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

Form 10-Q

 

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

For the quarterly period ended September 30, 2023

 

OR

 

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

 

Commission File Number

 

001-34126

HCI Group, Inc.

(Exact name of registrant as specified in its charter)

 

Florida

20-5961396

(State of Incorporation)

(IRS Employer
Identification No.)

3802 Coconut Palm Drive
Tampa, FL 33619
(Address, including zip code, of principal executive offices)

 

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

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

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Shares, no par value

 

HCI

 

New York Stock Exchange

 

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

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

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

 

Large accelerated filer ☐

Accelerated filer ☑

Non-accelerated filer ☐

Smaller reporting company

 

 

 

Emerging growth company

 

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

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

The aggregate number of shares of the registrant’s common stock, no par value, outstanding on November 1, 2023 was 8,588,183.

 


 

HCI GROUP, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Financial Statements

 

 

 

 

Consolidated Balance Sheets:

 

 

 

 

September 30, 2023 (unaudited) and December 31, 2022

 

1-2

 

 

Consolidated Statements of Income:

 

 

 

 

Three and nine months ended September 30, 2023 and 2022 (unaudited)

 

3

 

 

Consolidated Statements of Comprehensive Income:

 

 

 

 

Three and nine months ended September 30, 2023 and 2022 (unaudited)

 

4

 

 

Consolidated Statements of Equity:

 

 

 

 

Three and nine months ended September 30, 2023 and 2022 (unaudited)

 

5-8

 

 

Consolidated Statements of Cash Flows:

 

 

 

 

Nine months ended September 30, 2023 and 2022 (unaudited)

 

9-11

 

 

Notes to Consolidated Financial Statements (unaudited)

 

12-46

 

 

 

 

 

Item 2

 

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

 

47-61

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

62-63

 

 

 

 

 

Item 4

 

Controls and Procedures

 

64

 

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

Item 1

 

Legal Proceedings

 

65

 

 

 

 

 

Item 1A

 

Risk Factors

 

65

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

65-66

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

66

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

66

 

 

 

 

 

Item 5

 

Other Information

 

66

 

 

 

 

 

Item 6

 

Exhibits

 

67-72

 

 

 

 

 

Signatures

 

73

 

 

 

Certifications

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Fixed-maturity securities, available-for-sale, at fair value (amortized cost: $427,063 
    and $
494,197, respectively and allowance for credit losses: $0 and $0, respectively)

 

$

418,676

 

 

$

483,901

 

Equity securities, at fair value (cost: $41,244 and $36,272, respectively)

 

 

39,940

 

 

 

34,583

 

Limited partnership investments

 

 

23,174

 

 

 

25,702

 

Investment in unconsolidated joint venture, at equity

 

 

 

 

 

18

 

Real estate investments

 

 

45,269

 

 

 

71,388

 

Total investments

 

 

527,059

 

 

 

615,592

 

Cash and cash equivalents

 

 

324,019

 

 

 

234,863

 

Restricted cash

 

 

2,987

 

 

 

2,900

 

Receivable from maturities of fixed-maturity securities

 

 

53,000

 

 

 

 

Accrued interest and dividends receivable

 

 

3,891

 

 

 

1,952

 

Income taxes receivable

 

 

4,375

 

 

 

2,807

 

Premiums receivable, net (allowance: $3,581 and $5,362, respectively)

 

 

42,121

 

 

 

34,998

 

Prepaid reinsurance premiums

 

 

97,225

 

 

 

66,627

 

Reinsurance recoverable, net of allowance for credit losses:

 

 

 

 

 

 

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

 

 

29,425

 

 

 

71,594

 

Unpaid losses and loss adjustment expenses (allowance: $319 and $454, respectively)

 

 

462,539

 

 

 

616,765

 

Deferred policy acquisition costs

 

 

45,032

 

 

 

45,522

 

Property and equipment, net

 

 

28,768

 

 

 

17,910

 

Right-of-use assets - operating leases

 

 

1,460

 

 

 

777

 

Intangible assets, net

 

 

