HCI HCI Group Inc

HCI Group, Inc. (NYSE:HCI), a holding company with operations in homeowners insurance, information technology services, real estate, and reinsurance, reported a net loss of $8.5 million, or $1.04 per share, in the second quarter of 2022 compared with net income of $3.8 million, or $0.24 diluted earnings per share, in the second quarter of 2021. Adjusted net loss (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) was $5.4 million, or $0.71 per share, in the second quarter of 2022 compared with adjusted net income of $2.7 million, or $0.11 diluted earnings per share, in the second quarter of 2021. This press release includes an explanation of adjusted net income as well as a reconciliation to net income and earnings per share calculated in accordance with generally accepted accounting principles (known as “GAAP”).

Management Commentary

“Inflation accelerated in the quarter which led to an increase in our gross loss ratio. We responded swiftly, increasing rates 10% at Homeowners Choice and 12% at TypTap effective August 2022,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “These actions will offset higher severity and improve our underwriting margins in the future. Inflation aside, we continue to see benefits from operating leverage as our business expands.

“We remain optimistic about the future. In May, we raised over $170 million of capital through our convertible note offering, which gives added flexibility to our strategy. The strategy remains unchanged: to maximize returns for our shareholders.”

Second Quarter 2022 Commentary

Consolidated gross written premiums of $186.2 million increased from $185.0 million in the second quarter of 2021. Homeowners Choice gross written premiums declined to $113.1 million from $124.2 million as the quota share with United Property and Casualty (UPC) transitioned to TypTap. TypTap Insurance Company gross written premiums grew to $73.0 million from $60.7 million.

Consolidated gross premiums earned of $181.1 million increased 29.9% from $139.4 million in the second quarter of 2021. Homeowners Choice gross premiums earned grew to $113.7 million from $100.4 million, and TypTap gross premiums earned grew to $67.4 million from $39.0 million.

Premiums ceded for reinsurance of $56.2 million increased from $46.4 million in the second quarter of 2021 primarily due to the growth of both Homeowners Choice and TypTap and declined as a percentage of gross premiums earned to 31.0% from 33.3% in the second quarter of 2021.

Net investment income of $3.7 million increased from $2.6 million in the second quarter of 2021. The increase was attributable to higher income from fixed maturity securities offset by reductions in income from limited partnership investments.

Net realized and unrealized investment losses were $4.2 million compared to net realized and unrealized gains of $4.1 million in the second quarter of 2021.  Combined, changes in realized and unrealized gains/losses accounted for $8.3 million of the $16.6 million change in pre-tax net income from the second quarter of 2021.

Losses and loss adjustment expenses of $86.8 million increased from $55.9 million in the same period of 2021. The increase was primarily attributable to the company’s growing premium base as well as inflation and prior year loss development.

Policy acquisition and other underwriting expenses of $26.9 million increased from $23.2 million in the same quarter of 2021 but declined from 16.6% of gross premiums earned to 14.8% reflecting lower commission rates at TypTap.

General and administrative expenses of $15.3 million increased from $10.5 million for the second quarter of 2021 due to an increase in personnel and related expenses in connection with the growth of the business.

Year-to-Date 2022 Results

For the six months ended June 30, 2022, the company reported a net loss of $5.8 million, or $0.92 per share, compared with net income of $10.7 million, or $0.98 diluted earnings per share, for the six months ended June 30, 2021. Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the six-month period was $0.08 million, which, after adjustments for the purpose of calculating earnings per share, equates to a loss of $0.33 per share compared with adjusted net income of $9.8 million, or $0.87 diluted earnings per share, in the same period of 2021. An explanation of this non-GAAP financial measure and reconciliations to the applicable GAAP numbers accompany this press release.

Consolidated gross written premiums of $363.4 million increased 16.9% from $310.8 million in the six months ended June 30, 2021. Homeowners Choice gross written premiums were $204.3 million compared with $205.2 million. TypTap Insurance Company gross written premiums grew to $159.2 million from $105.6 million. The increase was primarily due to the UPC quota share arrangement and organic growth.

Consolidated gross premiums earned of $360.0 million increased 33.2% from $270.4 million in the six months ended June 30, 2021.  Homeowners Choice gross premiums earned grew to $232.0 million from $202.6 million, and TypTap gross premiums earned grew to $128.1 million from $67.8 million.

Premiums ceded for reinsurance of $109.4 million increased from $89.5 million in the first six months of 2021 primarily due to the growth of both Homeowners Choice and TypTap and declined as a percentage of gross premiums earned from 33.1% to 30.4% in the first half of 2021.

