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 pre-tax income of $20.3 million and net income of $14.9 million, or $1.28 diluted earnings per share, in the second quarter of 2023, compared with net loss of $8.5 million, or $1.04 loss per share, in the second quarter of 2022.

Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the second quarter of 2023 was $14.2 million, or $1.22 diluted earnings per share compared with adjusted net loss of $5.4 million, or $0.71 loss per share, in the second 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 “HCI Group delivered another strong quarter with several positive trends continuing in the quarter. Loss trends improved, average premium per policy was higher and the interest rate environment benefited our investment income. We think these positive trends can continue,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “The actions taken by the Florida Legislature and the Governor in 2022 are resulting in greater stability in the Florida homeowners’ market. HCI Group remains committed to Florida and we look forward to expanding in the state in the future.”

Second Quarter 2023 CommentaryConsolidated gross premiums earned increased to $182.0 million from $181.1 million in the second quarter of 2022. The increase was primarily due to higher average premium per policy offset by attrition in the number of policies in force.

Premiums ceded for reinsurance increased to $66.4 million from $56.2 million in the second quarter of 2022. Ceded premiums represented 36.5% of gross premiums earned in the second quarter of 2023 compared with 39.2% in the prior quarter and 31.0% in the second quarter of 2022.

Net investment income increased to $8.8 million from $3.7 million in the second quarter of 2022 reflecting higher yields on fixed maturity securities, cash, and cash equivalents.

Losses and loss adjustment expenses decreased to $61.9 million from $86.8 million in the second quarter of 2022. Losses and loss adjustment expenses as a percentage of gross premiums earned declined to 34.0% from 47.9% in the second quarter of 2022. The decrease was driven by lower claim frequency, lower litigation frequency in Florida, and higher average premium per policy.

Policy acquisition and other underwriting expenses decreased to $22.6 million from $26.9 million in the second quarter of 2022 and declined from 14.8% of gross premiums earned to 12.4%, reflecting lower commissions and the transition of business from United Property & Casualty Insurance Company.

General and administrative personnel expenses decreased to $14.3 million from $15.3 million in the second quarter of 2022.

Year-to-Date 2023 Results For the six months ended June 30, 2023, the company reported net income of $32.7 million, or $2.81 diluted earnings per share, compared with net loss of $5.8 million, or $0.92 loss per share, for the six months ended June 30, 2022.

Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the six-month period was $31.6 million, or $2.72 diluted earnings per share compared with adjusted net income of $0.08 million, or $0.33 loss per share, in the same period of 2022. An explanation of this non-GAAP financial measure and reconciliations to the applicable GAAP numbers accompany this press release.

Consolidated gross premiums earned of $362.0 million increased from $360.0 million in the first six months of 2022.The increase was primarily due to higher average premium per policy offset by attrition in the number of policies in force.

Premiums ceded for reinsurance of $136.9 million increased from $109.4 million in the first six months of 2022. Ceded premiums represented 37.8% and 30.4% of gross premiums earned in the first six months of 2023 and 2022, respectively.

Net investment income increased to $26.5 million from $6.6 million in the first six months of 2022. The increase included a gain of $8.9 million from the sale of two real estate investment properties at Greenleaf in the first quarter of 2023 and an increase in interest income reflecting higher yields on fixed maturity securities, cash, and cash equivalents.

Losses and loss adjustment expenses decreased to $122.5 million from $159.5 million in the first six months of 2022. Losses and loss adjustment expenses as a percentage of gross premiums earned declined to 33.8% from 44.3% in the first six months of 2022. The decrease was driven by lower claim frequency, lower litigation frequency in Florida, and higher average premium per policy.

Policy acquisition and other underwriting expenses decreased to $45.3 million from $56.3 million in the first six months of 2022 and declined from 15.6% of gross premiums earned to 12.5%, reflecting lower commissions and the transition of business from United Property & Casualty Insurance Company.

General and administrative expenses decreased to $27.8 million from $29.3 million in the first six months of 2022.

Conference CallHCI Group will hold a conference call later today, August 8, 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.

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) 528-0011Entry Code: 128900

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 Group, Inc. 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 7, 2023.

Toll-free replay number: (877) 481-4010International replay number: (919) 882-2331 Replay ID: 48557

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 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.

