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 $51.5 million, or $5.66 loss per share, in the third quarter of 2022 compared with net loss of $4.9 million, or $0.72 loss per share, in the third quarter of 2021. Adjusted net loss (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) was $51.2 million, or $5.62 loss per share, in the third quarter of 2022 compared with adjusted net loss of $3.5 million, or $0.64 loss per share, in the third 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 “Our deepest sympathies go out to those who have been impacted by Hurricane Ian,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “We responded swiftly to the storm, marshaling the resources of our entire organization. Our execution highlights the investments we’ve made in technology and our ability to deliver on our commitment to policyholders.”

“Claims from Ian remain consistent with views we disclosed in October. We have adequate reinsurance to cover Ian claims and liquidity to support our business and growth plans. Excluding Ian, our insurance divisions produced solid results this quarter as gross premiums grew more than 20% and our gross loss ratio improved to 41.4%, a decline of 6.5 points from second quarter 2022. Ian underscores the value of homeowners insurance and the importance of a healthy insurance industry.”

Third Quarter 2022 CommentaryConsolidated gross written premiums of $191.2 million increased from $174.3 million in the third quarter of 2021. Homeowners Choice gross written premiums of $119.4 million increased from $118.3 million. TypTap Insurance Company gross written premiums grew to $71.8 million from $56.0 million.

Consolidated gross premiums earned of $181.7 million increased 21.3% from $149.8 million in the third quarter of 2021. Homeowners Choice gross premiums earned grew to $99.0 million from $98.3 million, and TypTap gross premiums earned grew to $82.7 million from $51.5 million.

Premiums ceded for reinsurance of $74.7 million increased from $55.6 million in the third quarter of 2021 primarily due to the growth of both Homeowners Choice and TypTap and a $12.6 million adjustment to reduce benefits under a multi-year reinsurance contract with retrospective provisions as a result of Hurricane Ian. Ceded premiums represented 41.1% and 37.1% of gross premiums earned in the third quarters of 2022 and 2021, respectively.

Net investment income of $18.5 million increased from $2.5 million in the third quarter of 2021. The increase was due to a net gain of $13.4 million on the sale of a portion of one of the properties in our Greenleaf portfolio as well as an increase in interest income from available-for-sale fixed maturity securities.

Losses and loss adjustment expenses of $139.8 million increased from $62.7 million in the same period of 2021. The increase in losses and loss adjustment expenses was primarily due to Hurricane Ian. Excluding the impact of Hurricane Ian, losses and loss adjustment expenses were $75.2 million, or 41.4% of gross premiums earned, in the third quarter of 2022 down from $86.8 million, or 47.9% of gross premiums earned, in the second quarter of 2022.

Policy acquisition and other underwriting expenses of $24.7 million increased from $23.3 million in the same quarter of 2021 but declined from 15.6% of gross premiums earned to 13.6% reflecting lower commission rates at TypTap.

General and administrative personnel expenses of $15.8 million increased from $11.5 million for the third quarter of 2021 due to an increase in personnel and related expenses in connection with the growth of the business including higher stock-based compensation.

Year-to-Date 2022 Results For the nine months ended September 30, 2022, the company reported a net loss of $57.3 million, or $6.26 loss per share, compared with net income of $5.8 million, or $0.22 diluted earnings per share, for the nine months ended September 30, 2021. Adjusted net loss (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the nine-month period was $49.1 million, or $5.42 loss per share compared with adjusted net income of $6.3 million, or $0.15 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 $554.6 million increased 14.3% from $485.1 million in the nine months ended September 30, 2021. Homeowners Choice gross written premiums were $323.7 million compared with $323.5 million. TypTap Insurance Company gross written premiums grew to $230.9 million from $161.6 million. The increase was primarily due to the UPC quota share arrangements and organic growth.

Consolidated gross premiums earned of $541.8 million increased 28.9% from $420.2 million in the nine months ended September 30, 2021. Homeowners Choice gross premiums earned grew to $331.0 million from $300.8 million, and TypTap gross premiums earned grew to $210.8 million from $119.4 million.

Premiums ceded for reinsurance of $184.1 million increased from $145.1 million in the first nine months of 2021 primarily due to the growth of both Homeowners Choice and TypTap and a $12.6 million adjustment to reduce benefits under a multi-year reinsurance contract with retrospective provisions as a result of Hurricane Ian. Ceded premiums declined as a percentage of gross premiums earned from 34.5% to 34.0% in the first nine months of 2022.

Net investment income of $25.1 million increased from $9.7 million in the nine months ended September 30, 2021. The increase was due to a net gain of $13.4 million on the sale of a portion of one of the properties in our Greenleaf portfolio as well as an increase in interest income from available-for-sale fixed maturity securities.

Net realized and unrealized investment losses were $9.4 million compared with net realized and unrealized investment gains of $4.3 million in the nine months ended September 30, 2021. The decrease was attributable to an overall decline in the market for equity securities compared with the nine months ended September 30, 2021.

Losses and loss adjustment expenses of $299.3 million increased from $164.3 million in the nine months ended September 30, 2021. The increase in losses and loss adjustment expenses was due to Hurricane Ian, TypTap’s growing premium base, policies assumed or renewed from United Property & Casualty Insurance Company as well as prior year loss development.

Policy acquisition and other underwriting expenses of $80.9 million increased from $69.6 million in the nine months ended September 30, 2021 but declined from 16.6% of gross premiums earned to 14.9% reflecting lower commission rates at TypTap.

