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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, 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 November 1, 2022 was 8,756,970.

 


 

HCI GROUP, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

Financial Statements

 

 

 

 

Consolidated Balance Sheets:

 

 

 

 

September 30, 2022 (unaudited) and December 31, 2021

 

1-2

 

 

Consolidated Statements of Income:

 

 

 

 

Three and nine months ended September 30, 2022 and 2021 (unaudited)

 

3

 

 

Consolidated Statements of Comprehensive Income:

 

 

 

 

Three and nine months ended September 30, 2022 and 2021 (unaudited)

 

4

 

 

Consolidated Statements of Equity:

 

 

 

 

Three and nine months ended September 30, 2022 and 2021 (unaudited)

 

5-8

 

 

Consolidated Statements of Cash Flows:

 

 

 

 

Nine months ended September 30, 2022 and 2021 (unaudited)

 

9-11

 

 

Notes to Consolidated Financial Statements (unaudited)

 

12-48

 

 

 

 

 

Item 2

 

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

 

49-64

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

65-66

 

 

 

 

 

Item 4

 

Controls and Procedures

 

67

 

 

 

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

68

 

 

 

 

 

Item 1A

 

Risk Factors

 

68

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

68-69

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

69

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

69

 

 

 

 

 

Item 5

 

Other Information

 

69

 

 

 

 

 

Item 6

 

Exhibits

 

70-77

 

 

 

 

 

Signatures

 

78

 

 

 

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,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Fixed-maturity securities, available for sale, at fair value (amortized cost: $371,877 
    and $
41,953, respectively and allowance for credit losses: $0 and $0, respectively)

 

$

360,639

 

 

$

42,583

 

Equity securities, at fair value (cost: $36,639 and $46,276, respectively)

 

 

33,946

 

 

 

51,740

 

Limited partnership investments

 

 

25,405

 

 

 

28,133

 

Investment in unconsolidated joint venture, at equity

 

 

18

 

 

 

363

 

Real estate investments

 

 

71,500

 

 

 

73,896

 

Total investments

 

 

491,508

 

 

 

196,715

 

Cash and cash equivalents

 

 

355,699

 

 

 

628,943

 

Restricted cash

 

 

2,900

 

 

 

2,400

 

Accrued interest and dividends receivable

 

 

2,032

 

 

 

353

 

Income taxes receivable

 

 

8,134

 

 

 

4,084

 

Premiums receivable, net (allowance: $4,573 and $1,750, respectively)

 

 

51,762

 

 

 

68,157

 

Prepaid reinsurance premiums

 

 

104,539

 

 

 

26,355

 

Reinsurance recoverable, net of allowance for credit losses:

 

 

 

 

 

 

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

 

 

14,592

 

 

 

11,985

 

Unpaid losses and loss adjustment expenses (allowance: $451 and $90, respectively)

 

 

938,404

 

 

 

64,665

 

Deferred policy acquisition costs

 

 

48,258

 

 

 

57,695

 

Property and equipment, net

 

 

17,749

 

 

 

14,232

 

Right-of-use assets - operating leases

 

 

1,597

 

 

 

2,204

 

Intangible assets, net

 

 

13,651

 

 

 

10,636

 

Funds withheld for assumed business

 

 

67,313

 

 

 

73,716

 

Other assets

 

 

26,605

 

 

 

14,717

 

Total assets

 

$

2,144,743

 

 

$

1,176,857

 

 

(continued)

1


 

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – (Continued)

(Dollar amounts in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

Losses and loss adjustment expenses

 

$

1,201,842

 

 

$

237,165

 

Unearned premiums

 

 

379,609

 

 

 

366,744

 

Advance premiums

 

 

28,672

 

 

 

13,771

 

Reinsurance payable on paid losses and loss adjustment expenses

 

 

3,046

 

 

 

4,017

 

Ceded reinsurance premiums payable

 

 

 

 

 

19,318

 

Accrued expenses

 

 

18,788

 

 

 

15,453

 

Deferred income taxes, net

 

 

1,705

 

 

 

11,739

 

Revolving credit facility

 

 

 

 

 

15,000

 

Long-term debt

 

 

211,667

 

 

 

45,504

 

Lease liabilities - operating leases

 

 

1,539

 

 

 

2,203

 

Other liabilities

 

 

33,453

 

 

 

31,485

 

Total liabilities

 

 

1,880,321

 

 

 

762,399

 

Commitments and contingencies (Note 20)

 

 

 

 

 

 

Redeemable noncontrolling interest (Note 17)

 

 

91,248

 

 

 

89,955

 

Equity:

 

 

 

 

 

 

Common stock (no par value, 40,000,000 shares authorized, 8,926,845 and 10,131,399 
    shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively)

 

 

 

 

 

 

Additional paid-in capital

 

 

9,969

 

 

 

76,077

 

Retained income

 

 

175,056

 

