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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,
2025
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 May 1, 2025 was
11,547,697
.
Fixed-maturity securities, available for sale, at fair value (amortized cost: $
651,071
and $
719,536
, respectively and allowance for credit losses: $
0
and $
0
, respectively)
$
652,861
$
718,537
Equity securities, at fair value (cost: $
52,962
and $
52,030
, respectively)
55,226
56,200
Limited partnership investments
20,176
20,802
Real estate investments
80,151
79,120
Total investments
808,414
874,659
Cash and cash equivalents (a)
754,481
532,471
Restricted cash (a)
3,722
3,714
Accrued interest and dividends receivable
7,650
6,008
Income taxes receivable (a)
—
463
Deferred income taxes, net (a)
1,502
72
Premiums receivable, net (allowance: $
4,684
and $
5,891
, respectively) (a)
54,704
50,582
Prepaid reinsurance premiums (a)
38,009
92,060
Reinsurance recoverable, net of allowance for credit losses (a):
Paid losses and loss adjustment expenses (allowance: $
0
and $
0
, respectively)
46,335
36,062
Unpaid losses and loss adjustment expenses (allowance: $
151
and $
186
, respectively)
481,434
522,379
Deferred policy acquisition costs (a)
56,398
54,303
Property and equipment, net
30,237
29,544
Right-of-use assets – operating leases
1,124
1,182
Intangible assets, net
4,565
5,206
Funds withheld for assumed business
8,451
11,690
Other assets (a)
9,642
9,818
Total assets
$
2,306,668
$
2,230,213
(a)
Se
e Note 14 for
details of balances associated with consolidated variable interest entities.
(continued)
1
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets – (Continued)
(Dollar amounts in thousands)
March 31,
December 31,
2025
2024
(Unaudited)
Liabilities and Equity
Losses and loss adjustment expenses (a)
$
798,146
$
845,900
Unearned premiums (a)
573,565
584,703
Advance premiums (a)
37,807
18,867
Reinsurance payable on paid losses and loss adjustment expenses
—
2,496
Ceded reinsurance premiums payable
19,779
18,313
Assumed premiums payable (a)
3,582
2,176
Accrued expenses (a)
29,110
17,677
Income tax payable (a)
33,378
5,451
Deferred income taxes, net (a)
3,661
2,830
Revolving credit facility
42,000
44,000
Long-term debt
185,332
185,254
Lease liabilities – operating leases
1,131
1,185
Other liabilities (a)
34,708
32,320
Total liabilities
1,762,199
1,761,172
Commitments and contingencies (Note 22)
Redeemable noncontrolling interests (Note 19)
1,637
1,691
Equity:
Common stock (
no
par value,
40,000,000
shares authorized,
10,765,336
and
10,767,184
shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively)
—
—
Additional paid-in capital
124,170
122,289
Retained income
397,171
331,793
Accumulated other comprehensive income (loss), net of taxes
1,342
(
749
)
Total stockholders’ equity
522,683
453,333
Noncontrolling interests
20,149
14,017
Total equity
542,832
467,350
Total liabilities, redeemable noncontrolling interests and equity
$
2,306,668
$
2,230,213
(a)
See Note 14 for details of
balances associated with consolidated variable interest entities.
See accompanying Notes to Consolidated Financial Statements (unaudited)
.
2
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Stat
ements of Income
(Unaudited)
(Dollar amounts in thousands, except per share amounts)
Three Months Ended
March 31,
2025
2024
Revenue
Gross premiums earned
$
300,383
$
256,644
Premiums ceded
(
99,635
)
(
68,106
)
Net premiums earned
200,748
188,538
Net investment income
13,751
14,067
Net realized investment gains
1,167
—
Net unrealized investment (losses) gains
(
1,906
)
2,635
Policy fee income
2,229
1,019
Other
444
355
Total revenue
216,433
206,614
Expenses
Losses and loss adjustment expenses
59,291
79,922
Policy acquisition and other underwriting expenses
27,287
22,139
General and administrative personnel expenses
20,483
16,274
Interest expense
3,384
3,149
Other operating expenses
5,649
7,700
Total expenses
116,094
129,184
Income before income taxes
100,339
77,430
Income tax expense
26,109
20,474
Net income
74,230
56,956
Net income attributable to redeemable noncontrolling interests (Note 19)
—
(
10,149
)
Net (income) loss attributable to noncontrolling interests
(
4,546
)
804
Net income after noncontrolling interests
$
69,684
$
47,611
Basic earnings per share
$
6.47
$
4.76
Diluted earnings per share
$
5.35
$
3.81
See accompanying Notes to Consolidated Financial Statements (unaudited).