8,272

 

 

 

10,578

 

Funds withheld for assumed business

 

 

44,761

 

 

 

48,772

 

Other assets

 

 

48,698

 

 

 

31,671

 

Total assets

 

$

1,723,632

 

 

$

1,803,328

 

 

(continued)

1


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – (Continued)

(Dollar amounts in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

Losses and loss adjustment expenses

 

$

709,089

 

 

$

863,765

 

Unearned premiums

 

 

395,827

 

 

 

368,047

 

Advance premiums

 

 

32,250

 

 

 

18,587

 

Reinsurance payable on paid losses and loss adjustment expenses

 

 

7,043

 

 

 

8,606

 

Ceded reinsurance premiums payable

 

 

3

 

 

 

17,646

 

Accrued expenses

 

 

25,934

 

 

 

14,534

 

Reinsurance recovered in advance on unpaid losses

 

 

 

 

 

19,863

 

Deferred income taxes, net

 

 

4,945

 

 

 

1,704

 

Long-term debt

 

 

208,331

 

 

 

211,687

 

Lease liabilities - operating leases

 

 

1,457

 

 

 

721

 

Other liabilities

 

 

43,895

 

 

 

23,361

 

Total liabilities

 

 

1,428,774

 

 

 

1,548,521

 

Commitments and contingencies (Note 21)

 

 

 

 

 

 

Redeemable noncontrolling interest (Note 18)

 

 

93,801

 

 

 

93,553

 

Equity:

 

 

 

 

 

 

Common stock (no par value, 40,000,000 shares authorized, 8,590,824 and 8,598,682 
    shares issued and outstanding at September 30, 2023 and December 31, 2022,
    respectively)

 

 

 

 

 

 

Additional paid-in capital

 

 

2,171

 

 

 

 

Retained income

 

 

203,766

 

 

 

172,482

 

Accumulated other comprehensive loss, net of taxes

 

 

(5,997

)

 

 

(9,886

)

Total stockholders’ equity

 

 

199,940

 

 

 

162,596

 

Noncontrolling interests

 

 

1,117

 

 

 

(1,342

)

Total equity

 

 

201,057

 

 

 

161,254

 

Total liabilities, redeemable noncontrolling interest and equity

 

$

1,723,632

 

 

$

1,803,328

 

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

2


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(Dollar amounts in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned

 

$

188,308

 

 

$

181,713

 

 

$

550,322

 

 

$

541,762

 

Premiums ceded

 

 

(66,152

)

 

 

(74,741

)

 

 

(203,051

)

 

 

(184,108

)

Net premiums earned

 

 

122,156

 

 

 

106,972

 

 

 

347,271

 

 

 

357,654

 

Net investment income

 

 

9,384

 

 

 

18,530

 

 

 

35,893

 

 

 

25,082

 

Net realized investment losses

 

 

(207

)

 

 

(884

)

 

 

(1,586

)

 

 

(1,204

)

Net unrealized investment (losses) gains

 

 

(1,041

)

 

 

(347

)

 

 

385

 

 

 

(8,157

)

Policy fee income

 

 

1,092

 

 

 

1,071

 

 

 

3,651

 

 

 

3,180

 

Other

 

 

260

 

 

 

1,312

 

 

 

2,386

 

 

 

3,065

 

Total revenue

 

 

131,644

 

 

 

126,654

 

 

 

388,000

 

 

 

379,620

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

66,726

 

 

 

139,794

 

 

 

189,181

 

 

 

299,328

 

Policy acquisition and other underwriting expenses

 

 

22,768

 

 

 

24,678

 

 

 

68,106

 

 

 

80,949

 

General and administrative personnel expenses

 

 

13,864

 

 

 

15,848

 

 

 

41,638

 

 

 

45,183

 

Interest expense

 

 

2,827

 

 

 

2,813

 

 

 

8,295

 

 

 

4,929

 

Other operating expenses

 

 

5,371

 

 

 

7,123

 

 

 

17,290

 

 

 

20,392

 

Total expenses

 

 