General and administrative personnel expenses of $45.2 million increased from $31.7 million in the nine months ended September 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 later today, November 8, 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 4:45 p.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: (877) 545-0523Listen-only international number: (973) 528-0016 Entry Code: 135686

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 November 8, 2023.

Toll-free replay number: (877) 481-4010International replay number: (919) 882-2331 Replay ID: 46792

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

- Tables to follow -

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

	Q3 2022				Q2 2022				Q1 2022				FY 2021
	(Unaudited)				(Unaudited)				(Unaudited)
Insurance Operations
Gross Written Premiums:
Homeowners Choice	$	119,400			$	113,139			$	91,141			$	426,910
TypTap Insurance Company		71,781				73,013				86,153				247,479
Total Gross Written Premiums		191,181				186,152				177,294				674,389
Gross Premiums Earned:
Homeowners Choice		98,985				113,681				118,303				401,137
TypTap Insurance Company		82,728				67,443				60,622				175,907
Total Gross Premiums Earned		181,713				181,124				178,925				577,044
Gross Premiums Earned Loss Ratio		76.9	%			47.9	%			40.6	%			39.4	%
Per Share Metrics
GAAP Diluted EPS	$	(5.66	)		$	(1.04	)		$	0.09			$	0.21
Non-GAAP Adjusted Diluted EPS	$	(5.62	)		$	(0.71	)		$	0.34			$	0.10
Dividends per share	$	0.40			$	0.40			$	0.40			$	1.60
Book value per share at the end of period	$	19.52			$	26.39			$	31.66			$	31.92
Shares outstanding at the end of period		8,926,845				9,047,972				10,125,927				10,131,399

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

	September 30, 2022				December 31, 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
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
Redeemable noncontrolling interest		91,248				89,955
Equity:
Common stock, (no par value, 40,000,000 shares authorized, 8,926,845 and 10,131,399shares 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

HCI GROUP, INC. AND SUBSIDIARIESConsolidated 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		(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
Dividends per share	$	0.40			$	0.40			$	1.20			$	1.20

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											Nine Months Ended
GAAP	September 30, 2022											September 30, 2022
	Loss				Shares (a)			Per Share				Loss				Shares (a)			Per Share
	(Numerator)				(Denominator)			Amount				(Numerator)				(Denominator)			Amount
Net loss	$	(51,503	)									$	(57,254	)
Less: Net income attributable to redeemable noncontrolling interest		(2,285	)										(6,801	)
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities		2,829											4,018
Net loss attributable to HCI		(50,959	)										(60,037	)
Less: Loss attributable to participating securities		3,289											3,855
Basic Loss Per Share:
Loss allocated to common stockholders		(47,670	)			8,427		$	(5.66	)			(56,182	)			8,972		$	(6.26	)
Effect of Dilutive Securities:*
Stock options		—				—							—				—
Convertible senior notes		—				—							—				—
Warrants		—				—							—				—
Diluted Loss Per Share:
Loss available to common stockholders and assumed conversions	$	(47,670	)			8,427		$	(5.66	)		$	(56,182	)			8,972		$	(6.26	)
(a) Shares in thousands.
* For the three and nine months ended September 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) 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 (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

	Three Months Ended							Nine Months Ended
	September 30, 2022							September 30, 2022
GAAP Net loss				$	(51,503	)					$	(57,254	)
Net unrealized investment losses	$	347						$	8,157
Less: Tax effect at 0%*	$	-						$	-
Net adjustment to Net loss				$	347						$	8,157
Non-GAAP Adjusted Net loss				$	(51,156	)					$	(49,097	)
*A valuation allowance was established at September 30, 2022 for the deferred tax benefits related to the 2022 pre-tax loss due to the impacts of Hurricane Ian. Consequently, there is no tax effect for net unrealized losses.

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											Nine Months Ended
Non-GAAP	September 30, 2022											September 30, 2022
	Loss				Shares (a)			Per Share				Loss				Shares (a)			Per Share
	(Numerator)				(Denominator)			Amount				(Numerator)				(Denominator)			Amount
Adjusted net loss (non-GAAP)	$	(51,156	)									$	(49,097	)
Less: Net Income attributable to redeemable noncontrolling interest		(2,285	)										(6,801	)
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities		2,812											3,967
Net loss attributable to HCI		(50,629	)										(51,931	)
Less: Loss attributable to participating securities		3,267											3,337
Basic Loss Per Share before unrealized gains/losses on equity securities:
Loss allocated to common stockholders		(47,362	)			8,427		$	(5.62	)			(48,594	)			8,972		$	(5.42	)
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	$	(47,362	)		$	8,427		$	(5.62	)		$	(48,594	)		$	8,972		$	(5.42	)
(a) Shares in thousands.
* For the three and nine months ended September 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							Nine Months Ended
	September 30, 2022							September 30, 2022
GAAP diluted Loss Per Share				$	(5.66	)					$	(6.26	)
Net unrealized investment losses	$	0.04						$	0.84
Less: Tax effect at 0%*	$	-						$	-
Net adjustment to GAAP diluted EPS				$	0.04						$	0.84
Non-GAAP Adjusted diluted EPS				$	(5.62	)					$	(5.42	)
*A valuation allowance was established at September 30, 2022 for the deferred tax benefits related to the 2022 pre-tax loss due to the impacts of Hurricane Ian. Consequently, there is no tax effect for net unrealized losses.