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 net income of $17.8 million, or $1.54 diluted earnings per share in the first quarter of 2023, compared with net income of $2.8 million, or $0.09 diluted earnings per share, in the first quarter of 2022.

Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the first quarter of 2023 was $17.4 million, or $1.50 diluted earnings per share, compared with adjusted net income of $5.5 million, or $0.34 diluted earnings per share, in the first quarter of 2022. 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 “We are starting to see the benefits of the company’s underwriting and rate actions as well as the bold leadership provided by the Florida Legislature in 2022,” said HCI Group Chairman and Chief Executive Officer Paresh Patel.

First Quarter 2023 Commentary Consolidated gross premiums earned in the first quarter of 2023 increased to $180.1 million from $178.9 million in the first quarter of 2022. The increase was primarily due to higher average premium per policy offset by a decline in the number of policies in force.

Premiums ceded for reinsurance increased to $70.5 million from $53.2 million in the first quarter of 2022. Ceded premiums represented 39.2% and 29.7% of gross premiums earned in the first quarters of 2023 and 2022, respectively.

Net investment income increased to $17.7 million from $2.9 million in the first quarter of 2022. The increase included a gain of $8.9 million from the sale of two real estate investment properties at Greenleaf. Also included in investment income was interest income of $7.7 million, which increased from $0.6 million in the first quarter of 2022 reflecting higher yields on fixed maturity securities, cash, and cash equivalents.

Losses and loss adjustment expenses decreased to $60.6 million from $72.7 million in the same period of 2022. Losses and loss adjustment expenses as a percent of gross premiums earned declined to 33.6% from 40.6% in the first quarter of 2022. The decrease was driven by lower claims and litigation frequency in Florida.

Policy acquisition and other underwriting expenses decreased to $22.7 million from $29.4 million in the same quarter of 2022 and declined from 16.4% of gross premiums earned to 12.6%, reflecting a higher mix of renewal policies and lower commissions.

General and administrative personnel expenses decreased to $13.5 million from $14.0 million for the first quarter of 2022.

Conference Call HCI Group will hold a conference call later today, May 9, 2023, 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 4:45 p.m. Eastern time.

A replay of the call will be available 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.

Listen-only toll-free number: (888) 506-0062 Listen-only international number: (973) 528-0011 Entry Code: 826822

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 May 9, 2024.

Toll-free replay number: (877) 481-4010 International replay number: (919) 882-2331 Replay ID: 48147

About HCI Group, Inc. HCI Group, Inc. owns subsidiaries engaged in diverse, yet complementary business activities, including homeowners insurance, information technology services, insurance management, real estate, and reinsurance. HCI’s leading insurance operation, TypTap Insurance Company, is a technology-driven homeowners insurance company. 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 Statements This 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 Rosenberg Investor Relations HCI Group, Inc. Tel (813) 405-5261 srosenberg@hcigroup.com

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

HCI GROUP, INC. AND SUBSIDIARIES
Selected Financial Metrics
(Dollar amounts in thousands, except per share amounts)
	Q1 2023				Q1 2022				FY 2022
	(Unaudited)				(Unaudited)
Insurance Operations
Gross Written Premiums:
Homeowners Choice	$	85,153			$	91,141			$	377,860
TypTap Insurance Company		114,701				86,153				348,159
Total Gross Written Premiums		199,854				177,294				726,019
Gross Premiums Earned:
Homeowners Choice		92,456				118,303				426,502
TypTap Insurance Company		87,612				60,622				298,214
Total Gross Premiums Earned		180,068				178,925				724,716
Gross Premiums Earned Loss Ratio		33.6	%			40.6	%			51.3	%
Per Share Metrics
GAAP Diluted EPS	$	1.54			$	0.09			$	(6.24	)
Non-GAAP Adjusted Diluted EPS	$	1.50			$	0.34			$	(5.48	)
Dividends per share	$	0.40			$	0.40			$	1.60
Book value per share at the end of period	$	20.97			$	31.66			$	18.91
Shares outstanding at the end of period		8,596,673				10,125,927				8,598,682

