UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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 March 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number
001-34126
HCI Group, Inc.
(Exact name of registrant as specified in its charter)
Florida
20-5961396
(State of Incorporation)
(IRS EmployerIdentification No.)
3802 Coconut Palm DriveTampa, FL 33619(Address, including zip code, of principal executive offices)
(813) 849-9500(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Shares, no par value
HCI
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☑
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate number of shares of the registrant’s common stock, no par value, outstanding on April 29, 2022 was 10,119,663.
HCI GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Balance Sheets:
March 31, 2022 (unaudited) and December 31, 2021
1-2
Consolidated Statements of Income:
Three months ended March 31, 2022 and 2021 (unaudited)
3
Consolidated Statements of Comprehensive Income:
4
Consolidated Statements of Equity:
5-6
Consolidated Statements of Cash Flows:
7-9
Notes to Consolidated Financial Statements (unaudited)
10-38
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
39-49
Item 3
Quantitative and Qualitative Disclosures about Market Risk
50-51
Item 4
Controls and Procedures
52
PART II – OTHER INFORMATION
Legal Proceedings
53
Item 1A
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
53-54
Defaults Upon Senior Securities
54
Mine Safety Disclosures
Item 5
Other Information
Item 6
Exhibits
55-60
Signatures
61
Certifications
Item 1 – Financial Statements
Consolidated Balance Sheets
(Dollar amounts in thousands)
March 31,
December 31,
2022
2021
(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $153,776 and $41,953, respectively and allowance for credit losses: $0 and $0, respectively)
$
150,684
42,583
Equity securities, at fair value (cost: $39,316 and $46,276, respectively)
41,204
51,740
Limited partnership investments
28,166
28,133
Investment in unconsolidated joint venture, at equity
350
363
Real estate investments
73,387
73,896
Total investments
293,791
196,715
Cash and cash equivalents
569,040
628,943
Restricted cash
2,400
Accrued interest and dividends receivable
674
353
Income taxes receivable
—
4,084
Premiums receivable, net (allowance: $2,459 and $1,750, respectively)
39,890
68,157
Prepaid reinsurance premiums
11,561
26,355
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)
14,720
11,985
Unpaid losses and loss adjustment expenses (allowance: $79 and $90, respectively)
54,876
64,665
Deferred policy acquisition costs
53,670
57,695
Property and equipment, net
15,469
14,232
Right-of-use assets - operating leases
2,673
2,204
Intangible assets, net
15,105
10,636
Funds withheld for assumed business
84,068
73,716
Other assets
17,313
14,717
Total assets
1,175,250
1,176,857
(continued)
1
Consolidated Balance Sheets – (Continued)
Liabilities and Equity
Losses and loss adjustment expenses
234,792
237,165
Unearned premiums
365,112
366,744
Advance premiums
23,898
13,771
Reinsurance payable on paid losses and loss adjustment expenses
6,657
4,017
Ceded reinsurance premiums payable
20,899
19,318
Accrued expenses
16,899
15,453
Income tax payable
3,061
Deferred income taxes, net
4,834
11,739
Revolving credit facility
15,000
Long-term debt
45,295
45,504
Lease liabilities - operating leases
2,662
2,203
Other liabilities
24,418
31,485
Total liabilities
763,527
762,399
Commitments and contingencies (Note 20)
Redeemable noncontrolling interest (Note 17)
89,695
89,955
Equity:
Common stock (no par value, 40,000,000 shares authorized, 10,125,927 and 10,131,399 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)
Additional paid-in capital
79,131
76,077
Retained income
243,647
246,790
Accumulated other comprehensive (loss) income, net of taxes
(2,185
)
498
Total stockholders’ equity
320,593
323,365
Noncontrolling interests
1,435
1,138
Total equity
322,028
324,503
Total liabilities, redeemable noncontrolling interest and equity
See accompanying Notes to Consolidated Financial Statements (unaudited).
2
Consolidated Statements of Income
(Dollar amounts in thousands, except per share amounts)
Three Months Ended
Revenue
Gross premiums earned
178,925
130,942
Premiums ceded
(53,162
(43,099
Net premiums earned
125,763
87,843
Net investment income
2,868
4,594
Net realized investment (losses) gains
(314
1,113
Net unrealized investment losses
(3,576
(269
Policy fee income
1,057
970
Other
1,242
623
Total revenue
127,040
94,874
Expenses
72,704
45,751
Policy acquisition and other underwriting expenses
29,408
23,065
General and administrative personnel expenses
14,034
9,650
Interest expense
601
2,079
Other operating expenses
6,292
4,227
Total expenses
123,039
84,772
Income before income taxes
4,001
10,102
Income tax expense
1,210
3,257
Net income
2,791
6,845
Net income attributable to redeemable noncontrolling interest (Note 17)
(2,248
(794
Net loss attributable to noncontrolling interests
360
97
Net income after noncontrolling interests
903
6,148
Basic earnings per share
0.09
0.82
Diluted earnings per share
0.75
Consolidated Statements of Comprehensive Income
(Amounts in thousands)
Other comprehensive loss:
Change in unrealized loss on investments:
Net unrealized losses arising during the period
(4,151
(182
Call and repayment gains charged to investment income
(2
Reclassification adjustment for net realized losses (gains)
429
(1
Net change in unrealized losses
(3,722
(185
Deferred income taxes on above change
938
45
Total other comprehensive loss, net of income taxes
(2,784
(140
Comprehensive income
7
6,705
Comprehensive loss attributable to noncontrolling interests
461
98
Comprehensive income after noncontrolling interests
468
6,803
Consolidated Statements of Equity
For the Three Months Ended March 31, 2022
(Dollar amounts in thousands, except per share amount)
Common Stock
AdditionalPaid-In
Retained
AccumulatedOtherComprehensiveIncome (Loss),
TotalStockholders’
Noncontrolling
Total
Shares
Amount
Capital
Income
Net of Tax
Equity
Interests
Balance at December 31, 2021
10,131,399
Net income (loss)
2,978
(187
Net income attributable to redeemable noncontrolling interest
(2,075
(173
(2,683
(101
Issuance of restricted stock
4,000
Forfeiture of restricted stock
(3,265
Repurchase and retirement of common stock
(6,207
(398
Dilution from subsidiary stock-based compensation
758
Common stock dividends ($0.40 per share)
(4,046
Stock-based compensation
3,452
Balance at March 31, 2022
10,125,927
5
Consolidated Statements of Equity – (Continued)
For the Three Months Ended March 31, 2021
AccumulatedOtherComprehensiveIncome,
Balance at December 31, 2020
7,785,617
199,592
1,544
201,136
6,942
(97
Cumulative effect of change in accounting principle
(3,018
(139
548,086
(2,050
Cancellation of restricted stock
(141,600
(371
(20
Issuance of common stock
100,000
5,410
215
Issuance of warrants, net of issuance costs (Note 17)
8,640
(2,793
2,127
Additional paid-in capital shortfall adjustment allocated to retained income
(16,157
16,157
Balance at March 31, 2021
8,289,682
216,086
1,405
217,491
117
217,608
6
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income attributable to noncontrolling interests
1,888
697
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense
4,337
2,342
Net (accretion of discount) amortization of premiums on investments in fixed-maturity securities
(3
77
Depreciation and amortization
1,516
1,363
Deferred income tax benefit
(5,967
(847
Net realized investment losses (gains)
314
(1,113
3,576
269
Credit loss expense - reinsurance recoverable
(11
(12
Loss from unconsolidated joint venture
13
25
Net income from limited partnership interests
(1,780
(787
Distributions received from limited partnership interests
811
478
Foreign currency remeasurement loss
19
9
Other non-cash items
11
21
Changes in operating assets and liabilities:
(321
(7
Income taxes
7,145
4,073
Premiums receivable, net
28,267
38,923
14,794
21,402
Reinsurance recoverable
7,065
13,436
4,025
3,392
(10,352
(41,355
(3,102
(4,453
(2,373
(6,396
(1,632
(5,094
10,127
12,921
Assumed reinsurance balances payable
2,640
2,317
1,581
(449
Accrued expenses and other liabilities
(6,142
(11,241
Net cash provided by operating activities
57,349
36,140
Consolidated Statements of Cash Flows – (Continued)
Cash flows from investing activities:
Investments in limited partnership interests
(272
Return of excess investments in limited partnership interests
151
785
1,546
Purchase of property and equipment
(1,861
(697
Purchase of real estate investments
(55
Purchase of intangible assets
(3,800
Purchase of fixed-maturity securities
(122,557
(1,263
Purchase of equity securities
(11,486
(27,128
Purchase of short-term and other investments
(990
Proceeds from sales of fixed-maturity securities
9,058
36
Proceeds from calls, repayments and maturities of fixed-maturity securities
1,250
12,486
Proceeds from sales of equity securities
18,369
34,378
Proceeds from sales, redemptions and maturities of short-term and other investments
192
1,100
Net cash (used in) provided by investing activities
(109,899
19,141
Cash flows from financing activities:
Cash dividends paid
(4,123
(2,869
Cash dividends received under share repurchase forward contract
76
Net repayment under revolving credit facility
(23,750
Proceeds from issuance of redeemable noncontrolling interest and warrants
Issuance costs - redeemable noncontrolling interest
(6,262
Cash dividends paid to redeemable noncontrolling interest
(2,508
Repayment of long-term debt
(249
(239
Repurchases of common stock
Purchase of noncontrolling interests
(127
Debt issuance costs
(152
Net cash (used in) provided by financing activities
(7,328
66,784
Effect of exchange rate changes on cash
(25
(9
Net (decrease) increase in cash, cash equivalents, and restricted cash
(59,903
122,056
Cash, cash equivalents, and restricted cash at beginning of period
631,343
433,741
Cash, cash equivalents, and restricted cash at end of period
571,440
555,797
8
Supplemental disclosure of cash flow information:
Cash paid for income taxes
32
31
Cash paid for interest
727
3,186
Non-cash investing and financing activities:
Unrealized loss on investments in available-for-sale securities, net of tax
Receivable from sales of equity securities
46
Warrants issued in Centerbridge transaction
9,217
Acquisition of intangibles:
Common stock issued
Contingent consideration payable
1,069
2,419
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 1 -- Nature of Operations
HCI Group, Inc., together with its subsidiaries (“HCI” or the “Company”), is primarily engaged in the property and casualty insurance business through two Florida domiciled insurance companies, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”) and TypTap Insurance Company (“TypTap”). Both HCPCI and TypTap are authorized to underwrite various homeowners’ property and casualty insurance products and allied lines business in the state of Florida and in other states. The operations of both insurance subsidiaries are supported by HCI Group, Inc. and certain HCI subsidiaries. The Company emphasizes the use 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, Greenleaf Capital, LLC, the Company’s real estate subsidiary, is primarily engaged in the business of owning and leasing real estate and operating marina facilities.
