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 September 30, 2020

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.)

5300 West Cypress Street, Suite 100
Tampa, FL 33607
(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 October 29, 2020 was 7,982,057.

HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets:
	September 30, 2020 (unaudited) and December 31, 2019	1-2
	Consolidated Statements of Income:
	Three and nine months ended September 30, 2020 and 2019 (unaudited)	3
	Consolidated Statements of Comprehensive Income:
	Three and nine months ended September 30, 2020 and 2019 (unaudited)	4
	Consolidated Statements of Stockholders’ Equity:
	Three and nine months ended September 30, 2020 and 2019 (unaudited)	5-8
	Consolidated Statements of Cash Flows:
	Nine months ended September 30, 2020 and 2019 (unaudited)	9-10
	Notes to Consolidated Financial Statements (unaudited)	11-43
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44-57
Item 3	Quantitative and Qualitative Disclosures about Market Risk	58-59
Item 4	Controls and Procedures	60
	PART II – OTHER INFORMATION
Item 1	Legal Proceedings	61
Item 1A	Risk Factors	61
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	62-63
Item 3	Defaults upon Senior Securities	63
Item 4	Mine Safety Disclosures	63
Item 5	Other Information	63
Item 6	Exhibits	64-69
Signatures		70
Certifications

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)

	September 30,		December 31,
	2020		2019
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $91,166 and    $199,954, respectively and allowance for credit losses: $596 and $0, respectively)	$	92,743	$	202,839
Equity securities, at fair value (cost: $39,861 and $31,863, respectively)		42,702		35,285
Short-term investments, at fair value		—		491
Limited partnership investments		27,497		28,346
Investment in unconsolidated joint venture, at equity		716		762
Assets held for sale		4,519		—
Real estate investments		70,566		73,763
Total investments		238,743		341,486
Cash and cash equivalents		410,691		229,218
Restricted cash		2,400		700
Accrued interest and dividends receivable		916		1,616
Income taxes receivable		2,711		1,040
Premiums receivable		28,505		20,255
Prepaid reinsurance premiums		42,170		17,983
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)		20,240		16,155
Unpaid losses and loss adjustment expenses (allowance: $90 and $0, respectively)		74,944		116,523
Deferred policy acquisition costs		29,701		21,663
Property and equipment, net		12,693		14,698
Intangible assets, net		3,723		4,192
Other assets		20,376		17,080
Total assets	$	887,813	$	802,609

(continued)

1

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – continued

(Dollar amounts in thousands)

	September 30,		December 31,
	2020		2019
	(Unaudited)
Liabilities and Stockholders’ Equity
Losses and loss adjustment expenses	$	219,345	$	214,697
Unearned premiums		238,936		181,163
Advance premiums		17,083		5,589
Assumed reinsurance balances payable		92		76
Accrued expenses		15,855		10,059
Deferred income taxes, net		8,866		4,008
Revolving credit facility		8,750		9,750
Long-term debt		155,675		163,695
Other liabilities		23,479		28,029
Total liabilities		688,081		617,066
Commitments and contingencies (Note 21)
Stockholders’ equity:
7% Series A cumulative convertible preferred stock (no par value, none and    1,500,000 shares authorized at September 30, 2020 and December 31, 2019,    respectively, no shares issued or outstanding)		—		—
Series B junior participating preferred stock (no par value, none and    400,000 shares authorized at September 30, 2020 and December 31, 2019,    respectively, no shares issued or outstanding)		—		—
Preferred stock (no par value, 20,000,000 and 18,100,000 shares authorized    at September 30, 2020 and December 31, 2019, respectively, no shares issued    or outstanding)		—		—
Common stock (no par value, 40,000,000 shares authorized, 7,793,677 and    7,764,564 shares issued and outstanding at September 30, 2020 and    December 31, 2019, respectively)		—		—
Additional paid-in capital		—		—
Retained income		198,092		183,365
Accumulated other comprehensive income, net of taxes		1,640		2,178
Total stockholders’ equity		199,732		185,543
Total liabilities and stockholders’ equity	$	887,813	$	802,609

