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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 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 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 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:

 

 

 

 

Three months ended March 31, 2022 and 2021 (unaudited)

 

4

 

 

Consolidated Statements of Equity:

 

 

 

 

Three months ended March 31, 2022 and 2021 (unaudited)

 

5-6

 

 

Consolidated Statements of Cash Flows:

 

 

 

 

Three months ended March 31, 2022 and 2021 (unaudited)

 

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

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

53

 

 

 

 

 

Item 1A

 

Risk Factors

 

53

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

53-54

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

54

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

54

 

 

 

 

 

Item 5

 

Other Information

 

54

 

 

 

 

 

Item 6

 

Exhibits

 

55-60

 

 

 

 

 

Signatures

 

61

 

 

 

Certifications

 

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

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

 

 

 

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


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – (Continued)

(Dollar amounts in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

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

 

 

 

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

 

$

1,175,250

 

 

$

1,176,857

 

 

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

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

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

 

 

 

 

 

 

Losses and loss adjustment 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

 

$

0.09

 

 

$

0.75

 

 

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

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Net income

 

$

2,791

 

 

$

6,845

 

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

 

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

4


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity

For the Three Months Ended March 31, 2022

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Income (Loss),

 

 

Total
Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at December 31, 2021

 

 

10,131,399

 

 

$

 

 

$

76,077

 

 

$

246,790

 

 

$

498

 

 

$

323,365

 

 

$

1,138

 

 

$

324,503

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

2,978

 

 

 

 

 

 

2,978

 

 

 

(187

)

 

 

2,791

 

Net income attributable to redeemable
    noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(2,075

)

 

 

 

 

 

(2,075

)

 

 

(173

)

 

 

(2,248

)

Total other comprehensive loss, net of
    income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,683

)

 

 

(2,683

)

 

 

(101

)

 

 

(2,784

)

Issuance of restricted stock

 

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock

 

 

(3,265

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase and retirement of common
    stock

 

 

(6,207

)

 

 

 

 

 

(398

)

 

 

 

 

 

 

 

 

(398

)

 

 

 

 

 

(398

)

Dilution from subsidiary stock-based
    compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

758

 

 

 

758

 

Common stock dividends ($0.40 per
    share)

 

 

 

 

 

 

 

 

 

 

 

(4,046

)

 

 

 

 

 

(4,046

)

 

 

 

 

 

(4,046

)

Stock-based compensation

 

 

 

 

 

 

 

 

3,452

 

 

 

 

 

 

 

 

 

3,452

 

 

 

 

 

 

3,452

 

Balance at March 31, 2022

 

 

10,125,927

 

 

$

 

 

$

79,131

 

 

$

243,647

 

 

$

(2,185

)

 

$

320,593

 

 

$

1,435

 

 

$

322,028

 

 

See accompanying Notes to Consolidated Financial Statements (unaudited).

5


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity – (Continued)

For the Three Months Ended March 31, 2021

(Unaudited)

(Dollar amounts in thousands, except per share amount)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Accumulated
Other
Comprehensive
Income,

 

 

Total
Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Net of Tax

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at December 31, 2020

 

 

7,785,617

 

 

$

 

 

$

 

 

$

199,592

 

 

$

1,544

 

 

$

201,136

 

 

$

 

 

$

201,136

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

6,942

 

 

 

 

 

 

6,942

 

 

 

(97

)

 

 

6,845

 

Net income attributable to redeemable
    noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

(794

)

 

 

 

 

 

(794

)

 

 

 

 

 

(794

)

Cumulative effect of change in
    accounting principle

 

 

 

 

 

 

 

 

 

 

 

(3,018

)

 

 

 

 

 

(3,018

)

 

 

 

 

 

(3,018

)

Total other comprehensive loss, net of
    income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(139

)

 

 

(139

)

 

 

(1

)

 

 

(140

)

Issuance of restricted stock

 

 

548,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock

 

 

(2,050

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of restricted stock

 

 

(141,600

)