HCI Group Reports Third Quarter 2020 Results


TAMPA, Fla., Nov. 05, 2020 (GLOBE NEWSWIRE) -- HCI Group, Inc. (NYSE:HCI), an InsurTech company with operations in insurance, software development and real estate, reported results for the three and nine months ended September 30, 2020.

Third Quarter 2020 - Financial Results
Net income for the third quarter of 2020 totaled $15.4 million or $1.70 per diluted earnings per share compared with $5.9 million or $0.73 per diluted earnings per share in the third quarter of 2019. Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the quarter was $14.4 million or $1.60 per diluted earnings per share compared with $5.4 million or $0.67 per diluted earnings per share in the third quarter of 2019. The company has included in this press release 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 $116.5 million for the third quarter of 2020 were up 19.6% from $97.3 million in the third quarter of 2019. The increase was due to the growth of Homeowners Choice as well as the continued growth of TypTap Insurance Company, HCI’s technology-driven insurance subsidiary. In-force premiums for TypTap at September 30, 2020 were $87.1 million compared with $40.1 million at September 30, 2019.

Consolidated gross premiums earned of $106.7 million for the third quarter of 2020 were up 24.1% from $86.0 million in the third of 2019.

Premiums ceded for reinsurance for the third quarter of 2020 increased to $44.2 million from $31.6 million in the third quarter of 2019 and represented 41.5% and 36.7%, respectively, of gross premiums earned. The $12.6 million increase was attributable to increased reinsurance costs effective June 1, 2020 with the beginning of the new reinsurance year and a greater level of reinsurance coverage.

Net investment income was $1.8 million compared with $3.6 million in the third quarter of 2019. The decrease was primarily due to lower interest income from fixed-maturity securities and cash equivalent instruments. Net unrealized investment gains were $1.3 million in the third quarter of 2020 compared with $0.6 million in 2019. The unrealized investment gains in the third quarter of 2020 reflect an increase in the fair value of equity securities resulting from an improved economic outlook since the market disruption attributable to COVID-19.

In July 2020, our headquarters was acquired by the Florida Department of Transportation (FDOT) exercising the power of eminent domain for a highway expansion project in Tampa, Florida. This transaction resulted in a one-time pre-tax gain on involuntary conversion in the amount of $37.0 million in the third quarter of 2020.

Losses and loss adjustment expenses were $51.7 million compared with $27.3 million in the same period in 2019. The increase of $24.4 million was driven by the increase in gross premiums earned and loss reserves for Hurricane Sally offset by lower adverse development.

Policy acquisition and other underwriting expenses were $14.2 million compared with $11.0 million in the same quarter of 2019. The increase relates to growth in gross premiums earned.

Nine Months Ended September 30, 2020 - Financial Results
Net income for the nine months ended September 30, 2020 totaled $24.9 million or $3.03 diluted earnings per share compared with $20.1 million or $2.49 diluted earnings per share for the nine months ended September 30, 2019. The increase was due to an increase in net premiums earned of $39.9 million and the one-time gain on involuntary conversion of $37.0 million offset by a net decrease in income from our investment portfolio of $15.8 million, an increase in losses and loss adjustment expenses of $41.0 million, an increase in policy acquisition and other underwriting expenses of $8.3 million, and an increase in general and administrative personnel expenses of $4.7 million.

Adjusted net income (a non-GAAP measure which excludes unrealized gains or losses on equity securities) for the nine-month period was $25.3 million or $3.07 diluted earnings per share compared with $14.7 million or $1.82 diluted earnings per share in the same period of 2019. 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 nine months increased 22.3% to $364.9 million in 2020 from $298.4 million in 2019. The increase was due to the growth in Homeowners Choice as well as the continued growth of TypTap.

Gross premiums earned increased 21.8% to $306.9 million from $251.9 million in the same period in 2019.

Premiums ceded were $109.3 million or 35.6% of gross premiums earned compared with $94.3 million or 37.4% of gross premiums earned during the same period in 2019. The dollar increase was attributable to increased reinsurance costs effective June 1, 2020 and a higher level of reinsurance coverage.

Net investment income was $3.2 million compared with $11.1 million in the nine months ended September 30, 2019. The decrease was primarily due to a loss of $2.1 million from limited partnership investments in 2020 as opposed to income of $1.3 million in 2019. In addition, interest income from cash, cash equivalents, fixed-maturity securities and short-term investments was lower by $4.0 million in 2020 compared with the same period in 2019 due to a lowering of investment yields, particularly on cash. Net unrealized investment losses for the period were $0.6 million compared to net unrealized investment gains of $7.3 million in the same period in 2019, reflecting a deterioration in the fair value of equity securities caused by the COVID-19 pandemic.

