HCI Group Reports Third Quarter and Nine-Month 2016 Results

Updates Hurricane Matthew Loss Estimates

Tampa, Florida, UNITED STATES


TAMPA, Fla., Nov. 03, 2016 (GLOBE NEWSWIRE) -- HCI Group, Inc. (NYSE:HCI), a holding company primarily engaged in homeowners’ insurance, with additional operations in reinsurance, real estate and information technology, reported results for the three and nine months ended September 30, 2016. The company also updated its Hurricane Matthew loss estimates.

Third Quarter 2016 - Financial Results
Net income totaled $11.3 million or $1.10 diluted earnings per share compared with $7.4 million or $0.71 diluted earnings per share in the third quarter of 2015.

Gross premiums earned totaled $92.5 million compared with $103.8 million in the same period in 2015. The decrease was attributable to expected policy attrition as well as a previously announced rate decrease that went into effect January 1, 2016.

Premiums ceded decreased to $29.2 million or 31.6% of gross premiums earned from $41.1 million or 39.6% of gross premiums earned in the third quarter of 2015. The decrease is attributable to the lower cost of the 2016/17 reinsurance program which began June 1, 2016, as compared with the 2015/16 program.

Net premiums earned (defined as gross premiums earned less premiums ceded to reinsurance companies) were $63.3 million compared with $62.8 million in the same period in 2015.

Investment related income was $3.3 million compared with investment related losses of $0.8 million in the same period in 2015. Additionally, the company recognized net non-cash charges of $0.2 million in the third quarter of 2016 and $1.9 million in the third quarter of 2015 due to declines in the fair value of securities determined to be other than temporary.

Results for the third quarter 2016 included a one-time bargain purchase gain of $2.1 million related to the company’s August 2016 acquisition of a newly built retail shopping center located in Sorrento, Florida.

Losses and loss adjustment expenses were $25.9 million compared with $26.2 million in the same period in 2015. Included in losses and loss adjustment expenses for the three months ended September 30, 2016 were initial losses from Hurricane Hermine of approximately $2.5 million. Losses and loss adjustment expenses during the comparable period in 2015 were also affected by significant rain and weather-related events.

Policy acquisition and other underwriting expenses were $10.5 million compared with $10.7 million in the comparable period in 2015.

Salaries and wages were $5.9 million compared with $5.0 million in the same period in 2015. The increase was attributable to an increase in employee headcount as well as merit increases during 2016 and 2015.

During the third quarter of 2016 the company repurchased 198,055 common shares through the share repurchase plan approved by the board of directors in December 2015. These shares were repurchased at an average price, inclusive of fees and commissions, of $30.33 per share.

Third Quarter 2016 - Financial Ratios
The company’s loss ratio (defined as losses and loss adjustment expenses related to net premiums earned) was 40.9% compared with 41.7% for the third quarter of 2015.

The expense ratio (defined as underwriting expenses, salaries and wages, interest and other operating expenses related to net premiums earned) was 37.7% compared with 36.9% for the same prior year period.

Expressed as a total of all expenses related to net premiums earned, the combined loss and expense ratio was 78.6% for the third quarter of 2016 as well as the third quarter of 2015.

Due to the impact reinsurance costs have on net premiums earned from period to period, the company believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned was 53.8% compared with 47.5% for the third quarter of 2015.

Nine Months Ended September 30, 2016 - Financial Results
Net income totaled $24.4 million or $2.41 diluted earnings per common share compared with $54.8 million or $4.84 diluted earnings per common share for the nine months ended September 30, 2015.

Gross premiums earned totaled $286.3 million compared with $321.2 million in the same year-ago period.

Premiums ceded were $106.0 million or 37.0% of gross premiums earned compared with $100.3 million or 31.2% of gross premiums earned during the same period in 2015. 

Net premiums earned decreased to $180.3 million from $220.9 million in the same period in 2015.

Investment related income was $6.9 million compared with $2.1 million in the same period in 2015. Additionally, the company recognized net non-cash charges of $1.4 million in the nine months ended September 30, 2016 and $3.9 million in the nine months ended September 30, 2015 due to declines in the fair value of securities determined to be other than temporary.

Losses and loss adjustment expenses for the nine months ended September 30, 2016 and 2015 were $79.3 million and $65.8 million, respectively. The increase is attributable to weather-related events and continued reserve strengthening due to trends involving assignment of benefits and related litigation.

Policy acquisition and other underwriting expenses were $32.5 million compared with $30.9 million for the nine months ended September 30, 2015.

Salaries and wages were $17.0 million compared with $15.2 million in the same period in 2015.

Nine Months Ended September 30, 2016 - Financial Ratios
The loss ratio was 44.0% compared with 29.8% in the nine months ended September 30, 2015.

The expense ratio was 39.8% compared with 30.9% in the same period in 2015.

Expressed as a total of all expenses related to net premiums earned, the combined loss and expense ratio to net premiums earned was 83.8% compared with 60.7% in the same period in 2015.

The combined ratio to gross premiums earned was 52.8% compared with 41.7% for the nine months ended September 30, 2015.

Subsequent Developments
The company also updated previously disclosed estimates for its pretax losses related to Hurricane Matthew and now estimates that range to be between $20 million to $25 million.

Management Commentary
“Fortunately, Hurricane Hermine, which was the first hurricane to make landfall in Florida in over 11 years, appears to have been a minor loss event for us during the third quarter of 2016,” said Paresh Patel, HCI Group’s chairman and chief executive officer. “Additionally, the third quarter was highlighted by the implementation of our 2016/17 reinsurance program which provides more comprehensive coverage for less premium when compared with the 2015/2016 program. Our current loss estimates for Hurricane Matthew appear to be far less than originally anticipated based on loss development to date.”