Assumed Business
Northeast Region
In 2021, the Company began providing quota share reinsurance on all in-force, new and renewal policies issued by United Property & Casualty Insurance Company, an insurance subsidiary of United Insurance Holdings Corporation (“United”) in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island (collectively “Northeast Region”). Through its insurance subsidiaries, the Company began renewing and/or replacing United policies in two states in December 2021 and a third state in January 2022.
Southeast Region
In February 2022, HCPCI entered into another reinsurance agreement with United where HCPCI provides 85% quota share reinsurance on all of United’s personal lines insurance business in the states of Georgia, North Carolina, and South Carolina (collectively “Southeast Region”) from December 31, 2021 through May 31, 2022. Under this agreement, HCPCI paid United a catastrophe allowance of 9% of premium and a provisional ceding commission of 25% of premium. That percentage could increase up to 32% depending on the direct loss ratio results from the reinsured business.
The Company also entered into a renewal rights agreement with United in connection with the Southeast Region assumed business. Under the renewal rights agreement, the Company has the right to renew and/or replace United’s insurance policies at the end of their respective policy periods. The ability to replace policies is subject to regulatory approvals in the three states. The policy replacement date is June 1, 2022 or such other date as mutually agreed by both parties. In connection with the transaction, United agrees to not compete with the Company for the issuance of personal lines homeowners business in these three states until July 1, 2025. As part of the transaction, United will receive a renewal rights ceding commission of 6%, with a portion of the ceding commission paid up-front. See Note 7 -- “Intangible Assets, Net” for additional information.
10
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 March 31, 2022 and the results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2022. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s Form 10-K, which was filed with the SEC on March 10, 2022.
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.
Revenue from Claims Processing Services
Revenue related to claims processing services is included in other revenue in the consolidated statement of income. For the three months ended March 31, 2022, revenues from claims processing services were $1,007. At March 31, 2022 and December 31, 2021, other assets included $248 and $314, respectively, of amounts receivable attributable to this service.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation. Ceded reinsurance premiums payable were reclassified out of other liabilities and funds withheld for assumed business were reclassified out of other assets for the three months ended March 31, 2021 within the consolidated statement of cash flows to conform with the current year presentation.
Note 3 -- Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
Restricted cash represents funds in the Company’s sole ownership held by certain states in which the Company’s insurance subsidiaries conduct business to meet regulatory requirements and not available for immediate business use. Funds withheld in an account for which the Company is a co-owner but not the named beneficiary are not considered restricted cash.
Note 4 -- Investments
a) Available-for-Sale Fixed-Maturity Securities
The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At March 31, 2022 and December 31, 2021, 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 orAmortized
Allowance for Credit
GrossUnrealized
EstimatedFair
Cost
Loss
Gain
Value
As of March 31, 2022
U.S. Treasury and U.S. government agencies
130,261
(3,048
127,217
Corporate bonds
20,947
161
(247
20,861
States, municipalities, and political subdivisions
1,760
16
1,776
Exchange-traded debt
701
24
724
Redeemable preferred stock
107
106
153,776
205
(3,297
As of December 31, 2021
17,046
64
(86
17,024
21,913
632
(53
22,492
1,759
49
1,808
767
44
448
41,953
789
(159
12
Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities as of March 31, 2022 and December 31, 2021 are as follows:
March 31, 2022
December 31, 2021
Cost or
Estimated
Amortized Cost
Fair Value
Available-for-sale
Due in one year or less
10,232
10,259
10,734
10,826
Due after one year through five years
139,407
136,546
19,222
19,820
Due after five years through ten years
3,643
3,365
11,503
11,403
Due after ten years
494
514
534
Sales of Available-for-Sale Fixed-Maturity Securities
Proceeds received, and the gross realized gains and losses from sales of available-for-sale fixed-maturity securities, for the three months ended March 31, 2022 and 2021 were as follows:
GrossRealized
Proceeds
Gains
Losses
Three months ended March 31, 2022
(431
Three months ended March 31, 2021
Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities
Securities with gross unrealized loss positions at March 31, 2022 and December 31, 2021, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:
Less Than Twelve Months
Twelve Months or Longer
Gross
Unrealized
Fair
(2,964
123,394
(84
2,062
125,456
6,945
Total available-for-sale securities
(3,213
130,470
132,532
(73
9,809
(13
616
10,425
4,452
442
(146
14,703
15,319
At March 31, 2022 and December 31, 2021, there were 46 and 23 securities, respectively, in an unrealized loss position.
Allowance for Credit Losses of Available-for-Sale Fixed-Maturity Securities
The Company regularly reviews its individual investment securities for credit impairment. The Company considers various factors in determining whether a credit loss exists for each individual security, including-
The table below summarizes the activity in the allowance for credit losses of available-for-sale securities for the three months ended March 31, 2022 and 2021:
Balance at January 1
588
Reductions for securities sold
Balance at March 31
579
b) Equity Securities
The Company holds investments in equity securities measured at fair values which are readily determinable. At March 31, 2022 and December 31, 2021, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:
39,316
3,561
(1,673
46,276
6,335
(871
14
The table below presents the portion of unrealized gains and losses in the Company’s consolidated statements of income for the periods related to equity securities still held.
Net (losses) gains recognized
(3,542
467
Exclude: Net realized gains recognized for securities sold
34
736
Net unrealized losses recognized
Sales of Equity Securities
Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three months ended March 31, 2022 and 2021 were as follows:
1,420
(1,386
1,142
(406
15
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:
Carrying
Unfunded
Investment Strategy
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)
5,335
15.37
6,076
2,085
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)
3,410
1.67
3,423
1.69
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(f)(g)
6,704
0.18
6,270
1,401
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(h)(i)
4,030
0.57
4,437
Value-oriented investments in mature real estate private equity funds and portfolios globally. (b)(j)
6,719
4,548
1.34
5,977
4,537
1.36
Risk-adjusted returns on credit and equity investments, primarily in private equity-owned companies. (b)(k)
1,968
3,202
0.47
1,950
3,050
7,750
11,073
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.
Operating results:
Total income
336,828
(10,948
(49,317
(55,512
287,511
(66,460
Balance sheet:
5,988,314
5,855,616
603,967
564,732
For the three months ended March 31, 2022 and 2021, the Company recognized net investment income of $1,780 and $787, respectively. During the three months ended March 31, 2022 and 2021, the Company received total cash distributions of $1,596 and $2,024, respectively, including returns on investment of $811 and $478, respectively.
