HCI Group Reports First Quarter 2019 Results

Tampa, Florida, UNITED STATES


TAMPA, Fla., May 02, 2019 (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 quarter ended March 31, 2019.

First Quarter 2019 - Financial Results
Net income for the first quarter of 2019 totaled $6.7 million or $0.82 diluted earnings per share compared with $10.8 million or $1.11 diluted earnings per share in the first quarter of 2018. Net income was negatively affected by $5.0 million of estimated losses from a late March hail storm, but benefited from $5.3 million of net unrealized gains on investment securities.

Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the quarter was $2.8 million or $0.35 diluted earnings per share compared with $12.7 million or $1.26 diluted earnings per share in the first quarter of 2018. The company has included in this press release an explanation of adjusted net income as well as a reconciliation to GAAP net income and earnings per share calculated in accordance with generally accepted accounting principles (known as “GAAP”). 

Consolidated gross premiums written were down 3.6% from $70.1 million in the first quarter of 2018 to $67.6 million for the first quarter of 2019; for the same period, gross premiums written for TypTap Insurance Company, HCI’s technology-driven insurance subsidiary, were up 184.5%.

Consolidated gross premiums earned were down 3.7% from $85.8 million in the first quarter of 2018 to $82.6 million for the first quarter of 2019; for the same period, gross premiums earned for TypTap were up 79.4%.

Net realized investment losses were $0.4 million compared with $2.2 million of net realized investment gains in the same period in 2018.

Net unrealized investment gains were $5.3 million compared with $2.6 million of net unrealized investment losses in the same period in 2018 representing a net favorable change in the fair value of equity securities.

Losses and loss adjustment expenses were $27.0 million compared with $19.7 million in the same period in 2018. During the first quarter of 2019, the company’s losses and loss adjustment expenses included $5.0 million related to a severe hail storm event in March.

Book value per share, defined as shareholders’ equity divided by common shares outstanding at the end of the period, was $22.37 at March 31, 2019 compared with $21.71 at December 31, 2018.

As previously announced, on March 15, 2019, the company repaid in cash at maturity all of its 3.875% Convertible Senior Notes, principal amount totaling $89.99 million. The impact will be to strengthen the balance sheet, reduce interest expense, reduce fully-diluted share count and increase fully-diluted earnings per share. 

First Quarter 2019 - Financial Ratios
The loss ratio (defined as losses and loss adjustment expenses related to net premiums earned) for the first quarter of 2019 was 52.7% compared with 36.7% for the first quarter of 2018. The increase was primarily due to the impact of the late March hail storm and a decrease in net premiums earned.

The expense ratio (defined as underwriting expenses, general and administrative personnel expenses, interest and other operating expenses related to net premiums earned) was 47.6% compared with 43.5% in the same period in 2018. The increase was primarily attributable to the decrease in net premiums earned.

The combined ratio (total of all expenses in relation to net premiums earned) is the measure of overall underwriting profitability before other income. The combined ratio for the first quarter of 2019 was 100.3% compared with 80.2% in the same prior year period.

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 62.2% for the quarter compared with 50.1% for the first quarter of 2018.

Management Commentary
“We are encouraged by the growth of TypTap, our technology-driven insurance subsidiary,” said Paresh Patel, HCI Group’s chairman and chief executive officer. “It demonstrates the power of our internally developed technology and moves us closer to becoming a technology company.”

Conference Call
HCI Group will hold a conference call later today, May 2, 2019, to discuss these financial results. Chairman and Chief Executive Officer Paresh Patel 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: (877) 407-8033

Listen-only international number: (201) 689-8033

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 Group 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 June 2, 2019.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 45782

About HCI Group, Inc.
HCI Group, Inc. owns subsidiaries engaged in diverse, yet complementary business activities. The most important of these business activities are insurance, the development of insurance-related information technology, or “InsurTech,” and the ownership and development of real estate. HCI’s largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., is a leading provider of homeowners’ insurance in Florida. HCI also has a rapidly growing, technology-driven insurance subsidiary called TypTap Insurance Company which provides homeowners’ and flood insurance primarily in Florida. TypTap’s operations are based in large part on information technology developed by HCI’s software subsidiary, Exzeo USA, Inc. HCI’s real estate subsidiary, Greenleaf Capital, owns and operates multiple properties in Florida, including office buildings and waterfront properties.  

The company's common shares trade on the New York Stock Exchange under the ticker symbol "HCI" and are included in the Russell 2000 Index and the 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:
Kevin Mitchell, Senior Vice President of Investor Relations
HCI Group, Inc.
Tel (813) 405-3603
kmitchell@hcigroup.com

Investor Relations Contact:
Matt Glover or Najim Mostamand, CFA
Liolios Group, Inc.
Tel (949) 574-3860
HCI@liolios.com

-    Tables to follow    -

HCI GROUP, INC. AND SUBSIDIARIES 
Consolidated Balance Sheets 
(Dollar amounts in thousands)
       
   At March 31, 2019  At December 31, 2018
   (Unaudited)   
Assets      
Fixed-maturity securities, available for sale, at fair value      
(amortized cost: $210,004 and $184,670, respectively) $210,728 $182,723 
Equity securities, at fair value (cost: $29,463 and $45,671, respectively)  30,228  41,143 
Short-term investments  31,075  66,479 
Limited partnership investments, at equity  31,830  32,293 
Investment in unconsolidated joint venture, at equity  812  845 
Assets held for sale  9,810  9,810 
Real estate investments  63,309  54,490 
Total investments  377,792  387,783 
       