111,556

 

 

 

190,256

 

 

 

324,510

 

 

 

450,781

 

Income (loss) before income taxes

 

 

20,088

 

 

 

(63,602

)

 

 

63,490

 

 

 

(71,161

)

Income tax expense (benefit)

 

 

4,419

 

 

 

(12,099

)

 

 

15,146

 

 

 

(13,907

)

Net income (loss)

 

 

15,669

 

 

 

(51,503

)

 

 

48,344

 

 

 

(57,254

)

Net income attributable to redeemable noncontrolling
   interest (Note 18)

 

 

(2,349

)

 

 

(2,285

)

 

 

(7,010

)

 

 

(6,801

)

Net (income) loss attributable to noncontrolling interests

 

 

(163

)

 

 

2,829

 

 

 

(396

)

 

 

4,018

 

Net income (loss) after noncontrolling interests

 

$

13,157

 

 

$

(50,959

)

 

$

40,938

 

 

$

(60,037

)

Basic earnings (loss) per share

 

$

1.53

 

 

$

(5.66

)

 

$

4.76

 

 

$

(6.26

)

Diluted earnings (loss) per share

 

$

1.34

 

 

$

(5.66

)

 

$

4.16

 

 

$

(6.26

)

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

3


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income (loss)

 

$

15,669

 

 

$

(51,503

)

 

$

48,344

 

 

$

(57,254

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain (loss) on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) arising during the period

 

 

850

 

 

 

(5,969

)

 

 

1,002

 

 

 

(12,294

)

Reclassification adjustment for net realized losses

 

 

157

 

 

 

5

 

 

 

907

 

 

 

426

 

Net change in unrealized gains (losses)

 

 

1,007

 

 

 

(5,964

)

 

 

1,909

 

 

 

(11,868

)

Deferred income taxes on above change

 

 

(255

)

 

 

(1,337

)

 

 

2,126

 

 

 

154

 

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

 

 

752

 

 

 

(7,301

)

 

 

4,035

 

 

 

(11,714

)

Comprehensive income (loss)

 

 

16,421

 

 

 

(58,804

)

 

 

52,379

 

 

 

(68,968

)

Comprehensive (income) loss attributable to noncontrolling
   interests

 

 

(194

)

 

 

3,095

 

 

 

(542

)

 

 

4,439

 

Comprehensive income (loss) after noncontrolling interests

 

$

16,227

 

 

$

(55,709

)

 

$

51,837

 

 

$

(64,529

)

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

4


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity

For the Three Months Ended September 30, 2023

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Loss,

 

 

Total
Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at June 30, 2023

 

 

8,594,764

 

 

$

 

 

$

1,062

 

 

$

194,034

 

 

$

(6,718

)

 

$

188,378

 

 

$

256

 

 

$

188,634

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15,345

 

 

 

 

 

 

15,345

 

 

 

324

 

 

 

15,669

 

Net income attributable to redeemable
    noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(2,188

)

 

 

 

 

 

(2,188

)

 

 

(161

)

 

 

(2,349

)

Total other comprehensive income, net of
    income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

721

 

 

 

721

 

 

 

31

 

 

 

752

 

Forfeiture of restricted stock

 

 

(3,940

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilution from subsidiary stock-based
    compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

667

 

 

 

667

 

Common stock dividends ($0.40 per
    share)

 

 

 

 

 

 

 

 

 

 

 

(3,426

)

 

 

 

 

 

(3,426

)

 

 

 

 

 

(3,426

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,110

 

 

 

 

 

 

 

 

 

1,110

 

 

 

 

 

 

1,110

 

Additional paid-in capital shortfall
    adjustment allocated to retained income

 

 

 

 

 

 

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2023

 

 

8,590,824

 

 

$

 

 

$

2,171

 

 

$

203,766

 

 

$

(5,997

)

 

$

199,940

 

 

$

1,117

 

 

$

201,057

 

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

 

5


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity – (Continued)

For the Three Months Ended September 30, 2022

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Loss,

 

 

Total
Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity