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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, 2024

 

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, 2024 was 10,537,256.

 

 

HCI GROUP, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Financial Statements

 

 

 

 

Consolidated Balance Sheets:

 

 

 

 

September 30, 2024 (unaudited) and December 31, 2023

 

1-2

 

 

Consolidated Statements of Income:

 

 

 

 

Three and nine months ended September 30, 2024 and 2023 (unaudited)

 

3

 

 

Consolidated Statements of Comprehensive Income:

 

 

 

 

Three and nine months ended September 30, 2024 and 2023 (unaudited)

 

4

 

 

Consolidated Statements of Equity:

 

 

 

 

Three and nine months ended September 30, 2024 and 2023 (unaudited)

 

5-8

 

 

Consolidated Statements of Cash Flows:

 

 

 

 

Nine months ended September 30, 2024 and 2023 (unaudited)

 

9-11

 

 

Notes to Consolidated Financial Statements (unaudited)

 

12-51

 

 

 

 

 

Item 2

 

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

 

52-66

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

67-68

 

 

 

 

 

Item 4

 

Controls and Procedures

 

69

 

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

Item 1

 

Legal Proceedings

 

70

 

 

 

 

 

Item 1A

 

Risk Factors

 

70

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

70-71

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

71

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

71

 

 

 

 

 

Item 5

 

Other Information

 

71

 

 

 

 

 

Item 6

 

Exhibits

 

72-78

 

 

 

 

 

Signatures

 

79

 

 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Fixed-maturity securities, available for sale, at fair value (amortized cost: $665,669 
    and $387,687, respectively and allowance for credit losses: $0 and $0, respectively)

 

$

668,231

 

 

$

383,238

 

Equity securities, at fair value (cost: $50,982 and $44,011 respectively)

 

 

56,333

 

 

 

45,537

 

Limited partnership investments

 

 

21,497

 

 

 

23,583

 

Real estate investments

 

 

77,511

 

 

 

67,893

 

Total investments

 

 

823,572

 

 

 

520,251

 

Cash and cash equivalents (a)

 

 

518,786

 

 

 

536,478

 

Restricted cash (a)

 

 

3,310

 

 

 

3,287

 

Receivable from maturities of fixed-maturity securities

 

 

—

 

 

 

91,085

 

Accrued interest and dividends receivable

 

 

6,382

 

 

 

3,507

 

Income taxes receivable (a)

 

 

4,919

 

 

 

—

 

Deferred income taxes, net

 

 

—

 

 

 

512

 

Premiums receivable, net (allowance: $4,218 and $3,152, respectively) (a)

 

 

59,183

 

 

 

38,037

 

Assumed premiums receivable

 

 

—

 

 

 

19,954

 

Prepaid reinsurance premiums (a)

 

 

105,092

 

 

 

86,232

 

Reinsurance recoverable, net of allowance for credit losses:

 

 

 

 

 

 

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

 

 

27,518

 

 

 

19,690

 

Unpaid losses and loss adjustment expenses (allowance: $46 and $118, respectively)

 

 

273,053

 

 

 

330,604

 

Deferred policy acquisition costs (a)

 

 

56,401

 

 

 

42,910

 

Property and equipment, net

 

 

29,452

 

 

 

29,251

 

Right-of-use assets – operating leases

 

 

1,240

 

 

 

1,407

 

Intangible assets, net

 

 

5,820

 

 

 

7,659

 

Funds withheld for assumed business

 

 

14,527

 

 

 

30,087

 

Other assets (a)

 

 

58,119

 

 

 

50,365

 

Total assets

 

$

1,987,374

 

 

$

1,811,316

 

 

(a)
See Note 13 for details of balances associated with consolidated variable interest entity.

