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, 2021

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 30, 2021 was 8,483,372.

HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets:
	March 31, 2021 (unaudited) and December 31, 2020	1-2
	Consolidated Statements of Income:
	Three months ended March 31, 2021 and 2020 (unaudited)	3
	Consolidated Statements of Comprehensive Income (loss):
	Three months ended March 31, 2021 and 2020 (unaudited)	4
	Consolidated Statement of Equity:
	Three months ended March 31, 2021 (unaudited)	5
	Consolidated Statement of Stockholders’ Equity:
	Three months ended March 31, 2020 (unaudited)	6
	Consolidated Statements of Cash Flows:
	Three months ended March 31, 2021 and 2020 (unaudited)	7-9
	Notes to Consolidated Financial Statements (unaudited)	10-41
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42-54
Item 3	Quantitative and Qualitative Disclosures about Market Risk	55-56
Item 4	Controls and Procedures	57
	PART II – OTHER INFORMATION
Item 1	Legal Proceedings	58
Item 1A	Risk Factors	58
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	58-59
Item 3	Defaults upon Senior Securities	59
Item 4	Mine Safety Disclosures	59
Item 5	Other Information	59
Item 6	Exhibits	60-66
Signatures		67
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,
	2021		2020
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $58,921     and $70,265, respectively and allowance for credit losses: $579 and $588, respectively)	$	60,202	$	71,722
Equity securities, at fair value (cost: $45,968 and $47,029, respectively)		49,800		51,130
Limited partnership investments		26,726		27,691
Investment in unconsolidated joint venture, at equity		680		705
Real estate investments		74,015		74,472
Total investments		211,423		225,720
Cash and cash equivalents		553,397		431,341
Restricted cash		2,400		2,400
Accrued interest and dividends receivable		595		588
Income taxes receivable		481		4,554
Premiums receivable, net		29,459		68,382
Prepaid reinsurance premiums		14,974		36,376
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)		10,652		14,127
Unpaid losses and loss adjustment expenses (allowance: $73 and $85, respectively)		61,070		71,019
Deferred policy acquisition costs		40,466		43,858
Property and equipment, net		13,026		12,767
Right-of-use assets - operating leases		3,571		4,002
Intangible assets, net		11,255		3,568
Other assets		63,784		22,611
Total assets	$	1,016,553	$	941,313

(continued)

1

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets – (Continued)

(Dollar amounts in thousands)

	March 31,		December 31,
	2021		2020
	(Unaudited)
Liabilities and Equity
Losses and loss adjustment expenses	$	205,773	$	212,169
Unearned premiums		264,305		269,399
Advance premiums		24,291		11,370
Assumed reinsurance balances payable		88		87
Reinsurance payable on paid losses and loss adjustment expenses		2,317		—
Accrued expenses		14,404		10,181
Deferred income taxes, net		10,052		11,925
Revolving credit facility		—		23,750
Long-term debt		160,539		156,511
Lease liabilities - operating leases		3,579		4,014
Other liabilities		27,705		40,771
Total liabilities		713,053		740,177
Commitments and contingencies (Note 21)
Redeemable noncontrolling interest (Note 18)		85,892		—
Equity:
Common stock (no par value, 40,000,000 shares authorized, 8,289,682 and 7,785,617     shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively)		—		—
Additional paid-in capital		—		—
Retained income		216,086		199,592
Accumulated other comprehensive income, net of taxes		1,405		1,544
Total stockholders’ equity		217,491		201,136
Noncontrolling interests		117		—
Total equity		217,608		201,136
Total liabilities, redeemable noncontrolling interest and equity	$	1,016,553	$	941,313