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

HCI GROUP, INC. AND SUBSIDIARIES
Selected Financial Metrics
(Dollar amounts in thousands, except per share amounts)
	Q2 2023			Q2 2022			FY 2022
	(Unaudited)			(Unaudited)
Insurance Operations
Gross Written Premiums:
Homeowners Choice	$	140,544		$	113,139		$	377,860
TypTap Insurance Company		39,438			73,013			348,159
Total Gross Written Premiums		179,982			186,152			726,019
Gross Premiums Earned:
Homeowners Choice		96,875			113,681			426,502
TypTap Insurance Company		85,071			67,443			298,214
Total Gross Premiums Earned		181,946			181,124			724,716
Gross Premiums Earned Loss Ratio		34.0	%		47.9	%		51.3	%
Per Share Metrics
GAAP Diluted EPS	$	1.28		$	(1.04	)	$	(6.24	)
Non-GAAP Adjusted Diluted EPS	$	1.22		$	0.71		$	(5.48	)
Dividends per share	$	0.40		$	0.40		$	1.60
Book value per share at the end of period	$	21.92		$	26.39		$	18.91
Shares outstanding at the end of period		8,594,764			9,047,972			8,598,682

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)
	June 30, 2023				December 31, 2022
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $452,368 and $494,197, respectively and allowance for credit losses: $0 and $0, respectively)	$	442,974			$	483,901
Equity securities, at fair value (cost: $39,953 and $36,272, respectively)		39,690				34,583
Limited partnership investments		23,115				25,702
Investment in unconsolidated joint venture, at equity		—				18
Real estate investments		43,903				71,388
Total investments		549,682				615,592
Cash and cash equivalents		293,991				234,863
Restricted cash		2,987				2,900
Accrued interest and dividends receivable		2,290				1,952
Income taxes receivable		—				2,807
Premiums receivable, net (allowance: $4,204 and $5,362, respectively)		40,306				34,998
Prepaid reinsurance premiums		114,662				66,627
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)		45,674				71,594
Unpaid losses and loss adjustment expenses (allowance: $352 and $454, respectively)		505,017				616,765
Deferred policy acquisition costs		45,107				45,522
Property and equipment, net		27,168				17,910
Right-of-use-assets - operating leases		1,368				777
Intangible assets, net		7,073				10,578
Funds withheld for assumed business		45,767				48,772
Other assets		45,745				31,671
Total assets	$	1,726,837			$	1,803,328
Liabilities and Equity
Losses and loss adjustment expenses	$	748,955			$	863,765
Unearned premiums		385,870				368,047
Advance premiums		26,837				18,587
Reinsurance payable on paid losses and loss adjustment expenses		7,043				8,606
Ceded reinsurance premiums payable		5,391				17,646
Accrued expenses		19,224				14,534
Reinsurance recovered in advance on unpaid losses		—				19,863
Income taxes payable		210				—
Deferred income taxes, net		3,133				1,704
Long-term debt		208,156				211,687
Lease liabilities - operating leases		1,372				721
Other liabilities		36,810				23,361
Total liabilities		1,443,001				1,548,521
Commitments and contingencies
Redeemable noncontrolling interest		95,202				93,553
Equity:
Common stock, (no par value, 40,000,000 shares authorized, 8,594,764 and 8,598,682 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively)		—				—
Additional paid-in capital		1,062				—
Retained income		194,034				172,482
Accumulated other comprehensive loss, net of taxes		(6,718	)			(9,886	)
Total stockholders' equity		188,378				162,596
Noncontrolling interests		256				(1,342	)
Total equity		188,634				161,254
Total liabilities, redeemable noncontrolling interest, and equity	$	1,726,837			$	1,803,328