Cash and cash equivalents  177,965  239,458 
Restricted cash  700  700 
Accrued interest and dividends receivable  2,456  1,792 
Income taxes receivable  -  971 
Premiums receivable  16,888  16,667 
Prepaid reinsurance premiums  7,364  17,932 
Reinsurance recoverable:      
Paid losses and loss adjustment expenses  19,432  11,151 
Unpaid losses and loss adjustment expenses  86,208  112,760 
Deferred policy acquisition costs  15,171  16,507 
Property and equipment, net  13,584  13,338 
Intangible assets, net  4,649  4,800 
Other assets  11,198  9,004 
       
Total assets $733,407 $832,863 
       
Liabilities and Stockholders’ Equity      
Losses and loss adjustment expenses $184,661 $207,586 
Unearned premiums  143,300  157,729 
Advance premiums  16,160  6,192 
Assumed reinsurance balances payable  4  14 
Accrued expenses  8,586  6,483 
Income taxes payable  1,429  - 
Deferred income taxes, net  1,857  1,068 
Revolving credit facility  8,000  - 
Long-term debt  161,623  250,150 
Other liabilities  20,747  22,200 
       
Total liabilities  546,367  651,422 
       
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,      
8,359,889 and 8,356,730 shares issued and outstanding at      
March 31, 2019 and December 31, 2018, respectively)     
Additional paid-in capital  103   
Retained income  186,396  182,894 
Accumulated other comprehensive (loss) income, net of taxes  541  (1,453)
       
Total stockholders’ equity  187,040  181,441 
       
Total liabilities and stockholders’ equity $733,407 $832,863 
        

 

HCI GROUP, INC. AND SUBSIDIARIES 
Consolidated Statements of Income
(Dollar amounts in thousands, except per share amounts) 
       
  Three Months Ended
  March 31,
  2019
  2018
   (Unaudited)
   
Revenue        
       
Gross premiums earned $82,597  $85,772 
Premiums ceded  (31,413)  (32,250)
       
Net premiums earned  51,184   53,522 
       
Net investment income  3,278   3,218 
Net realized investment (losses) gains  (372)  2,232 
Net unrealized investment gains (losses)  5,293   (2,600)
Net other-than-temporary impairment losses  -   (40)
Policy fee income  795   865 
Other  456   542 
       
Total revenue  60,634   57,739 
       
Expenses      
       
Losses and loss adjustment expenses  26,996   19,655 
Policy acquisition and other underwriting expenses  9,673   9,360 
General and administrative personnel expenses  7,364   6,283 
Interest expense  4,337   4,470 
Other operating expenses  2,981   3,167 
       
Total expenses  51,351   42,935 
       
Income before income taxes  9,283   14,804 
       
Income tax expense  2,545   4,013 
       
Net income $6,738  $10,791 
       
Basic earnings per share $0.82  $1.25 
       
Diluted earnings per share $0.82  $1.11 
       
Dividends per share $0.40  $0.35 
       

 

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 Three Months Ended
  GAAPMarch 31, 2019 March 31, 2018
 IncomeSharesPer Share IncomeSharesPer Share
 (Numerator)(Denominator)Amount (Numerator)(Denominator)Amount
Net income$6,738    $10,791   
Less: Income attributable to participating securities (408)    (701)  
                  
Basic Earnings Per Share:                 
Income allocated to common stockholders 6,330  7,736 $0.82  10,090  8,082 $1.25
                  
Effect of Dilutive Securities:                 
Stock options --  19    --  17 
Convertible senior notes* --  --    3,133  3,799 
                  
Diluted Earnings Per Share:                 
Income available to common stockholders and assumed conversions$6,330  7,755 $0.82 $13,223  11,898 $1.11
                  
* For the three months ended March 31, 2019, 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 that are required to be included in results of operations in accordance with a new accounting standard effective January 1, 2018. HCI Group believes net income without the effect of volatility in equity prices is more comparable to prior period 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 Three Months Ended
 March 31, 2019 March 31, 2018
        
GAAP Net income $6,738     $10,791  
Net unrealized investment (gains) losses$(5,293)    $2,600    
Less: Tax effect at 25.345%$1,342     $(659)   
Net adjustment to Net income $(3,951)    $1,941  
Non-GAAP Adjusted Net income $2,787     $12,732  
        
        
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 Three Months Ended
Non-GAAPMarch 31, 2019 March 31, 2018
 Income
  Shares
  Per Share
 Income
  Shares
 Per Share
 (Numerator)
  (Denominator)
  Amount
 (Numerator)
  (Denominator)
 Amount
Adjusted net income (non-GAAP)$2,787         $12,732       
Less: Income attributable to participating securities (103)         (833)      
                     
Basic Earnings Per Share before unrealized gains/losses on equity securities:                    
Income allocated to common stockholders 2,684   7,736  $0.35  11,899   8,082 $1.47
                     
Effect of Dilutive Securities:                    
Stock options --   19     --   17  
Convertible senior notes* --   --     3,133   3,799  
                     
Diluted Earnings Per Share before unrealized gains/losses on equity securities:                    
Income available to common stockholders and assumed conversions$2,684   7,755  $0.35 $15,032   11,898 $1.26
                     
* For the three months ended March 31, 2019, convertible senior notes were excluded due to anti-dilutive effect.
        
Reconciliation of GAAP Diluted EPS to non-GAAP Adjusted Diluted EPS  
 Three Months Ended Three Months Ended
 March 31, 2019 March 31, 2018
GAAP diluted Earnings Per Share $0.82     $1.11  
Net unrealized investment (gains) losses$(0.68)    $0.22    
Less: Tax effect at 25.345%$0.21     $(0.07)   
Net adjustment to GAAP diluted EPS $(0.47)    $0.15  
Non-GAAP Adjusted diluted EPS $0.35     $1.26  

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