American Equity Investment Life Insurance Company for gross proceeds of $10,000. The agreement bears interest at a fixed rate of 3.90% and is secured by the Company’s shopping center property in Melbourne, Florida and the assignment of associated lease agreements. Approximately $60 of principal and interest is payable in 143 monthly installments beginning April 1, 2020 plus a final balloon payment of $5,007 including principal and unpaid interest payable on March 1, 2032. The promissory note may be repaid in full at any time as long as the Company provides at least 60 days’ written notice and pays a prepayment premium and processing fee. The proceeds were primarily used to repay the 3.95% Promissory Note due in February 2020.

On March 19, 2020, the loan agreement was modified to revise the due dates for the first and last installments to May 1, 2020 and April 1, 2032, respectively, while other terms and conditions remain intact.

Note 13 – Reinsurance

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

30


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

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

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Premiums Written:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

116,464

 

 

$

97,331

 

 

$

364,942

 

 

$

298,384

 

 

$

143,426

 

$

116,464

 

$

396,781

 

$

364,942

 

Assumed

 

 

(13

)

 

 

 

 

 

(92

)

 

 

(2

)

 

 

30,840

 

 

(13

)

 

 

88,311

 

 

(92

)

Gross written

 

 

116,451

 

 

 

97,331

 

 

 

364,850

 

 

 

298,382

 

 

174,266

 

116,451

 

485,092

 

364,850

 

Ceded

 

 

(44,231

)

 

 

(31,568

)

 

 

(109,304

)

 

 

(94,298

)

 

 

(55,577

)

 

 

(44,231

)

 

 

(145,112

)

 

 

(109,304

)

Net premiums written

 

$

72,220

 

 

$

65,763

 

 

$

255,546

 

 

$

204,084

 

 

$

118,689

 

$

72,220

 

$

339,980

 

$

255,546

 

Premiums Earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

106,337

 

 

$

86,002

 

 

$

303,956

 

 

$

251,916

 

 

$

120,763

 

$

106,337

 

$

346,788

 

$

303,956

 

Assumed

 

 

357

 

 

 

 

 

 

2,906

 

 

 

(2

)

 

 

29,046

 

 

357

 

 

73,403

 

 

2,906

 

Gross earned

 

 

106,694

 

 

 

86,002

 

 

 

306,862

 

 

 

251,914

 

 

149,809

 

106,694

 

420,191

 

306,862

 

Ceded

 

 

(44,231

)

 

 

(31,568

)

 

 

(109,304

)

 

 

(94,298

)

 

 

(55,577

)

 

 

(44,231

)

 

 

(145,112

)

 

 

(109,304

)

Net premiums earned

 

$

62,463

 

 

$

54,434

 

 

$

197,558

 

 

$

157,616

 

 

$

94,232

 

$

62,463

 

$

275,079

 

$

197,558

 

31


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(AmountsDuring the three and nine months ended September 30, 2021, the Company recognized ceded losses of $1,830 and $2,424, respectively, as a reduction in thousands, except sharelosses and per share amounts, unless otherwise stated)

loss adjustment expenses. During the three and nine months ended September 30, 2020, the Company recognized ceded losses of $1,871$1,871 and $2,220,$2,220, respectively, as a reduction in losses and loss adjustment expenses, and ceded losses of $113,888 were recognized in each of the three and nine months ended September 30, 2019.expenses. At September 30, 20202021 and December 31, 2019,2020, there were 3854 and 3138 reinsurers, respectively, participating in the Company’s reinsurance program. Total grossnet amounts recoverable and receivable from reinsurers at September 30, 20202021 and December 31, 20192020 were $95,274$49,126 and $132,678,$85,146, respectively. Approximately 58.6%66.4% of the gross reinsurance recoverable balance at September 30, 20202021 was receivable from three3 reinsurers, including the Florida Hurricane Catastrophe Fund, a state trust fund. Based on all available information considered in the rating-based method, described in Note 2 – “Summary of Significant Accounting Policies,” the Company recognized a decreasedecreases in credit loss expense of $14$13 and $363$41 for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2020, the Company derecognized credit loss expenses of $14 and $363, respectively. Allowances for credit losses related to the reinsurance recoverable balance were $90$44 and $0$85 at September 30, 20202021 and December 31, 2019,2020, respectively.

One of theThe Company has reinsurance contracts includesthat include retrospective provisions that adjust premiums in the event losses are minimal or zero. For the three and nine months ended September 30, 2020,2021, the Company recognized reductions in premiums ceded of $4,680$1,364 and $10,440,$9,619, respectively, related to these adjustments in the consolidated statementstatements of income. For the three and nine months ended September 30, 2019,2020, the Company recognized net reductions in premiums ceded of $2,520$4,680 and $4,258, respectively, related$10,440, respectively.

31


HCI GROUP, INC. AND SUBSIDIARIES

Notes to these adjustments.Consolidated Financial Statements (unaudited)

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

Amounts receivable pursuant to retrospective provisions are reflected in other assets. At September 30, 20202021 and December 31, 2019,2020, other assets included $6,240$1,819 and $9,480 related to these adjustments,$10,920, respectively. In June 2020,2021, the Company received $13,680$18,720 of premium refund under the retrospective reinsurance contract that ended May 31, 2020.2021. Management believes the credit risk associated with the collectability of these accrued benefits is minimal as the amount receivable is concentrated with one reinsurertwo reinsurers and the Company monitors the creditworthiness of this reinsurerthese reinsurers based on available information about theeach reinsurer’s financial condition.

Effective January 2021, the Company began providing quota share reinsurance on all in-force, new and renewal policies issued by United. The policies were issued in the states of Connecticut, New Jersey, Massachusetts and Rhode Island. For the three and nine months ended September 30, 2021, assumed premiums written related to United were $30,840 and $88,311, respectively. At September 30, 2021, the Company had a net balance of $6,636 due from United, consisting of premiums receivable of $14,951 offset by ceding commission payable of $3,588 and payable on paid losses and loss adjustment expenses of $4,727.

Note 14 –13 -- Losses and Loss Adjustment Expenses

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

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

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net balance, beginning of period*

 

$

154,901

 

 

$

123,129

 

 

$

141,065

 

 

$

98,174

 

Incurred, net of reinsurance, related to:

 

 

 

 

 

 

 

 

 

 

 

 

Current period

 

 

53,834

 

 

 

50,543

 

 

 

147,064

 

 

 

116,839

 

Prior period

 

 

8,830

 

 

 

1,200

 

 

 

17,268

 

 

 

2,825

 

Total incurred, net of reinsurance

 

 

62,664

 

 

 

51,743

 

 

 

164,332

 

 

 

119,664

 

Paid, net of reinsurance, related to:

 

 

 

 

 

 

 

 

 

 

 

 

Current period

 

 

(31,663

)

 

 

(21,175

)

 

 

(59,265

)

 

 

(36,988

)

Prior period

 

 

(22,237

)

 

 

(9,386

)

 

 

(82,467

)

 

 

(36,539

)

Total paid, net of reinsurance

 

 

(53,900

)

 

 

(30,561

)

 

 

(141,732

)

 

 

(73,527

)

Net balance, end of period

 

 

163,665

 

 

 

144,311

 

 

 

163,665

 

 

 

144,311

 

Add: reinsurance recoverable before allowance for
          credit losses

 

 

39,512

 

 

 

75,034

 

 

 

39,512

 

 

 

75,034

 

Gross balance, end of period

 

$

203,177

 

 

$

219,345

 

 

$

203,177

 

 

$

219,345

 

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

32


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net balance, beginning of period*

 

$

123,129

 

 

$

95,345

 

 

$

98,174

 

 

$

94,826

 

Incurred, net of reinsurance, related to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period

 

 

50,543

 

 

 

25,177

 

 

 

116,839

 

 

 

70,914

 

Prior period

 

 

1,200

 

 

 

2,150

 

 

 

2,825

 

 

 

7,702

 

Total incurred, net of reinsurance

 

 

51,743

 

 

 

27,327

 

 

 

119,664

 

 

 

78,616

 

Paid, net of reinsurance, related to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current period

 

 

(21,175

)

 

 

(15,111

)

 

 

(36,988

)

 

 

(32,819

)

Prior period

 

 

(9,386

)

 

 

(12,763

)

 

 

(36,539

)

 

 

(45,825

)

Total paid, net of reinsurance

 

 

(30,561

)

 

 

(27,874

)

 

 

(73,527

)

 

 

(78,644

)

Net balance, end of period

 

 

144,311

 

 

 

94,798

 

 

 

144,311

 

 

 

94,798

 

Add: reinsurance recoverable before allowance for

          credit losses

 

 

75,034

 

 

 

143,123

 

 

 

75,034

 

 

 

143,123

 

Gross balance, end of period

 

$

219,345

 

 

$

237,921

 

 

$

219,345

 

 

$

237,921

 

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

The establishment of loss and LAE reserves is an inherently uncertain process and changes in loss and LAE reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such estimates are adjusted. During the three and nine months ended September 30, 2020,2021, the Company recognized losses related to prior periods of $1,200$8,830 and $17,268, respectively, primarily to increase the reserve for 2017, 2015the 2020 loss year resulting from increased litigation with regards to Hurricane Sally and prior loss years. ForTropical Storm Eta. Losses and LAE for the three and nine months ended September 30, 2020, the Company recognized2021 included estimated losses, related to prior periods of $2,825 for unfavorable development for 2019 and prior loss years resulting from litigation. Estimated losses of $17,700, net of reinsurance, of approximately $19,830 and $43,330, respectively, related to Hurricane Sally are includedpolicies assumed from United, approximately $9,767 and $12,367, respectively, of which pertained to TypTap.

33


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in the 2020 loss year.thousands, except share and per share amounts, unless otherwise stated)

Note 15 –14 -- Segment Information

The Company identifies its operating divisions or segments based on managerial emphasis, organizational structure and revenue source. Currently,In the first quarter of 2021, the Company reorganized its operations to focus on specific business segments, resulting in the creation of TTIG with a separate workforce, board of directors and financial reporting structure. Companies under TTIG include TypTap, TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company, Inc., the parent company of an India company, Exzeo Software Private Limited. TTIG and its subsidiaries are considered a new reporting segment known as TypTap Group. The Company now has 34 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 divisionoperations, excluding the insurance operations under TypTap Group, are grouped together into one reportable segment under HCPCI insurance operations. The TypTap Group segment includes its property and casualty insurance operations, information technology operations and its management company’s activities. The real estate operations segment includes companies engaged in operating commercial properties the Company owns for investment purposes or for use in its own operations. The corporate and other segment represents the activities of the holding companies the information technology division, and any other companies that do not meet the quantitative and qualitative thresholds for a reportable segment. The determination of segments may change over time due to changes in operational emphasis, revenues, and results of operations. The Company’s chief executive officer, who serves as the Company’s chief operating decision maker, evaluates each division’s financial and operating performance based on revenue and operating income.

33


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

For the three months ended September 30, 20202021 and 2019,2020, revenues from the Company’sHCPCI insurance operations segment before intracompany elimination represented 71.1%73.9% and 95.2%59.1%, respectively, and revenues from the TypTap Group segment represented 24.0% and 12.6%, respectively, of total revenues of all operating segments. For the nine months ended September 30, 20202021 and 2019,2020, revenues from the Company’sHCPCI insurance operations segment before intracompany elimination represented 86.2%76.4% and 95.0%73.8%, respectively, and revenues from the TypTap Group segment represented 20.7% and 12.7%, respectively, of total revenues of all operating segments. At September 30, 20202021 and December 31, 2019,2020, HCPCI insurance operations’ total assets represented 83.0%60.2% and 85.5%68.9%, respectively, and TypTap Group’s total assets represented 26.3% and 16.7%, respectively, of the combined assets of all operating segments.

34


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

 

 

HCPCI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

61,301

 

 

 

31,418

 

 

 

 

 

 

 

 

 

1,513

 

 

 

94,232

 

Net income from investment portfolio

 

 

831

 

 

 

102

 

 

 

 

 

 

172

 

 

 

778

 

 

 

1,883

 

Policy fee income

 

 

693

 

 

 

307

 

 

 

 

 

 

 

 

 

 

 

 

1,000

 

Other

 

 

2,087

 

 

 

480

 

 

 

2,336

 

 

 

489

 

 

 

(3,290

)

 

 

2,102

 

Total revenue

 

 

64,912

 

 

 

32,307

 

 

 

2,336

 

 

 

661

 

 

 

(999

)

 

 

99,217

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

36,928

 

 

 

24,224

 

 

 

 

 

 

 

 

 

1,512

 

 

 

62,664

 

Amortization of deferred policy acquisition costs

 

 

12,402

 

 

 

9,250

 

 

 

 

 

 

 

 

 

 

 

 

21,652

 

Other policy acquisition expenses

 

 

633

 

 

 

1,110

 

 

 

 

 

 

 

 

 

(55

)

 

 

1,688

 

Interest expense

 

 

 

 

 

1

 

 

 

231

 

 

 

1,432

 

 

 

 

 

 

1,664

 

Depreciation and amortization

 

 

18

 

 

 

342

 

 

 

576

 

 

 

171

 

 

 

(603

)

 

 

504

 

Debt conversion expense

 

 

 

 

 

 

 

 

 

 

 

1,273

 

 

 

 

 

 

1,273

 

Personnel and other operating expenses

 

 

5,896

 

 

 

7,685

 

 

 

814

 

 

 

3,734

 

 

 

(1,853

)

 

 

16,276

 

Total expenses

 

 

55,877

 

 

 

42,612

 

 

 

1,621

 

 

 

6,610

 

 

 

(999

)

 

 

105,721

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance

 

 

Real

 

 

Corporate/

 

 

Reclassification/

 

 

 

 

 

For Three Months Ended September 30, 2020

 

Operations

 

 

Estate(a)

 

 

Other(b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$

62,463

 

 

$

 

 

$

 

 

$

 

 

$

62,463

 

Net investment income (loss)

 

 

1,050

 

 

 

 

 

 

1,072

 

 

 

(290

)

 

 

1,832

 

Net realized investment gains

 

 

131

 

 

 

 

 

 

46

 

 

 

 

 

 

177

 

Net unrealized investment gains

 

 

1,093

 

 

 

 

 

 

247

 

 

 

 

 

 

1,340

 

Credit losses on investments

 

 

(50

)

 

 

 

 

 

(20

)

 

 

 

 

 

(70

)

Policy fee income

 

 

895

 

 

 

 

 

 

 

 

 

 

 

 

895

 

Gain on involuntary conversion

 

 

 

 

 

36,969

 

 

 

 

 

 

 

 

 

36,969

 

Other

 

 

285

 

 

 

2,384

 

 

 

510

 

 

 

(2,758

)

 

 

421

 

Total revenue

 

 

65,867

 

 

 

39,353

 

 

 

1,855

 

 

 

(3,048

)

 

 

104,027

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

51,743

 

 

 

 

 

 

 

 

 

 

 

 

51,743

 

Amortization of deferred policy acquisition costs

 

 

12,200

 

 

 

 

 

 

 

 

 

 

 

 

12,200

 

Interest expense

 

 

 

 

 

463

 

 

 

2,631

 

 

 

(238

)

 

 

2,856

 

Depreciation and amortization

 

 

28

 

 

 

566

 

 

 

452

 

 

 

(585

)

 

 

461

 

Other

 

 

10,028

 

 

 

1,423

 

 

 

6,005

 

 

 

(2,225

)

 

 

15,231

 

Total expenses

 

 

73,999

 

 

 

2,452

 

 

 

9,088

 

 

 

(3,048

)

 

 

82,491

 

(Loss) income before income taxes

 

$

(8,132

)

 

$

36,901

 

 

$

(7,233

)

 

$

 

 

$

21,536

 

Total revenue from non-affiliates(c)

 

$

65,867

 

 

$

38,859

 

 

$

1,345

 

 

 

 

 

 

 

 

 

(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)35

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

(b)

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

(c)

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

34


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

 

 

HCPCI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance

 

 

TypTap

 

 

Real

 

 

Corporate/

 

 

Reclassification/

 

 

 

 

For Three Months Ended September 30, 2020

 

Operations

 

 

Group

 

 

Estate (a)

 

 

 Other (b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned (c)

 

$

89,283

 

 

$

19,854

 

 

$

 

 

$

 

 

$

(2,443

)

 

$

106,694

 

Premiums ceded

 

 

(36,503

)

 

 

(10,171

)

 

 

 

 

 

 

 

 

2,443

 

 

 

(44,231

)

Net premiums earned

 

 

52,780

 

 

 

9,683

 

 

 

 

 

 

 

 

 

 

 

 

62,463

 

Net income from investment portfolio

 

 

1,866

 

 

 

363

 

 

 

 

 

 

1,340

 

 

 

(290

)

 

 

3,279

 

Policy fee income

 

 

684

 

 

 

211

 

 

 

 

 

 

 

 

 

 

 

 

895

 

Other

 

 

759

 

 

 

24

 

 

 

39,353

 

 

 

290

 

 

 

(3,036

)

 

 

37,390

 

Total revenue

 

 

56,089

 

 

 

10,281

 

 

 

39,353

 

 

 

1,630

 

 

 

(3,326

)

 

 

104,027

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

44,338

 

 

 

7,405

 

 

 

 

 

 

 

 

 

 

 

 

51,743

 

Amortization of deferred policy acquisition costs

 

 

10,433

 

 

 

3,536

 

 

 

 

 

 

 

 

 

 

 

 

13,969

 

Other policy acquisition expenses

 

 

160

 

 

 

531

 

 

 

 

 

 

 

 

 

56

 

 

 

747

 

Interest expense

 

 

 

 

 

 

 

 

463

 

 

 

2,631

 

 

 

(238

)

 

 

2,856

 

Depreciation and amortization

 

 

21

 

 

 

279

 

 

 

567

 

 

 

179

 

 

 

(585

)

 

 

461

 

Loss on repurchases of convertible senior notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

98

 

 

 

 

 

 

 

 

 

98

 

Personnel and other operating expenses

 

 

5,896

 

 

 

4,527

 

 

 

1,325

 

 

 

3,428

 

 

 

(2,559

)

 

 

12,617

 

Total expenses

 

 

60,848

 

 

 

16,278

 

 

 

2,453

 

 

 

6,238

 

 

 

(3,326

)

 

 

82,491

 

(Loss) income before income taxes

 

$

(4,759

)

 

$

(5,997

)

 

$

36,900

 

 

$

(4,608

)

 

$

 

 

$

21,536

 

Total revenue from non-affiliates (d)

 

$

55,227

 

 

$

10,778

 

 

$

38,859

 

 

$

1,208

 

 

 

 

 

 

 

Gross premiums written

 

$

89,102

 

 

$

27,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance

 

 

Real

 

 

Corporate/

 

 

Reclassification/

 

 

 

 

 

For Three Months Ended September 30, 2019

 

Operations

 

 

Estate(a)

 

 

Other(b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$

54,434

 

 

$

 

 

$

 

 

$

 

 

$

54,434

 

Net investment income (loss)

 

 

3,365

 

 

 

 

 

 

461

 

 

 

(205

)

 

 

3,621

 

Net realized investment (loss) gains

 

 

(33

)

 

 

 

 

 

3

 

 

 

 

 

 

(30

)

Net unrealized investment gains

 

 

533

 

 

 

 

 

 

109

 

 

 

 

 

 

642

 

Policy fee income

 

 

811

 

 

 

 

 

 

 

 

 

 

 

 

811

 

Other

 

 

186

 

 

 

2,317

 

 

 

1,341

 

 

 

(3,343

)

 

 

501

 

Total revenue

 

 

59,296

 

 

 

2,317

 

 

 

1,914

 

 

 

(3,548

)

 

 

59,979

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

27,327

 

 

 

 

 

 

 

 

 

 

 

 

27,327

 

Amortization of deferred policy acquisition costs

 

 

9,556

 

 

 

 

 

 

 

 

 

 

 

 

9,556

 

Interest expense

 

 

1

 

 

 

409

 

 

 

2,659

 

 

 

(162

)

 

 

2,907

 

Depreciation and amortization

 

 

29

 

 

 

627

 

 

 

261

 

 

 

(530

)

 

 

387

 

Other

 

 

7,978

 

 

 

1,292

 

 

 

5,669

 

 

 

(2,856

)

 

 

12,083

 

Total expenses

 

 

44,891

 

 

 

2,328

 

 

 

8,589

 

 

 

(3,548

)

 

 

52,260

 

Income (loss) before income taxes

 

$

14,405

 

 

$

(11

)

 

$

(6,675

)

 

$

 

 

$

7,719

 

Total revenue from non-affiliates(c)

 

$

59,296

 

 

$

1,910

 

 

$

1,466

 

 

 

 

 

 

 

 

 

(a)
Other revenue under real estate primarily consisted of rental income from investment properties.
(b)
Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.
(c)
Gross premiums earned consist of $86,840 from HCPCI and $2,443 from a reinsurance company.
(d)
Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

(a)

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

(b)

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

(c)

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

 

 

Insurance

 

 

Real

 

 

Corporate/

 

 

Reclassification/

 

 

 

 

 

For Nine Months Ended September 30, 2020

 

Operations

 

 

Estate(a)

 

 

Other(b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$

197,558

 

 

$

 

 

$

 

 

$

 

 

$

197,558

 

Net investment income (loss)

 

 

5,459

 

 

 

3

 

 

 

(1,194

)

 

 

(1,024

)

 

 

3,244

 

Net realized investment losses

 

 

(208

)

 

 

 

 

 

(424

)

 

 

 

 

 

(632

)

Net unrealized investment losses

 

 

(531

)

 

 

 

 

 

(50

)

 

 

 

 

 

(581

)

Credit losses on investments

 

 

(576

)

 

 

 

 

 

 

(20

)

 

 

 

 

 

 

(596

)

Policy fee income

 

 

2,571

 

 

 

 

 

 

 

 

 

 

 

 

2,571

 

Gain on involuntary conversion

 

 

 

 

 

36,969

 

 

 

 

 

 

 

 

 

36,969

 

Other

 

 

880

 

 

 

7,362

 

 

 

2,400

 

 

 

(9,051

)

 

 

1,591

 

Total revenue

 

 

205,153

 

 

 

44,334

 

 

 

712

 

 

 

(10,075

)

 

 

240,124

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

119,664

 

 

 

 

 

 

 

 

 

 

 

 

119,664

 

Amortization of deferred policy acquisition costs

 

 

35,568

 

 

 

 

 

 

 

 

 

 

 

 

35,568

 

Interest expense

 

 

1

 

 

 

1,434

 

 

 

8,090

 

 

 

(679

)

 

 

8,846

 

Depreciation and amortization

 

 

86

 

 

 

1,862

 

 

 

1,263

 

 

 

(1,793

)

 

 

1,418

 

Other

 

 

25,710

 

 

 

4,080

 

 

 

18,425

 

 

 

(7,603

)

 

 

40,612

 

Total expenses

 

 

181,029

 

 

 

7,376

 

 

 

27,778

 

 

 

(10,075

)

 

 

206,108

 

Income (loss) before income taxes

 

$

24,124

 

 

$

36,958

 

 

$

(27,066

)

 

$

 

 

$

34,016

 

Total revenue (investment loss) from non-affiliates(c)

 

$

205,153

 

 

$

42,907

 

 

$

(837

)

 

 

 

 

 

 

 

 

(a)36

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

(b)

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

(c)

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

35


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

 

 

HCPCI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance

 

 

TypTap

 

 

Real

 

 

Corporate/

 

 

Reclassification/

 

 

 

 

For Nine Months Ended September 30, 2021

 

Operations

 

 

Group

 

 

Estate (a)

 

 

 Other (b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned

 

$

300,827

 

 

$

119,364

 

 

$

 

 

$

 

 

$

 

 

$

420,191

 

Premiums ceded

 

 

(104,236

)

 

 

(42,229

)

 

 

 

 

 

 

 

 

1,353

 

 

 

(145,112

)

Net premiums earned

 

 

196,591

 

 

 

77,135

 

 

 

 

 

 

 

 

 

1,353

 

 

 

275,079

 

Net income from investment portfolio

 

 

5,261

 

 

 

933

 

 

 

 

 

 

4,059

 

 

 

3,799

 

 

 

14,052

 

Policy fee income

 

 

2,106

 

 

 

856

 

 

 

 

 

 

 

 

 

 

 

 

2,962

 

Other

 

 

3,420

 

 

 

1,130

 

 

 

9,849

 

 

 

1,316

 

 

 

(12,213

)

 

 

3,502

 

Total revenue

 

 

207,378

 

 

 

80,054

 

 

 

9,849

 

 

 

5,375

 

 

 

(7,061

)

 

 

295,595

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

110,008

 

 

 

52,976

 

 

 

 

 

 

 

 

 

1,348

 

 

 

164,332

 

Amortization of deferred policy acquisition costs

 

 

43,906

 

 

 

20,541

 

 

 

 

 

 

 

 

 

 

 

 

64,447

 

Other policy acquisition expenses

 

 

2,170

 

 

 

3,071

 

 

 

 

 

 

 

 

 

(114

)

 

 

5,127

 

Interest expense

 

 

 

 

 

91

 

 

 

972

 

 

 

4,950

 

 

 

(270

)

 

 

5,743

 

Depreciation and amortization

 

 

56

 

 

 

942

 

 

 

1,737

 

 

 

711

 

 

 

(1,841

)

 

 

1,605

 

Debt conversion expense

 

 

 

 

 

 

 

 

 

 

 

1,273

 

 

 

 

 

 

1,273

 

Personnel and other operating expenses

 

 

17,317

 

 

 

21,007

 

 

 

3,332

 

 

 

8,901

 

 

 

(6,184

)

 

 

44,373

 

Total expenses

 

 

173,457

 

 

 

98,628

 

 

 

6,041

 

 

 

15,835

 

 

 

(7,061

)

 

 

286,900

 

Income (loss) before income taxes

 

$

33,921

 

 

$

(18,574

)

 

$

3,808

 

 

$

(10,460

)

 

$

 

 

$

8,695

 

Total revenue from non-affiliates (c)

 

$

206,743

 

 

$

80,893

 

 

$

8,833

 

 

$

4,641

 

 

 

 

 

 

 

Gross premiums written

 

$

323,490

 

 

$

161,602

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)
Other revenue under real estate primarily consisted of rental income from investment properties.
(b)
Other revenue under corporate and other primarily consisted of revenue from marina business.
(c)
Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

37


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

 

 

HCPCI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance

 

 

TypTap

 

 

Real

 

 

Corporate/

 

 

Reclassification/

 

 

 

 

For Nine Months Ended September 30, 2020

 

Operations

 

 

Group

 

 

Estate (a)

 

 

 Other (b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned (c)

 

$

255,273

 

 

$

54,829

 

 

$

 

 

$

 

 

$

(3,240

)

 

$

306,862

 

Premiums ceded

 

 

(93,466

)

 

 

(19,078

)

 

 

 

 

 

 

 

 

3,240

 

 

 

(109,304

)

Net premiums earned

 

 

161,807

 

 

 

35,751

 

 

 

 

 

 

 

 

 

 

 

 

197,558

 

Net income (loss) from investment portfolio

 

 

3,787

 

 

 

383

 

 

 

3

 

 

 

(1,714

)

 

 

(1,024

)

 

 

1,435

 

Policy fee income

 

 

1,987

 

 

 

584

 

 

 

 

 

 

 

 

 

 

 

 

2,571

 

Other

 

 

1,431

 

 

 

87

 

 

 

44,331

 

 

 

1,695

 

 

 

(8,984

)

 

 

38,560

 

Total revenue

 

 

169,012

 

 

 

36,805

 

 

 

44,334

 

 

 

(19

)

 

 

(10,008

)

 

 

240,124

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

97,621

 

 

 

22,043

 

 

 

 

 

 

 

 

 

 

 

 

119,664

 

Amortization of deferred policy acquisition costs

 

 

27,103

 

 

 

9,222

 

 

 

 

 

 

 

 

 

 

 

 

36,325

 

Other policy acquisition expenses

 

 

1,789

 

 

 

1,419

 

 

 

 

 

 

 

 

 

 

 

 

3,208

 

Interest expense

 

 

 

 

 

1

 

 

 

1,434

 

 

 

8,090

 

 

 

(679

)

 

 

8,846

 

Depreciation and amortization

 

 

63

 

 

 

820

 

 

 

1,862

 

 

 

466

 

 

 

(1,793

)

 

 

1,418

 

Loss on repurchases of convertible senior notes

 

 

 

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

150

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

98

 

 

 

 

 

 

 

 

 

98

 

Personnel and other operating expenses

 

 

16,161

 

 

 

13,244

 

 

 

3,982

 

 

 

10,548

 

 

 

(7,536

)

 

 

36,399

 

Total expenses

 

 

142,737

 

 

 

46,749

 

 

 

7,376

 

 

 

19,254

 

 

 

(10,008

)

 

 

206,108

 

Income (loss) before income taxes

 

$

26,275

 

 

$

(9,944

)

 

$

36,958

 

 

$

(19,273

)

 

$

 

 

$

34,016

 

Total revenue from non-affiliates (d)

 

$

167,891

 

 

$

37,421

 

 

$

42,907

 

 

$

(996

)

 

 

 

 

 

 

Gross premiums written

 

$

302,142

 

 

$

62,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance

 

 

Real

 

 

Corporate/

 

 

Reclassification/

 

 

 

 

 

For Nine Months Ended September 30, 2019

 

Operations

 

 

Estate(a)

 

 

Other(b)

 

 

Elimination

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$

157,616

 

 

$

 

 

$

 

 

$

 

 

$

157,616

 

Net investment income (loss)

 

 

9,381

 

 

 

 

 

 

2,064

 

 

 

(320

)

 

 

11,125

 

Net realized investment gains (losses)

 

 

33

 

 

 

 

 

 

(568

)

 

 

 

 

 

(535

)

Net unrealized investment gains

 

 

5,951

 

 

 

 

 

 

1,310

 

 

 

 

 

 

7,261

 

Policy fee income

 

 

2,406

 

 

 

 

 

 

 

 

 

 

 

 

2,406

 

Other

 

 

524

 

 

 

7,009

 

 

 

4,590

 

 

 

(10,753

)

 

 

1,370

 

Total revenue

 

 

175,911

 

 

 

7,009

 

 

 

7,396

 

 

 

(11,073

)

 

 

179,243

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

78,616

 

 

 

 

 

 

 

 

 

 

 

 

78,616

 

Amortization of deferred policy acquisition costs

 

 

26,982

 

 

 

 

 

 

 

 

 

 

 

 

26,982

 

Interest expense

 

 

2

 

 

 

1,174

 

 

 

9,374

 

 

 

(422

)

 

 

10,128

 

Depreciation and amortization

 

 

82

 

 

 

1,878

 

 

 

791

 

 

 

(1,586

)

 

 

1,165

 

Other

 

 

22,842

 

 

 

3,866

 

 

 

17,392

 

 

 

(9,065

)

 

 

35,035

 

Total expenses

 

 

128,524

 

 

 

6,918

 

 

 

27,557

 

 

 

(11,073

)

 

 

151,926

 

Income (loss) before income taxes

 

$

47,387

 

 

$

91

 

 

$

(20,161

)

 

$

 

 

$

27,317

 

Total revenue from non-affiliates(c)

 

$

175,911

 

 

$

5,787

 

 

$

6,088

 

 

 

 

 

 

 

 

 

(a)
Other revenue under real estate primarily consisted of rental income from investment properties.
(b)
Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.
(c)
Gross premiums earned consist of $252,033 from HCPCI and $3,240 from a reinsurance company.
(d)
Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

(a)

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

(b)

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

(c)

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

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

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Segments:

 

 

 

 

 

 

HCPCI Insurance Operations

 

$

616,948

 

 

$

648,600

 

TypTap Group

 

 

294,931

 

 

 

157,581

 

Real Estate Operations

 

 

129,198

 

 

 

128,383

 

Corporate and Other

 

 

61,629

 

 

 

29,022

 

Consolidation and Elimination

 

 

(26,592

)

 

 

(22,273

)

Total assets

 

$

1,076,114

 

 

$

941,313

 

38


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,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Segment:

 

 

 

 

 

 

 

 

Insurance Operations

 

$

738,141

 

 

$

663,280

 

Real Estate Operations

 

 

130,138

 

 

 

93,727

 

Corporate and Other

 

 

45,731

 

 

 

60,662

 

Consolidation and Elimination

 

 

(26,197

)

 

 

(15,060

)

Total assets

 

$

887,813

 

 

$

802,609

 

Note 1615 -- 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,

 

 

 

2021

 

 

2020

 

Operating leases:

 

 

 

 

 

 

ROU Assets

 

$

2,576

 

 

$

4,002

 

Liabilities

 

$

2,578

 

 

$

4,014

 

Finance leases:

 

 

 

 

 

 

ROU Assets

 

$

86

 

 

$

79

 

Liabilities

 

$

36

 

 

$

43

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Operating leases:

 

 

 

 

 

 

 

 

ROU Assets

 

$

5,668

 

 

$

484

 

Liabilities

 

$

5,682

 

 

$

513

 

 

 

 

 

 

 

 

 

 

Finance leases:

 

 

 

 

 

 

 

 

ROU Assets

 

$

79

 

 

$

79

 

Liabilities

 

$

48

 

 

$

60

 

36


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

As a result of the change in ownership of the Company’s headquarters building through the eminent domain proceeding described in Note 9 -- “Property and Equipment, Net,” all existing intercompany operating leases related to this building that were previously eliminated on consolidation are now reflected on the balance sheet. These leases were determined to be at market rates on the date of the ownership change.

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 63 months

Yes

(a), (b)

Office space

3 to 10 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.

3 to 5 years

(b)

There are no variable lease payments.

Not applicable

(c)

Rent escalation provisions exist.

(d)

There is a bargain purchase option.

(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, 2020,2021, maturities of lease liabilities were as follows:

 

Leases

 

 

Leases

 

 

Operating

 

 

Finance

 

 

Operating

 

 

Finance

 

Due in 12 months following September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

$

2,223

 

 

$

19

 

2021

 

 

2,038

 

 

 

18

 

 

$

1,464

 

$

20

 

2022

 

 

1,651

 

 

 

13

 

 

1,188

 

15

 

2023

 

 

0

 

 

2

 

Total lease payments

 

 

5,912

 

 

 

50

 

 

 

2,652

 

 

37

 

Less: interest and foreign taxes

 

 

230

 

 

 

2

 

 

 

74

 

 

1

 

Total lease obligations

 

$

5,682

 

 

$

48

 

 

$

2,578

 

$

36

 

3739


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 regardregards to the Company’s operating and finance leases.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization – ROU assets*

 

$

4

 

 

$

4

 

 

$

13

 

 

$

13

 

Interest expense

 

 

0

 

 

 

1

 

 

 

1

 

 

 

2

 

Operating lease costs*

 

 

386

 

 

 

404

 

 

 

1,231

 

 

 

560

 

Short-term lease costs*

 

 

100

 

 

 

44

 

 

 

250

 

 

 

135

 

Total lease costs

 

$

490

 

 

$

453

 

 

$

1,495

 

 

$

710

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows – finance leases

 

 

 

 

 

 

 

$

1

 

 

$

1

 

Operating cash flows – operating leases

 

 

 

 

 

 

 

$

1,237

 

 

$

566

 

Financing cash flows – finance leases

 

 

 

 

 

 

 

$

14

 

 

$

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term:

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases (in years)

 

 

3.0

 

 

 

 

 

 

 

 

 

 

Operating leases (in years)

 

 

2.6

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate:

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases (%)

 

 

3.5

 

 

 

 

 

 

 

 

 

 

Operating leases (%)

 

 

2.8

 

 

 

 

 

 

 

 

 

 

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization – ROU assets*

 

$

4

 

 

$

4

 

 

$

13

 

 

$

10

 

Interest expense

 

 

1

 

 

 

1

 

 

 

2

 

 

 

2

 

Operating lease costs*

 

 

404

 

 

 

90

 

 

 

560

 

 

 

244

 

Short-term lease costs*

 

 

44

 

 

 

37

 

 

 

135

 

 

 

141

 

Total lease costs

 

$

453

 

 

$

132

 

 

$

710

 

 

$

397

 

Cash paid for amounts included in

   the measurement of lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows – finance leases

 

 

 

 

 

 

 

 

 

$

1

 

 

$

2

 

Operating cash flows – operating leases

 

 

 

 

 

 

 

 

 

$

566

 

 

$

239

 

Financing cash flows – finance leases

 

 

 

 

 

 

 

 

 

$

13

 

 

$

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases (in years)

 

 

2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases (in years)

 

 

2.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases

 

3.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

2.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

*

Included in other operating expenses of the consolidated statement 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.Retail space

3 to 20 years

Yes

(e)

Boat docks/wet slips

1 to 12 months

Yes

(e)

(e)
There are no purchase options.

Note 1716 -- Income Taxes

During the three months ended September 30, 2021, the Company recorded approximately $1,636 of income tax benefit, which resulted in an effective tax rate of 25.2%. During the three months ended September 30, 2020, and 2019, the Company recorded approximately $6,146 and $1,866 respectively,$6,146 of income taxes, which resulted in an effective tax ratesrate of 28.5% and 24.2%, respectively.28.5%. The increasedecrease in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to the non-deductibility of certain executive compensation. Furthermore,compensation during the Florida corporate income tax rate was reduced from 5.5% to 4.458% inthree months ended September 2019.30, 2020. During the nine months ended September 30, 20202021 and 2019,2020, the Company recorded approximately $9,143$2,888 and $7,173,$9,143, respectively, of income taxes, which resulted in effective tax rates of 26.9%33.2% and 26.3%26.9%, respectively. The slight increase in the effective tax rate in 20202021 as compared with the corresponding period in the prior year was primarily attributable to an increase in non-deductible compensation expense related to

3840


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

restricted stock granted to the non-deductibility of executive compensation, offset by the recognition of the tax refund from the State of Florida for 2018 income taxes, and the recognition of windfall tax benefits related to share-based awards.certain executives. The Company’s estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items. In addition, the Company determined there were no significant tax implications as a result of the CARES Act.

Note 1817 -- Earnings Per Share

U.S. GAAP requires the Company to use the two-class method in computing basic earnings 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 per share during periods of net income or loss. For a majority-owned subsidiary, its basic and diluted earnings 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 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, 2020

 

 

September 30, 2019

 

 

 

Income

 

 

Shares

 

 

Per Share

 

 

Income

 

 

Shares

 

 

Per Share

 

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

Net income

 

$

15,390

 

 

 

 

 

 

 

 

 

 

$

5,853

 

 

 

 

 

 

 

 

 

Less: Income attributable to participating

   securities

 

 

(865

)

 

 

 

 

 

 

 

 

 

 

(325

)

 

 

 

 

 

 

 

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income allocated to common stockholders

 

 

14,525

 

 

 

7,356

 

 

$

1.97

 

 

 

5,528

 

 

 

7,531

 

 

$

0.73

 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

Convertible senior notes*

 

 

1,903

 

 

 

2,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders and

   assumed conversions

 

$

16,428

 

 

 

9,677

 

 

$

1.70

 

 

$

5,528

 

 

 

7,539

 

 

$

0.73

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

 

Loss

 

 

Shares (a)

 

 

Per Share

 

 

Income

 

 

Shares (a)

 

 

Per Share

 

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

Net (loss) income

 

$

(4,868

)

 

 

 

 

 

 

 

$

15,390

 

 

 

 

 

 

 

Less: Net income attributable to
   redeemable noncontrolling interest

 

 

(2,202

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to HCI

 

 

(6,296

)

 

 

 

 

 

 

 

 

15,390

 

 

 

 

 

 

 

Less: Loss (income) attributable to
   participating securities

 

 

537

 

 

 

 

 

 

 

 

 

(865

)

 

 

 

 

 

 

Basic (Loss) Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income allocated to common
   stockholders

 

 

(5,759

)

 

 

8,023

 

 

$

(0.72

)

 

 

14,525

 

 

 

7,356

 

 

$

1.97

 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options*

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

37

 

 

 

 

Convertible senior notes* (b)

 

 

0

 

 

 

0

 

 

 

 

 

 

1,903

 

 

 

2,284

 

 

 

 

Diluted (Loss) Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income available to common
   stockholders and assumed conversions

 

$

(5,759

)

 

 

8,023

 

 

$

(0.72

)

 

$

16,428

 

 

 

9,677

 

 

$

1.70

 

 

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

 

Income

 

 

Shares

 

 

Per Share

 

 

Income

 

 

Shares

 

 

Per Share

 

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

Net income

 

$

24,873

 

 

 

 

 

 

 

 

 

 

$

20,144

 

 

 

 

 

 

 

 

 

Less: Income attributable to participating

   securities

 

 

(1,309

)

 

 

 

 

 

 

 

 

 

 

(1,114

)

 

 

 

 

 

 

 

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income allocated to common stockholders

 

 

23,564

 

 

 

7,350

 

 

$

3.21

 

 

 

19,030

 

 

 

7,644

 

 

$

2.49

 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

Convertible senior notes

 

 

5,787

 

 

 

2,330

 

 

 

 

 

 

 

6,828

 

 

 

2,745

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders and

   assumed conversions

 

$

29,351

 

 

 

9,697

 

 

$

3.03

 

 

$

25,858

 

 

 

10,403

 

 

$

2.49

 

(a)

Shares in thousands.

(b)

See Adoption of New Accounting Standards under Note 2 -- “Summary of Significant Accounting Policies” for additional information.

*

For the three months ended September 30, 2019,2021, stock options and convertible senior notes were excluded due to anti-dilutive effect.

3941


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

 

Income

 

 

Shares (a)

 

 

Per Share

 

 

Income

 

 

Shares (a)

 

 

Per Share

 

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

 

(Denominator)

 

 

Amount

 

Net income

 

$

5,807

 

 

 

 

 

 

 

 

$

24,873

 

 

 

 

 

 

 

Less: Net income attributable to redeemable
   noncontrolling interest

 

 

(5,175

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

1,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to HCI

 

 

1,823

 

 

 

 

 

 

 

 

 

24,873

 

 

 

 

 

 

 

Less: Income attributable to participating
   securities

 

 

(37

)

 

 

 

 

 

 

 

 

(1,309

)

 

 

 

 

 

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income allocated to common stockholders

 

 

1,786

 

 

 

7,676

 

 

$

0.23

 

 

 

23,564

 

 

 

7,350

 

 

$

3.21

 

Effect of Dilutive Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

0

 

 

 

182

 

 

 

 

 

 

 

 

 

17

 

 

 

 

Convertible senior notes* (b)

 

 

0

 

 

 

0

 

 

 

 

 

 

5,787

 

 

 

2,330

 

 

 

 

Warrants

 

 

0

 

 

 

234

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders
   and assumed conversions

 

$

1,786

 

 

 

8,092

 

 

$

0.22

 

 

$

29,351

 

 

 

9,697

 

 

$

3.03

 

(a)

Shares in thousands.

(b)

See Adoption of New Accounting Standards under Note 2 -- “Summary of Significant Accounting Policies” for additional information.

*

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

Note 18 -- Redeemable Noncontrolling Interest

On February 26, 2021, TTIG completed a capital investment transaction with a fund associated with Centerbridge Partners, L.P. (collectively, the “Lead Investor”), a private investment management fund. Under the investment agreement, TTIG issued 9,000,000 voting shares of its Series A-1 Preferred Stock and 1,000,000 non-voting shares of its Series A-2 Preferred Stock (together “Series A Preferred Stock”), $0.001 par value, at a price of $10 per share for total proceeds of $100,000. The proceeds will be used for TypTap’s operations and continued expansion. The Company incurred $6,262 of related issuance costs. In connection with the transaction, the Lead Investor was granted by HCI warrants to purchase 750,000 shares of HCI’s common stock with an exercise price of $54.40 per share. The warrants valued at $9,217 or $12.29 per warrant were immediately exercisable and will expire on the fourth anniversary of the date of issuance.