At March 31, 2022 and December 31, 2021, the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $27,435 and $28,371, respectively, and the Company’s maximum exposure to loss aggregated $28,166 and $28,133, 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 March 31, 2022 and December 31, 2021, the Company’s maximum exposure to loss relating to the variable interest entity was $350 and $363, respectively, representing the carrying value of the investment. There were no cash distributions during the three months ended March 31, 2022 and 2021. At March 31, 2022 and December 31, 2021, there was no undistributed income from this equity method investment. The following tables provide FMJV’s summarized unaudited financial results and the unaudited financial positions:
Total revenues
(14
(28
Net loss
The Company’s share of net loss*
17
* Included in net investment income in the Company’s consolidated statements of income.
357
Cash
29
18
392
404
Members’ capital
390
Total liabilities and members’ capital
Investment in unconsolidated joint venture, at equity**
** Includes the 90% share of FMKT Mel JV’s operating results.
e) Real Estate Investments
Real estate investments consist of the following as of March 31, 2022 and December 31, 2021:
Land
39,720
Land improvements
11,917
Buildings and building improvements
29,410
29,405
Tenant and leasehold improvements
1,532
1,511
1,236
1,265
Total, at cost
83,815
83,818
Less: accumulated depreciation and amortization
(10,428
(9,922
Depreciation and amortization expense related to real estate investments was $506 and $491 for the three months ended March 31, 2022 and 2021, respectively.
g) Net Investment Income (Loss)
Net investment income (loss), by source, is summarized as follows:
Available-for-sale fixed-maturity securities
441
Equity securities
287
352
Investment expense
(134
(126
1,780
787
347
2,997
153
168
For the three months ended March 31, 2021, income from real estate investments included a net gain of $2,790 resulting from a legal settlement with The Kroger Co. in a lawsuit filed by a real estate subsidiary of the Company to enforce a guaranty of a commercial lease.
h) Other Investments
From time to time, the Company may invest in financial assets other than stocks, mutual funds and bonds. For the three months ended March 31, 2022 and 2021, net realized gains related to other investments were $81 and $375, respectively.
Note 5 -- 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 to the 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:
March 31, 2021
Before
Net of
Tax
Tax Effect
Net unrealized losses
(1,047
(3,104
(45
(137
Reclassification adjustment for realized losses (gains)
109
320
Total other comprehensive loss
(938
Note 6 -- Fair Value Measurements
The Company records and discloses certain financial assets at their estimated fair values. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1
–
Unadjusted quoted prices in active markets for identical assets.
Level 2
Other inputs that are observable for the asset, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset.
Level 3
Inputs that are unobservable.
Valuation Methodology
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of money-market funds and certificates of deposit maturing within 90 days. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.
Restricted Cash
Restricted cash represents cash held by state authorities and the carrying value approximates fair value.
Fixed-Maturity and Equity Securities
Estimated fair values of the Company’s fixed-maturity and equity securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.
The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, which are level 2 inputs. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies, and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.
Revolving Credit Facility
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 Debt
The following table summarizes components of the Company’s long-term debt and methods used in estimating their fair values:
Maturity
Date
4.25% Convertible Senior Notes
2037
Quoted price
3.90% Promissory Note
2032
Discounted cash flow method/Level 3 inputs
3.75% Callable Promissory Note
2036
4.55% Promissory Note
20
Assets Measured at Estimated Fair Value on a Recurring Basis
The following tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The tables indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of March 31, 2022 and December 31, 2021:
Fair Value Measurements Using
(Level 1)
(Level 2)
(Level 3)
Financial Assets:
Fixed-maturity securities:
125,775
1,442
State, municipalities, and political subdivisions
147,466
3,218
15,536
1,488
39,287
3,296
Liabilities Carried at Other Than Fair Value
The following tables present fair value information for liabilities that are carried on the consolidated balance sheets at amounts other than fair value as of March 31, 2022 and December 31, 2021:
Financial Liabilities:
Long-term debt:
23,916
27,111
9,203
9,455
7,063
7,132
5,087
5,387
Total long-term debt
45,269
21,974
49,085
23,885
33,248
9,287
10,488
7,153
7,852
5,148
6,051
45,473
24,391
57,639
Note 7 -- Intangible Assets, Net
The Company’s intangible assets, net consist of the following:
Anchor tenant relationships (a)
1,761
In-place leases
4,215
Policy renewal rights - United
12,384
7,634
Non-compete agreements - United (b)
195
18,674
13,805
Less: accumulated amortization
(3,569
(3,169
The remaining weighted-average amortization periods for the intangible assets at March 31, 2022 are summarized in the table below:
Anchor tenant relationships
12.2 years
9.9 years
3.9 years
Non-compete agreements - United
1.1 years
In connection with the Southeast Region assumed business as described in Note 1 -- “Nature of Operations” the Company recorded intangible assets of $4,869 representing the renewal rights and non-compete agreement in exchange for contingent consideration consisting of a 6% commission on any replacement premium which includes $3,800 of commission prepaid up-front. The contingent consideration was estimated at $4,869 with the $1,069 contingent liability included in other liabilities on the consolidated balance sheet. Amortization of the intangible assets related to the Southeast Region is expected to begin June 1, 2022.
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.
22
Note 8 -- Other Assets
The following table summarizes the Company’s other assets:
Benefits receivable related to retrospective reinsurance contracts
3,064
Reimbursement receivable under TPA service
4,651
3,525
Prepaid expenses
2,734
2,853
Deposits
482
406
Lease acquisition costs, net
557
505
4,341
4,364
Total other assets
Note 9 -- Revolving Credit Facility
For the three months ended March 31, 2022 and 2021, interest expense was $89 and $104, respectively, including $25 and $25 of amortization of issuance costs, respectively. At March 31, 2022, the Company was in compliance with all required covenants, and there were $15,000 of borrowings outstanding.
Note 10 -- Long-Term Debt
The following table summarizes the Company’s long-term debt:
4.25% Convertible Senior Notes, due March 1, 2037
3.90% Promissory Note, due through April 1, 2032
9,343
9,431
3.75% Callable Promissory Note, due through September 1, 2036
7,246
4.55% Promissory Note, due through August 1, 2036
5,162
5,225
Finance lease liabilities, due through October 15, 2024
26
Total principal amount
45,600
45,849
Less: unamortized issuance costs
(305
(345
The following table summarizes future maturities of long-term debt as of March 31, 2022, which takes into consideration the assumption that the 4.25% Convertible Senior Notes are repurchased at the next earliest call date:
Due in 12 months following March 31,
1,017
2023
1,050
2024
1,086
2025
1,129
2026
25,091
Thereafter
16,227
23
Information with respect to interest expense related to long-term debt is as follows:
Interest Expense:
Contractual interest
472
1,707
Non-cash expense (a)
40
268
512
1,975
Convertible Senior Notes
4.25% Convertible Senior Notes. On March 1, 2022, none of the holders of the 4.25% Convertible Senior Notes exercised the put option, which would have required the Company to repurchase for cash all or any portion of the notes at par. The Company’s recent cash dividends on common stock have exceeded $0.35 per share, resulting in adjustments to the conversion rate of the 4.25% Convertible Senior Notes. Accordingly, as of March 31, 2022, the conversion rate of the Company’s 4.25% Convertible Senior Notes was 16.4853 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $60.66 per share.
As of March 31, 2022, the debt issuance costs for the 4.25% Convertible Senior Notes had been fully amortized.
Note 11 -- Reinsurance
Reinsurance obtained from other insurance companies
The Company cedes a portion of its homeowners’ insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and a portion of its flood insurance exposure under one quota share reinsurance agreement. Ceded premiums under most catastrophe excess of loss reinsurance contracts are subject to revision resulting from subsequent adjustments in total insured value. Under the terms of the quota share reinsurance agreement, the Company is entitled to a 30% ceding commission on ceded premiums written and a profit commission equal to 10% of net profit.
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:
Premiums Written:
Direct
171,981
110,131
Assumed
5,313
15,717
Gross written
177,294
125,848
Ceded
Net premiums written
124,132
82,749
Premiums Earned:
148,846
110,292
30,079
20,650
Gross earned
During the three months ended March 31, 2022 and 2021, the Company recognized ceded losses of $870 and $107, respectively, as reductions in losses and loss adjustment expenses. At March 31, 2022 and December 31, 2021, there were 55 reinsurers participating in the Company’s reinsurance program. Total net amounts recoverable and receivable from reinsurers at March 31, 2022 and December 31, 2021 were $69,596 and $76,650, respectively. Approximately 66.1% of the reinsurance recoverable balance at March 31, 2022 was receivable from three reinsurers, one of which was the Florida Hurricane Catastrophe Fund, a tax-exempt state trust fund. Based on all available information considered in the rating-based method, the Company recognized decreases in credit loss expense of $11 and $12 for the three months ended March 31, 2022 and 2021, respectively. Allowances for credit losses related to the reinsurance recoverable balance were $79 and $90 at March 31, 2022 and December 31, 2021, respectively.