 

(continued)

1

 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – (Continued)

(Dollar amounts in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

Losses and loss adjustment expenses (a)

 

$

612,354

 

 

$

585,073

 

Unearned premiums (a)

 

 

547,700

 

 

 

501,157

 

Advance premiums (a)

 

 

37,767

 

 

 

15,895

 

Reinsurance payable on paid losses and loss adjustment expenses

 

 

—

 

 

 

3,145

 

Ceded reinsurance premiums payable (a)

 

 

7,168

 

 

 

8,921

 

Assumed premiums payable (a)

 

 

315

 

 

 

850

 

Accrued expenses (a)

 

 

37,121

 

 

 

19,722

 

Income tax payable

 

 

—

 

 

 

7,702

 

Deferred income taxes, net (a)

 

 

5,419

 

 

 

—

 

Revolving credit facility

 

 

46,000

 

 

 

—

 

Long-term debt

 

 

185,081

 

 

 

208,495

 

Lease liabilities – operating leases

 

 

1,250

 

 

 

1,408

 

Other liabilities (a)

 

 

39,039

 

 

 

35,623

 

Total liabilities

 

 

1,519,214

 

 

 

1,387,991

 

Commitments and contingencies (Note 21)

 

 

 

 

 

 

Redeemable noncontrolling interests (Note 18)

 

 

1,491

 

 

 

96,160

 

Equity:

 

 

 

 

 

 

Common stock (no par value, 40,000,000 shares authorized, 10,479,076 and 9,738,183 
  shares issued and outstanding at September 30, 2024 and December 31, 2023,
  respectively)

 

 

—

 

 

 

—

 

Additional paid-in capital

 

 

119,971

 

 

 

89,568

 

Retained income

 

 

333,453

 

 

 

238,438

 

Accumulated other comprehensive income (loss), net of taxes

 

 

1,920

 

 

 

(3,163

)

Total stockholders’ equity

 

 

455,344

 

 

 

324,843

 

Noncontrolling interests

 

 

11,325

 

 

 

2,322

 

Total equity

 

 

466,669

 

 

 

327,165

 

Total liabilities, redeemable noncontrolling interests and equity

 

$

1,987,374

 

 

$

1,811,316

 

 

(a)
See Note 13 for details of balances associated with consolidated variable interest entity.

 

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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned

 

$

265,518

 

 

$

188,308

 

 

$

785,723

 

 

$

550,322

 

Premiums ceded

 

 

(109,694

)

 

 

(66,152

)

 

 

(254,513

)

 

 

(203,051

)

Net premiums earned

 

 

155,824

 

 

 

122,156

 

 

 

531,210

 

 

 

347,271

 

Net investment income

 

 

13,714

 

 

 

9,384

 

 

 

44,662

 

 

 

35,893

 

Net realized investment gains (losses)

 

 

2,846

 

 

 

(207

)

 

 

3,058

 

 

 

(1,586

)

Net unrealized investment gains (losses)

 

 

657

 

 

 

(1,041

)

 

 

3,825

 

 

 

385

 

Policy fee income

 

 

1,229

 

 

 

1,092

 

 

 

3,337

 

 

 

3,651

 

Other

 

 

1,047

 

 

 

260

 

 

 

2,084

 

 

 

2,386

 

Total revenue

 

 

175,317

 

 

 

131,644

 

 

 

588,176

 

 

 

388,000

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

105,736

 

 

 

66,726

 

 

 

263,982

 

 

 

189,181

 

Policy acquisition and other underwriting expenses

 

 

26,104

 

 

 

22,768

 

 

 

71,695

 

 

 

68,106

 

General and administrative personnel expenses

 

 

19,175

 

 

 

13,864

 

 

 

52,920

 

 

 

41,638

 

Interest expense

 

 

3,421

 

 

 

2,827

 

 

 

10,022

 

 

 

8,295

 

Other operating expenses

 

 

6,801

 

 

 

5,371

 

 

 

22,021

 

 

 

17,290

 

Total expenses

 

 

161,237

 

 

 

111,556

 

 

 

420,640

 

 

 

324,510

 

Income before income taxes

 

 

14,080

 

 

 

20,088

 

 

 

167,536

 

 

 

63,490

 

Income tax expense

 

 

4,688

 

 

 

4,419

 

 

 

44,089

 

 

 

15,146

 

Net income

 

 

9,392

 

 

 

15,669

 

 

 

123,447

 

 

 

48,344

 

Net income attributable to redeemable noncontrolling
   interests (Note 18)

 

 

—

 

 

 

(2,349

)

 

 

(10,149

)

 

 

(7,010

)

Net income attributable to noncontrolling interests

 

 

(3,710

)

 

 

(163

)

 

 

(5,929

)

 

 

(396

)