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(Dollar amounts in thousands, except per share amounts)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Revenue
Gross premiums earned	$	181,946		$	181,124		$	362,014		$	360,049
Premiums ceded		(66,390	)		(56,205	)		(136,899	)		(109,367	)
Net premiums earned		115,556			124,919			225,115			250,682
Net investment income		8,794			3,684			26,509			6,552
Net realized investment losses		(230	)		(6	)		(1,379	)		(320	)
Net unrealized investment gains (losses)		897			(4,234	)		1,426			(7,810	)
Policy fee income		1,469			1,052			2,559			2,109
Other		841			511			2,126			1,753
Total revenue		127,327			125,926			256,356			252,966
Expenses
Losses and loss adjustment expenses		61,890			86,830			122,455			159,534
Policy acquisition and other underwriting expenses		22,618			26,863			45,338			56,271
General and administrative personnel expenses		14,272			15,301			27,774			29,335
Interest expense		2,667			1,515			5,468			2,116
Other operating expenses		5,614			6,977			11,919			13,269
Total expenses		107,061			137,486			212,954			260,525
Income (loss) before income taxes		20,266			(11,560	)		43,402			(7,559	)
Income tax expense (benefit)		5,384			(3,018	)		10,727			(1,808	)
Net income (loss)	$	14,882		$	(8,542	)	$	32,675		$	(5,751	)
Net income attributable to redeemable noncontrolling interest		(2,337	)		(2,268	)		(4,661	)		(4,516	)
Net (income) loss attributable to noncontrolling interests		(102	)		829			(233	)		1,189
Net income (loss) after noncontrolling interests	$	12,443		$	(9,981	)	$	27,781		$	(9,078	)
Basic earnings (loss) per share	$	1.45		$	(1.04	)	$	3.23		$	(0.92	)
Diluted earnings (loss) per share	$	1.28		$	(1.04	)	$	2.81		$	(0.92	)
Dividends per share	$	0.40		$	0.40		$	1.60		$	1.60

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									Six Months Ended
GAAP	June 30, 2023									June 30, 2023
	Income			Shares (a)			Per Share			Income			Shares (a)			Per Share
	(Numerator)			(Denominator)			Amount			(Numerator)			(Denominator)			Amount
Net income	$	14,882								$	32,675
Less: Net income attributable to redeemable noncontrolling interest		(2,337	)								(4,661	)
Less: TypTap Group's net (income) attributable to non-HCI common stockholders and TypTap Group's participating securities		(102	)								(233	)
Net income attributable to HCI		12,443									27,781
Less: Income attributable to participating securities		(427	)								(985	)
Basic Earnings Per Share:
Income allocated to common stockholders		12,016			8,302		$	1.45			26,796			8,290		$	3.23
Effect of Dilutive Securities:
Stock options		—			74						—			58
Convertible senior notes		1,924			2,538						3,844			2,538
Warrants *		—			7						—			—
Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions	$	13,940			10,921		$	1.28		$	30,640			10,886		$	2.81
(a) Shares in thousands.
* For the six months ended June 30, 2023, warrants 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						Six Months Ended
	June 30, 2023						June 30, 2023
GAAP Net income				$	14,882					$	32,675
Net unrealized investment (gains) losses	$	(897	)				$	(1,426	)
Less: Tax effect at 25.345%	$	227					$	361
Net adjustment to Net income				$	(670	)				$	(1,065	)
Non-GAAP Adjusted Net income				$	14,212					$	31,610

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									Six Months Ended
Non-GAAP	June 30, 2023									June 30, 2023
	Income			Shares (a)			Per Share			Income			Shares (a)			Per Share
	(Numerator)			(Denominator)			Amount			(Numerator)			(Denominator)			Amount
Adjusted net income (non-GAAP)	$	14,212								$	31,610
Less: Net income attributable to redeemable noncontrolling interest		(2,337	)							$	(4,661	)
Less: TypTap Group's net (income) loss attributable to non-HCI common stockholders and TypTap Group's participating securities		(98	)								(224	)
Net income attributable to HCI		11,777									26,725
Less: Income attributable to participating securities		(404	)								(948	)
Basic Earnings Per Share before unrealized gains/losses on equity securities:
Income allocated to common stockholders		11,373			8,302		$	1.37			25,777			8,290		$	3.11
Effect of Dilutive Securities:
Stock options		—			74						—			58
Convertible senior notes		1,924			2,538						3,844			2,538
Warrants *		—			7						—			—
Diluted Earnings Per Share before unrealized gains/losses on equity securities:
Income available to common stockholders and assumed conversions	$	13,297		$	10,921		$	1.22		$	29,621		$	10,886		$	2.72
(a) Shares in thousands.
* For the six months ended June 30, 2023, 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, 2023						June 30, 2023
GAAP diluted Earnings Per Share				$	1.28					$	2.81
Net unrealized investment (gains) losses	$	(0.08	)				$	(0.13	)
Less: Tax effect at 25.345%	$	0.02					$	0.04
Net adjustment to GAAP diluted EPS				$	(0.06	)				$	(0.09	)
Non-GAAP Adjusted diluted EPS				$	1.22					$	2.72