Conference Call
HCI Group will hold a conference call later today, November 3, 2016, to discuss these financial results. Chairman and chief executive officer, Paresh Patel, and chief financial officer, Richard Allen, 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: (877) 407-8033
Listen-only international number: (201) 689-8033
Conference ID: 13647008

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 Liolios 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 December 3, 2016.

Toll-free replay number: (877) 660-6853
International replay number: (201) 612-7415
Conference ID: 13647008

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. The company's largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., is a leading provider of property and casualty insurance in the state of Florida.

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. Its 8% Senior Notes trade on the New York Stock Exchange under the ticker symbol "HCJ." For more information about HCI Group, 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. There can be no assurance, for example, that actual losses from Hurricane Hermine and Hurricane Matthew will not exceed the estimated losses as a result of late reported claims, reopened claims, litigated claims and other unknown circumstances. 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.

- Tables to follow –

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)
      
   At September 30, 2016 At December 31, 2015
   (Unaudited)  
Assets     
Fixed-maturity securities, available for sale, at fair value     
(amortized cost: $167,223 and $128,614, respectively) $  170,016$   125,009 
Equity securities, available for sale, at fair value     
(cost: $46,323 and $47,548, respectively)    51,460    48,237 
Limited partnership investments, at equity    28,226    23,930 
Investment in unconsolidated joint venture, at equity    4,940    4,787 
Real estate investments (inclusive of $2,965 and $2,906 of consolidated variable     
interest entities, respectively)    33,808    30,954 
Total investments  288,450  232,917 
Cash and cash equivalents (inclusive of $65 and $57 of consolidated     
variable interest entities, respectively)    291,880    267,738 
Accrued interest and dividends receivable    1,695    1,390 
Income taxes receivable    -    1,858 
Premiums receivable    26,126    19,631 
Prepaid reinsurance premiums    29,699    40,747 
Deferred policy acquisition costs    21,221    18,602 
Property and equipment, net    11,332    11,786 
Intangible assets, net    2,559   
Deferred income taxes, net    3,972    3,189 
Other assets    7,358    39,128 
      
Total assets $684,292$ 636,986 
      
Liabilities and Stockholders’ Equity     
Losses and loss adjustment expenses $  57,195$   51,690 
Unearned premiums    209,322    187,290 
Advance premiums    9,877    4,983 
Assumed reinsurance balances payable      1,084 
Accrued expenses (inclusive of $56 and $21 of consolidated variable interest       
entities, respectively)  13,607    6,316 
Income taxes payable  891   
Long-term debt  138,172    129,429 
Other liabilities (inclusive of $26 and $0 of consolidated variable interest       
entities, respectively)  10,716    18,472 
        
Total liabilities  439,780  399,264 
        
Stockholders’ equity:       
7% Series A cumulative convertible preferred stock (no par value,       
1,500,000 shares authorized, no shares issued and outstanding)     
Series B junior participating preferred stock (no par value, 400,000       
shares authorized, no shares issued or outstanding)     
Preferred stock (no par value, 18,100,000 shares authorized,       
no shares issued or outstanding)     
Common stock, (no par value, 40,000,000 shares authorized,     
9,633,124 and 10,292,256 shares issued and outstanding in       
2016 and 2015, respectively)     
Additional paid-in capital  8,401  23,879 
Retained income  231,240  215,634 
Accumulated other comprehensive income (loss), net of taxes    4,871    (1,791)
      
Total stockholders’ equity  244,512  237,722 
      
Total liabilities and stockholders’ equity $684,292$ 636,986 


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, 
  2016  2015    2016  2015  
          
Revenue     
              
Gross premiums earned  $   92,542    103,842     $   286,273     321,174  
Premiums ceded    (29,242)    (41,077)      (105,998)   (100,294) 
              
Net premiums earned     63,300     62,765        180,275     220,880  
              
Net investment income     2,785     (519)       6,000     2,685  
Net realized investment gains (losses)     583     (296)       899     (563) 
Net other-than-temporary impairment losses recognized in income:             
Total other-than-temporary impairment losses     (575)    (2,482)       (1,211)    (4,465) 
Portion of loss recognized in other comprehensive income,             
 before taxes     351     596        (230)    596  
Net other-than-temporary impairment losses     (224)    (1,886)       (1,441)    (3,869) 
Policy fee income     972     994        2,967     2,477  
Gain on repurchases of convertible senior notes     -     -        153     -  
Gain on bargain purchase     2,071     -        2,071     -  
Other     321     204        1,151     930  
              
Total revenue     69,808     61,262        192,075     222,540  
              
Expenses             
      
Losses and loss adjustment expenses     25,909     26,200        79,261     65,804  
Policy acquisition and other underwriting expenses     10,536     10,675        32,525     30,917  
Salaries and wages     5,945     5,040        17,009     15,174  
Interest expense     2,672     2,698        8,112     8,038  
Other operating expenses     4,717     4,711        14,213     14,040  
              
Total operating expenses     49,779     49,324        151,120     133,973  
              
Income before income taxes     20,029     11,938        40,955     88,567  
      
Income tax expense     8,696     4,567        16,542     33,796  
              
Net income  $   11,333     7,371     $   24,413     54,771  
              
Basic earnings per share  $   1.17     0.72     $   2.48     5.38  
              
Diluted earnings per share  $   1.10     0.71     $   2.41     4.84  
              
Dividends per share  $   0.30     0.30     $   0.90     0.90  
              



        

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