3
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements
of Comprehensive Income
(Unaudited)
(Dollar amounts in thousands)
Three Months Ended
March 31,
2025
2024
Net income
$
74,230
$
56,956
Other comprehensive income:
Change in net unrealized gain on investments:
Net unrealized gains arising during the period
2,809
52
Reclassification adjustment for net realized (gains) losses
(
20
)
32
Net change in unrealized gains
2,789
84
Deferred income taxes on above change
(
698
)
(
21
)
Total other comprehensive income, net of income taxes
2,091
63
Comprehensive income
76,321
57,019
Comprehensive (income) loss attributable to noncontrolling interests
(
4,546
)
802
Comprehensive income after noncontrolling interests
$
71,775
$
57,821
See accompanying Notes to Consolidated Financial Statements (unaudited).
4
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated State
ments of Equity
For the Three Months Ended March 31, 2025
(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, 2024
10,767,184
$
—
$
122,289
$
331,793
$
(
749
)
453,333
$
14,017
$
467,350
Net income
—
—
—
69,684
—
69,684
4,546
74,230
Total other comprehensive
income, net of income taxes
—
—
—
—
2,091
2,091
—
2,091
Issuance of restricted stock
1,000
—
—
—
—
—
—
—
Forfeiture of restricted stock
(
750
)
—
—
—
—
—
—
—
Repurchase and retirement
of common stock
(
5,267
)
—
(
639
)
—
—
(
639
)
—
(
639
)
Conversion of senior notes
to common stock
3,169
—
250
—
—
250
—
250
Dilution from subsidiary
stock-based compensation
—
—
—
—
—
—
702
702
Common stock dividends
($
0.40
per share)
—
—
—
(
4,306
)
—
(
4,306
)
—
(
4,306
)
Stock-based compensation
—
—
2,270
—
—
2,270
—
2,270
Subscriber surplus contribution
—
—
—
—
—
—
884
884
Balance at March 31, 2025
10,765,336
$
—
$
124,170
$
397,171
$
1,342
$
522,683
$
20,149
$
542,832
See accompanying Notes to Consolidated Financial Statements (unaudited).
5
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Equity – (Continued)
For the Three Months Ended March 31, 2024
(Unaudited)
(Dollar amounts in thousands, except per share amount)
Common Stock
Additional
Paid-In
Retained
Accumulated
Other
Comprehensive
Loss,
Total
Stockholders’
Noncontrolling
Total
Shares
Amount
Capital
Income
Net of Tax
Equity
Interests
Equity
Balance at December 31, 2023
9,738,183
$
—
$
89,568
$
238,438
$
(
3,163
)
324,843
$
2,322
$
327,165
Net income (loss)
—
—
—
57,085
—
57,085
(
129
)
56,956
Net income attributable to
redeemable noncontrolling
interests
—
—
—
(
9,474
)
—
(
9,474
)
(
675
)
(
10,149
)
Total other comprehensive
income, net of income taxes
—
—
—
—
61
61
2
63
Cashless exercise of
common stock warrants
155,049
—
—
—
—
—
—
—
Forfeiture of restricted stock
(
200
)
—
—
—
—
—
—
—
Repurchase and retirement
of common stock
(
5,656
)
—
(
556
)
—
—
(
556
)
—
(
556
)
Conversion of senior notes
to common stock
389,087
—
23,449
—
—
23,449
—
23,449
Dilution from subsidiary
stock-based compensation
—
—
—
—
—
—
668
668
Common stock dividends
($
0.40
per share)
—
—
—
(
3,993
)
—
(
3,993
)
—
(
3,993
)
Stock-based compensation
—
—
881
—
—
881
—
881
Deemed dividend on warrant
modification
—
—
3,386
—
—
3,386
—
3,386
Balance at March 31, 2024
10,276,463
$
—
$
116,728
$
282,056
$
(
3,102
)
$
395,682
$
2,188
$
397,870
See accompanying Notes to Consolidated Financial Statements (unaudited).