The Company has reinsurance contracts that include retrospective provisions that adjust premiums in the event losses are minimal or zero. For the three months ended March 31, 2022 and 2021, the Company recognized reductions in premiums ceded of $1,484 and $4,680, respectively, related to these adjustments in the consolidated statements of income.
Amounts receivable pursuant to retrospective provisions are reflected in other assets. At March 31, 2022 and December 31, 2021, other assets included $4,548 and $3,064, respectively. Management believes the credit risk associated with the collectability of accrued benefits is minimal as the amount receivable is concentrated with two reinsurers and the Company monitors the creditworthiness of these reinsurers based on available information about each reinsurer’s financial condition.
Reinsurance provided to other insurance companies
For the three months ended March 31, 2022, $6,849 of assumed premiums written related to the Northeast Region’s insurance policies was derecognized, which primarily resulted from the return of the unearned portion of assumed written premiums subsequent to the Company's renewal and/or replacement of insurance policies in the State of New Jersey. For the three months ended March 31, 2021, assumed premiums written were $15,717. At March 31, 2022, the Company had a net balance of $4,305 due to United related to the Northeast Region, consisting of ceding commission payable of $1,418 and payable on paid losses and loss adjustment expenses of $5,190, offset by premiums receivable of $2,303. At December 31, 2021, the Company had a net balance of $4,486 due to United related to the Northeast Region, consisting of ceding commission payable of $535 and payable on paid losses and loss adjustment expenses of $4,017, offset by premiums receivable of $66.
Effective December 31, 2021, the Company entered into a separate agreement to provide 85% quota share reinsurance on United’s personal lines insurance policies in the states of Georgia, South Carolina and North Carolina. For the three months ended March 31, 2022, assumed premiums written related to the Southeast Region’s insurance policies were $12,162. At March 31, 2022, the Company had a net balance of $1,178 receivable from United, consisting of premiums receivable of $4,792 offset by ceding commission payable of $1,198, a catastrophe cost allowance of $949 and payable on paid losses and loss adjustment expenses of $1,467. At December 31, 2021, there was an amount receivable from United of $23,325, net of a ceding commission of $8,835 and a catastrophe cost allowance of $3,181.
At March 31, 2022 and December 31, 2021, the balance of funds withheld for assumed business related to the Company’s quota share reinsurance agreements with United was $84,068 and $73,716, respectively.
Note 12 -- 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 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:
Net balance, beginning of period*
172,410
141,065
Incurred, net of reinsurance, related to:
Current period
70,076
41,920
Prior period
2,628
3,831
Total incurred, net of reinsurance
Paid, net of reinsurance, related to:
(18,796
(7,596
(46,481
(34,590
Total paid, net of reinsurance
(65,277
(42,186
Net balance, end of period
179,837
144,630
Add: reinsurance recoverable before allowance for credit losses
54,955
61,143
Gross balance, end of period
205,773
* Net balance represents beginning-of-period liability for unpaid losses and LAE less beginning-of-period reinsurance recoverable for unpaid losses and LAE.
The establishment of loss and LAE reserves is an inherently uncertain process and changes in loss and LAE reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such estimates are adjusted. During the three months ended March 31, 2022, the Company recognized losses related to prior periods of $2,628 primarily to increase the reserve resulting from increased litigation. Losses for the three months ended March 31, 2022 included estimated losses, net of reinsurance, of approximately $12,961 related to policies assumed from United, approximately $2,055 of which pertained to TypTap. In addition, the Company recognized $6,121 of losses related to weather events in Florida during the three months ended March 31, 2022.
27
Note 13 -- Segment Information
The Company identifies its operating divisions or segments based on managerial emphasis, organizational structure and revenue source. In the first quarter of 2021, the Company reorganized its operations to focus on specific business segments, resulting in the creation of TTIG with a separate workforce, board of directors and financial reporting structure. Companies under TTIG include TypTap, TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company, Inc., the parent company of an India company, Exzeo Software Private Limited. TTIG and its subsidiaries are considered a new reporting segment known as TypTap Group. The Company has four reportable segments: HCPCI insurance operations, TypTap Group, real estate operations, and corporate and other. Due to their economic characteristics, the Company’s property and casualty insurance division and reinsurance operations, excluding the insurance operations under TypTap Group, are grouped together into one reportable segment under HCPCI insurance operations. The TypTap Group segment includes its property and casualty insurance operations, information technology operations and its management company’s activities. The real estate operations segment includes companies engaged in operating commercial properties the Company owns for investment purposes or for use in its own operations. The corporate and other segment represents the activities of the holding companies and any other companies that do not meet the quantitative and qualitative thresholds for a reportable segment. The determination of segments may change over time due to changes in operational emphasis, revenues, and results of operations. The Company’s chief executive officer, who serves as the Company’s chief operating decision maker, evaluates each division’s financial and operating performance based on revenue and operating income.
For the three months ended March 31, 2022 and 2021, revenues from the HCPCI insurance operations segment before intracompany elimination represented 69.8% and 77.7%, respectively, and revenues from the TypTap Group segment represented 28.3% and 17.2%, respectively, of total revenues of all operating segments. At March 31, 2022 and December 31, 2021, HCPCI insurance operations’ total assets represented 55.6% and 58.7%, respectively, and TypTap Group’s total assets represented 32.3% and 29.3%, respectively, of the combined assets of all operating segments.
28
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 March 31, 2022
Operations
Group
Estate (a)
Other (b)
Elimination
Consolidated
Revenue:
Gross premiums earned (c)
119,305
60,622
(1,002
(36,953
(16,933
82,352
43,689
(278
Net (loss) income from investment portfolio
(1,457
(16
316
135
(1,022
654
403
1,247
469
2,403
836
(3,713
82,796
44,545
1,152
(3,856
Expenses:
43,995
28,988
(279
Amortization of deferred policy acquisition costs
19,102
9,422
28,524
Other policy acquisition expenses
663
283
946
1,144
885
2,308
200
227
374
(200
114
561
605
172
(623
829
Personnel and other operating expenses
7,318
7,493
1,307
1,734
(2,754
15,098
72,336
47,832
2,139
4,588
Income (loss) before income taxes
10,460
(3,287
264
(3,436
Total revenue from non-affiliates (d)
81,733
44,823
2,064
449
Gross premiums written
91,141
86,153
For Three Months Ended March 31, 2021
104,521
28,811
(2,390
(35,980
(9,509
2,390
68,541
19,302
Net income from investment portfolio
880
336
1,495
2,727
5,438
712
258
521
175
5,134
560
(5,767
70,654
20,071
2,055
(3,040
33,439
12,312
12,747
4,637
17,384
4,824
1,041
(184
5,681
761
367
1,214
90
1,752
(245
288
587
176
(633
438
5,058
5,122
1,201
1,694
(1,978
11,097
56,849
23,857
2,270
4,836
(3,786
2,864
(2,781
70,200
20,379
4,795
1,524
80,988
44,890
The following table presents segment assets reconciled to the Company’s total assets on the consolidated balance sheets:
Segments:
HCPCI Insurance Operations
637,294
676,509
TypTap Group
403,557
369,600
Real Estate Operations
128,067
127,651
Corporate and Other
74,145
65,349
Consolidation and Elimination
(67,813
(62,252
30
Note 14 -- Leases
The table below summarizes the Company’s right-of-use (“ROU”) assets and corresponding liabilities for operating and finance leases:
Operating leases:
ROU Assets
Liabilities
Finance leases:
86
The Company’s lease of office space in India for its information technology operations expired in January 2022 and a new lease agreement was entered into effective February 2022 with an initial term of nine years.
The following table summarizes the Company’s operating and finance leases in which the Company is a lessee:
Renewal
Other Terms and
Class of Assets
Initial Term
Option
Conditions
Operating lease:
Office equipment
1 to 51 months
Yes
(a), (b)
Office space
3 to 9 years
(b), (c)
Finance lease:
3 to 5 years
Not applicable
(d)
As of March 31, 2022, maturities of lease liabilities were as follows:
Leases
Operating
Finance
1,509
565
101
112
481
Total lease payments
2,874
Less: interest
212
Total lease obligations
The following table provides quantitative information with regards to the Company’s operating and finance leases:
Lease costs:
Finance lease costs:
Amortization – ROU assets*
Operating lease costs*
454
Short-term lease costs*
110
37
Total lease costs
489
496
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows – finance leases
Operating cash flows – operating leases
372
458
Financing cash flows – finance leases
Weighted-average remaining lease term:
Finance leases (in years)
2.8
Operating leases (in years)
4.4
Weighted-average discount rate:
Finance leases (%)
3.5
%
Operating leases (%)
3.1
* Included in other operating expenses on the consolidated statements of income.