Net realized and unrealized investment losses were $8.1 million compared with net realized and unrealized investment gains of $4.9 million in the six months ended June 30, 2021. Combined, changes in realized and unrealized gains/losses accounted for $13.1 million of the $22.8 million change in pre-tax net income from the first six months of 2021. 

Losses and loss adjustment expenses of $159.5 million increased from $101.7 million in the six months ended June 30, 2021. The increase was primarily attributable to the company’s growing premium base as well as inflation and prior year loss development.

Policy acquisition and other underwriting expenses of $56.3 million increased from $46.2 million in the six months ended June 30, 2021 but declined from 17.1% of gross premiums earned to 15.6% reflecting lower commission rates at TypTap.

General and administrative expenses of $29.3 million increased from $20.2 million in the six months ended June 30, 2021 due to an increase in personnel and related expenses in connection with the growth of the business including higher stock based compensation. 

Conference CallHCI Group will hold a conference call tomorrow, August 9, 2022, to discuss these financial results. Chairman and Chief Executive Officer Paresh Patel, Chief Operating Officer Karin Coleman and Chief Financial Officer Mark Harmsworth will host the call starting at 8:30 a.m. Eastern time.

Interested parties can listen to the live presentation by dialing the listen-only number below or by clicking the webcast link available on the Investor Information section of the company's website at www.hcigroup.com.

Listen-only toll-free number: (888) 506-0062Listen-only international number: (973) 528-0011 Entry Code: 781380

Please call the conference telephone number 10 minutes before the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at (949) 574-3860.

A replay of the call will be available by telephone after 8:00 p.m. Eastern time on the same day as the call and via the Investor Information section of the HCI Group website at www.hcigroup.com through September 8, 2022.

Toll-free replay number: (877) 481-4010International replay number: (919) 882-2331 Replay ID: 46129

About HCI Group, Inc.HCI Group, Inc. owns subsidiaries engaged in diverse, yet complementary business activities, including homeowners insurance, reinsurance, real estate and information technology services. HCI’s leading insurance operation, TypTap Insurance Company, is a rapidly growing, technology-driven insurance company that is expanding nationwide to provide homeowners and flood insurance. TypTap’s operations are powered in large part by insurance-related information technology developed by HCI’s software subsidiary, Exzeo USA, Inc. HCI’s largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., provides homeowners insurance primarily in Florida. HCI’s real estate subsidiary, Greenleaf Capital, LLC, owns and operates multiple properties in Florida, including office buildings, retail centers and marinas.

The company's common shares trade on the New York Stock Exchange under the ticker symbol "HCI" and are included in the Russell 2000 and S&P SmallCap 600 Index. HCI Group, Inc. regularly publishes financial and other information in the Investor Information section of the company’s website. For more information about HCI Group and its subsidiaries, visit www.hcigroup.com.

Forward-Looking StatementsThis news release may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "estimate," "expect," "intend," "plan," "confident," "prospects" and "project" and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. For example, the estimation of reserves for losses and loss adjustment expenses is an inherently imprecise process involving many assumptions and considerable management judgment. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial condition and results of operations. HCI Group, Inc. disclaims all obligations to update any forward-looking statements.

Company Contact:Simon RosenbergInvestor RelationsHCI Group, Inc.Tel (813) 405-5261srosenberg@hcigroup.com

Investor Relations Contact:Matt GloverGateway Group, Inc.Tel (949) 574-3860HCI@gatewayir.com

Media Contact:Catherine AdcockGateway Group, Inc.Tel (949) 574-6860catherine@gatewayir.com

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HCI GROUP, INC. AND SUBSIDIARIESSelected Financial Metrics(Dollar amounts in thousands, except per share amounts)

		Q2 2022				Q1 2022				FY 2021
		(Unaudited)				(Unaudited)
Insurance Operations
Gross Written Premiums:
Homeowners Choice		$	113,139			$	91,141			$	426,910
TypTap Insurance Company			73,013				86,153				247,479
Total Gross Written Premiums			186,152				177,294				674,389
Gross Premiums Earned:
Homeowners Choice			113,681				118,303				401,137
TypTap Insurance Company			67,443				60,622				175,907
Total Gross Premiums Earned			181,124				178,925				577,044
Gross Premiums Earned Loss Ratio			47.9	%			40.6	%			39.4	%
Per Share Metrics
GAAP Diluted EPS		$	(1.04	)		$	0.09			$	0.21
Non-GAAP Adjusted Diluted EPS		$	(0.71	)		$	0.34			$	0.10
Dividends per share		$	0.40			$	0.40			$	1.60
Book value per share at the end of period		$	26.39			$	31.66			$	31.92
Shares outstanding at the end of period			9,047,972				10,125,927				10,131,399