See accompanying Notes to Consolidated Financial Statements

2

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(Dollar amounts in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenue
Gross premiums earned	$	106,694		$	86,002		$	306,862		$	251,914
Premiums ceded		(44,231	)		(31,568	)		(109,304	)		(94,298	)
Net premiums earned		62,463			54,434			197,558			157,616
Net investment income		1,832			3,621			3,244			11,125
Net realized investment gains (losses)		177			(30	)		(632	)		(535	)
Net unrealized investment gains (losses)		1,340			642			(581	)		7,261
Credit losses on investments		(70	)		—			(596	)		—
Policy fee income		895			811			2,571			2,406
Gain on involuntary conversion		36,969			—			36,969			—
Other		421			501			1,591			1,370
Total revenue		104,027			59,979			240,124			179,243
Expenses
Losses and loss adjustment expenses		51,743			27,327			119,664			78,616
Policy acquisition and other underwriting expenses		14,210			10,988			39,027			30,738
General and administrative personnel expenses		9,871			7,951			27,969			23,313
Interest expense		2,856			2,907			8,846			10,128
Loss on repurchases of convertible senior notes		—			—			150			—
Loss on extinguishment of debt		98			—			98			—
Other operating expenses		3,713			3,087			10,354			9,131
Total expenses		82,491			52,260			206,108			151,926
Income before income taxes		21,536			7,719			34,016			27,317
Income tax expense		6,146			1,866			9,143			7,173
Net income	$	15,390		$	5,853		$	24,873		$	20,144
Basic earnings per share	$	1.97		$	0.73		$	3.21		$	2.49
Diluted earnings per share	$	1.70		$	0.73		$	3.03		$	2.49

See accompanying Notes to Consolidated Financial Statements.

3

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net income	$	15,390		$	5,853		$	24,873		$	20,144
Other comprehensive income:
Change in unrealized gain (loss) on investments:
Net unrealized gains arising during the period		247			447			56			4,777
Credit losses charged to income		70			—			596			—
Call and repayment gains charged to investment income		(15	)		(2	)		(231	)		(1	)
Reclassification adjustment for net realized losses (gains)		21			(26	)		(1,133	)		(59	)
Net change in unrealized gains (losses)		323			419			(712	)		4,717
Deferred income taxes on above change		(79	)		(83	)		174			(1,173	)
Total other comprehensive income (loss), net of income taxes		244			336			(538	)		3,544
Comprehensive income	$	15,634		$	6,189		$	24,335		$	23,688

See accompanying Notes to Consolidated Financial Statements.

4

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended September 30, 2020

(Unaudited)

(Dollar amounts in thousands, except per share amount)

	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income,		Total Stockholders’
	Shares			Amount		Capital			Income			Net of Tax		Equity
Balance at June 30, 2020		7,794,048		$	—	$	—		$	183,689		$	1,396	$	185,085
Net income		—			—		—			15,390			—		15,390
Total other comprehensive income, net of    income taxes		—			—		—			—			244		244
Issuance of restricted stock		2,680			—		—			—			—		—
Forfeiture of restricted stock		(2,369	)		—		—			—			—		—
Repurchase and retirement of common stock		(225	)		—		(12	)		—			—		(12	)
Repurchase and retirement of common stock under    share repurchase plan		(457	)		—		(20	)		—			—		(20	)
Common stock dividends ($0.40 per share)		—			—		—			(3,117	)		—		(3,117	)
Stock-based compensation		—			—		2,162			—			—		2,162
Additional paid-in capital shortfall allocated    to retained income		—			—		(2,130	)		2,130			—		—
Balance at September 30, 2020		7,793,677		$	—	$	—		$	198,092		$	1,640	$	199,732

See accompanying Notes to Consolidated Financial Statements.

5

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended September 30, 2019

(Unaudited)

(Dollar amounts in thousands, except per share amount)

	Common Stock					Additional Paid-In			Retained		Accumulated Other Comprehensive Income,		Total Stockholders’
	Shares			Amount		Capital			Income		Net of Tax		Equity
Balance at June 30, 2019		8,053,573		$	—	$	—		$	184,739	$	1,755		186,494
Net income		—			—		—			5,853		—		5,853
Total other comprehensive income, net of    income taxes		—			—		—			—		336		336
Issuance of restricted stock		7,244			—		—			—		—		—
Forfeiture of restricted stock		(2,351	)		—		—			—		—		—
Repurchase and retirement of common stock under    share repurchase plan		(175,160	)		—		(7,185	)		—