The following table summarizes the Company’s operating leases in which the Company is a lessor:
1 to 3 years
(e)
Retail space
3 to 20 years
Boat docks/wet slips
1 to 12 months
Note 15 -- Income Taxes
During the three months ended March 31, 2022 and 2021, the Company recorded approximately $1,210 and $3,257, respectively, of income taxes, which resulted in effective tax rates of 30.2% and 32.2%, respectively. The decrease in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to the recognition of tax benefits attributable to restricted stock that vested in February 2022, offset by the increased Florida corporate tax rate effective January 1, 2022. The Company’s estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items.
Note 16 -- 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:
Shares (a)
Per Share
(Numerator)
(Denominator)
Less: Net income attributable to redeemable noncontrolling interest
Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities
Net income attributable to HCI
Less: Income attributable to participating securities
(52
(18
Basic Earnings Per Share:
Income allocated to common stockholders
851
9,479
6,130
7,474
Effect of Dilutive Securities:
Stock options
96
Convertible senior notes*
1,312
2,288
Warrants
72
Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions
9,767
7,442
9,930
(a)
Shares in thousands.
*
For the three months ended March 31, 2022, convertible senior notes were excluded due to anti-dilutive effect.
33
Note 17 -- Redeemable Noncontrolling Interest
The following table summarizes the activity of redeemable noncontrolling interest during the three months ended March 31, 2022 and 2021:
Initial proceeds from Centerbridge
Increase (decrease):
Proceeds allocated to warrants*
(9,217
Issuance costs
Issuance costs allocated to warrants*
577
Accrued cash dividends
1,342
Accretion - increasing dividend rates
906
Dividends paid
85,892
*Net decrease related to warrants of $8,640.
For the three months ended March 31, 2022 and 2021, net income attributable to redeemable noncontrolling interest was $2,248 and $794, respectively, consisting of accrued cash dividends of $1,342 and $458, respectively, and accretion related to increasing dividend rates of $906 and $336, respectively.
Note 18 -- Equity
Stockholders’ Equity
In March 2022, the Company’s Board of Directors authorized a plan to repurchase up to $20,000 of the Company’s common shares before commissions and fees during 2022. During the three months ended March 31, 2022, there were no shares repurchased by the Company.
On January 20, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends were paid on March 18, 2022 to stockholders of record on February 18, 2022.
At March 31, 2022, there were warrants outstanding and exercisable to purchase 750,000 shares of HCI common stock at an exercise price of $54.40. The warrants expire on February 26, 2025.
Prepaid Share Repurchase Forward Contract
In March 2022, the Company’s share repurchase forward contract with Societe Generale, entered into in conjunction with the 2017 issuance of the 4.25% Convertible Senior Notes, was physically settled with the delivery from Societe Generale of 191,100 shares of HCI’s common stock to the Company.
Noncontrolling Interests
At March 31, 2022, there were 81,132,790 shares of TTIG’s common stock outstanding, of which 6,132,790 shares were not owned by HCI.
In February 2022, TTIG repurchased and retired a total of 21,744 shares of its common stock surrendered by its employees to satisfy payroll tax liabilities associated with the vesting of restricted shares. The total cost of purchasing noncontrolling interests was $127.
Note 19 -- Stock-Based Compensation
2012 Omnibus Incentive Plan
The Company currently has outstanding stock-based awards granted under the Plan which is currently active and available for future grants. At March 31, 2022, there were 1,111,240 shares available for grant.
Stock Options
Stock options granted and outstanding under the incentive plan vest over a period of four years and are exercisable over the contractual term of ten years.
A summary of the stock option activity for the three months ended March 31, 2022 and 2021 is as follows (option amounts not in thousands):
Weighted
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Price
Term
Outstanding at January 1, 2022
440,000
45.25
6.6 years
18,119
Outstanding at March 31, 2022
6.3 years
10,494
Exercisable at March 31, 2022
357,500
44.23
6.0 years
8,891
Outstanding at January 1, 2021
7.6 years
3,113
Outstanding at March 31, 2021
7.3 years
13,464
Exercisable at March 31, 2021
275,000
43.40
6.8 years
8,924
35
There were no options exercised during the three months ended March 31, 2022 and 2021. For the three months ended March 31, 2022 and 2021, the Company recognized $184 and $223, respectively, of compensation expense which was included in general and administrative personnel expenses. Deferred tax benefits related to stock options were $0 and $1 for the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022 and December 31, 2021, there was $821 and $1,005, respectively, of unrecognized compensation expense related to nonvested stock options. The Company expects to recognize the remaining compensation expense over a weighted-average period of 1.5 years.
Restricted Stock Awards
From time to time, the Company has granted and may grant restricted stock awards to certain executive officers, other employees and nonemployee directors in connection with their service to the Company. The terms of the Company’s outstanding restricted stock grants may include service, performance and market-based conditions. The determination of fair value with respect to the awards containing only service-based conditions is based on the market value of the Company’s common stock on the grant date. For awards with market-based conditions, the fair value is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome.
Information with respect to the activity of unvested restricted stock awards during the three months ended March 31, 2022 and 2021 is as follows:
Restricted
Stock
Grant Date
Awards
Nonvested at January 1, 2022
679,997
39.72
Granted
70.58
Vested
(50,667
50.68
Forfeited
45.85
Nonvested at March 31, 2022
630,065
39.00
Nonvested at January 1, 2021
423,787
43.79
36.95
(41,250
42.18
Cancelled
43.76
45.67
Nonvested at March 31, 2021
786,973
39.11
The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $3,268 and $1,905 for the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022 and December 31, 2021, there was approximately $15,859 and $18,995, respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period of 2.2 years. The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to restricted stock awards and paid dividends, and the fair value of vested restricted stock for the three months ended March 31, 2022 and 2021.
Deferred tax benefits recognized (derecognized)
652
(36
Tax benefits realized for restricted stock and paid dividends
402
55
Fair value of vested restricted stock
2,568
1,740
In February 2021, the Company cancelled 141,600 shares of restricted stock for employees who transitioned to TypTap Group. In exchange, these employees received replacement restricted stock issued under TTIG’s equity incentive plan.
Subsidiary Equity Plan
For the three months ended March 31, 2022 and 2021, TypTap Group recognized compensation expense related to its stock-based awards of $885 and $215, respectively. At March 31, 2022 and December 31, 2021, there was $10,189 and $11,230, respectively, of unrecognized compensation expense related to nonvested restricted stock and stock options.
Note 20 -- Commitments and Contingencies
Obligations under Multi-Year Reinsurance Contracts
As of March 31, 2022, the Company has contractual obligations related to two 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. See Note 21 -- “Subsequent Events” for additional information.
Capital Commitments
As described in Note 4 -- “Investments” under Limited Partnership Investments, the Company is contractually committed to capital contributions for limited partnership interests. At March 31, 2022, there was an aggregate unfunded balance of $7,750.
FIGA Assessments
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 is levied at 0.70% on collected premiums of all
covered lines of business except auto insurance. The surcharge, which is collectible from a policyholder, will be assessed on new and renewal policies with effective dates beginning January 1, 2022 through December 31, 2022.
In March 2022, the Florida Office of Insurance Regulation approved an assessment for FIGA which is necessary to secure funds for the payment of covered claims relating to the liquidation of one insurance company. The FIGA assessment is levied at 1.3% on collected premiums of all covered lines of business except auto insurance. The surcharge, which is collectible from a policyholder, will be assessed on new and renewal policies with effective dates beginning July 1, 2022 through June 30, 2023.
The Company’s insurance subsidiaries, as member insurers, are required to collect and remit the pass-through assessments to FIGA on a quarterly basis. As of March 31, 2022, the FIGA assessments payable by the Company were $983.
Note 21 -- Subsequent Events
The Company has submitted written notice indicating its intention to commute both multi-year reinsurance contracts described in Note 20 -- “Commitments and Contingencies” ending May 31, 2022.