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)
	March 31, 2023				December 31, 2022
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $531,899 and $494,197, respectively and allowance for credit losses: $0 and $0, respectively)	$	524,756			$	483,901
Equity securities, at fair value (cost: $38,575 and $36,272, respectively)		37,415				34,583
Limited partnership investments		24,520				25,702
Investment in unconsolidated joint venture, at equity		—				18
Real estate investments		43,562				71,388
Total investments		630,253				615,592
Cash and cash equivalents		302,025				234,863
Restricted cash		2,987				2,900
Accrued interest and dividends receivable		2,525				1,952
Income taxes receivable		707				2,807
Premiums receivable, net (allowance: $10,054 and $5,362, respectively)		44,966				34,998
Prepaid reinsurance premiums		27,063				66,627
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)		36,896				71,594
Unpaid losses and loss adjustment expenses (allowance: $453 and $454, respectively)		559,804				616,765
Deferred policy acquisition costs		46,632				45,522
Property and equipment, net		26,734				17,910
Right-of-use-assets - operating leases		1,466				777
Intangible assets, net		7,686				10,578
Funds withheld for assumed business		45,274				48,772
Other assets		36,104				31,671
Total assets	$	1,771,122			$	1,803,328
Liabilities and Equity
Losses and loss adjustment expenses	$	806,308			$	863,765
Unearned premiums		387,833				368,047
Advance premiums		25,834				18,587
Reinsurance payable on paid losses and loss adjustment expenses		7,043				8,606
Ceded reinsurance premiums payable		14,123				17,646
Accrued expenses		20,633				14,534
Reinsurance recovered in advance on unpaid losses		—				19,863
Deferred income taxes, net		3,160				1,704
Long-term debt		196,158				211,687
Lease liabilities - operating leases		1,422				721
Other liabilities		35,886				23,361
Total liabilities		1,498,400				1,548,521
Commitments and contingencies
Redeemable noncontrolling interest		92,865				93,553
Equity:
Common stock, (no par value, 40,000,000 shares authorized, 8,596,673 and 8,598,682 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively)		—				—
Additional paid-in capital		332				—
Retained income		185,028				172,482
Accumulated other comprehensive loss, net of taxes		(5,098	)			(9,886	)
Total stockholders' equity		180,262				162,596
Noncontrolling interests		(405	)			(1,342	)
Total equity		179,857				161,254
Total liabilities, redeemable noncontrolling interest, and equity	$	1,771,122			$	1,803,328

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(Dollar amounts in thousands, except per share amounts)
	Three Months Ended
	March 31,
	2023				2022
Revenue
Gross premiums earned	$	180,068			$	178,925
Premiums ceded		(70,509	)			(53,162	)
Net premiums earned		109,559				125,763
Net investment income		17,715				2,868
Net realized investment losses		(1,149	)			(314	)
Net unrealized investment gains (losses)		529				(3,576	)
Policy fee income		1,090				1,057
Other		1,285				1,242
Total revenue		129,029				127,040
Expenses
Losses and loss adjustment expenses		60,565				72,704
Policy acquisition and other underwriting expenses		22,720				29,408
General and administrative personnel expenses		13,502				14,034
Interest expense		2,801				601
Other operating expenses		6,305				6,292
Total expenses		105,893				123,039
Income before income taxes		23,136				4,001
Income tax expense		5,343				1,210
Net income	$	17,793			$	2,791
Net income attributable to redeemable noncontrolling interest		(2,324	)			(2,248	)
Net (income) loss attributable to noncontrolling interests		(131	)			360
Net income after noncontrolling interests	$	15,338			$	903
Basic earnings per share	$	1.78			$	0.09
Diluted earnings per share	$	1.54			$	0.09
Dividends per share	$	0.40			$	0.40