Dividends

Dividends accrue and accumulate from the date of issuance. Cumulative dividends are payable semi-annually in cash or paid-in-kind at TTIG’s option. Cash dividend rates are $0.50 per share in Year 1, $0.60 per share in Year 2, $0.75 per share in Year 3, and $0.95 per share in Year 4 and thereafter. The rates for paid-in-kind dividends are $0.60 per share in Year 1 and $0.70 per share in Year 2. In addition, the Series A Preferred Stock will be paid dividends on an as-converted basis when and if TTIG declares common stock dividends.

42


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Conversion Rights

The holders of TTIG’s Series A Preferred Stock have the right to convert the stock at any time into shares of TTIG’s common stock with an initial conversion rate of 1 to 1. The conversion rate will be adjusted under certain conditions. Unless converted earlier, all shares of Series A Preferred Stock will be automatically converted into shares of TTIG’s common stock at the then-applicable conversion rate upon (1) a qualified public offering of TTIG’s common stock with gross proceeds of not less than $250,000 with a price per share at least equal to 150% of the original purchase price of the Series A Preferred Stock, or (2) at the election of requisite holders of a majority of TTIG’s Series A Preferred Stock, whichever comes first.

Redemption Rights

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

Guaranty by HCI

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

Liquidation Preference

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

Anti-Dilutive Protection

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

43


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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

 

 

 

 

Balance at January 1, 2021

 

$

0

 

Initial proceeds from Centerbridge

 

 

100,000

 

Increase (decrease):

 

 

 

Proceeds allocated to warrants*

 

 

(9,217

)

Issuance costs

 

 

(6,262

)

Issuance costs allocated to warrants*

 

 

577

 

Accrued cash dividends

 

 

458

 

Accretion - increasing dividend rates

 

 

336

 

Balance at March 31, 2021

 

$

85,892

 

Increase (decrease):

 

 

 

Accrued cash dividends

 

 

1,250

 

Accretion - increasing dividend rates

 

 

929

 

Balance at June 30, 2021

 

$

88,071

 

Increase (decrease):

 

 

 

Dividends paid

 

 

(2,542

)

Accrued cash dividends

 

 

1,250

 

Accretion - increasing dividend rates

 

 

952

 

Balance at September 30, 2021

 

$

87,731

 

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

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

44


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 19 -- Equity

Stockholders’ Equity

Common Stock

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

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

In December 2018, the Company’s Board of Directors authorized a plan for 2019 to repurchase up to $20,000 of the Company’s common shares before commissions and fees. During the three months ended September 30, 2019, the Company repurchased and retired a total of 175,160 shares at a weighted average price per share of $40.99$43.76 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended September 30, 20192020 was $7,185,$20 or $41.02$43.79 per share. During the nine months ended September 30, 2019,2020, the Company repurchased and retired a total of 367,736129,142 shares at a weighted average price per share of $41.28$39.93 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the nine months ended September 30, 20192020 was $15,191,$5,161 or $41.31$39.96 per share.

On July 2, 2020,7, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.40$0.40 per common share. The dividends were paid on September 18, 202017, 2021 to stockholders of record on August 21, 2020.20, 2021.

Preferred StockWarrants

On May 15, 2020,At September 30, 2021, there were warrants outstanding and exercisable to purchase 750,000 shares of HCI common stock. These warrants were issued by HCI to the CompanyLead Investor described in Note 18 -- “Redeemable Noncontrolling Interest.”

Noncontrolling Interests

According to its amended its Articles of Incorporation, effective on the same date,TTIG is authorized to cancel the designation of 1,500,000issue 183 million shares of the Company’s authorizedcommon stock with a par value of $0.001 per share, and 37,502,000 shares of preferred stock asstock. In February 2021, TTIG issued 10 million shares of Series A Cumulative Redeemable Preferred Stock and the designation of 400,000(see Note 18 -- “Redeemable Noncontrolling Interest”). At September 30, 2021, there were 81,278,175 shares of the Company’s authorized preferredTTIG’s common stock as Series B Junior Participating Preferred Stock. Asoutstanding, of which 6,278,175 shares were not owned by HCI.

In May 2021, TTIG repurchased and retired a result, all 20,000,000 authorizedtotal of 52,015 shares of its common stock surrendered by its employees to satisfy payroll tax liabilities associated with the Company’s preferred stock are undesignated. Since the designationvesting of these typesrestricted shares. The total cost of preferred stock, none have ever been issued by the Company.purchasing noncontrolling interests was $58.

Note 20 -- Stock-Based Compensation

2012 Omnibus Incentive PlansPlan

The Company currently has outstanding stock-based awards granted under the 2012 Omnibus Incentive Plan which is currently active and available for future grants. At September 30, 2020,2021, there were 1,473,8511,117,275 shares available for grant.

45


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Stock Options

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

40


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, 20202021 and 20192020 is as follows (option amounts not in thousands):

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

Term

 

Value

 

Outstanding at January 1, 2021

 

 

440,000

 

 

$

45.25

 

 

7.6 years

 

$

3,113

 

Outstanding at March 31, 2021

 

 

440,000

 

 

$

45.25

 

 

7.3 years

 

$

13,464

 

Outstanding at June 30, 2021

 

 

440,000

 

 

$

45.25

 

 

7.1 years

 

$

23,883

 

Outstanding at September 30, 2021

 

 

440,000

 

 

$

45.25

 

 

6.8 years

 

$

29,238

 

Exercisable at September 30, 2021

 

 

275,000

 

 

$

43.40

 

 

6.3 years

 

$

18,782

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2020

 

 

340,000

 

 

$

43.21

 

 

7.9 years

 

$

1,657

 

Granted

 

 

110,000

 

 

$

48.00

 

 

 

 

 

 

Exercised

 

 

(10,000

)

 

$

6.30

 

 

 

 

 

 

Outstanding at March 31, 2020

 

 

440,000

 

 

$

45.25

 

 

8.3 years

 

$

 

Outstanding at June 30, 2020

 

 

440,000

 

 

$

45.25

 

 

8.1 years

 

$

1,184

 

Outstanding at September 30, 2020

 

 

440,000

 

 

$

45.25

 

 

7.8 years

 

$

2,321

 

Exercisable at September 30, 2020

 

 

165,000

 

 

$

42.17

 

 

7.0 years

 

$

1,334

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

Term

 

Value

 

Outstanding at January 1, 2020

 

 

340,000

 

 

$

43.21

 

 

7.9 years

 

$

1,657

 

Granted

 

 

110,000

 

 

$

48.00

 

 

 

 

 

 

 

Exercised

 

 

(10,000

)

 

$

6.30

 

 

 

 

 

 

 

Outstanding at March 31, 2020

 

 

440,000

 

 

$

45.25

 

 

8.3 years

 

$

 

Outstanding at June 30, 2020

 

 

440,000

 

 

$

45.25

 

 

8.1 years

 

$

1,184

 

Outstanding at September 30, 2020

 

 

440,000

 

 

$

45.25

 

 

7.8 years

 

$

2,321

 

Exercisable at September 30, 2020

 

 

165,000

 

 

$

42.17

 

 

7.0 years

 

$

1,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2019

 

 

240,000

 

 

$

37.19

 

 

8.8 years

 

$

3,278

 

Granted

 

 

110,000

 

 

$

53.00

 

 

 

 

 

 

 

Outstanding at March 31, 2019

 

 

350,000

 

 

$

42.16

 

 

8.5 years

 

$

1,329

 

Exercised

 

 

(10,000

)

 

$

6.30

 

 

 

 

 

 

 

Outstanding at June 30, 2019

 

 

340,000

 

 

$

43.21

 

 

8.4 years

 

$

445

 

Outstanding at September 30, 2019

 

 

340,000

 

 

$

43.21

 

 

8.1 years

 

$

1,057

 

Exercisable at September 30, 2019

 

 

92,500

 

 

$

36.36

 

 

7.0 years

 

$

627

 

The following table summarizes information about options exercised for the three and nine months ended September 30, 20202021 and 20192020 (option amounts not in thousands):

 

Three Months Ended

 

Nine Months Ended

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Options exercised

 

 

 

 

 

 

 

10,000

 

 

 

10,000

 

 

 

 

 

 

 

10,000

 

Total intrinsic value of exercised options

 

$

 

 

$

 

$

288

 

 

$

347

 

 

$

 

$

 

 

$

 

$

288

 

Tax benefits realized

 

$

 

 

$

(3

)

$

71

 

 

$

85

 

 

$

 

$

 

 

$

 

$

71

 

For the three months ended September 30, 20202021 and 2019,2020, the Company recognized $300$221 and $222,$300, respectively, of compensation expense which was included in general and administrative personnel expenses. For the nine months ended September 30, 20202021 and 2019,2020, the Company recognized $880$663 and $647,$880, respectively, of compensation expense. Deferred tax benefits related to stock options were $19$3 and $18$19 for the three months ended September 30, 20202021 and 2019,2020, respectively, and $57$4 and $57 for each of the nine months ended September 30, 2021 and 2020, and 2019, respectively. The Company recognized a reduction in realized tax benefit of $3 in September 2019 resulting from the change in the Florida corporate income tax rate described in Note 17 – “Income Taxes.” At September 30, 20202021 and December 31, 2019,2020, there was $2,189$1,226 and $1,835,$1,889, respectively, of unrecognized compensation expense related to nonvested stock options. The Company expects to recognize the remaining compensation expense over a weighted-average period of 2.51.8 years.

4146


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

The following table provides assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the stock options granted during the nine months ended September 30, 2020 and 2019:2020:

 

 

2020

 

 

2019

 

Expected dividend yield

 

 

3.48

%

 

 

3.34

%

Expected volatility

 

 

38.68

%

 

 

40.17

%

Risk-free interest rate

 

 

1.63

%

 

 

2.53

%

Expected life (in years)

 

 

5

 

 

 

5

 

2020

Expected dividend yield

3.48

%

Expected volatility

38.68

%

Risk-free interest rate

1.63

%

Expected life (in years)

5

Restricted Stock Awards

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

47


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Information with respect to the activity of unvested restricted stock awards during the three and nine months ended September 30, 20202021 and 20192020 is as follows:

 

Number of

 

 

Weighted

 

 

Restricted

 

 

Average

 

 

Number of

 

 

Weighted

 

 

Stock

 

 

Grant Date

 

 

Restricted

 

 

Average

 

 

Stock

 

 

Grant Date

 

 

Awards

 

 

Fair Value

 

Nonvested at January 1, 2021

 

423,787

 

$

43.79

 

Granted

 

548,086

 

$

36.95

 

Vested

 

(41,250

)

 

$

42.18

 

Cancelled

 

(141,600

)

 

$

43.76

 

Forfeited

 

 

(2,050

)

 

$

45.67

 

Nonvested at March 31, 2021

 

 

786,973

 

$

39.11

 

Granted

 

3,000

 

$

76.00

 

Vested

 

(68,541

)

 

$

43.80

 

Cancelled

 

(1,160

)

 

$

45.96

 

Forfeited

 

 

(9,060

)

 

$

46.44

 

Nonvested at June 30, 2021

 

 

711,212

 

$

38.71

 

Granted

 

2,340

 

$

96.60

 

Forfeited

 

 

(38,855

)

 

$

38.05

 

Nonvested at September 30, 2021

 

 

674,697

 

$

38.95

 

 

Awards

 

 

Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2020

 

 

396,760

 

 

$

41.71

 

 

396,760

 

$

41.71

 

Granted

 

 

45,000

 

 

$

44.97

 

 

45,000

 

$

44.97

 

Vested

 

 

(31,250

)

 

$

40.97

 

 

(31,250

)

 

$

40.97

 

Forfeited

 

 

(7,138

)

 

$

42.60

 

 

 

(7,138

)

 

$

42.60

 

Nonvested at March 31, 2020

 

 

403,372

 

 

$

42.12

 

 

 

403,372

 

$

42.12

 

Granted

 

 

145,000

 

 

$

45.59

 

 

145,000

 

$

45.59

 

Vested

 

 

(104,926

)

 

$

41.16

 

 

(104,926

)

 

$

41.16

 

Forfeited

 

 

(5,220

)

 

$

43.75

 

 

 

(5,220

)

 

$

43.75

 

Nonvested at June 30, 2020

 

 

438,226

 

 

$

43.48

 

 

 

438,226

 

$

43.48

 

Granted

 

 

2,680

 

 

$

54.36

 

 

2,680

 

$

54.36

 

Vested

 

 

(625

)

 

$

41.02

 

 

(625

)

 

$

41.02

 

Forfeited

 

 

(2,369

)

 

$

45.60

 

 

 

(2,369

)

 

$

45.60

 

Nonvested at September 30, 2020

 

 

437,912

 

 

$

43.54

 

 

 

437,912

 

$

43.54

 

 

 

 

 

 

 

 

 

Nonvested at January 1, 2019

 

 

632,296

 

 

$

33.33

 

Granted

 

 

40,000

 

 

$

47.94

 

Vested

 

 

(21,250

)

 

$

37.69

 

Forfeited

 

 

(4,681

)

 

$

42.79

 

Nonvested at March 31, 2019

 

 

646,365

 

 

$

34.03

 

Granted

 

 

133,160

 

 

$

41.30

 

Vested

 

 

(84,914

)

 

$

41.58

 

Forfeited

 

 

(264,211

)

 

$

23.81

 

Nonvested at June 30, 2019

 

 

430,400

 

 

$

41.06

 

Granted

 

 

7,244

 

 

$

41.76

 

Forfeited

 

 

(2,351

)

 

$

41.97

 

Nonvested at September 30, 2019

 

 

435,293

 

 

$

41.07

 

4248


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $1,862$2,039 and $1,524$1,862 for the three months ended September 30, 20202021 and 2019,2020, respectively, and $5,142$6,280 and $4,047$5,142 for the nine months ended September 30, 20202021 and 2019,2020, respectively. At September 30, 20202021 and December 31, 2019,2020, there was approximately $15,658$21,628 and $12,661,$13,666, respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period of 2.82.9 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, 20202021 and 2019.2020.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Deferred tax benefits recognized

 

$

420

 

 

$

353

 

 

$

879

 

 

$

956

 

Tax benefits realized for restricted stock
    and paid dividends

 

$

70

 

 

$

47

 

 

$

1,482

 

 

$

1,286

 

Fair value of vested restricted stock

 

$

 

 

$

26

 

 

$

4,742

 

 

$

5,625

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Deferred tax benefits recognized

 

$

353

 

 

$

282

 

 

$

956

 

 

$

772

 

Tax benefits realized for restricted stock

    and paid dividends

 

$

47

 

 

$

1

 

 

$

1,286

 

 

$

986

 

Fair value of vested restricted stock

 

$

26

 

 

$

 

 

$

5,625

 

 

$

4,331

 

During 2019, allIn February 2021, the Company cancelled 141,600 shares of restricted stock for employees who transitioned to TypTap Group (See Note 1 -- “Nature of Operations”). In exchange, these employees received replacement restricted stock issued under TTIG’s equity incentive plan.