Net income after noncontrolling interests

 

$

5,682

 

 

$

13,157

 

 

$

107,369

 

 

$

40,938

 

Basic earnings per share

 

$

0.54

 

 

$

1.53

 

 

$

10.42

 

 

$

4.76

 

Diluted earnings per share

 

$

0.52

 

 

$

1.34

 

 

$

8.59

 

 

$

4.16

 

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

3

 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollar amounts in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income

 

$

9,392

 

 

$

15,669

 

 

$

123,447

 

 

$

48,344

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains arising during the period

 

 

8,042

 

 

 

850

 

 

 

8,799

 

 

 

1,002

 

Reclassification adjustment for net realized (gains) losses

 

 

(1,830

)

 

 

157

 

 

 

(1,788

)

 

 

907

 

Net change in unrealized gains

 

 

6,212

 

 

 

1,007

 

 

 

7,011

 

 

 

1,909

 

Deferred income taxes on above change

 

 

(1,556

)

 

 

(255

)

 

 

(1,756

)

 

 

2,126

 

Total other comprehensive income, net of income taxes

 

 

4,656

 

 

 

752

 

 

 

5,255

 

 

 

4,035

 

Comprehensive income

 

 

14,048

 

 

 

16,421

 

 

 

128,702

 

 

 

52,379

 

Comprehensive income attributable to noncontrolling
   interests

 

 

(3,867

)

 

 

(194

)

 

 

(6,101

)

 

 

(542

)

Comprehensive income after noncontrolling interests

 

$

10,181

 

 

$

16,227

 

 

$

122,601

 

 

$

51,837

 

 

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, 2024

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
(Loss) Income,

 

 

Total
Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at June 30, 2024

 

 

10,472,741

 

 

$

—

 

 

$

117,968

 

 

$

331,960

 

 

$

(2,579

)

 

$

447,349

 

 

$

5,894

 

 

$

453,243

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5,682

 

 

 

—

 

 

 

5,682

 

 

 

3,710

 

 

 

9,392

 

Total other comprehensive
  income, net of income taxes

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,499

 

 

 

4,499

 

 

 

157

 

 

 

4,656

 

Issuance of restricted stock

 

 

6,400

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Forfeiture of restricted stock

 

 

(65

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Dilution from subsidiary
  stock-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,083

 

 

 

1,083

 

Common stock dividends
  ($0.40 per share)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4,189

)

 

 

—

 

 

 

(4,189

)

 

 

—

 

 

 

(4,189

)

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

2,003

 

 

 

—

 

 

 

—

 

 

 

2,003

 

 

 

—

 

 

 

2,003

 

Subscriber surplus contribution

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

481

 

 

 

481

 

Balance at September 30, 2024

 

 

10,479,076

 

 

$

—

 

 

$

119,971

 

 

$

333,453

 

 

$

1,920

 

 

$

455,344

 

 

$

11,325

 

 

$

466,669

 

 

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, 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).

 

6

 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity – (Continued)

For the Nine Months Ended September 30, 2024

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Loss (Income),

 

 

Total
Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at December 31, 2023

 

 

9,738,183

 

 

$

—

 

 

$

89,568

 

 

$

238,438

 

 

$

(3,163

)

 

$

324,843

 

 

$

2,322

 

 

$

327,165

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

116,843

 

 

 

—

 

 

 

116,843

 

 

 

6,604

 

 

 

123,447

 

Net income attributable to
  redeemable noncontrolling
  interests

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(9,474

)

 

 

—

 

 

 

(9,474

)

 

 

(675

)

 

 

(10,149

)

Total other comprehensive
  income, net of income taxes

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5,083

 

 

 

5,083

 

 

 

172

 

 

 

5,255

 

Cashless exercise of
  common stock warrants

 

 

155,049

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Issuance of restricted stock

 

 

210,900

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Forfeiture of restricted stock

 

 

(3,765

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Repurchase and retirement of
  common stock

 

 

(10,378

)

 

 

—

 

 

 

(1,036

)

 

 

—

 

 

 

—

 

 

 

(1,036

)

 

 

—

 

 

 

(1,036

)

Conversion of senior notes
  to common stock

 

 

389,087

 

 

 

—

 

 

 

23,449

 

 

 

—

 

 

 

—