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

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

	Three Months Ended										Three Months Ended
GAAP	March 31, 2023										March 31, 2022
	Income				Shares (a)			Per Share			Income				Shares (a)			Per Share
	(Numerator)				(Denominator)			Amount			(Numerator)				(Denominator)			Amount
Net income	$	17,793									$	2,791
Less: Net income attributable to redeemable noncontrolling interest		(2,324	)									(2,248	)
Less: TypTap Group's net (income) loss attributable to non-HCI common stockholders and TypTap Group's participating securities		(131	)									360
Net income attributable to HCI		15,338										903
Less: Income attributable to participating securities		(564	)									(52	)
Basic Earnings Per Share:
Income allocated to common stockholders		14,774				8,278		$	1.78			851				9,479		$	0.09
Effect of Dilutive Securities: *
Stock options		—				45						—				135
Convertible senior notes		1,921				2,537						—				—
Warrants		—				—						—				153
Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions	$	16,695				10,860		$	1.54		$	851				9,767		$	0.09
(a) Shares in thousands.
* For the three months ended March 31, 2023, warrants were excluded due to anti-dilutive effect. For the three months ended March 31, 2022, convertible senior notes were excluded due to anti-dilutive effect.

Non-GAAP Financial Measures

Adjusted net income is a Non-GAAP financial measure that removes from net income of 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 to Non-GAAP Adjusted net income and GAAP diluted earnings per share to Non-GAAP Adjusted diluted earnings per share is provided below.

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income

	Three Months Ended								Three Months Ended
	March 31, 2023								March 31, 2022
GAAP Net income					$	17,793							$	2,791
Net unrealized investment (gains) losses	$	(529	)						$	3,576
Less: Tax effect at 25.345%	$	134							$	(906	)
Net adjustment to Net income					$	(395	)						$	2,670
Non-GAAP Adjusted Net income					$	17,398							$	5,461

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 per common share calculated with the Non-GAAP financial measure Adjusted net income is presented below.

	Three Months Ended										Three Months Ended
Non-GAAP	March 31, 2023										March 31, 2022
	Income				Shares (a)			Per Share			Income				Shares (a)			Per Share
	(Numerator)				(Denominator)			Amount			(Numerator)				(Denominator)			Amount
Adjusted net income (non-GAAP)	$	17,398									$	5,461
Less: Net income attributable to redeemable noncontrolling interest		(2,324	)								$	(2,248	)
Less: TypTap Group's net (income) loss attributable to non-HCI common stockholders and TypTap Group's participating securities		(127	)									340
Net income attributable to HCI		14,947										3,553
Less: Income attributable to participating securities		(550	)									(222	)
Basic Earnings Per Share before unrealized gains/losses on equity securities:
Income allocated to common stockholders		14,397				8,278		$	1.74			3,331				9,479		$	0.35
Effect of Dilutive Securities: *
Stock options		—				45						—				135
Convertible senior notes		1,921				2,537						—				—
Warrants		—				—						—				153
Diluted Earnings Per Share before unrealized gains/losses on equity securities:
Income available to common stockholders and assumed conversions	$	16,318			$	10,860		$	1.50		$	3,331			$	9,767		$	0.34
(a) Shares in thousands.
* For the three months ended March 31, 2023, warrants were excluded due to anti-dilutive effect. For the three months ended March 31, 2022, convertible senior notes were excluded due to anti-dilutive effect.

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

	Three Months Ended								Three Months Ended
	March 31, 2023								March 31, 2022
GAAP diluted Earnings Per Share					$	1.54							$	0.09
Net unrealized investment (gains) losses	$	(0.05	)						$	0.37
Less: Tax effect at 25.345%	$	0.01							$	(0.12	)
Net adjustment to GAAP diluted EPS					$	(0.04	)						$	0.25
Non-GAAP Adjusted diluted EPS					$	1.50							$	0.34