49


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Subsidiary Equity Plan

On February 26, 2021, TTIG’s Board of Directors approved the 2021 Equity Incentive Plan (the “2021 Plan”) which is an incentive plan denominated in TTIG’s common shares. The 2021 Plan provides for broad-based equity awards granted to employeeemployees and nonemployee directors with market-based vesting conditions were forfeited dueof TypTap Group. The maximum number of shares that may be issued under the 2021 Plan is 7,000,000 shares. In February 2021, TTIG issued a total of 5,749,300 shares of restricted stock to not meeting the vesting conditions. The dividend payments associated with these awards were expensed when declared. As a result, foremployees who transitioned to TypTap Group. For the three months ended September 30, 2019, the Company2021, TypTap Group recognized dividends of $10compensation expense related to these awards in other operating expenses. Forrestricted stock of $472, and for the nine months ended September 30, 2019,2021, TypTap Group recognized compensation expense related to restricted stock of $2,286.

On September 27, 2021, TTIG’s Board of Directors terminated the Company recognized dividends2021 Plan and replaced it with the 2021 Omnibus Incentive Plan (the “2021 Omnibus Plan”). The initial maximum number of $237 in general and administrative personnel expenses for $170 and in other operating expenses for $67.shares that may be issued under the 2021 Omnibus Plan is 7,700,000 shares. At September 30, 2021, there was approximately $4,846 of total unrecognized compensation expense related to nonvested restricted stock.

Note 21 -- Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contracts

As of September 30, 2021, the Company has contractual obligations related to 2 multi-year reinsurance contracts. These contracts may be cancelled only with the other party’s consent or when their respective experience accounts are positive at the end of each contract year. The table below presents the future minimum aggregate premium amounts payable to the reinsurer.

Due in 12 months following September 30,

 

 

 

2021

 

$

9,095

 

2022*

 

 

9,095

 

2023*

 

 

4,093

 

Total

 

$

22,283

 

*Premiums payable after May 31, 2022 are estimated.

Capital CommitmentCommitments

As described in Note 5 -- “Investments” under Limited Partnership Investments, the Company is contractually committed to capital contributions for limited partnership interests. At September 30, 2020,2021, there was an aggregate unfunded balance of $12,178.$13,980.

Litigation

On April 1, 2020, Gulf to Bay LM, LLC, the Company’s wholly owned real estate subsidiary, sued Kroger Co. in federal district court to enforce a guaranty of a commercial lease executed between Gulf to Bay LM, LLC and Lucky’s Market Operating Company, LLC. Lucky’s filed for bankruptcy earlier this year.

Note 22 -- Related Party Transactions

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

50


HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 23 -- Subsequent Events

On October 16, 2020,1, 2021, TTIG granted options to purchase an aggregate of 6,450,000 shares of its common stock at an exercise price of $23 per share to its chief executive officer, Paresh Patel, and certain other executives. The options will have a 10-year term and were granted pursuant to TTIG's 2021 Omnibus Plan. The options will vest over a four-year period, so long as the optionees remain employed by TTIG. TTIG is currently in the process of determining the grant date fair value of the options.

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

On October 15, 2021, the Company’s Board of Directors declared a quarterly dividend of $0.40$0.40 per common share. The dividends are payable on December 18, 202017, 2021 to stockholders of record on November 20, 2020.19, 2021.

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

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


51


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 Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 6, 2020.12, 2021. Unless the context requires otherwise, as used in this Form 10-Q, the terms “HCI,” “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to HCI Group, Inc., a Florida corporation incorporated in 2006, and its subsidiaries. All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in whole dollars unless specified otherwise.

Forward-Looking Statements

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

OVERVIEW – General

HCI Group, Inc. is a Florida-based InsurTech company that, through its subsidiaries, is engagedwith operations in property and casualty insurance, reinsurance, real estate and information technology. BasedAfter 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 the following operations:performances:

a)

Insurance Operations

a)
HCPCI Insurance Operations

Property and casualty insurance

Property and casualty insurance

Reinsurance

Reinsurance and other auxiliary operations

b)

Real Estate Operations

b)
TypTap Group

c)

Other Operations

Property and casualty insurance

Information technology

Information technology

Other auxiliary operations

c)
Real Estate Operations

d)
Other Operations
Holding company operations

For the three months ended September 30, 20202021 and 2019,2020, revenues from HCPCI insurance operations before intracompany elimination represented 71.1%73.9% and 95.2%59.1%, respectively, and revenues from TypTap Group represented 24.0% and 12.6%, respectively, of total revenues of all operating segments. For the nine months ended September 30, 20202021 and 2019,2020, revenues from HCPCI insurance operations before intracompany

52


elimination represented 86.2%76.4% and 95.0%73.8%, respectively, and revenues from TypTap Group represented 20.7% and 12.7%, respectively, of total revenues of all operating segments. At September 30, 20202021 and December 31, 2019,2020, HCPCI insurance operations’ total assets represented 83.0%60.2% and 85.5%68.9%, respectively, and TypTap Group’s total assets represented 26.3% and 16.7%, respectively, of the combined assets of all operating segments. See Note 1514 -- “Segment Information” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

HCPCI Insurance Operations

Property and Casualty Insurance

Our insurance business is operated through two insurance subsidiaries: Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”), our principal operating subsidiary, and TypTap Insurance Company (“TypTap”). We provideHCPCI provides various forms of residential insurance products such as homeowners insurance, fire insurance, flood insurance and wind-only insurance. We areHCPCI is authorized to write residential property and casualty insurance in the states of Arkansas, California, Connecticut, Florida, Maryland, Massachusetts, New Jersey, North Carolina, New Jersey, Ohio, Pennsylvania, Rhode Island, South Carolina and Texas. Currently, Florida is ourHCPCI’s primary market.

In February 2020,Effective January 2021, HCPCI entered into a policy replacement agreement with Anchorbegan providing 69.5% quota share reinsurance on all in-force, new and renewal policies issued by United Property & Casualty Insurance Company, a subsidiary of United Insurance Holdings Corporation (“Anchor”United”). in the states of Connecticut, New Jersey, Massachusetts and Rhode Island. In exchange, HCPCI paid United an allowance of $4,400,000 towards previously purchased catastrophe reinsurance and a provisional ceding commission of 25% of premium. That percentage can increase up to 31.5% depending on the direct loss ratio results from the reinsured business.

We and United agreed to postpone the policy replacement date under the renewal rights agreement to a later date and we, through HCPCI and TypTap, entered into a new quota share reinsurance agreement in June 2021 to provide 100% reinsurance on all of United’s in-force, new and renewal policies in those states from June 1, 2021 through May 31, 2022. Under the new agreement, HCPCI offered short-term replacement policies for all policies cancelled by Anchor as of April 1, 2020. The replacement policies had substantially the same terms and rates as the cancelled polices and will expire on the same dates the cancelled policies would have expired had they not been cancelled. Upon expirationassumes 50% of the replacement policies,business and pays United a ceding commission of 24% of premium. Annual premiums from the total assumed business approximate $120,000,000. HCPCI may offer renewals to those policyholders at its own rateswill receive 50% of the total premiums.

Reinsurance and terms but has no obligation to do so. In connection with the agreement, we received $30,000,000 on February 13, 2020 representing an estimate of unearned premium on policies to be replaced.other auxiliary operations

TypTap has been the primary source of our organic growth in gross written premium since 2018. TypTap’s policies in force have increased from 6,721 in January 2018 to 33,825 at September 30, 2020. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently in Florida. In October 2020, TypTap began applying to offer homeowners coverage in other states. In addition to the expansion in TypTap business, we expect the Anchor transaction will contribute to our future growth.

Reinsurance

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

TypTap Group

Property and Casualty Insurance

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

53


TypTap, TTIG’s insurance subsidiary, has been the primary source of our organic growth in gross written premium since 2016. TypTap’s policies in force have increased from 6,721 in January 2018 to 48,897 at September 30, 2021. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently in Florida. As of October 26, 2021, TypTap has been approved to offer homeowners coverage in 17 states outside of Florida. In addition to the expansion in TypTap business, we also expect future growth from the United policies assigned to TypTap through the renewal rights agreement acquired by HCI.

In connection with the aforementioned new quota share agreement with United, TypTap assumes 50% of the business. TypTap will receive approximately $60,000,000 of annual premiums and pays a ceding commission of 24% of premium.

Information Technology

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

Real Estate Operations

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


In July 2020, the property in Tampa, Florida where our headquarters is located was acquired by the Florida Department of Transportation (“FDOT”) exercising the power of eminent domain for a highway expansion project. See Note 9 -- “Property and Equipment, Net” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

Other Operations

Information TechnologyHolding company operations

Our information technologyActivities 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 include a team of experienced software developers with extensive knowledge in developing web-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 or services that support in-house operations as well as our third-party relationships with our agency partners and claim vendors. These products include SAMSTM, Harmony, and ClaimColony®.

Impact of COVID-19 on Our Business

As of the date of this filing, the COVID-19 pandemic is likely to continue causing significant economic disruption and negatively affect almost every industry directly or indirectly. The long-term impact of the COVID-19 pandemic on our financial condition, results of operations and cash flows is difficult to predict (also see segment.Risks and Uncertainties Caused by COVID-19 in Note 1 -- “Nature of Operations” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q) as this global health crisis is still evolving. The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the containment measures, the extent and severity of the impact on our patrons and business partners, and the size and effectiveness of the state and federal government’s relief programs, of which we expect more to follow. With the use of our existing technologies and infrastructure, a majority of our workforce can work from home without significant disruptions to our operations. At present, we have no plan to reduce our workforce. At September 30, 2020, the impact on our financial statements of COVOD-19 consists primarily of unrealized losses on our portfolio of investment securities and material losses from limited partnership investments. However, we may experience further material economic impacts in other areas of our business, such as in our real estate operations, in future periods.

Recent Events

On October 16, 2020,1, 2021, TTIG granted options to purchase an aggregate of 6,450,000 shares of its common stock at an exercise price of $23 per share to its chief executive officer, Paresh Patel, and certain other executives. The options will have a 10-year term and were granted pursuant to TTIG's 2021 Omnibus Incentive Plan. The options will vest over a four-year period, so long as the optionees remain employed by TTIG. TTIG is currently in the process of determining the grant date fair value of the options.

On October 15, 2021, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on December 18, 202017, 2021 to stockholders of record on November 20, 2020.19, 2021.

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


54


RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three and nine months ended September 30, 20202021 and 20192020 (dollar amounts in thousands, except per share amounts):

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned

 

$

106,694

 

 

$

86,002

 

 

$

306,862

 

 

$

251,914

 

 

$

149,809

 

$

106,694

 

$

420,191

 

$

306,862

 

Premiums ceded

 

 

(44,231

)

 

 

(31,568

)

 

 

(109,304

)

 

 

(94,298

)

 

 

(55,577

)

 

 

(44,231

)

 

 

(145,112

)

 

 

(109,304

)

Net premiums earned

 

 

62,463

 

 

 

54,434

 

 

 

197,558

 

 

 

157,616

 

 

94,232

 

62,463

 

275,079

 

197,558

 

Net investment income

 

 

1,832

 

 

 

3,621

 

 

 

3,244

 

 

 

11,125

 

 

2,520

 

1,832

 

9,749

 

3,244

 

Net realized investment gains (losses)

 

 

177

 

 

 

(30

)

 

 

(632

)

 

 

(535

)

 

1,232

 

177

 

4,952

 

(632

)

Net unrealized investment gains (losses)

 

 

1,340

 

 

 

642

 

 

 

(581

)

 

 

7,261

 

Net unrealized investment (losses) gains

 

(1,869

)

 

1,340

 

(649

)

 

(581

)

Credit losses on investments

 

 

(70

)

 

 

 

 

 

(596

)

 

 

 

 

 

(70

)

 

 

(596

)

Policy fee income

 

 

895

 

 

 

811

 

 

 

2,571

 

 

 

2,406

 

 

1,000

 

895

 

2,962

 

2,571

 

Gain on involuntary conversion

 

 

36,969

 

 

 

 

 

 

36,969

 

 

 

 

 

 

36,969

 

 

36,969

 

Other income

 

 

421

 

 

 

501

 

 

 

1,591

 

 

 

1,370

 

 

 

2,102

 

 

421

 

 

3,502

 

 

1,591

 

Total revenue

 

 

104,027

 

 

 

59,979

 

 

 

240,124

 

 

 

179,243

 

 

 

99,217

 

 

104,027

 

 

295,595

 

 

240,124

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

51,743

 

 

 

27,327

 

 

 

119,664

 

 

 

78,616

 

 

62,664

 

51,743

 

164,332

 

119,664

 

Policy acquisition and other underwriting expenses

 

 

14,210

 

 

 

10,988

 

 

 

39,027

 

 

 

30,738

 

 

23,340

 

14,210

 

69,574

 

39,027

 

General and administrative personnel expenses

 

 

9,871

 

 

 

7,951

 

 

 

27,969

 

 

 

23,313

 

 

11,537

 

9,871

 

31,733

 

27,969

 

Interest expense

 

 

2,856

 

 

 

2,907

 

 

 

8,846

 

 

 

10,128

 

 

1,664

 

2,856

 

5,743

 

8,846

 

Loss on repurchase of convertible senior notes

 

 

 

 

 

 

 

 

150

 

 

 

 

Loss on repurchases of convertible senior notes

 

 

 

 

150

 

Loss on extinguishment of debt

 

 

98

 

 

 

 

 

 

98

 

 

 

 

 

 

98

 

 

98

 

Debt conversion expense

 

1,273

 

 

1,273

 

 

Other operating expenses

 

 

3,713

 

 

 

3,087

 

 

 

10,354

 

 

 

9,131

 

 

 

5,243

 

 

3,713

 

 

14,245

 

 

10,354

 

Total expenses

 

 

82,491

 

 

 

52,260

 

 

 

206,108

 

 

 

151,926

 

 

 

105,721

 

 

82,491

 

 

286,900

 

 

206,108

 

Income before income taxes

 

 

21,536

 

 

 

7,719

 

 

 

34,016

 

 

 

27,317

 

Income tax expense

 

 

6,146

 

 

 

1,866

 

 

 

9,143

 

 

 

7,173

 

Net income

 

$

15,390

 

 

$

5,853

 

 

$

24,873

 

 

$

20,144

 

(Loss) income before income taxes

 

(6,504

)

 

21,536

 

8,695

 

34,016

 

Income tax (benefit) expense

 

 

(1,636

)

 

 

6,146

 

 

2,888

 

 

9,143

 

Net (loss) income

 

(4,868

)

 

15,390

 

5,807

 

24,873

 

Net income attributable to noncontrolling interests

 

 

(1,369

)

 

 

 

 

(3,979

)

 

 

 

Net (loss) income after noncontrolling interests

 

$

(6,237

)

 

$

15,390

 

$

1,828

 

$

24,873

 

Ratios to Net Premiums Earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Ratio

 

 

82.84

%

 

 

50.20

%

 

 

60.57

%

 

 

49.88

%

 

66.50

%

 

82.84

%

 

59.74

%

 

60.57

%

Expense Ratio

 

 

49.23

%

 

 

45.80

%

 

 

43.76

%

 

 

46.51

%

 

 

45.69

%

 

 

49.23

%

 

 

44.56

%

 

 

43.76

%

Combined Ratio

 

 

132.07

%

 

 

96.00

%

 

 

104.33

%

 

 

96.39

%

 

 

112.19

%

 

 

132.07

%

 

 

104.30

%

 

 

104.33

%

Ratios to Gross Premiums Earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Ratio

 

 

48.50

%

 

 

31.78

%

 

 

39.00

%

 

 

31.21

%

 

41.83

%

 

48.50

%

 

39.11

%

 

39.00

%

Expense Ratio

 

 

28.82

%

 

 

28.99

%

 

 

28.17

%

 

 

29.10

%

 

 

28.74

%

 

 

28.82

%

 

 

29.17

%

 

 

28.17

%

Combined Ratio

 

 

77.32

%

 

 

60.77

%

 

 

67.17

%

 

 

60.31

%

 

 

70.57

%

 

 

77.32

%

 

 

68.28

%

 

 

67.17

%

Earnings Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.97

 

 

$

0.73

 

 

$

3.21

 

 

$

2.49

 

 

$

(0.72

)

 

$

1.97

 

$

0.23

 

$

3.21

 

Diluted

 

$

1.70

 

 

$

0.73

 

 

$

3.03

 

 

$

2.49

 

 

$

(0.72

)

 

$

1.70

 

$

0.22

 

$

3.03

 


55


Comparison of the Three Months endedEnded September 30, 20202021 to the Three Months endedEnded September 30, 20192020

Our results of operations for the three months ended September 30, 20202021 reflect a net loss of approximately $4,868,000 or $0.72 diluted loss per share, compared with a net income available to common stockholders of approximately $15,390,000 or $1.70 diluted earnings per diluted common share, compared with approximately $5,853,000, or $0.73 earnings per diluted common share, for the three months ended September 30, 2019.2020. The quarter-over-quarter increase in net incomedecrease was primarily due to a one-time gain on involuntary conversion of $36,969,000 andincluded in our 2020 results, a net increase in net premiums earned of $8,029,000, offset by a decrease in income from our investment portfolio (consisting of net investment income/loss and net realized and unrealized gains/losses) of $884,000, an$10,921,000 increase in losses and loss adjustment expenses, of $24,416,000, ana $9,130,000 increase in policy acquisition and other underwriting expenses, of $3,222,000, and increased payroll costs of $1,920,000. Of the $24,416,000a $1,530,000 increase in lossesother operating expenses, offset by an increase in net premiums earned of $31,769,000, a $1,681,000 increase in other income, and loss adjustment expenses, $17,700,000 related to Hurricane Sally.a $1,192,000 decrease in interest expense.

Revenue

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

Premiums Ceded for the three months ended September 30, 20202021 and 20192020 were approximately $106,694,000$55,577,000 and $86,002,000, respectively. The quarter-over-quarter increase was primarily attributable to the policies transitioned from Anchor and increased policies in force from the growth in TypTap’s business. Gross premiums earned related to the Anchor policies were approximately $9,300,000 for the quarter.

Premiums Ceded for the three months ended September 30, 2020 and 2019 were approximately $44,231,000, and $31,568,000, respectively, representing 41.5%37.1% and 36.7%41.5%, respectively, of gross premiums earned. The $12,663,000$11,346,000 increase was primarily attributable to increasedhigher reinsurance costs effective June 1, 2020for the 2021 contract year due to an increased overall reinsurance coverage amount as a result of premium growth and a higher level of reinsurance coverage,expansion. Reinsurance costs were offset by a reduction in premiums ceded attributable to retrospective provisions under onemulti-year reinsurance contract.agreements.

Our premiums ceded represent costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts or to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. For the three months ended September 30, 2020,2021, premiums ceded included a decrease of approximately $4,680,000$1,364,000 related to retrospective provisions compared with a net reductiondecrease of approximately $2,520,000$4,680,000 for the three months ended September 30, 2019.2020. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”

Net Premiums Written for the three months ended September 30, 20202021 and 20192020 totaled approximately $72,220,000$118,689,000 and $65,763,000,$72,220,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The increase in 20202021 resulted from an increase in gross premiums written from the United insurance policies assumed and the growth of TypTap business and the transition ofbusiness. We had approximately 156,000 policies in force at September 30, 2021 (excluding policies assumed from Anchor. We hadUnited) as compared with approximately 157,000 policies in force at September 30, 2020 as compared with approximately 125,000 policies in force at September 30, 2019.2020.

Net Premiums Earned for the three months ended September 30, 20202021 and 20192020 were approximately $62,463,000$94,232,000 and $54,434,000,$62,463,000, respectively, and reflect the gross premiums earned less reinsurance costs as described above.


56


The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended September 30, 20202021 and 20192020 (amounts in thousands):

 

Three Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Net Premiums Written

 

$

72,220

 

 

$

65,763

 

 

$

118,689

 

$

72,220

 

Increase in Unearned Premiums

 

 

(9,757

)

 

 

(11,329

)

 

 

(24,457

)

 

 

(9,757

)

Net Premiums Earned

 

$

62,463

 

 

$

54,434

 

 

$

94,232

 

$

62,463

 

Net Investment Income for the three months ended September 30, 20202021 and 20192020 was approximately $1,832,000$2,520,000 and $3,621,000,$1,832,000, respectively. The $1,789,000 decrease$688,000 increase was primarily attributable to lowera $782,000 increase in income from limited partnership and real estate investments and a $491,000 increase in income from our investment in an unconsolidated joint venture, offset by a $505,000 decrease in interest income from fixed-maturity securities and cash equivalent instruments.security investments. See

Net Unrealized Investment gainsIncome (loss) for the three months ended September 30, 2020 and 2019 were approximately $1,340,000 and $642,000, respectively, reflecting an increase in the fair value of equity securities resulting from an improved economic outlook since the shock caused by COVID-19.

Gain on Involuntary Conversion for the three months ended September 30, 2020 was approximately $36,969,000. This one-time gain resulted from the aforementioned transaction with the FDOT. Seeunder Note 95 -- “Property and Equipment, Net”“Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.10-Q.

ExpensesNet Realized Investment Gains

Our Losses and Loss Adjustment Expenses amounted to approximately $51,743,000 and $27,327,000 for the three months ended September 30, 2021 and 2020 were approximately $1,232,000 and 2019,$177,000, respectively. The $24,416,000$1,055,000 increase was primarily resultedattributable to net gains from $17,700,000selling equity securities.

Net Unrealized Investment Losses for the three months ended September 30, 2021 were approximately $1,869,000 versus net unrealized investment gains of reservesapproximately $1,340,000 for the three months ended September 30, 2020. The decrease was primarily due to the sales of equity securities with aggregate net gains during the quarter.

Expenses

Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $62,664,000 and $51,743,000 for the three months ended September 30, 2021 and 2020, respectively. The increase was attributable to additional losses associated with the growth in TypTap’s business during 2021 and was offset by lower third quarter 2021 losses at HCPCI when compared with 2020. TypTap experienced an additional $5,150,000 of reinsurance recoverable forlosses related to growth in its homeowners business, $6,535,000 of losses from policies assumed from United, and $2,887,000 in combined losses from hurricanes Henri and Ida. HCPCI third quarter 2021 losses were comparatively lower due to 2020 losses of $17,679,000 from Hurricane Sally, $4,850,000 of losses from other weather-related events inpolicies acquired from Anchor Property & Casualty Insurance Company, offset by third quarter 2021 losses of $6,535,000 from policies assumed from United, and $2,305,000 resulting from re-estimation of losses from Hurricane Sally. Both companies recorded additional losses during the quarter the increase in gross premiums earned, and change in premium mix, offset bytotaling a reduction in loss reserves related to 2019 and 2018 loss years.combined $4,165,000 from re-assessing losses from Tropical Storm Eta, a fourth quarter 2020 event. 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, 20202021 and 20192020 were approximately $23,340,000 and $14,210,000 and $10,988,000,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, and premium taxes. Policy acquisition expenses for HCPCI insurance operations were $13,035,000 for the three months ended September 30, 2021 compared to $10,593,000 for the three months ended September 30, 2020. The $3,222,000 increase was primarily attributabledue to higher agent commission rates, property inspectionamortization of increased costs associated with the organic growthpolicies assumed from United. TypTap Group policy acquisition expenses were $10,360,000 versus $4,067,000 for the same comparative period, with the increase attributable to amortization of TypTap business, and $605,000 of amortized transitionincreased commission costs related to Anchor policies.the growth of TypTap’s policies in force over the past 12 months and the policies assumed from United.

General and Administrative Personnel Expenses57


Debt Conversion Expense for the three months ended September 30, 20202021 was approximately $1,273,000, representing costs associated with certain of the conversions of our 4.25% convertible senior notes.

General and 2019Administrative Personnel Expenses for the three months ended September 30, 2021 and 2020 were approximately $9,871,000$11,537,000 and $7,951,000,$9,871,000, respectively. Our general and administrative personnel expenses include salaries, wages, payroll taxes, share-basedstock-based compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The period-over-period increase of $1,920,000$1,666,000 was primarily attributable to higher share-basedstock-based compensation expense, and employee incentive bonus, an increase in the headcount of temporary and full-time employees, and merit increases for non-executive employees effective in late February 2020, and lower capitalized and recoverable payroll costs.2021.


Income Tax ExpenseBenefit for the three months ended September 30, 2020 and 20192021 was approximately $6,146,000 and $1,866,000, respectively,$1,636,000 for state, federal, and foreign income taxes resulting in an effective tax rate of 28.5%25.2%. This compared with approximately $6,146,000 of income tax expense for the three months ended September 30, 2020, and 24.2% for 2019.resulting in an effective tax rate of 28.5%. The increasedecrease in the effective tax rate as compared with the corresponding period in the prior year was primarily dueattributable to the non-deductibility of certain executive compensation.compensation during the three months ended September 30, 2020.

Ratios:

The loss ratio applicable to the three months ended September 30, 20202021 (losses and loss adjustment expenses incurred related to net premiums earned) was 82.8%66.5% compared with 50.2%82.8% for the three months ended September 30, 2019.2020. The increasedecrease was primarily due to the increase in losses and loss adjustment expenses, offset in part by thean increase in net premiums earned.

The expense ratio applicable to the three months ended September 30, 20202021 (defined as underwriting expenses, general and administrative personnel expenses, interest and other operating expenses related to net premiums earned) was 49.2%45.7% compared with 45.8%49.2% for the three months ended September 30, 2019.2020. The increasedecrease in our expense ratio was primarily attributable to the increase in net premiums earned and the decrease in interest expense, offset by the increase in losses and loss adjustment expenses and the increase in policy acquisition, underwriting and personnel expenses, offset by the increase in net premiums earned.  expenses.

The combined ratio (total of all expenses in relation to net premiums earned) is the measure of overall underwriting profitability before other income. Our combined ratio for the three months ended September 30, 20202021 was 132.0%112.2% compared with 96.0%132.0% for the three months ended September 30, 2019.2020. The decrease in 2021 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, 20202021 was 77.3%70.6% compared with 60.8%77.3% for the three months ended September 30, 2019.2020. The increasedecrease in 20202021 was attributable to the factors described above.

58


Comparison of the Nine Months endedEnded September 30, 20202021 to the Nine Months endedEnded September 30, 20192020

Our results of operations for the nine months ended September 30, 20202021 reflect net income available to common stockholders of approximately $5,807,000 or $0.22 diluted earnings per share, compared with approximately $24,873,000 or $3.03 diluted earnings per diluted common share, compared with approximately $20,144,000, or $2.49 earnings per diluted common share, for the nine months ended September 30, 2019.2020. The period-over-period increasedecrease in net income was primarily due to an increase in gross premiums earned of $54,948,000 and a $36,969,000 gain on involuntary conversion, offset by a $15,006,000 increase in reinsurance costs, a net decrease in income from our investment portfolio of $15,820,000, an$44,668,000 increase in losses and loss adjustment expenses, a one-time gain on involuntary conversion of $41,048,000, an$36,969,000 included in our 2020 results, and a $30,547,000 increase in policy acquisition and other underwriting expense of $8,289,000, andexpenses, offset by an increase in generalnet premiums earned of $77,521,000, a $12,617,000 increase in income from our investment portfolio (consisting of net investment income/loss and administrative personnel expenses of $4,656,000.

net realized and unrealized gains/losses), and a $3,103,000 decrease in interest expense.

Revenue

Gross Premiums Earned on a consolidated basis for the nine months ended September 30, 2021 and 2020 were approximately $420,191,000 and $306,862,000, respectively. HCPCI gross premiums earned were $300,827,000 for the nine months ended September 30, 2021 compared to $252,033,000 for the nine months ended September 30, 2020. The increase included $73,403,000 of gross premiums earned from the United insurance policies assumed. TypTap’s gross premiums earned were $119,364,000 versus $54,829,000 for the same comparative period with the increase due to a greater number of policies in force from the growth in TypTap’s business.

Premiums Ceded for the nine months ended September 30, 20202021 and 20192020 were approximately $306,862,000$145,112,000 and $251,914,000, respectively. The $54,948,000 increase in 2020 compared with the corresponding period in 2019 was primarily attributable to a net increase in policies in force as described earlier.

