HCI Group Reports Second Quarter 2021 Results

TAMPA, Fla., Aug. 05, 2021 (GLOBE NEWSWIRE) — HCI Group, Inc. (NYSE:HCI), a holding company with operations in homeowners insurance, software development and real estate, reported results for the three and six months ended June 30, 2021.

Second Quarter 2021 – Financial Results
Net income for the second quarter of 2021 totaled $3.8 million or $0.24 diluted earnings per share compared with $8.9 million or $1.08 diluted earnings per share in the second quarter of 2020. Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the quarter was $2.7 million or $0.11 diluted earnings per share compared with $6.8 million or $0.86 diluted earnings per share in the second quarter of 2020. 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”).

Consolidated gross written premiums of $185.0 million for the second quarter of 2021 were up 7.6% from $171.9 million in the second quarter of 2020. The increase was due primarily to a quota share arrangement with United and the continued growth of TypTap.

Consolidated gross premiums earned of $139.4 million for the second quarter of 2021 were up 29.3% from $107.8 million in the second quarter of 2020. The increase was driven by the growth in Homeowners Choice gross premiums earned from $89.4 million to $100.4 million and the growth of TypTap gross premiums earned from $18.4 million to $39.0 million.

Premiums ceded for reinsurance for the second quarter of 2021 increased to $46.4 million from $34.4 million in the second quarter of 2020 as a result of the growth in both TypTap and Homeowners Choice and represented 33.3% and 31.9%, respectively, of gross premiums earned.

Net investment income increased to $2.6 million from $1.6 million in the second quarter of 2020. This increase was due to an increase in income from limited partnership and real estate investments, offset by a decrease in interest income from fixed-maturity security investments.

Net realized investment gains increased to $2.6 million from $1.4 million in the second quarter of 2020. This increase was primarily due to net gains from selling equity securities.

Net unrealized investment gains were $1.5 million in the second quarter of 2021 compared with $2.9 million in 2020. The decrease was primarily due to the sales of equity securities with aggregate net gains during the second quarter.

Losses and loss adjustment expenses were $55.9 million compared with $39.8 million in the same period in 2020. The increase was primarily due to growth in gross premiums earned related to the quota share arrangement with United and the growth in TypTap.

Policy acquisition and other underwriting expenses were $23.2 million compared with $13.0 million in the same quarter of 2020. The increase relates to the amortization of increased costs associated with the quota share arrangement with United and the growth of TypTap.

Six Months Ended June 30, 2021 – Financial Results
Net income for the six months ended June 30, 2021 totaled $10.7 million or $0.98 diluted earnings per share compared with $9.5 million or $1.23 diluted earnings per share for the six months ended June 30, 2020. The increase in net income was primarily due to an increase in net premiums earned of $45.8 million, a $14.0 million increase in income from the company’s investment portfolio, offset by a $33.7 million increase in losses and loss adjustment expenses and a $21.4 million increase in policy acquisition and other underwriting expenses.

Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the six-month period was $9.8 million or $0.87 diluted earnings per share compared with $10.9 million or $1.41 diluted earnings per share in the same period of 2020. An explanation of this non-GAAP financial measure and reconciliations to the applicable GAAP numbers accompany this press release.

Consolidated gross written premiums for the six months increased 25.1% to $310.8 million in 2021 from $248.4 million in 2020. The increase was due primarily to a quota share arrangement with United and the continued growth of TypTap.

Consolidated gross premiums earned increased to $270.4 million from $200.2 million in the same period in 2020. The increase was primarily attributable to a quota share arrangement with United and the growth of TypTap’s business.

Premiums ceded were $89.5 million or 33.1% of gross premiums earned compared with $65.1 million or 32.5% of gross premiums earned during the same period in 2020. The increase was attributable to the growth in both TypTap and Homeowners Choice business.

Net investment income was $7.2 million compared with $1.4 million in the six months ended June 30, 2020. The $5.8 million increase was primarily due to of losses from limited partnership investments in 2020 due to the economic effects of the COVID-19 pandemic and a net gain of $2.8 million recognized in 2021 for a real estate investment legal settlement.

Net unrealized investment gains for the period were $1.2 million compared with net unrealized losses of $1.9 million in the same period in 2020, reflecting a deterioration in the fair value of equity securities caused by the COVID-19 pandemic in 2020.

Losses and loss adjustment expenses for the six months ended June 30, 2021 and 2020 were $101.7 million and $67.9 million, respectively. The increase was primarily due to the losses attributable to a quota share arrangement with United and to the growth in gross premiums earned for TypTap.