6
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statem
ents of Cash Flows
(Unaudited)
(Dollar amounts in thousands)
Three Months Ended
March 31,
2025
2024
Cash flows from operating activities:
Net income after noncontrolling interests
$
69,684
$
47,611
Net income attributable to noncontrolling interests
4,546
9,345
Net income
74,230
56,956
Adjustments to reconcile net income to net cash provided by operating
activities:
Stock-based compensation expense
2,972
1,582
Net accretion of discount on investments in fixed-maturity securities
(
336
)
(
2,148
)
Depreciation and amortization
2,019
1,003
Amortization of debt issuance costs
472
—
Deferred income tax (benefit) expense
(
1,297
)
5,604
Net realized investment gains
(
1,167
)
—
Net unrealized investment losses (gains)
1,906
(
2,635
)
Credit loss expense - reinsurance recoverable
(
35
)
(
49
)
Net loss (income) from limited partnership interests
626
(
195
)
Gain on sales of real estate investments
(
370
)
—
Foreign currency remeasurement gain
(
3
)
(
1
)
Other non-cash items
11
(
19
)
Changes in operating assets and liabilities:
Accrued interest and dividends receivable
(
1,642
)
(
545
)
Income taxes
28,390
14,831
Premiums receivable, net
(
4,122
)
(
5,254
)
Assumed premiums receivable
—
19,954
Prepaid reinsurance premiums
54,051
52,107
Reinsurance recoverable
30,707
19,673
Deferred policy acquisition costs
(
2,095
)
(
2,242
)
Funds withheld for assumed business
3,239
15,906
Other assets
208
(
6,657
)
Losses and loss adjustment expenses
(
47,754
)
(
6,361
)
Unearned premiums
(
11,138
)
(
1,658
)
Advance premiums
18,940
10,623
Reinsurance payable on paid losses and loss adjustment expenses
(
2,496
)
(
3,145
)
Ceded reinsurance premiums payable
1,466
1,772
Assumed reinsurance balances payable
1,406
1,831
Accrued expenses and other liabilities
13,818
11,056
Net cash provided by operating activities
162,006
181,989
(continued)
7
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows – (Continued)
(Unaudited)
(Dollar amounts in thousands)
Three Months Ended
March 31,
2025
2024
Cash flows from investing activities:
Investments in limited partnership interests
(
95
)
(
399
)
Distributions received from limited partnership interests
95
162
Purchase of property and equipment
(
1,732
)
(
946
)
Purchase of real estate investments
(
1,857
)
(
5,244
)
Purchase of fixed-maturity securities
(
15,000
)
(
172,336
)
Purchase of equity securities
(
9,327
)
(
7,679
)
Proceeds from sales of real estate investments
824
—
Proceeds from sales of fixed-maturity securities
2,610
6,030
Proceeds from calls, repayments and maturities of fixed-maturity securities
81,211
172,024
Proceeds from sales of equity securities
9,542
3,516
Net cash provided by (used in) investing activities
66,271
(
4,872
)
Cash flows from financing activities:
Cash dividends paid
(
4,306
)
(
3,993
)
Net (repayment) borrowing under revolving credit facility
(
2,000
)
50,000
Cash dividends paid to redeemable noncontrolling interests
—
(
2,923
)
Net surplus contribution from subscribers
830
—
Repayment of long-term debt
(
133
)
(
128
)
Redemption of long-term debt
—
(
466
)
Repurchases of common stock
(
639
)
(
557
)
Redemption of redeemable noncontrolling interests
—
(
100,000
)
Purchase of noncontrolling interests
—
(
33
)
Debt issuance costs
—
(
99
)
Net cash used in financing activities
(
6,248
)
(
58,199
)
Effect of exchange rate changes on cash
(
11
)
4
Net increase in cash, cash equivalents, and restricted cash
222,018
118,922
Cash, cash equivalents, and restricted cash at beginning of period
536,185
539,765
Cash, cash equivalents, and restricted cash at end of period
$
758,203
$
658,687
(continued)
8
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows – (Continued)
(Unaudited)
(Dollar amounts in thousands)
Three Months Ended
March 31,
2025
2024
Supplemental disclosure of cash flow information:
Cash paid for income taxes
$
65
$
38
Cash paid for interest
$
214
$
1,052
Non-cash investing and financing activities:
Unrealized gain on investments in available-for-sale securities, net of tax
$
2,091
$
63
Conversion of
4.25
% Convertible Senior Notes
$
—
$
23,450
Conversion of
4.75
% Convertible Senior Notes
$
250
$
—
Payable on purchases of equity securities
$
—
$
25
See accompanying Notes to Consolidated Financial Statements (unaudited)
.