Premiums Ceded for the nine months ended September 30, 2020 and 2019 were approximately $109,304,000, and $94,298,000, respectively, representing 35.6%34.5% and 37.4%35.6%, respectively, of gross premiums earned. The $15,006,000$35,808,000 increase was primarily attributable to higher reinsurance costs for the 2021 contract year due to an increased reinsurance cost per coverage limit effective June 1, 2020 and a higher level ofoverall reinsurance coverage amount as a result of premium growth and expansion. Reinsurance costs were offset by a reduction in premiums ceded attributable to retrospective provisions under onemulti-year reinsurance contract.agreements.


For the nine months ended September 30, 2020,2021, premiums ceded included a reductiondecrease of approximately $10,440,000$4,680,000 related to retrospective provisions. Forprovisions compared with a net reduction of $10,440,000 for the nine months ended September 30, 2019, premiums ceded included a net reduction of approximately $4,258,000 related to retrospective provisions.2020. 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, 20202021 and 20192020 totaled approximately $255,546,000$339,980,000 and $204,084,000,$255,546,000, respectively. The $51,462,000$84,434,000 increase in 20202021 resulted primarily from the factors described earlier.

Net Premiums Earned for the nine months ended September 30, 20202021 and 20192020 were approximately $197,558,000$275,079,000 and $157,616,000,$197,558,000, respectively, and reflect the gross premiums earned less reinsurance costs as described above.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the nine months ended September 30, 20202021 and 20192020 (amounts in thousands):

 

Nine Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Net Premiums Written

 

$

255,546

 

 

$

204,084

 

 

$

339,980

 

$

255,546

 

Increase in Unearned Premiums

 

 

(57,988

)

 

 

(46,468

)

 

 

(64,901

)

 

 

(57,988

)

Net Premiums Earned

 

$

197,558

 

 

$

157,616

 

 

$

275,079

 

$

197,558

 

59


Net Investment Income for the nine months ended September 30, 20202021 and 20192020 was approximately $3,244,000$9,749,000 and $11,125,000,$3,244,000, respectively. The $7,881,000 decrease$6,505,000 increase was primarily attributable to a loss of $2,058,000losses from limited partnership investments in 2020 as opposed to income of $1,308,000 in 2019.  In addition, interest income from cash, cash equivalents, fixed-maturity securities, and short-term investments was lower by $4,041,000 in 2020 compared with 2019 due to the economic effects of the COVID-19 pandemic and a loweringnet gain of investment yields, particularly$2,790,000 recognized in 2021 for a legal settlement received from The Kroger Co. See Net Investment Income (loss) under Note 5 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on cash.Form 10-Q.

Net Unrealized Investment Losses for the nine months ended September 30, 2021 and 2020 were approximately $649,000 and $581,000, versusrespectively. The decrease was primarily due to the sales of equity securities with aggregate net unrealized investment gains ofduring the nine months ended September 30, 2021.

Expenses

Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $7,261,000$164,332,000 and $119,664,000 for the nine months ended September 30, 2019, reflecting a deterioration2021 and 2020, respectively. The increase was attributable to additional losses associated with the growth in the fair valueTypTap’s business during 2021 and was offset by lower 2021 losses at HCPCI when compared with 2020. TypTap experienced an additional $13,985,000 of equity securities caused by COVID-19 pandemic.

Gain on Involuntary Conversionlosses related to growth in its homeowners business, $9,116,000 of losses from policies assumed from United, and $2,887,000 in combined losses from hurricanes Henri and Ida. HCPCI 2021 losses for the nine months ended September 30,were comparatively lower due to 2020 was approximately $36,969,000,losses of $17,679,000 from Hurricane Sally, $13,000,000 of losses from policies acquired from Anchor Property & Casualty Insurance Company, offset by 2021 losses of $27,712,000 from policies assumed from United, and $2,812,000 resulting from the transaction described earlier.

Expenses

Our Losses and Loss Adjustment Expenses amounted to approximately $119,664,000 and $78,616,000 forre-estimation of losses from Hurricane Sally. Both companies recorded additional losses during the nine months ended September 30,totaling a combined $8,000,000 from re-assessing losses from Tropical Storm Eta, a fourth quarter 2020 and 2019, respectively. The $41,048,000 increase was primarily attributable to the increase in gross premiums earned, change in premium mix and reserves for Hurricane Sally and other weather-related losses, offset by lower prior year development. Losses after reinsurance recoverable for Hurricane Sally approximated $17,700,000.event. 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, 20202021 and 20192020 were approximately $69,574,000 and $39,027,000 and $30,738,000,on a consolidated basis, respectively. Policy acquisition expenses for HCPCI insurance operations were $46,076,000 for the nine months ended September 30, 2021 compared to $28,892,000 for the nine months ended September 30, 2020. The $8,289,000 increase was primarilydue to amortization of increased costs associated with the policies assumed from United. TypTap Group policy acquisition expenses were $23,612,000 versus $10,641,000 for the same comparative period, with the increase attributable to amortization of increased commission costs related to the factors described earlier.growth of TypTap’s policies in force over the past 12 months and the policies assumed from United.


General and Administrative Personnel Expenses for the nine months ended September 30, 20202021 and 20192020 were approximately $27,969,000$31,733,000 and $23,313,000,$27,969,000, respectively. The period-over-period increase of $4,656,000$3,764,000 was primarily attributable to higher share-basedstock-based compensation expense, an increase in the headcount of temporary and employee incentive bonus,full-time employees, and merit increases for non-executive employees and lower capitalized and recoverable payroll costs.effective in late February 2021.

60


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

Income Tax Expense for the nine months ended September 30, 20202021 and 20192020 was approximately $8,846,000$2,888,000 and $10,128,000, respectively. The decrease resulted from the repayment of our 3.875% Convertible Senior Notes in March 2019.  

Income Tax Expense for the nine months ended September 30, 2020 and 2019 was approximately $9,143,000, and $7,173,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 33.2% for 2021 and 26.9% for 2020 and 26.3% for 2019.2020. The increase in the effective tax rate was primarily due to the non-deductibility of certain executive compensation.

Ratios:

The loss ratio applicable to the nine months ended September 30, 20202021 (losses and loss adjustment expenses incurred related to net premiums earned) was 60.6%59.7% compared with 49.9%60.6% for the nine months ended September 30, 2019.2020. The decrease was primarily due to an increase in net premiums earned.

The expense ratio applicable to the nine months ended September 30, 20202021 was 43.7%44.6% compared with 46.5%43.7% for the nine months ended September 30, 2019.2020. The decreaseincrease in our expense ratio was primarily attributable to the increase in policy acquisition, underwriting and personnel expenses, offset by the increase in net premiums earned.  earned and the decrease in interest expense.

The combined ratio is the measure of overall underwriting profitability before other income. Our combined ratio for the nine months ended September 30, 20202021 was 104.3% compared with 96.4%104.3% for the nine months ended September 30, 2019. The increase was attributable to the increase in losses and loss adjustment expenses, offset by the increase in net premiums earned as described above.2020.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the nine months ended September 30, 20202021 was 67.2%68.3% compared with 60.3%67.2% for the nine months ended September 30, 2019.2020. The increase in 20202021 was primarily attributable to the increase in losses and loss adjustment expenses, offset by the increase in gross premiums earned.

Seasonality of Our Business

Our insurance business is seasonal as hurricanes and tropical storms affecting Florida, our primary market, 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.

61


LIQUIDITY AND CAPITAL RESOURCES

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


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

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

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

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

The following table summarizes the principal and interest payment obligations of our indebtedness at September 30, 2020:2021:

Maturity Date

Interest Payment Due Date

4.25% Convertible senior notes

March 2037

March 1 and September 1

3.75% Callable promissory note

Through September 2036

1st day of each month

4.55% Promissory note

Through August 2036

1st day of each month

3.90% Promissory note

Through April 2032

1st day of each month

Finance leases

Through August 2023October 2024

Various

Revolving credit facility

Through December 20212023

January 1, April 1, July 1, October 1

See Note 1211 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Share Repurchase Plan

On March 13, 2020, the Board approved a plan for 2020, effective March 16, 2020, to repurchase up to $20,000,000 of common shares 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. See Note 19 -- “Stockholders’ Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for more information.

Limited Partnership Investments

Our limited partnership investments consist of fivesix private equity funds managed by their general partners. ThreeFour of these funds have unexpired capital commitments which are callable at the discretion of the fund’s general partner for funding new investments or expenses of the fund. Although capital commitments for two of the remaining two funds have expired, the general partners may request additional funds under certain circumstances. At September 30, 2020,2021, there was an aggregate unfunded capital balance of $12,178,000.$13,980,000. See Limited Partnership Investments under Note 5 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.


62


Real Estate Investments

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

We currently have a 90% equity interest in FMKT Mel JV, LLC, a Florida limited liability company for which we are not the primary beneficiary. FMKT Mel JV’s real estate portfolio consists of outparcels for ground lease or sale. We have the option to take full ownership of these outparcels by acquiring the remaining 10% interest. Alternatively, we may sell these outparcels and allocate the profits from the sale before liquidating FMKT Mel JV.

Sources and Uses of Cash

Cash Flows for the Nine Months Ended September 30, 2021

Net cash provided by operating activities for the nine months ended September 30, 2021 was approximately $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 provided by investing activities of $35,087,000 was primarily due to the proceeds from sales of fixed-maturity and equity securities of $100,130,000, the proceeds from redemptions and maturities of fixed-maturity securities of $16,734,000, and distributions received from limited partnership investments of $3,635,000, offset by the purchases of fixed-maturity and equity securities of $83,211,000, and the purchases of property and equipment of $2,583,000. Net cash provided by financing activities totaled $54,077,000, which consisted of net proceeds of $93,738,000 from Centerbridge for investment in TTIG, offset by $9,713,000 of net cash dividend payments, net repayment of our revolving credit facility of $23,750,000, and $1,308,000 used in share repurchases.

Cash Flows for the Nine Months Ended September 30, 2020

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

Cash Flows for the Nine Months Ended September 30, 2019Investments

Net cash provided by operating activities for the nine months ended September 30, 2019 was approximately $38,094,000, which consisted primarily of cash received from net premiums written as well as reinsurance recoveries (of approximately $74,355,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments.  Net cash provided by investing activities of $44,511,000 was primarily due to the proceeds from redemptions and maturities of fixed-maturity securities of $50,738,000, the proceeds from sales of fixed-maturity and equity securities of $39,570,000, and the proceeds from sales and maturities of short-term and other investments of $66,902,000, offset by the purchases of fixed-maturity and equity securities of $98,633,000, the purchase of real estate investments of $10,475,000, limited partnership investments of $1,899,000, and the purchases of property and equipment of $2,166,000.  Net cash used in financing activities totaled $107,439,000, which was primarily due to the repayments of long-term debt of $90,980,000, $9,599,000 of net cash dividend payments, and $16,214,000 used in our share repurchases, offset by $9,750,000 of borrowings from revolving credit facility.

Investments

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


63


At September 30, 2020,2021, we had $135,445,000$96,276,000 of fixed-maturity and equity investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed-maturity investments but increases the market value of existing fixed-maturity investments, creating the opportunity for realized investment gains on disposition. To maximize the gains from fixed-maturity investments in a low interest rate environment, we have decreased our holdings in fixed-maturity securities since the beginning of 2020.

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

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2020,2021, we had unexpired capital commitments for limited partnerships in which we hold interests. Such commitments are not recognized in the financial statements but are required to be disclosed in the notes to the financial statements. See Note 21 -- “Commitments and Contingencies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q and Contractual Obligations and Commitment below for additional information.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table summarizes our material contractual obligations and commitments as of September 30, 2020 (amounts in thousands):

 

 

Payment Due by Period

 

 

 

 

 

 

 

Less than

 

 

 

 

 

 

 

 

 

 

More than

 

 

 

Total

 

 

1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

5 Years

 

Operating leases (1)

 

$

5,912

 

 

$

2,223

 

 

$

3,689

 

 

$

 

 

$

 

Service agreement (1)

 

 

32

 

 

 

19

 

 

 

13

 

 

 

 

 

 

 

Unfunded capital commitments (2)

 

 

12,178

 

 

 

12,178

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

 

8,750

 

 

 

8,750

 

 

 

 

 

 

 

 

 

 

Long-term debt obligations (3)

 

 

179,447

 

 

 

7,785

 

 

 

145,889

 

 

 

3,700

 

 

 

22,073

 

Total

 

$

206,319

 

 

$

30,955

 

 

$

149,591

 

 

$

3,700

 

 

$

22,073

 

(1)

Represents leases for office space in Tampa and Miami Lakes, Florida, a lease and maintenance service agreement for office space in Noida, India, and leases for office equipment and storage space. Liabilities related to our India operations were converted from Indian Rupees to U.S. dollars using the September 30, 2020 exchange rate.

(2)

Represents the unfunded balance of capital commitments under the subscription agreements related to limited partnerships in which we hold interests.

(3)

Amounts represent principal and interest payments over the lives of various long-term debt obligations. See Note 12 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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


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

Reserves for Losses and Loss Adjustment Expenses

Our liability for losses and loss adjustment expense (“Reserves”) is specific to property insurance, which is our insurance division’s 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, 2020, $165,274,0002021, $151,669,000 of the total $219,345,000$203,177,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $54,071,000$51,508,000 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, 2020, $31,125,0002021, $33,889,000 of the $54,071,000$51,508,000 in reserves for known cases relates to claims incurred during prior years.

64


Our Reserves increaseddecreased from $214,697,000$212,169,000 at December 31, 20192020 to $219,345,000$203,177,000 at September 30, 2020.2021. The $4,648,000 increase$8,992,000 decrease is comprised of $81,691,000 in reserves established for the 2020 loss year, of which $18,628,000 related to Hurricane Sally, offset by reductions in our Reserves of $43,328,000$30,790,000 specific to Hurricane Irma in 2017 and Hurricane Michael, in 2018 and reductions in our non-catastrophe Reserves of $19,058,000$43,738,000 for 2020 and $17,895,000 for 2019 and $14,657,000 for 2018 and prior loss years.years, offset by $76,228,000 in reserves established for the 2021 loss year and additional reserves of $7,203,000 for Hurricane Sally and Tropical Storm Eta. The $81,691,000 in Reserves established for 20202021 claims is primarily driven by an allowance for those claims that have been incurred but not reported to the company as of September 30, 2020.2021. The decrease of $77,043,000$61,633,000 specific to our 20192020 and prior loss-year reserves is due to settlement of claims related to those loss years.

Based on all information known to us, we consider our Reserves at September 30, 20202021 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made, and the liabilities may deviate substantially from prior estimates.

Economic Impact of Reinsurance Contracts with Retrospective Provisions

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


For the three months ended September 30, 20202021 and 2019,2020, we accrued benefits of $1,364,000 and $4,680,000, and $2,520,000, respectively. For the three months ended September 30, 2020 and 2019, there was no adjustment in ceded premiums. In combination, for the three months ended September 30, 2020 and 2019, we recognized decreases in ceded premiums of $4,680,000 and $2,520,000, respectively.