    HCI GROUP, INC. AND SUBSIDIARIESConsolidated Balance Sheets        (Dollar amounts in thousands)

		June 30, 2022				December 31, 2021
		(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $403,844 and $41,953, respectively and allowance for credit losses: $0 and $0, respectively)		$	398,571			$	42,583
Equity securities, at fair value (cost: $38,065 and $46,276, respectively)			35,719				51,740
Limited partnership investments			26,695				28,133
Investment in unconsolidated joint venture, at equity			858				363
Real estate investments			72,723				73,896
Total investments			534,566				196,715
Cash and cash equivalents			360,488				628,943
Restricted cash			2,600				2,400
Accrued interest and dividends receivable			1,421				353
Income taxes receivable			1,789				4,084
Premiums receivable, net (allowance: $3,935 and $1,750, respectively)			52,302				68,157
Prepaid reinsurance premiums			81,023				26,355
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)			11,134				11,985
Unpaid losses and loss adjustment expenses (allowance: $62 and $90, respectively)			42,348				64,665
Deferred policy acquisition costs			48,305				57,695
Property and equipment, net			17,244				14,232
Right-of-use-assets - operating leases			1,861				2,204
Intangible assets, net			14,358				10,636
Funds withheld for assumed business			82,468				73,716
Other assets			28,796				14,717
Total assets		$	1,280,703			$	1,176,857
Liabilities and Equity
Losses and loss adjustment expenses		$	238,824			$	237,165
Unearned premiums			370,140				366,744
Advance premiums			25,428				13,771
Reinsurance payable on paid losses and loss adjustment expenses			4,302				4,017
Ceded reinsurance premiums payable			24,641				19,318
Accrued expenses			17,093				15,453
Deferred income taxes, net			6,168				11,739
Revolving credit facility			—				15,000
Long-term debt			211,648				45,504
Lease liabilities - operating leases			1,824				2,203
Other liabilities			48,737				31,485
Total liabilities			948,805				762,399
Commitments and contingencies
Redeemable noncontrolling interest			91,963				89,955
Equity:
Common stock, (no par value, 40,000,000 shares authorized, 9,047,972 and 10,131,399 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively)			—				—
Additional paid-in capital			12,887				76,077
Retained income			229,621				246,790
Accumulated other comprehensive (loss) income, net of taxes			(3,760	)			498
Total stockholders' equity			238,748				323,365
Noncontrolling interests			1,187				1,138
Total equity			239,935				324,503
Total liabilities, redeemable noncontrolling interest, and equity		$	1,280,703			$	1,176,857

HCI GROUP, INC. AND SUBSIDIARIESConsolidated Statements of Income(Unaudited)(Dollar amounts in thousands, except per share amounts)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2022				2021				2022					2021
Revenue
Gross premiums earned		$	181,124			$	139,440			$	360,049				$	270,382
Premiums ceded			(56,205	)			(46,436	)			(109,367	)				(89,535	)
Net premiums earned			124,919				93,004				250,682					180,847
Net investment income			3,684				2,635				6,552					7,229
Net realized investment (losses) gains			(6	)			2,607				(320	)				3,720
Net unrealized investment (losses) gains			(4,234	)			1,489				(7,810	)				1,220
Policy fee income			1,052				992				2,109					1,962
Other			511				777				1,753					1,400
Total revenue			125,926				101,504				252,966					196,378
Expenses
Losses and loss adjustment expenses			86,830				55,917				159,534					101,668
Policy acquisition and other underwriting expenses			26,863				23,169				56,271					46,234
General and administrative personnel expenses			15,301				10,546				29,335					20,196
Interest expense			1,515				2,000				2,116					4,079
Other operating expenses			6,977				4,775				13,269					9,002
Total expenses			137,486				96,407				260,525					181,179
(Loss) income before income taxes			(11,560	)			5,097				(7,559	)				15,199
Income tax (benefit) expense			(3,018	)			1,267				(1,808	)				4,524
Net (loss) income		$	(8,542	)		$	3,830			$	(5,751	)			$	10,675
Net (loss) income attributable to redeemable noncontrolling interest			(2,268	)			(2,179	)			(4,516	)				(2,973	)
Net loss attributable to noncontrolling interests			829				266				1,189					363
Net income after noncontrolling interests		$	(9,981	)		$	1,917			$	(9,078	)			$	8,065
Basic (loss) earnings per share		$	(1.04	)		$	0.25			$	(0.92	)			$	1.02
Diluted (loss) earnings per share		$	(1.04	)		$	0.24			$	(0.92	)			$	0.98
Dividends per share		$	0.40			$	0.40			$	0.80				$	0.80

HCI GROUP, INC. AND SUBSIDIARIES(Amounts in thousands, except per share amounts)

A summary of the numerator and denominator of basic and diluted earnings (loss) per common share calculated in accordance with GAAP is presented below.

		Three Months Ended											Six Months Ended
GAAP		June 30, 2022											June 30, 2022
		Loss				Shares (a)			Per Share				Loss				Shares (a)			Per Share
		(Numerator)				(Denominator)			Amount				(Numerator)				(Denominator)			Amount
Net loss		$	(8,542	)									$	(5,751	)
Less: Net income attributable to redeemable noncontrolling interest			(2,268	)										(4,516	)
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities			829											1,189
Net loss attributable to HCI			(9,981	)										(9,078	)
Less: Loss attributable to participating securities			635											590
Basic Loss Per Share:
Loss allocated to common stockholders			(9,346	)			9,022		$	(1.04	)			(8,488	)			9,249		$	(0.92	)
Effect of Dilutive Securities:*
Stock options			—				—							—				—
Convertible senior notes			—				—							—				—
Warrants			—				—							—				—
Diluted Loss Per Share:
Loss available to common stockholders and assumed conversions		$	(9,346	)			9,022		$	(1.04	)		$	(8,488	)			9,249		$	(0.92	)
(a) Shares in thousands.
* For the three and six months ended June 30, 2022, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect.

Non-GAAP Financial Measures

Adjusted net income (loss) is a Non-GAAP financial measure that removes from net income (loss) HCI's portion of the effect of unrealized gains or losses on equity securities required to be included in results of operations in accordance with Accounting Standards Codification 321. HCI Group believes net income without the effect of volatility in equity prices more accurately depicts operating results. This financial measurement is not recognized in accordance with accounting principles generally accepted in the United States of America ("GAAP") and should not be viewed as an alternative to GAAP measures of performance. A reconciliation of GAAP Net income (loss) to Non-GAAP Adjusted net income (loss) and GAAP diluted earnings (loss) per share to Non-GAAP Adjusted diluted earnings (loss) per share is provided below.

Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net (Loss) Income

		Three Months Ended										Six Months Ended
		June 30, 2022										June 30, 2022
GAAP Net loss						$	(8,542	)								$	(5,751	)
Net unrealized investment losses		$	4,234									$	7,810
Less: Tax effect at 25.345%		$	(1,073	)								$	(1,979	)
Net adjustment to Net loss						$	3,161									$	5,831
Non-GAAP Adjusted Net (loss) income						$	(5,381	)								$	80

HCI GROUP, INC. AND SUBSIDIARIES(Amounts in thousands, except per share amounts)

A summary of the numerator and denominator of the basic and diluted earnings (loss) per common share calculated with the Non-GAAP financial measure Adjusted net income (loss) is presented below.

		Three Months Ended											Six Months Ended
Non-GAAP		June 30, 2022											June 30, 2022
		Loss				Shares (a)			Per Share				Loss				Shares (a)			Per Share
		(Numerator)				(Denominator)			Amount				(Numerator)				(Denominator)			Amount
Adjusted net (loss) income (non-GAAP)		$	(5,381	)									$	80
Less: Net income attributable to redeemable noncontrolling interest			(2,268	)										(4,516	)
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities			810											1,153
Net loss attributable to HCI			(6,839	)										(3,283	)
Less: Loss attributable to participating securities			437											220
Basic Loss Per Share before unrealized gains/losses on equity securities:
Loss allocated to common stockholders			(6,402	)			9,022		$	(0.71	)			(3,063	)			9,249		$	(0.33	)
Effect of Dilutive Securities:*
Stock options			—				—							—				—
Convertible senior notes			—				—							—				—
Warrants			—				—							—				—
Diluted Loss Per Share before unrealized gains/losses on equity securities:
Loss available to common stockholders and assumed conversions		$	(6,402	)		$	9,022		$	(0.71	)		$	(3,063	)		$	9,249		$	(0.33	)
(a) Shares in thousands.
* For the three and six months ended June 30, 2022, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect.

Reconciliation of GAAP Diluted EPS to Non-GAAP Adjusted Diluted EPS

		Three Months Ended									Six Months Ended
		June 30, 2022									June 30, 2022
GAAP diluted (Loss) Earnings Per Share						$	(1.04	)							$	(0.92	)
Net unrealized investment losses		$	0.46								$	0.84
Less: Tax effect at 25.345%		$	(0.13	)							$	(0.25	)
Net adjustment to GAAP diluted EPS						$	0.33								$	0.59
Non-GAAP Adjusted diluted EPS						$	(0.71	)							$	(0.33	)