Losses and loss adjustment expenses for the nine months ended September 30, 2020 and 2019 were $119.7 million and $78.6 million, respectively. The increase of $41.0 million was driven by the increase in gross premiums earned and loss reserves for Sally, offset by lower prior year development.

Policy acquisition and other underwriting expenses were $39.0 million compared with $30.7 million in the same period in 2019. The increase relates primarily to premium growth in TypTap.

Management Commentary
“TypTap Insurance Company, our technology driven insurance company, continues to grow rapidly,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “TypTap’s gross written premiums continue on a course of doubling each year.”

Conference Call

HCI Group will hold a conference call later today, November 5, 2020, 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: (844) 369-8774

Listen-only international number: (862) 298-0844

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 December 5, 2020.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 38036

About HCI Group, Inc.

HCI Group, Inc. is an InsurTech company with operations in insurance, software development and real estate. HCI’s leading insurance operation, TypTap Insurance Company, is a rapidly growing, technology-driven insurance company, which provides homeowners’ insurance and flood insurance primarily in Florida. 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
rswansiger@hcigroup.com

Investor Relations Contact:
Matt Glover
Gateway Investor Relations
Tel (949) 574-3860
HCI@gatewayir.com

Media Contact:
Amber Brinkley
Kippen Communications
Tel (727) 466-7695
amber@kippencommunications.com

-    Tables to follow    -

HCI GROUP, INC. AND SUBSIDIARIES
        Consolidated Balance Sheets        

(Dollar amounts in thousands)

  At September 30, 2020  At December 31, 2019 
  (Unaudited)     
Assets        
Fixed-maturity securities, available for sale, at fair value (amortized cost: $91,166 and $199,954, respectively) (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 
         
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 
         
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 and 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 

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 operating 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 
                    
Dividends per share $0.40  $0.40   $1.20    $1.20 

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  Nine Months Ended 
GAAP September 30, 2020  September 30, 2020 
  Income  Shares  Per Share  Income  Shares  Per Share 
  (Numerator)  (Denominator)  Amount  (Numerator)  (Denominator)  Amount 
Net income $15,390          $24,873         
Less: Income attributable to participating securities  (865)          (1,309)        
                         
Basic Earnings Per Share:                        
Income allocated to common stockholders  14,525   7,356  $1.97   23,564   7,350  $3.21 
                         
Effect of Dilutive Securities:                        
Stock options     37          17     
Convertible senior notes  1,903   2,284       5,787   2,330     
                         
Diluted Earnings Per Share:                        
Income available to common stockholders and
assumed conversions
 $16,428   9,677  $1.70  $29,351   9,697  $3.03 
                         
  

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 Nine Months Ended
  September 30, 2020 September 30, 2020
GAAP Net income     $15,390        $24,873   
Net unrealized investment losses (gains) $(1,340)       $581       
Less: Tax effect at 24.52182% $329        $(142)      
Net adjustment to Net income     $(1,011)       $439   
Non-GAAP Adjusted Net income     $14,379        $25,312   

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  Nine Months Ended 
Non-GAAP September 30, 2020  September 30, 2020 
  Income  Shares  Per Share  Income  Shares  Per Share 
  (Numerator)  (Denominator)  Amount  (Numerator)  (Denominator)  Amount 
Adjusted net income (non-GAAP) $14,379          $25,312         
Less: Income attributable to participating securities  (808)          (1,333)        
                         
Basic Earnings Per Share before unrealized
gains/losses on equity securities:
                        
Income allocated to common stockholders  13,571   7,356  $1.85   23,979   7,350  $3.26 
                         
Effect of Dilutive Securities:                        
Stock options     37          17     
Convertible senior notes  1,903   2,284       5,787   2,330     
                         
Diluted Earnings Per Share before unrealized
gains/losses on equity securities:
                        
Income available to common stockholders and
assumed conversions
 $15,474   9,677  $1.60  $29,766   9,697  $3.07 
                         
  

Reconciliation of GAAP Diluted EPS to non-GAAP Adjusted Diluted EPS

  Three Months Ended Nine Months Ended
  September 30, 2020 September 30, 2020
GAAP diluted Earnings Per Share     $1.70        $3.03   
Net unrealized investment losses (gains) $(0.14)       $0.06       
Less: Tax effect at 24.52182% $0.04        $(0.02)      
Net adjustment to GAAP diluted EPS     $(0.10)       $0.04   
Non-GAAP Adjusted diluted EPS     $1.60        $3.07