For the nine months ended September 30, 20202021 and 2019,2020, we accrued benefits of $9,619,000 and $10,440,000, and $3,824,000, respectively. ThereThe accrual of benefits was no adjustmentrecognized as a reduction in ceded premiums for the nine months ended September 30, 2020.  For the nine months ended September 30, 2019, we recognized a decrease in premiums ceded of $434,000. In combination, for the nine months ended September 30, 2020 and 2019, we recognized decreases in ceded premiums of $10,440,000 and $4,258,000, respectively.premiums.

As of September 30, 2020,2021, we had $6,240,000$1,819,000 of accrued benefits, the amount that would be charged to earnings in the event we experience a catastrophic loss that exceeds the coverage limit provided under such agreement. In June 2020,2021, we received a $13,680,000collected $18,720,000 of premium refund underfrom a reinsurer for the retrospective reinsurance contract that ended May 31, 2020. Accrued benefits related to this expired contract were $9,480,000 at December 31, 2019. 2021.

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

Stock-Based Compensation Expense

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

65


Acquired Intangible Assets

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

Warrants and Redeemable Noncontrolling Interest

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

The above and other accounting estimates and their related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form 10-K, which we filed with the SEC on March 6, 2020.12, 2021. For the nine months ended September 30, 2020,2021, there have been no other material changes with respect to any of our critical accounting policies.

RECENT ACCOUNTING PRONOUNCEMENTS

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 3 to our Notes to Unaudited Consolidated Financial Statements.


66


ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our investment portfolios at September 30, 20202021 included fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by outside investment advisors and are overseen by the investment committee appointed by our boardBoard 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 as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity. As such, any material temporary changes in their fair value can adversely impact the carrying value of our stockholders’ equity. In addition, we recognize any unrealized gains or losses related to our equity securities in our statement of income. As a result, our results of operations can be materially affected by the volatility in the equity market.

Interest Rate Risk

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

The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed-maturity securities at September 30, 20202021 (amounts in thousands):

Hypothetical Change in Interest Rates

 

Estimated

Fair Value

 

 

Change in

Estimated

Fair Value

 

 

Percentage

Increase

(Decrease)

in Estimated

Fair Value

 

 

Estimated
Fair Value

 

 

Change in
Estimated
Fair Value

 

 

Percentage
Increase
(Decrease)
in Estimated
Fair Value

 

300 basis point increase

 

$

88,775

 

 

$

(3,968

)

 

 

-4.28

%

 

$

43,019

 

$

(3,034

)

 

-6.59

%

200 basis point increase

 

 

90,097

 

 

 

(2,646

)

 

 

-2.85

%

 

44,030

 

(2,023

)

 

-4.39

%

100 basis point increase

 

 

91,420

 

 

 

(1,323

)

 

 

-1.43

%

 

45,042

 

(1,011

)

 

-2.20

%

100 basis point decrease

 

 

93,562

 

 

 

819

 

 

 

0.88

%

 

46,867

 

814

 

1.77

%

200 basis point decrease

 

 

93,961

 

 

 

1,218

 

 

 

1.31

%

 

47,320

 

1,267

 

2.75

%

300 basis point decrease

 

 

94,237

 

 

 

1,494

 

 

 

1.61

%

 

47,365

 

1,312

 

2.85

%

Credit Risk

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


67


The following table presents the composition of our fixed-maturity securities, by rating, at September 30, 20202021 (amounts in thousands):

 

 

 

 

 

% of Total

 

 

 

 

 

 

% of Total

 

 

 

 

 

% of Total

 

 

 

 

 

% of Total

 

 

Amortized

 

 

Amortized

 

 

Estimated

 

 

Estimated

 

 

Amortized

 

 

Amortized

 

 

Estimated

 

 

Estimated

 

Comparable Rating

 

Cost

 

 

Cost

 

 

Fair Value

 

 

Fair Value

 

 

Cost

 

 

Cost

 

 

Fair Value

 

 

Fair Value

 

AAA

 

$

678

 

2.0

 

$

692

 

2.0

 

AA+, AA, AA-

 

$

16,110

 

 

 

17.0

 

 

$

16,455

 

 

 

17.0

 

 

14,379

 

32.0

 

14,465

 

31.0

 

A+, A, A-

 

 

43,952

 

 

 

48.0

 

 

 

44,743

 

 

 

48.0

 

 

13,934

 

31.0

 

14,080

 

31.0

 

BBB+, BBB, BBB-

 

 

20,011

 

 

 

22.0

 

 

 

20,876

 

 

 

23.0

 

 

13,688

 

30.0

 

14,477

 

31.0

 

BB+, BB, BB-

 

 

4,229

 

 

 

5.0

 

 

 

4,357

 

 

 

5.0

 

 

468

 

1.0

 

469

 

1.0

 

CCC+, CC and Not rated

 

 

6,864

 

 

 

8.0

 

 

 

6,312

 

 

 

7.0

 

 

 

1,869

 

 

4.0

 

 

1,870

 

 

4.0

 

Total

 

$

91,166

 

 

 

100.0

 

 

$

92,743

 

 

 

100.0

 

 

$

45,016

 

 

100.0

 

$

46,053

 

 

100.0

 

Equity Price Risk

Our equity investment portfolio at September 30, 20202021 included common stocks, perpetual preferred stocks, mutual funds and 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, 20202021 (amounts in thousands):

 

 

 

 

 

% of Total

 

 

 

Estimated

 

 

Estimated

 

 

 

Fair Value

 

 

Fair Value

 

Stocks by sector:

 

 

 

 

 

 

Financial

 

$

12,303

 

 

 

24

 

Technology

 

 

4,210

 

 

 

8

 

Consumer

 

 

3,840

 

 

 

8

 

Communications

 

 

2,584

 

 

 

5

 

Other (1)

 

 

3,771

 

 

 

8

 

 

 

 

26,708

 

 

 

53

 

Mutual funds and exchange traded funds by type:

 

 

 

 

 

 

Debt

 

 

17,780

 

 

 

35

 

Equity

 

 

5,735

 

 

 

12

 

Total

 

$

50,223

 

 

 

100

 

 

 

 

 

 

 

% of Total

 

 

 

Estimated

 

 

Estimated

 

 

 

Fair Value

 

 

Fair Value

 

Stocks by sector:

 

 

 

 

 

 

 

 

Financial

 

$

13,691

 

 

 

32

 

Technology

 

 

2,550

 

 

 

6

 

Consumer

 

 

4,151

 

 

 

10

 

Other (1)

 

 

4,517

 

 

 

10

 

 

 

 

24,909

 

 

 

58

 

Mutual funds and exchange traded funds by type:

 

 

 

 

 

 

 

 

Debt

 

 

15,382

 

 

 

36

 

Equity

 

 

2,411

 

 

 

6

 

Total

 

$

42,702

 

 

 

100

 

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

(1)

Represents an aggregate of less than 5% sectors.

Foreign Currency Exchange Risk

At September 30, 2020,2021, we did not have any material exposure to foreign currency related risk.


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ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

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

69



PART II – OTHER INFORMATION

On April 1, 2020, Gulf to Bay LM, LLC, our wholly owned real estate subsidiary, sued Kroger Co. in federal district court to enforce a guaranty of a commercial lease executed between Gulf to Bay LM, LLC and Lucky’s Market Operating Company, LLC. Lucky’s filed for bankruptcy earlier this year.

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

ITEM 1A – RISK FACTORS

With the exception of the item described below, there have been no material changes from the risk factors previously disclosed in the section entitled “Risk Factors” in our Form 10-K, which was filed with the SEC on March 6, 2020.

Our operations could be materially and adversely affected by measures implemented by federal, state and local governments to cope with public health issues such as the outbreak of COVID-19, resulting in a material impact to our financial position and results of operations.

The measures undertaken by governmental authorities to combat a serious public health issue could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period and could materially affect our financial position and operating results.

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic. On March 13, 2020, the United States declared a national emergency to control the spread of COVID-19, which was followed by declarations of public health emergencies in several states and municipalities. Wide-ranging actions undertaken by international, federal, state and local government authorities include full lockdowns, airport shutdowns, travel restrictions, quarantines and stay-at-home orders.  As a result, people are forced to substantially restrict daily activities resulting in businesses having to curtail or cease normal operations and furlough or terminate employees. Such measures cause concerns over the stability of global markets and threaten prospects for economic growth.12, 2021.

In response to the pandemic, we temporarily closed our offices and asked our employees to work from home until further notice. Currently, stay at home orders initially issued by the State of Florida and local governments are lifted. We allow some employees who have gone through health safety training to alternate working from home and in the offices. When we can fully reopen our offices is uncertain and will depend upon the severity and duration of the COVID-19 outbreak.

Furthermore, the disruption of global commercial activities across all market sectors and the significant declines and volatility in financial markets could result in a material adverse impact on our financial position, results of operations and cash flows. Possible effects may include, but are not limited to, disruption to cash inflows from our insurance business and rental properties, nonrenewal of insurance policies, uncollectibility of reinsurance recoverable, increased reinsurance costs and a decline in value of assets held by us, including real estate investments, limited partnership investments, equity and debt securities.


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

(a)

Sales of Unregistered Securities and Use of Proceeds

(a)
Sales of Unregistered Securities and Use of Proceeds

None

(b)

Repurchases of Securities

The table below summarizes the number of common shares repurchased during the three months ended September 30, 2020 under the 2019 and 2020 repurchase plans approved by our Board of Directors and also the number ofOn January 18, 2021, we issued 100,000 shares of our common stock surrendered by employees to satisfy payroll tax liabilities associated withUnited in exchange for the vestingrenewal rights and non-compete agreement.

On February 26, 2021, warrants to purchase 750,000 shares of restricted shares (dollar amountsour common stock were issued to the lead investor in thousands, except share and per share amounts):our subsidiary’s capital investment transaction.

(b)
Repurchases of Securities

None

 

 

Total

Number

of Shares

 

 

Average

Price

Paid

 

 

Total

Number of

Shares

Purchased

as Part of

Publicly

Announced Plans

 

 

Maximum

Dollar

Value of Shares

That May Yet

Be Purchased

Under

The Plans

 

For the Month Ended

 

Purchased

 

 

Per Share

 

 

or Programs

 

 

or Programs (a)

 

July 31, 2020

 

 

457

 

 

$

43.76

 

 

 

457

 

 

$

16,006

 

August 31, 2020

 

 

225

 

 

$

55.59

 

 

 

 

 

$

16,006

 

September 30, 2020

 

 

 

 

$

 

 

 

 

 

$

16,006

 

 

 

 

682

 

 

$

47.66

 

 

 

457

 

 

 

 

 

(a)

Represents the balances before commissions and fees at the end of each month.

Working Capital Restrictions and Other Limitations on Payment of Dividends

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

70


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, 2020,2021, our insurance subsidiaries paid dividends of $15,500,000$11,900,000 to HCI.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

None.

ITEM 5 – OTHER INFORMATION

None.


71


ITEM 6 – EXHIBITS

The following documents are filed as part of this report:

EXHIBIT

 

NUMBER

DESCRIPTION

 

 

  3.1

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

 

 

  3.1.1

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

  3.2

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

 

 

  4.1

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

  4.8  4.2

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

  4.6

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

  4.8

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

  4.9

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

  4.10

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

  4.11

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

10.5**10.1

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

10.2

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

10.3

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

10.4

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

72


10.5**

Restated HCI Group, Inc. 2012 Omnibus Incentive Plan. Incorporated by reference to Exhibit 99.1 of our Form 8-K filed March 23, 2017.

10.6**

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

10.7**

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

10.8

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

10.9

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


EXHIBIT

NUMBER

DESCRIPTION

10.10

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

10.11

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

10.12

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

10.13

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

10.14

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

73


10.15

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

10.16

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

10.17

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


EXHIBIT

NUMBER

DESCRIPTION

10.18

��

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

10.19

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

10.20

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

10.21

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

10.22

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

10.23

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

74


10.24

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

10.25

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


EXHIBIT

NUMBER

DESCRIPTION

10.26

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

10.27

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

10.28

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

10.29

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

10.30

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

10.31

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

10.32

Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 20192021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.

10.33

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

75


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

10.34

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

10.40

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

10.41

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

10.42

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

10.43

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

10.44

7th Layer Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.6, 2021.

10.3210.45

Flood Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 20192021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.6, 2021.

10.33

Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2019 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.  Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.

10.40

Top Layer Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2019 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.  Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.


EXHIBIT

NUMBER

DESCRIPTION

10.4110.46**

Working Layer Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2019 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.  Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.

10.42

Reinstatement Premium Protection Reinsurance Contract effective June 1, 2019 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.  Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.

10.43

Reinstatement Premium Protection Reinsurance Contract (For Excess Cat U8GR000D) effective June 1, 2019 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.  Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.

10.44

Reinstatement Premium Protection Reinsurance Contract (For Excess Cat U8GR0008) effective June 1, 2019 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.  Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.

10.45

Reimbursement Contract effective June 1, 2019 between Homeowners Choice Property & Casualty Insurance Company and the State Board of Administration which administers the Florida Hurricane Catastrophe Fund.  Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 7, 2019.

10.46**

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

10.47

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

10.5710.48**

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

10.49**

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

76


10.50

Exchange Agreement, dated August 26, 2021, by and between HCI Group, Inc. and Citadel Equity Fund Ltd.

10.51**

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

10.52**

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

10.57

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

10.58

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

10.59

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

10.60

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


EXHIBIT

NUMBER10.88**

DESCRIPTION

10.88**

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

10.89**

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

10.99**

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

10.100**

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

10.101**

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

10.102**

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

10.103**

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

10.104**

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

77


10.105**

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

10.106**

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

31.110.107

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

10.108

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

10.109

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

10.110

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

10.111

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

10.112

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

10.113

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

10.114

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

78


10.115

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

10.116

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

10.117

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

10.118

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

10.119

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

10.120

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

10.121

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

10.122

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

10.123

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

31.1

Certification of the Chief Executive Officer

31.2

Certification of the Chief Financial Officer

32.1

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

32.2

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

79


101.INS

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

101.SCH

Inline XBRL Taxonomy Extension Schema.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF

Inline XBRL Definition Linkbase.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase.

104

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

** Management contract or compensatory plan.

80


SIGNATURES

**

Management contract or compensatory plan.


SIGNATURES

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

 

 

HCI GROUP, INC.

 

 

 

 

November 6, 20209, 2021

 

By:

/s/ /s/ Paresh Patel

 

 

 

Paresh Patel

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

November 6, 20209, 2021

 

By:

/s/ /s/ James Mark Harmsworth

 

 

 

James Mark Harmsworth

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial and Accounting Officer)

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

70

81