9
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 1 -- Nat
ure of Operations
HCI Group, Inc., together with its subsidiaries (“HCI” or the “Company”), is primarily engaged in the property and casualty insurance business through two Florida domiciled insurance companies, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”) and TypTap Insurance Company (“TTIC”). Both HCPCI and TTIC are authorized to underwrite various homeowners’ property and casualty insurance products and allied lines business in the state of Florida and in other states. A third insurance subsidiary, perRisk Insurance Company (“perRisk”), is domiciled in Arizona and has not yet commenced its surplus lines insurance business. The operations of insurance subsidiaries are supported by HCI Group, Inc. and certain entities within the consolidated group. Exzeo Group, Inc. (formerly known as TypTap Insurance Group, Inc.), its majority-owned subsidiary, provides turn-key insurance technology and operations solutions based on a proprietary platform of purpose-built software and data analytics applications that are specifically designed for the property and casualty insurance ecosystem. Exzeo’s advanced data analytics algorithms and software tools maximize efficiency and optimize underwriting outcomes.
The Company also provides attorney-in-fact (“AIF”) services for reciprocal insurance exchanges owned by their policyholders. The Company's subsidiaries, Core Risk Managers, LLC (“CRM”) and Tailrow Risk Managers, LLC (“TRM”), serve as the AIF for Condo Owners Reciprocal Exchange (“CORE”) and Tailrow Insurance Exchange (“Tailrow”), respectively. Although the Company does not have any equity interest in the reciprocal insurance exchanges, the Company is required to consolidate them as their primary beneficiary. See Note 14 -- “Variable Interest Entities” for additional information. In addition, Greenleaf Capital, LLC, the Company’s real estate subsidiary, is primarily engaged in the business of owning, developing, and leasing real estate and operating marina facilities.
On February 27, 2025, TypTap Insurance Group, Inc. filed articles of amendment to its Restated Articles of Incorporation changing its name to Exzeo Group, Inc (“Exzeo”). Exzeo and its consolidated subsidiaries are hereinafter referred to as “Exzeo Group.”
Citizens Assumption
From time to time, the Company and its consolidated variable interest entities (“VIEs”) may participate in a “take-out program” through which the Company and its VIEs assume insurance policies held by Citizens Property Insurance Corporation (“Citizens”), a Florida state-supported insurer.
During the three months ended March 31, 2025
, approximately
13,900
policies were assumed, representing approximately $
35,800
in annualized gross written premiums, whereas for the
three months ended March 31, 2024
, approximately
9,800
policies were assumed, representing approximately $
87,800
in annualized gross premiums.
Note 2 -- Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of HCI Group, Inc. and its majority-owned and controlled subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain
10
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2025 and the results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2025. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2024 included in the Company’s Form 10-K, which was filed with the SEC on February 28, 2025.
In preparing the interim unaudited consolidated financial statements, management was required to make certain judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex, and consequently actual results may differ from these estimates.
Material estimates that are particularly susceptible to significant change in the near term are related to the Company’s losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. The Company uses various assumptions and actuarial data it believes to be reasonable under the circumstances to make these estimates. In addition, accounting policies specific to reinsurance with retrospective provisions, reinsurance recoverable, deferred income taxes, limited partnership investments, allowance for credit losses, and stock-based compensation expense involve significant judgments and estimates material to the Company’s consolidated financial statements.
In the case of assumed business, the Company relies entirely on the ceding insurance company to provide information about premiums, losses, and loss adjustment expenses. When the information is not available at the reporting date, the Company will make estimates based on all recent available data. Accordingly, the actual results could differ significantly from those estimates.
All significant intercompany balances and transactions have been eliminated.
Reclassification
The Company's previously reported segment information has been recast to conform with the current presentation. See Note 15 -- “Segment Information.”
Note 3 -- Recent Accounting Pronouncements
Adopted
Accounting Standards Update No. 2023-09
. In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-09 (“ASU 2023-09”)
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
. This update enhances income tax disclosures by requiring public entities to report income tax expense disaggregated by federal, state, and foreign taxes, with further detail on specific jurisdictions over a quantitative threshold. In addition, public entities must also separately disclose reconciling items equal to or greater than five percent of pretax income from operations by the applicable federal statutory rate. This update has been adopted on a prospective basis for the fiscal year beginning on January 1,
11
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
2025 and will result in enhanced income tax disclosures beginning with our consolidated financial statements for the year ending December 31, 2025.