 

 

246,790

 

Accumulated other comprehensive (loss) income, net of taxes

 

 

(10,795

)

 

 

498

 

Total stockholders’ equity

 

 

174,230

 

 

 

323,365

 

Noncontrolling interests

 

 

(1,056

)

 

 

1,138

 

Total equity

 

 

173,174

 

 

 

324,503

 

Total liabilities, redeemable noncontrolling interest and equity

 

$

2,144,743

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums earned

 

$

181,713

 

 

$

149,809

 

 

$

541,762

 

 

$

420,191

 

Premiums ceded

 

 

(74,741

)

 

 

(55,577

)

 

 

(184,108

)

 

 

(145,112

)

Net premiums earned

 

 

106,972

 

 

 

94,232

 

 

 

357,654

 

 

 

275,079

 

Net investment income

 

 

18,530

 

 

 

2,520

 

 

 

25,082

 

 

 

9,749

 

Net realized investment (losses) gains

 

 

(884

)

 

 

1,232

 

 

 

(1,204

)

 

 

4,952

 

Net unrealized investment losses

 

 

(347

)

 

 

(1,869

)

 

 

(8,157

)

 

 

(649

)

Policy fee income

 

 

1,071

 

 

 

1,000

 

 

 

3,180

 

 

 

2,962

 

Other

 

 

1,312

 

 

 

2,102

 

 

 

3,065

 

 

 

3,502

 

Total revenue

 

 

126,654

 

 

 

99,217

 

 

 

379,620

 

 

 

295,595

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

139,794

 

 

 

62,664

 

 

 

299,328

 

 

 

164,332

 

Policy acquisition and other underwriting expenses

 

 

24,678

 

 

 

23,340

 

 

 

80,949

 

 

 

69,574

 

General and administrative personnel expenses

 

 

15,848

 

 

 

11,537

 

 

 

45,183

 

 

 

31,733

 

Interest expense

 

 

2,813

 

 

 

1,664

 

 

 

4,929

 

 

 

5,743

 

Debt conversion expense

 

 

 

 

 

1,273

 

 

 

 

 

 

1,273

 

Other operating expenses

 

 

7,123

 

 

 

5,243

 

 

 

20,392

 

 

 

14,245

 

Total expenses

 

 

190,256

 

 

 

105,721

 

 

 

450,781

 

 

 

286,900

 

(Loss) income before income taxes

 

 

(63,602

)

 

 

(6,504

)

 

 

(71,161

)

 

 

8,695

 

Income tax (benefit) expense

 

 

(12,099

)

 

 

(1,636

)

 

 

(13,907

)

 

 

2,888

 

Net (loss) income

 

 

(51,503

)

 

 

(4,868

)

 

 

(57,254

)

 

 

5,807

 

Net income attributable to redeemable noncontrolling
   interest (Note 17)

 

 

(2,285

)

 

 

(2,202

)

 

 

(6,801

)

 

 

(5,175

)

Net loss attributable to noncontrolling interests

 

 

2,829

 

 

 

833

 

 

 

4,018

 

 

 

1,196

 

Net (loss) income after noncontrolling interests

 

$

(50,959

)

 

$

(6,237

)

 

$

(60,037

)

 

$

1,828

 

Basic (loss) earnings per share

 

$

(5.66

)

 

$

(0.72

)

 

$

(6.26

)

 

$

0.23

 

Diluted (loss) earnings per share

 

$

(5.66

)

 

$

(0.72

)

 

$

(6.26

)

 

$

0.22

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net (loss) income

 

$

(51,503

)

 

$

(4,868

)

 

$

(57,254

)

 

$

5,807

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized loss on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses arising during the period

 

 

(5,969

)

 

 

(258

)

 

 

(12,294

)

 

 

(341

)

Call and repayment gains charged to investment income

 

 

 

 

 

 

 

 

 

 

 

(2

)

Reclassification adjustment for net realized losses (gains)

 

 

5

 

 

 

(88

)

 

 

426

 

 

 

(665

)

Net change in unrealized losses

 

 

(5,964

)

 

 

(346

)

 

 

(11,868

)

 

 

(1,008

)

Deferred income taxes on above change

 

 

(1,337

)

 

 

85

 

 

 

154

 

 

 

247

 

Total other comprehensive loss, net of income taxes

 

 

(7,301

)

 

 

(261

)

 

 

(11,714

)

 

 

(761

)

Comprehensive (loss) income

 

 

(58,804

)

 

 

(5,129

)

 

 

(68,968

)

 

 

5,046

 

Comprehensive loss attributable to noncontrolling interests

 

 

3,095

 

 

 

839

 

 

 

4,439

 

 

 

1,212

 

Comprehensive (loss) income after noncontrolling interests

 

$

(55,709

)

 

$

(4,290

)

 

$

(64,529

)

 

$

6,258

 

 

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, 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