On April 26, 2022, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on June 17, 2022 to stockholders of record on May 17, 2022.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion under this Item 2 in conjunction with our consolidated financial statements and related notes and information included elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2022. 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 with operations in property and casualty insurance, reinsurance, real estate and information technology. After the reorganization of our business in the first quarter of 2021, we now manage our operations in the following organizational segments, based on managerial emphasis and evaluation of financial and operating performances:
For the three months ended March 31, 2022 and 2021, revenues from HCPCI insurance operations before intracompany elimination represented 69.8% and 77.7%, respectively, and revenues from TypTap Group represented 28.3% and 17.2%, respectively, of total revenues of all operating segments. At March 31, 2022 and December 31, 2021, HCPCI insurance operations’ total assets represented 55.6% and 58.7%, respectively, and
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TypTap Group’s total assets represented 32.3% and 29.3%, respectively, of the combined assets of all operating segments. See Note 13 -- “Segment Information” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
Property and Casualty Insurance
HCPCI provides various forms of residential insurance products such as homeowners insurance, fire insurance, flood insurance and wind-only insurance. HCPCI is authorized to write residential property and casualty insurance in the states of Arkansas, California, Connecticut, Florida, Maryland, Massachusetts, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina and Texas. Currently, Florida is HCPCI’s primary market.
In 2021, HCPCI began providing quota share reinsurance on all in-force, new and renewal policies issued by United in the Northeast Region. HCPCI began renewing and/or replacing United policies in two states in December 2021 and a third state in January 2022.
Reinsurance and other auxiliary operations
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 HCPCI 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 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.
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 68,748 at March 31, 2022. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently. As of April 20, 2022, TypTap has been approved to offer homeowners coverage in 18 states outside of Florida. TypTap is currently operating in twelve states. In addition to the expansion in TypTap business, we also expect continued growth from the United policies assigned to TypTap through the renewal rights agreements acquired by HCI.
In 2021, TypTap began providing quota share reinsurance on all in-force, new and renewal policies issued by United in the Northeast Region. TypTap began renewing and/or replacing United policies in two states in December 2021 and a third state in January 2022.
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 devices. The operations, which are in Tampa, Florida and Noida, India, are focused on developing cloud-based, innovative products and services that support in-house operations as well as our third-party relationships with our agency partners and claim vendors. These products include SAMSTM, HarmonyTM, AtlasViewer® and ClaimColonyTM.
Our real estate operations consist of properties we own and use for our own operations and multiple properties we own and operate for investment purposes. Properties used in operations consist of one Tampa office building and an insurance operations site in Ocala, Florida. Our investment properties include retail shopping centers, one office building, two marinas, and undeveloped land near TTIG’s headquarters in Tampa, Florida.
Other Operations
Holding company operations
Activities of our holding company, HCI Group, Inc., plus other companies that do not meet the quantitative and qualitative thresholds for a reportable segment comprise the operations of this segment.
Recent Events
On April 26, 2022, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on June 17, 2022 to stockholders of record on May 17, 2022.
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RESULTS OF OPERATIONS
The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021 (dollar amounts in thousands, except per share amounts):
Other income
(1,888
Ratios to Net Premiums Earned:
Loss Ratio
57.81
52.08
Expense Ratio
40.02
44.91
Combined Ratio
97.83
96.99
Ratios to Gross Premiums Earned:
40.63
34.94
28.14
30.13
68.77
65.07
Earnings Per Share Data:
Basic
Diluted
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
Our results of operations for the three months ended March 31, 2022 reflect net income of approximately $2,791,000 or $0.09 diluted earnings per share, compared with approximately $6,845,000 or $0.75 diluted earnings per share, for the three months ended March 31, 2021. The quarter-over-quarter decrease was primarily due to a $26,953,000 increase in losses and loss adjustment expenses, a net decrease in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains or losses) of $6,460,000, a $6,449,000 increase in personnel and other operating expenses, and a $6,343,000 increase in policy acquisition and other underwriting expenses, offset by an increase in net premiums earned of $37,920,000 and a $1,478,000 decrease in interest expense.
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Gross Premiums Earned on a consolidated basis for the three months ended March 31, 2022 and 2021 were approximately $178,925,000 and $130,942,000, respectively. HCPCI gross premiums earned were $118,303,000 for the three months ended March 31, 2022 compared to $102,131,000 for the three months ended March 31, 2021. Gross premiums earned from the United insurance policies assumed were $30,079,000 for the three months ended March 31, 2022 compared to $20,650,000 for the three months ended March 31, 2021. TypTap’s gross premiums earned were $60,622,000 versus $28,811,000 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 March 31, 2022 and 2021 were approximately $53,162,000 and $43,099,000, respectively, representing 29.7% and 32.9%, respectively, of gross premiums earned. The $10,063,000 increase was primarily attributable to higher reinsurance costs effective June 1, 2021 due to an increased overall reinsurance coverage amount as a result of premium growth and expansion.
Our premiums ceded represent costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts or to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. Reinsurance costs can be decreased by a reduction in premiums ceded attributable to retrospective provisions under multi-year reinsurance contracts. For the three months ended March 31, 2022, premiums ceded included a decrease of $1,484,000 related to retrospective provisions compared with a decrease of $4,680,000 for the three months ended March 31, 2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”
Net Premiums Written for the three months ended March 31, 2022 and 2021 totaled approximately $124,132,000 and $82,749,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The increase in 2022 resulted from an increase in gross premiums written from the United insurance policies assumed and the growth of TypTap business. We had approximately 211,800 policies in force at March 31, 2022 (excluding policies assumed from United) as compared with approximately 154,000 policies in force at March 31, 2021.
Net Premiums Earned for the three months ended March 31, 2022 and 2021 were approximately $125,763,000 and $87,843,000, respectively, and reflect the gross premiums earned less reinsurance costs as described above.
The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended March 31, 2022 and 2021 (amounts in thousands):
Net Premiums Written
Decrease in Unearned Premiums
1,631
5,094
Net Premiums Earned
Net Investment Income for the three months ended March 31, 2022 and 2021 was approximately $2,868,000 and $4,594,000, respectively. The $1,726,000 decrease was primarily attributable to a $2,650,000 decrease in income from real estate investments, offset by a $993,000 increase in income from limited partnership investments. See Net Investment Income (loss) under Note 4 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
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Net Realized Investment Losses for the three months ended March 31, 2022 were approximately $314,000 versus $1,113,000 of net realized investment gains for the three months ended March 31, 2021. The $1,427,000 decrease was primarily attributable to net gains from selling equity securities and other investments during 2021.
Net Unrealized Investment Losses for the three months ended March 31, 2022 and 2021 were approximately $3,576,000 and $269,000, respectively. The net unrealized investment loss for the three months ended March 31, 2022 was primarily attributable to an overall decline in the equity market compared with the three months ended March 31, 2021.
Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $72,704,000 and $45,751,000 for the three months ended March 31, 2022 and 2021, respectively. HCPCI losses and loss adjustment expenses were $43,995,000 for the three months ended March 31, 2022 compared to $33,439,000 for the three months ended March 31, 2021. The increase was primarily attributable to $4,197,000 of losses associated with growth in HCPCI’s Florida portfolio, a $6,070,000 net increase in losses attributable to the United policies assumed due to an increase in the number of policies assumed from United and weather-related losses incurred during the first quarter of 2022. Losses and loss adjustment expenses for TypTap were $28,988,000 versus $12,312,000 for the same comparative period. The increase was attributable to the greater number of TypTap policies in force. 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 March 31, 2022 and 2021 were approximately $29,408,000 and $23,065,000 on a consolidated basis, respectively, and primarily reflect the amortization of deferred acquisition costs such as commissions payable to agents for production and renewal of policies, catastrophe allowance payable to United, and premium taxes. Policy acquisition expenses for HCPCI insurance operations were $19,765,000 for the three months ended March 31, 2022 compared to $17,571,000 for the three months ended March 31, 2021. The increase was due to amortization of increased costs associated with the increase in the number of policies assumed from United. TypTap Group policy acquisition expenses were $9,705,000 versus $5,678,000 for the same comparative period, with the increase attributable to amortization of increased commission costs related to the growth of TypTap’s policies in force over the past 12 months and the policies assumed from United.
General and Administrative Personnel Expenses for the three months ended March 31, 2022 and 2021 were approximately $14,034,000 and $9,650,000, respectively. Our general and administrative personnel expenses include salaries, wages, payroll taxes, stock-based compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The period-over-period increase of $4,384,000 was primarily attributable to increased stock-based compensation expense, an increase in the headcount of temporary and full-time employees, and merit increases for non-executive employees effective in late February 2022.
Interest Expense for the three months ended March 31, 2022 and 2021 was approximately $601,000 and $2,079,000, respectively. The decrease primarily resulted from conversions of our 4.25% convertible senior notes during the second half of 2021.
Income Tax Expense for the three months ended March 31, 2022 and 2021 was approximately $1,210,000 and $3,257,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 30.2% for 2022 and 32.2% for 2021. The decrease in the effective tax rate was primarily due to the recognition of tax benefits attributable to restricted stock that vested in February 2022, offset by the increased Florida corporate tax rate effective January 1, 2022.
Ratios:
The loss ratio applicable to the three months ended March 31, 2022 (losses and loss adjustment expenses incurred related to net premiums earned) was 57.8% compared with 52.1% for the three months ended March 31, 2021. The increase was primarily due to the increase in losses and loss adjustment expenses as further described above, offset in part by the increase in net premiums earned.
The expense ratio applicable to the three months ended March 31, 2022 (defined as total expenses excluding losses and loss adjustment expenses related to net premiums earned) was 40.0% compared with 44.9% for the three months ended March 31, 2021. The decrease 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 policy acquisition, underwriting and personnel 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 March 31, 2022 was 97.8% compared with 97.0% for the three months ended March 31, 2021. The slight increase in 2022 was attributable to the factors described above.
Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the three months ended March 31, 2022 was 68.8% compared with 65.1% for the three months ended March 31, 2021. The increase in 2022 was primarily attributable to the increase in losses and loss adjustment expenses, offset by the increase in gross premiums earned.
Seasonality of Our Business
Our insurance business is seasonal as hurricanes and tropical storms affecting Florida, our primary market, and other southeastern states typically occur during the period from June 1st through November 30th of each year. Winter storms in the northeast usually occur during the period between December 1st and March 31st of each year. Also, with our reinsurance treaty year typically effective 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.
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. With the exception of litigated claims, substantially all of our losses and loss adjustment expenses are fully settled and paid within 100 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.
We believe that we maintain sufficient liquidity to pay claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position.
In the future, we anticipate our primary use of funds will be to pay claims, reinsurance premiums, interest, and dividends and to fund operating expenses and real estate acquisitions.
Revolving Credit Facility, Convertible Senior Notes, Promissory Notes, and Finance Leases
The following table summarizes the principal and interest payment obligations of our indebtedness at March 31, 2022:
Maturity Date
Payment Due Date
March 2037
March 1 and September 1
Through September 2036
1st day of each month
Through August 2036
Through April 2032
Finance leases
Through October 2024
Various
Through December 2023
January 1, April 1, July 1, October 1
See Note 10 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
Share Repurchase Plan
In March 2022, the Board approved a plan to repurchase up to $20,000,000 of common shares during 2022 under which we may purchase shares of common stock in open market purchases, block transactions and privately negotiated transactions in accordance with applicable federal securities laws. See Note 18 -- “Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for more information.
Limited Partnership Investments
Our limited partnership investments consist of six private equity funds managed by their general partners. Four 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 funds have expired, the general partners may request additional funds under certain circumstances. At March 31, 2022, there was an aggregate unfunded capital balance of $7,750,000. See Limited Partnership Investments under Note 4 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
Real Estate Investment
Real estate has long been a significant component of our overall investment portfolio. It diversifies our portfolio and helps offset the volatility of other higher-risk investments. 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 an outparcel for ground lease or sale. We have the option to take full ownership of this outparcel by acquiring the remaining 10% interest. Alternatively, we may sell this outparcel and allocate the profits from the sale before liquidating FMKT Mel JV.
Sources and Uses of Cash
Cash Flows for the Three Months Ended March 31, 2022
Net cash provided by operating activities for the three months ended March 31, 2022 was approximately $57,349,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately $7,936,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $109,899,000 was primarily due to the purchases of fixed-maturity and equity securities of $134,043,000, the purchase of intangible assets from United of $3,800,000, and the purchases of property and equipment of $1,861,000, offset by the proceeds from sales of fixed-maturity and equity securities of $27,427,000, the proceeds from calls, repayments and maturities of fixed-maturity securities of $1,250,000, and distributions received from limited partnership investments of $785,000. Net cash used in financing activities totaled $7,328,000, which was primarily due to $4,046,000 of net cash dividend payments, cash dividends paid to redeemable noncontrolling interest of $2,508,000, $398,000 of share repurchases, and repayments of long-term debt of $249,000.
Cash Flows for the Three Months Ended March 31, 2021
Net cash provided by operating activities for the three months ended March 31, 2021 was approximately $36,140,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately $13,543,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of $19,141,000 was primarily due to the proceeds from sales of fixed-maturity and equity securities of $34,378,000, the proceeds from calls, repayments and maturities of fixed-maturity securities of $12,486,000, and distributions received from limited partnership investments of $1,546,000, offset by the purchases of fixed-maturity and equity securities of $28,391,000, and the purchases of property and equipment of $697,000. Net cash provided by financing activities totaled $66,784,000, which consisted of net proceeds of $93,738,000 from Centerbridge for investment in TTIG, offset by $2,793,000 of net cash dividend payments, and net repayment of our revolving credit facility of $23,750,000.
Investments
The main objective of our investment policy is to maximize our after-tax investment income with a reasonable level of risk given the current financial market. Our excess cash is invested primarily in money market accounts, certificates of deposit, and fixed-maturity and equity securities.
At March 31, 2022, we had $191,888,000 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
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market value of existing fixed-maturity investments, creating the opportunity for realized investment gains on disposition.
In the future, we may alter our investment policy 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 March 31, 2022, 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 20 -- “Commitments and Contingencies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments to develop amounts reflected and disclosed in our financial statements. Material estimates that are particularly susceptible to significant change in the near term are related to our losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. We base our estimates on various assumptions and actuarial data we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates.
We believe our accounting policies specific to losses and loss adjustment expenses, reinsurance recoverable, reinsurance with retrospective provisions, deferred income taxes, stock-based compensation expense, limited partnership investments, acquired intangible assets, warrants, and redeemable noncontrolling interest involve our most significant judgments and estimates material to our consolidated financial statements.
Reserves for Losses and Loss Adjustment Expenses
Our liability for losses and loss adjustment expense (“Reserves”) is specific to property insurance, which is our insurance subsidiaries’ only line of business. The Reserves include both case reserves on reported claims and our reserves for incurred but not reported (“IBNR”) losses. At each period end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are adjusted.
The IBNR represents our estimate of the ultimate cost of all claims that have occurred but have not been reported to us, and in some cases may not yet be known to the insured, and future development of reported claims. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At March 31, 2022, $172,959,000 of the total $234,792,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $61,833,000 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 March 31, 2022, $49,063,000 of the $61,833,000 in reserves for known cases relates to claims incurred during prior years.
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Our Reserves decreased from $237,165,000 at December 31, 2021 to $234,792,000 at March 31, 2022. The $2,373,000 decrease is comprised of reductions in our Reserves of $9,193,000 specific to Hurricane Irma, Hurricane Michael, Hurricane Sally and Tropical Storm Eta, and reductions in our non-catastrophe Reserves of $33,673,000 for 2021 and $10,787,000 for 2020 and prior loss years, offset by $51,280,000 in reserves established for the 2022 loss year. The Reserves established for 2022 claims is primarily driven by an allowance for those claims that have been incurred but not reported to the company as of March 31, 2022. The decrease of $53,653,000 specific to our 2021 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 March 31, 2022 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made, and the liabilities may deviate substantially from prior estimates.
Economic Impact of Reinsurance Contracts with Retrospective Provisions
Two of our reinsurance contracts include retrospective provisions that adjust premiums in the event losses are minimal or zero. In accordance with accounting principles generally accepted in the United States of America, we will recognize an asset in the period in which the absence of loss experience obligates the reinsurer to pay cash or other consideration under the contract. In the event that a loss arises, we will derecognize such asset in the period in which a loss arises. Such adjustments to the asset, which accrue throughout the contract term, will negatively impact our operating results when a catastrophic loss event occurs during the contract term.
For the three months ended March 31, 2022 and 2021, we accrued benefits of $1,484,000 and $4,680,000, respectively. The accrual of benefits was recognized as a reduction in ceded premiums.
As of March 31, 2022, we had $4,548,000 of accrued benefits, the amount that would be charged to earnings in the event we experience a catastrophic loss that exceeds the coverage limit provided under such agreement.
We believe the credit risk associated with the collectability of 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.
The above and other accounting estimates and their related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form 10-K, which we filed with the SEC on March 10, 2022. For the three months ended March 31, 2022, there have been no other material changes with respect to any of our critical accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
There have been no recent accounting pronouncements or changes in recent accounting pronouncements during the three months ended March 31, 2022, as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that are of significance, or potential significance, to the Company.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investment portfolios at March 31, 2022 included fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by outside investment advisors and are overseen by the investment committee appointed by our Board of Directors. From time to time, our investment committee may decide to invest in low risk assets such as U.S. government bonds.
