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 March 31, 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 April 29, 2022 was 10,119,663.

HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets:
	March 31, 2022 (unaudited) and December 31, 2021	1-2
	Consolidated Statements of Income:
	Three months ended March 31, 2022 and 2021 (unaudited)	3
	Consolidated Statements of Comprehensive Income:
	Three months ended March 31, 2022 and 2021 (unaudited)	4
	Consolidated Statements of Equity:
	Three months ended March 31, 2022 and 2021 (unaudited)	5-6
	Consolidated Statements of Cash Flows:
	Three months ended March 31, 2022 and 2021 (unaudited)	7-9
	Notes to Consolidated Financial Statements (unaudited)	10-38
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39-49
Item 3	Quantitative and Qualitative Disclosures about Market Risk	50-51
Item 4	Controls and Procedures	52
	PART II – OTHER INFORMATION
Item 1	Legal Proceedings	53
Item 1A	Risk Factors	53
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	53-54
Item 3	Defaults Upon Senior Securities	54
Item 4	Mine Safety Disclosures	54
Item 5	Other Information	54
Item 6	Exhibits	55-60
Signatures		61
Certifications

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)

	March 31,		December 31,
	2022		2021
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $153,776      and $41,953, respectively and allowance for credit losses: $0 and $0, respectively)	$	150,684	$	42,583
Equity securities, at fair value (cost: $39,316 and $46,276, respectively)		41,204		51,740
Limited partnership investments		28,166		28,133
Investment in unconsolidated joint venture, at equity		350		363
Real estate investments		73,387		73,896
Total investments		293,791		196,715
Cash and cash equivalents		569,040		628,943
Restricted cash		2,400		2,400
Accrued interest and dividends receivable		674		353
Income taxes receivable		—		4,084
Premiums receivable, net (allowance: $2,459 and $1,750, respectively)		39,890		68,157
Prepaid reinsurance premiums		11,561		26,355
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)		14,720		11,985
Unpaid losses and loss adjustment expenses (allowance: $79 and $90, respectively)		54,876		64,665
Deferred policy acquisition costs		53,670		57,695
Property and equipment, net		15,469		14,232
Right-of-use assets - operating leases		2,673		2,204
Intangible assets, net		15,105		10,636
Funds withheld for assumed business		84,068		73,716
Other assets		17,313		14,717
Total assets	$	1,175,250	$	1,176,857

(continued)

1

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – (Continued)

(Dollar amounts in thousands)

	March 31,			December 31,
	2022			2021
	(Unaudited)
Liabilities and Equity
Losses and loss adjustment expenses	$	234,792		$	237,165
Unearned premiums		365,112			366,744
Advance premiums		23,898			13,771
Reinsurance payable on paid losses and loss adjustment expenses		6,657			4,017
Ceded reinsurance premiums payable		20,899			19,318
Accrued expenses		16,899			15,453
Income tax payable		3,061			—
Deferred income taxes, net		4,834			11,739
Revolving credit facility		15,000			15,000
Long-term debt		45,295			45,504
Lease liabilities - operating leases		2,662			2,203
Other liabilities		24,418			31,485
Total liabilities		763,527			762,399
Commitments and contingencies (Note 20)
Redeemable noncontrolling interest (Note 17)		89,695			89,955
Equity:
Common stock (no par value, 40,000,000 shares authorized, 10,125,927 and 10,131,399      shares issued and outstanding at March 31, 2022 and December 31, 2021,     respectively)		—			—
Additional paid-in capital		79,131			76,077
Retained income		243,647			246,790
Accumulated other comprehensive (loss) income, net of taxes		(2,185	)		498
Total stockholders’ equity		320,593			323,365
Noncontrolling interests		1,435			1,138
Total equity		322,028			324,503
Total liabilities, redeemable noncontrolling interest and equity	$	1,175,250		$	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
	March 31,
	2022			2021
Revenue
Gross premiums earned	$	178,925		$	130,942
Premiums ceded		(53,162	)		(43,099	)
Net premiums earned		125,763			87,843
Net investment income		2,868			4,594
Net realized investment (losses) gains		(314	)		1,113
Net unrealized investment losses		(3,576	)		(269	)
Policy fee income		1,057			970
Other		1,242			623
Total revenue		127,040			94,874
Expenses
Losses and loss adjustment expenses		72,704			45,751
Policy acquisition and other underwriting expenses		29,408			23,065
General and administrative personnel expenses		14,034			9,650
Interest expense		601			2,079
Other operating expenses		6,292			4,227
Total expenses		123,039			84,772
Income before income taxes		4,001			10,102
Income tax expense		1,210			3,257
Net income		2,791			6,845
Net income attributable to redeemable noncontrolling    interest (Note 17)		(2,248	)		(794	)
Net loss attributable to noncontrolling interests		360			97
Net income after noncontrolling interests	$	903		$	6,148
Basic earnings per share	$	0.09		$	0.82
Diluted earnings per share	$	0.09		$	0.75