Policy acquisition and other underwriting expenses were $46.2 million compared with $24.8 million in the same period in 2020. The increase relates to the amortization of increased costs associated with a quota share arrangement with United and the growth of TypTap.

Management Commentary
“As TypTap continues to expand, we are making important investments to maximize TypTap’s opportunity,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “We are confident the long-term payback on these investments will outweigh any short-term impact.”

Conference Call
HCI Group will hold a conference call later today, August 5, 2021, 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. A question-and-answer session will follow management’s presentation.

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) 506-0062
Listen-only international number: (973) 528-0011
Entry Code: 701390

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 September 5, 2021.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 41773

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 Statements

This 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:
Rachel Swansiger, Esq.
Investor Relations
HCI Group, Inc.
Tel (813) 405-3206
[email protected]

Investor Relations Contact:
Matt Glover
Gateway Investor Relations
Tel (949) 574-3860
[email protected]

Media Contact:
Jordan Schmidt
Gateway Investor Relations
Tel (949) 386-6332
[email protected]

– Tables to follow –

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

  June 30, 2021   December 31, 2020
  (Unaudited)      
Assets          
Fixed-maturity securities, available for sale, at fair value (amortized cost: $45,031 and $70,265, respectively and allowance for credit losses: $0 and $588, respectively) $ 46,414   $ 71,722
Equity securities, at fair value (cost: $39,603 and $47,029, respectively)   44,924     51,130
Limited partnership investments   26,305     27,691
Investment in unconsolidated joint venture, at equity   655     705
Real estate investments   73,812     74,472
Total investments   192,110     225,720
           
Cash and cash equivalents   626,286     431,341
Restricted cash   2,400     2,400
Accrued interest and dividends receivable   330     588
Income taxes receivable       4,554
Premiums receivable, net (allowance: $2,237 and $2,053, respectively)   69,121     68,382
Prepaid reinsurance premiums   762     36,376
Reinsurance recoverable, net of allowance for credit losses:          
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)   13,166     14,127
Unpaid losses and loss adjustment expenses (allowance: $57 and $85, respectively)   48,827     71,019
Deferred policy acquisition costs   44,427     43,858
Property and equipment, net   13,317     12,767
Right-of-use-assets – operating leases   2,946     4,002
Intangible assets, net   10,933     3,568
Other assets   55,585     22,611
           
Total assets $ 1,080,210   $ 941,313
           
Liabilities and Equity          
Losses and loss adjustment expenses $ 203,785   $ 212,169
Unearned premiums   309,842     269,399
Advance premiums   21,225     11,370
Assumed reinsurance balances payable   87     87
Reinsurance payable on paid losses and loss adjustment expenses   7,398    
Accrued expenses   11,776     10,181
Income taxes payable   2,552    
Deferred income taxes, net   7,050     11,925
Revolving credit facility       23,750
Long-term debt   160,569     156,511
Lease liabilities – operating leases   2,950     4,014
Other liabilities   46,856     40,771
           
Total liabilities   774,090     740,177
           
Commitments and contingencies          
Redeemable noncontrolling interest   88,071    
           
Equity:          
Common stock, (no par value, 40,000,000 shares authorized, 8,265,640 and 7,785,617
shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively)
     
Additional paid-in capital      
Retained income   215,612     199,592
Accumulated other comprehensive income, net of taxes   1,054     1,544
Total stockholders’ equity   216,666     201,136
Noncontrolling interests   1,383    
Total equity   218,049     201,136
           
Total liabilities, redeemable noncontrolling interest, and equity $ 1,080,210   $ 941,313
           
           

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,  
  2021     2020     2021   2020  
Revenue                        
                               
Gross premiums earned $ 139,440     $ 107,803     $ 270,382     $ 200,168  
Premiums ceded   (46,436 )     (34,354 )     (89,535 )     (65,073 )
                               
Net premiums earned   93,004       73,449       180,847       135,095  
                               
Net investment income   2,635       1,604       7,229       1,412  
Net realized investment gains (losses)   2,607       1,435       3,720       (809 )
Net unrealized investment gains (losses)   1,489       2,884       1,220       (1,921 )
Credit losses on investments         (87 )           (526 )
Policy fee income   992       847       1,962       1,676  
Other   777       585       1,400       1,170  
                               
Total revenue   101,504       80,717       196,378       136,097  
                               
Expenses                              
                               
Losses and loss adjustment expenses   55,917       39,843       101,668       67,921  
Policy acquisition and other underwriting expenses   23,169       12,991       46,234       24,817  
General and administrative personnel expenses   10,546       9,731       20,196       18,098  
Interest expense   2,000       3,020       4,079       5,990  
Loss on repurchases of convertible senior notes         150             150  
Other operating expenses   4,775       3,159       9,002       6,641  
                               
Total expenses   96,407       68,894       181,179       123,617  
                               
Income before income taxes   5,097       11,823       15,199       12,480  
                               
Income tax expense   1,267       2,887       4,524       2,997  
                               
Net income $ 3,830     $ 8,936     $ 10,675     $ 9,483  
Net income attributable to redeemable noncontrolling interest   (2,179 )           (2,973 )      
Net loss attributable to noncontrolling interests   266             363        
                               
Net income after noncontrolling interests $ 1,917     $ 8,936     $ 8,065     $ 9,483  
                               
Basic earnings per share $ 0.25     $ 1.16     $ 1.02     $ 1.23  
                               
Diluted earnings per share $ 0.24     $ 1.08     $ 0.98     $ 1.23  
                               
Dividends per share $ 0.40     $ 0.40     $ 0.80     $ 0.80  
                               
                               

HCI GROUP, INC. AND SUBSIDIARIES
(Amounts in thousands, except per share amounts)

A summary of the numerator and denominator of basic and diluted income per common share calculated in accordance with GAAP is presented below.

  Three Months Ended   Six Months Ended
GAAP June 30, 2021   June 30, 2021
  Income     Shares (a)   Per Share   Income     Shares (a)   Per Share
  (Numerator)     (Denominator)   Amount   (Numerator)     (Denominator)   Amount
Net income $ 3,830               $ 10,675            
Less: Net income attributable to redeemable
noncontrolling interest
  (2,179 )               (2,973 )          
Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities   429                 501            
Net income attributable to HCI   2,080                 8,203            
Less: Income attributable to participating securities   (168 )               (569 )          
Basic Earnings Per Share:                                  
Income allocated to common stockholders   1,912     7,526   $ 0.25     7,634     7,500   $ 1.02
                                   
Effect of Dilutive Securities:                                  
Stock options       175               141      
Convertible senior notes*                          
Warrants       247               161      
                                   
Diluted Earnings Per Share:                                  
Income available to common stockholders and assumed conversions $ 1,912     7,948   $ 0.24   $ 7,634     7,802   $ 0.98
                                   
(a) Shares in thousands.
* For the three and six months ended June 30, 2021, convertible senior notes 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 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, 2021   June 30, 2021
GAAP Net income         $ 3,830             $ 10,675  
Net unrealized investment losses (gains) $ (1,489 )           $ (1,220 )        
Less: Tax effect at 24.52182% $ 365             $ 299          
Net adjustment to Net income         $ (1,124 )           $ (921 )
Non-GAAP Adjusted Net income         $ 2,706             $ 9,754  
                               
                               

HCI GROUP, INC. AND SUBSIDIARIES
(Amounts in thousands, except per share amounts)

A summary of the numerator and denominator of the basic and diluted income 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, 2021   June 30, 2021
  Income     Shares (a)   Per Share   Income     Shares (a)   Per Share
  (Numerator)     (Denominator)   Amount   (Numerator)     (Denominator)   Amount
Adjusted net income (non-GAAP) $ 2,706               $ 9,754            
Less: Net income attributable to redeemable noncontrolling interest $ (2,179 )             $ (2,973 )          
Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities $ 431               $ 504            
Net income attributable to HCI $ 958               $ 7,285            
Less: Income attributable to participating securities   (65 )               (496 )          
                                   
Basic Earnings Per Share before unrealized gains/losses on equity securities:                                  
Income allocated to common stockholders   893     7,526   $ 0.12     6,789     7,500   $ 0.91
                                   
Effect of Dilutive Securities:                                  
Stock options       175               141      
Convertible senior notes*                          
Warrants       247               161      
                                   
Diluted Earnings Per Share before unrealized gains/losses on equity securities:                                  
Income available to common stockholders and assumed conversions $ 893     7,948   $ 0.11   $ 6,789     7,802   $ 0.87
                                   
(a) Shares in thousands.
* For the three and six months ended June 30, 2021, convertible senior notes 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, 2021   June 30, 2021
GAAP diluted Earnings Per Share         $ 0.24             $ 0.98  
Net unrealized investment losses (gains) $ (0.19 )           $ (0.16 )        
Less: Tax effect at 24.52182% $ 0.06             $ 0.05          
Net adjustment to GAAP diluted EPS         $ (0.13 )           $ (0.11 )
Non-GAAP Adjusted diluted EPS         $ 0.11             $ 0.87  

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