Our investment 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 March 31, 2022 (amounts in thousands):
Hypothetical Change in Interest Rates
EstimatedFair Value
Change inEstimatedFair Value
PercentageIncrease(Decrease)in EstimatedFair Value
300 basis point increase
140,613
(10,071
-6.68
200 basis point increase
143,969
(6,715
-4.46
100 basis point increase
147,326
(3,358
-2.23
100 basis point decrease
154,040
3,356
2.23
200 basis point decrease
157,375
6,691
4.44
300 basis point decrease
158,815
8,131
5.40
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.
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The following table presents the composition of our fixed-maturity securities, by rating, at March 31, 2022 (amounts in thousands):
% of Total
Amortized
Comparable Rating
AAA
AA+, AA, AA-
131,844
128,763
85
A+, A, A-
6,908
BBB+, BBB, BBB-
12,615
12,714
CCC+, CC and Not rated
1,816
100
Equity Price Risk
Our equity investment portfolio at March 31, 2022 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 March 31, 2022 (amounts in thousands):
Stocks by sector:
Financial
8,147
Consumer
7,034
Technology
2,902
Communications
1,920
Other (1)
1,634
21,637
Mutual funds and exchange-traded funds by type:
Debt
16,767
2,800
Foreign Currency Exchange Risk
At March 31, 2022, 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 March 31, 2022 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.
ITEM 1 – LEGAL PROCEEDINGS
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
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 10, 2022.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
The table below summarizes the number of common shares surrendered by employees to satisfy payroll tax liabilities associated with the vesting of restricted shares (dollar amounts in thousands, except share and per share amounts):
TotalNumberof Shares
AveragePricePaid
TotalNumber ofSharesPurchasedas Part ofPubliclyAnnounced Plans
MaximumDollarValue of SharesThat May YetBe PurchasedUnderThe Plans
For the Month Ended
Purchased
or Programs
or Programs (a)
January 31, 2022
February 28, 2022
6,207
64.17
20,000
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.
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 three months ended March 31, 2022, our insurance subsidiaries paid dividends of $12,000,000 to HCI.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
ITEM 4 – MINE SAFETY DISCLOSURES
ITEM 5 – OTHER INFORMATION
ITEM 6 – EXHIBITS
The following documents are filed as part of this report:
EXHIBIT
NUMBER
DESCRIPTION
Articles of Incorporation, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 7, 2013.
3.1.1
Articles of Amendment to Articles of Incorporation designating the rights, preferences and limitations of Series B Junior Participating Preferred Stock. Incorporated by reference to Exhibit 3.1 to our Form 8-K filed October 18, 2013.
3.1.2
Articles of Amendment to Articles of Incorporation cancelling the rights, preferences and limitations of Series B Junior Participating Preferred Stock. Incorporated by reference to Exhibit 3.1 to our Form 8-K filed May 15, 2020.
3.2
Bylaws, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our Form 8-K filed September 13, 2019.
4.1
Form of common stock certificate. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed November 7, 2013.
4.2
Common Stock Purchase Warrant, dated February 26, 2021, issued by HCI Group, Inc. to CB Snowbird Holdings, L.P. Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 1, 2021.
4.6
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 12, 2021.
4.9
See Exhibits 3.1, 3.1.1, 3.1.2 and 3.2 of this report for provisions of the Articles of Incorporation, as amended, and our Bylaws, as amended, defining certain rights of security holders.
4.10
Indenture, dated March 3, 2017, between HCI Group, Inc. and The Bank of New York Mellon Trust Company, N.A. Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 3, 2017.
4.11
Form of Global 4.25% Convertible Senior Note due 2037 (included in Exhibit 4.1). Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 3, 2017.
10.1
Preferred Stock Purchase Agreement, dated February 26, 2021, among TypTap Insurance Group, Inc., HCI Group, Inc., and CB Snowbird Holdings, L.P. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021.
10.2
Amended and Restated Articles of Incorporation of TypTap Insurance Group, Inc. filed February 26, 2021. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021.
10.3
Shareholders Agreement, dated February 26, 2021, among TypTap Insurance Group, Inc., CB Snowbird Holdings, L.P., HCI Group, Inc., and the other shareholders party thereto. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021.
10.4
Parent Guaranty Agreement, dated February 26, 2021, between HCI Group, Inc. and CB Snowbird Holdings, L.P. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021.
10.5**
HCI Group, Inc. 2012 Omnibus Incentive Plan as revised April 26, 2022.
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.
10.31
Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.32
Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.33
Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.34
Joinder, Second Amendment to Credit Agreement and Modification of Other Loan Documents. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed January 28, 2021.
10.40
Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.41
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.
56
10.44
7th Layer Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.45
Flood Property Catastrophe Excess of Loss Reinsurance Contract effective July 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.48**
TypTap Insurance Group, Inc. 2021 Equity Incentive Plan. Incorporated by reference to Exhibit 10.5 of our Form 8-K filed March 1, 2021.
10.49**
Form of Restricted Stock Award Agreement of TypTap Insurance Group, Inc. Incorporated by reference to Exhibit 10.6 of our Form 8-K filed March 1, 2021.
10.50
Exchange Agreement, dated August 26, 2021, by and between HCI Group, Inc. and Citadel Equity Fund Ltd. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed November 9, 2021.
10.51**
Stock Option Agreement between Paresh Patel and TypTap Insurance Group, Inc. dated October 1, 2021. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed October 7, 2021.
10.52**
TypTap Insurance Group, Inc. 2021 Omnibus Incentive Plan. Incorporated by reference to Exhibit 99.2 of our Form 8-K filed October 7, 2021.
10.57
Form of executive restricted stock award contract. Incorporated by reference to Exhibit 10.57 to our Form 10-Q filed May 1, 2014.
10.58
Purchase Agreement, dated February 28, 2017, by and between HCI Group, Inc. and JMP Securities LLC and SunTrust Robinson Humphrey, Inc., as representatives of the several initial purchasers named therein. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed February 28, 2017.
10.59
Prepaid Forward Contract, dated February 28, 2017 and effective as of March 3, 2017, between HCI Group, Inc. and Societe Generale. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed March 3, 2017.
10.60
Credit Agreement, Promissory Note, Security and Pledge Agreement, dated December 5, 2018, between HCI Group, Inc. and Fifth Third Bank. Incorporated by reference to Exhibits 99.1, 99.2, and 99.3 of our Form 8-K filed December 6, 2018.
10.88**
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.
10.99**
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.
10.101**
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.
57
10.104**
Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 15, 2019. Incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 22, 2019.
10.105**
Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 16, 2020. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed January 23, 2020.
10.106**
Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 16, 2020. Incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 23, 2020.
10.107
Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.108
Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.109
Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.110
Non-Florida Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.111
Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021, issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.112
Top Layer Flood/Wind Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.113
10.114
58
10.115
10.116
10.117
10.118
Non-Florida Property Catastrophe $6MXS$4M Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.119
Non-Florida Reinstatement Premium Protection Reinsurance Contract (For $6MXS$4M Excess Cat) effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.120
Reimbursement Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by the State Board of Administration of the State of Florida. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.121
Reimbursement Contract effective June 1, 2021 issued to TypTap Insurance Company by the State Board of Administration of the State of Florida. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.122
Multi-Year Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.123
Multi-Year Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021.
10.124
Property Quota Share Reinsurance Contract effective December 31, 2020 issued to United Property and Casualty Insurance Company by Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.
59
10.125
Renewal Rights Agreement effective January 18, 2021 by and among United Property and Casualty Insurance Company, Inc., United Insurance Holdings Corp., United Insurance Management, L.C. and Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.
10.126
Property Quota Share Reinsurance Contract effective June 1, 2021 issued to United Property and Casualty Insurance Company by Homeowners Choice Property & Casualty Insurance Company and TypTap Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.
10.127
Renewal Rights Agreement effective December 30, 2021 by and among United Property and Casualty Insurance Company, Inc., United Insurance Holdings Corp., United Insurance Management, L.C. and Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.
10.128
Property Quota Share Reinsurance Contract effective December 31, 2021 issued to United Property and Casualty Insurance Company, by Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022.
31.1
Certification of the Chief Executive Officer
31.2
Certification of the Chief Financial Officer
32.1
Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.ss.1350
32.2
Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.ss.1350
101.INS
Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL documents.
101.SCH
Inline XBRL Taxonomy Extension Schema.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF
Inline XBRL Definition Linkbase.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
** Management contract or compensatory plan.
60
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.
May 6, 2022
By:
/s/ Paresh Patel
Paresh Patel
Chief Executive Officer
(Principal Executive Officer)
/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.