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
	March 31,
	2022			2021
Net income	$	2,791		$	6,845
Other comprehensive loss:
Change in unrealized loss on investments:
Net unrealized losses arising during the period		(4,151	)		(182	)
Call and repayment gains charged to investment income		—			(2	)
Reclassification adjustment for net realized losses (gains)		429			(1	)
Net change in unrealized losses		(3,722	)		(185	)
Deferred income taxes on above change		938			45
Total other comprehensive loss, net of income taxes		(2,784	)		(140	)
Comprehensive income		7			6,705
Comprehensive loss attributable to noncontrolling interests		461			98
Comprehensive income after noncontrolling interests	$	468		$	6,803

See accompanying Notes to Consolidated Financial Statements (unaudited).

4

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity

For the Three Months Ended March 31, 2022

(Unaudited)

(Dollar amounts in thousands, except per share amount)

	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income (Loss),			Total Stockholders’			Noncontrolling			Total
	Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity
Balance at December 31, 2021		10,131,399		$	—	$	76,077		$	246,790		$	498		$	323,365		$	1,138		$	324,503
Net income (loss)		—			—		—			2,978			—			2,978			(187	)		2,791
Net income attributable to redeemable     noncontrolling interest		—			—		—			(2,075	)		—			(2,075	)		(173	)		(2,248	)
Total other comprehensive loss, net of     income taxes		—			—		—			—			(2,683	)		(2,683	)		(101	)		(2,784	)
Issuance of restricted stock		4,000			—		—			—			—			—			—			—
Forfeiture of restricted stock		(3,265	)		—		—			—			—			—			—			—
Repurchase and retirement of common     stock		(6,207	)		—		(398	)		—			—			(398	)		—			(398	)
Dilution from subsidiary stock-based     compensation		—			—		—			—			—			—			758			758
Common stock dividends ($0.40 per     share)		—			—		—			(4,046	)		—			(4,046	)		—			(4,046	)
Stock-based compensation		—			—		3,452			—			—			3,452			—			3,452
Balance at March 31, 2022		10,125,927		$	—	$	79,131		$	243,647		$	(2,185	)	$	320,593		$	1,435		$	322,028

See accompanying Notes to Consolidated Financial Statements (unaudited).

5

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Equity – (Continued)

For the Three Months Ended March 31, 2021

(Unaudited)

(Dollar amounts in thousands, except per share amount)

	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income,			Total Stockholders’			Noncontrolling			Total
	Shares			Amount		Capital			Income			Net of Tax			Equity			Interests			Equity
Balance at December 31, 2020		7,785,617		$	—	$	—		$	199,592		$	1,544		$	201,136		$	—		$	201,136
Net income (loss)		—			—		—			6,942			—			6,942			(97	)		6,845
Net income attributable to redeemable     noncontrolling interest		—			—		—			(794	)		—			(794	)		—			(794	)
Cumulative effect of change in     accounting principle		—			—		—			(3,018	)		—			(3,018	)		—			(3,018	)
Total other comprehensive loss, net of     income taxes		—			—		—			—			(139	)		(139	)		(1	)		(140	)
Issuance of restricted stock		548,086			—		—			—			—			—			—			—
Forfeiture of restricted stock		(2,050	)		—		—			—			—			—			—			—
Cancellation of restricted stock		(141,600	)		—		—			—			—			—			—			—
Repurchase and retirement of common     stock		(371	)		—		(20	)		—			—			(20	)		—			(