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,
	2021			2020
Revenue
Gross premiums earned	$	130,942		$	92,365
Premiums ceded		(43,099	)		(30,719	)
Net premiums earned		87,843			61,646
Net investment income (loss)		4,594			(192	)
Net realized investment gains (losses)		1,113			(2,244	)
Net unrealized investment losses		(269	)		(4,805	)
Credit losses on investments		—			(439	)
Policy fee income		970			829
Other		623			585
Total revenue		94,874			55,380
Expenses
Losses and loss adjustment expenses		45,751			28,078
Policy acquisition and other underwriting expenses		23,065			11,826
General and administrative personnel expenses		9,650			8,367
Interest expense		2,079			2,970
Other operating expenses		4,227			3,482
Total expenses		84,772			54,723
Income before income taxes		10,102			657
Income tax expense		3,257			110
Net income		6,845			547
Net income attributable to redeemable noncontrolling interest (Note 18)		(794	)		—
Net loss attributable to noncontrolling interests		97			—
Net income attributable to HCI	$	6,148		$	547
Basic earnings per share	$	0.82		$	0.07
Diluted earnings per share	$	0.75		$	0.07

See accompanying Notes to Consolidated Financial Statements (unaudited).

3

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(Amounts in thousands)

	Three Months Ended
	March 31,
	2021			2020
Net income	$	6,845		$	547
Other comprehensive loss:
Change in unrealized loss on investments:
Net unrealized losses arising during the period		(182	)		(3,471	)
Credit losses charged to income		—			439
Call and repayment gains charged to investment income		(2	)		(66	)
Reclassification adjustment for net realized (gains) losses		(1	)		273
Net change in unrealized losses		(185	)		(2,825	)
Deferred income taxes on above change		45			693
Total other comprehensive loss, net of income taxes		(140	)		(2,132	)
Comprehensive income (loss)		6,705			(1,585	)
Comprehensive loss attributable to noncontrolling interests		98			—
Comprehensive income (loss) attributable to HCI	$	6,803		$	(1,585	)

See accompanying Notes to Consolidated Financial Statements (unaudited).

4

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Equity

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)		—			—		—			6,148			—			6,148			(97	)		6,051
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	)		—			(20	)
Issuance of common stock		100,000					5,410									5,410			—			5,410
Dilution from subsidiary stock-based     compensation		—			—		—			—			—			—			215			215
Issuance of warrants, net of issuance costs (Note 18)		—			—		8,640			—			—			8,640			—			8,640
Common stock dividends ($0.40 per share)		—			—		—			(2,793	)		—			(2,793	)		—			(2,793	)
Stock-based compensation		—			—		2,127			—			—			2,127			—			2,127
Additional paid-in capital shortfall     adjustment allocated to retained income		—			—		(16,157	)		16,157			—			—			—			—
Balance at March 31, 2021		8,289,682		$	—	$	—		$	216,086		$	1,405		$	217,491		$	117		$	217,608

See accompanying Notes to Consolidated Financial Statements (unaudited).

5

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended March 31, 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 December 31, 2019		7,764,564		$	—	$	—		$	183,365		$	2,178			185,543
Net income		—			—		—			547			—			547
Total other comprehensive loss, net of    income taxes		—			—		—			—			(2,132	)		(2,132	)
Cumulative effect on adoption of credit loss standard		—			—		—			(453	)		—			(453	)
Exercise of common stock options		10,000			—		63			—			—			63
Issuance of restricted stock		45,000			—		—			—			—			—
Forfeiture of restricted stock		(7,138	)		—		—			—			—			—
Repurchase and retirement of common stock		(371	)		—		(17	)		—			—			(17	)
Repurchase and retirement of common stock under    share repurchase plan		(76,851	)		—		(3,041	)		—			—			(3,041	)
Common stock dividends ($0.40 per share)		—			—		—			(3,095	)		—			(3,095	)
Stock-based compensation		—			—		1,841			—			—			1,841
Additional paid-in capital shortfall allocated    to retained income		—			—		1,154			(1,154	)		—			—
Balance at March 31, 2020		7,735,204		$	—	$	—		$	179,210		$	46		$	179,256

See accompanying Notes to Consolidated Financial Statements (unaudited).

6

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)