Accounting Standards Update No. 2024-04.
In November 2024, the FASB issued Accounting Standards Update No. 2024-04 (“ASU 2024-04”)
Debt
–
Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments
. This update clarifies whether entities should apply extinguishment accounting or induced conversion accounting when recording the settlement of convertible debt instruments due to an induced conversion. ASU 2024-04 is effective for all entities for fiscal years beginning after December 15, 2025. Early adoption is permitted as of the beginning of a reporting period if the entity has also adopted ASU 2020-06 as of that period. The Company has elected to early adopt this update effective January 1, 2025. The adoption of this update had no impact on the Company’s financial position or results of operation upon adoption as the new guidance applies prospectively from January 1, 2025.
Pending Adoption
Accounting Standards Update No. 2025-01 and 2024-03.
In January 2025, the FASB issued Accounting Standards Update No. 2025-01 (“ASU 2025-01”)
Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date
. This update clarifies the effective date of Accounting Standards Update No. 2024-03 (“ASU 2024-03”)
Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,
which was issued by the FASB in November 2024.
For public business entities, ASU 2024-03 enhances disclosures by requiring the disaggregation of certain expense captions presented within the income statement, such as employee compensation and intangible asset amortization. In addition, the total relevant expense caption on the income statement must be reconciled to the aggregate of the separately disclosed expense categories with the difference represented by an "other items" amount which is qualitatively described. ASU 2024-03 is effective for all public business entities for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating its impact on certain disclosures but expects the adoption to result in additional disclosures of certain expenses.
Note 4 -- Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
March 31,
December 31,
2025
2024
Cash and cash equivalents
$
754,481
$
532,471
Restricted cash
3,722
3,714
Total
$
758,203
$
536,185
Restricted cash represents funds in the Company’s sole ownership primarily held by certain states to meet regulatory requirements in which the Company’s insurance subsidiaries conduct business and not available for immediate business use. Funds withheld in an account for which the Company is a co-owner but not the named beneficiary are not considered restricted cash and are included in funds withheld for assumed business on the consolidated balance sheets.
12
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 5 -- Investments
a) Available-for-Sale Fixed-Maturity Securities
The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At
March 31, 2025 and December 31, 2024, the cost or amortized cost, allowance for credit loss, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:
Cost or
Amortized
Allowance
for Credit
Gross
Unrealized
Gross
Unrealized
Estimated
Fair
Cost
Loss
Gain
Loss
Value
As of March 31, 2025
U.S. Treasury and U.S. government agencies
$
624,650
$
—
$
2,229
$
(
306
)
$
626,573
Corporate bonds
25,927
—
139
(
242
)
25,824
Exchange-traded debt
494
—
—
(
30
)
464
Total
$
651,071
$
—
$
2,368
$
(
578
)
$
652,861
As of December 31, 2024
U.S. Treasury and U.S. government agencies
$
688,123
$
—
$
2,019
$
(
2,726
)
$
687,416
Corporate bonds
30,919
—
77
(
371
)
30,625
Exchange-traded debt
494
—
2
—
496
Total
$
719,536
$
—
$
2,098
$
(
3,097
)
$
718,537
Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.
The scheduled contractual maturities of fixed-maturity securities as of
March 31, 2025 and December 31, 2024 are as follows:
March 31, 2025
December 31, 2024
Cost or
Estimated
Cost or
Estimated
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Available-for-sale
Due in one year or less
$
510,506
$
511,771
$
520,005
$
521,301
Due after one year through five years
39,207
39,261
98,831
98,808
Due after five years through ten years
100,864
101,365
100,206
97,932
Due after ten years
494
464
494
496
$
651,071
$
652,861
$
719,536
$
718,537
13
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Securities on Deposit
The fair value of fixed-maturity securities on deposit with various regulatory authorities at March 31, 2025 and December 31, 2024
was $
1,801
and $
1,794
, respectively.
Sales of Available-for-Sale Fixed-Maturity Securities
Proceeds received, and the gross realized gains and losses from sales of available-for-sale fixed-maturity securities, for the
three months ended March 31, 2025 and 2024 were as follows:
Gross
Realized
Gross
Realized
Proceeds
Gains
Losses
Three months ended March 31, 2025
$
2,610
$
24
$
(
4
)
Three months ended March 31, 2024
$
6,030
$
12
$
(
44
)
Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities
Securities with gross unrealized loss positions at
March 31, 2025 and December 31, 2024, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:
Less Than Twelve Months
Twelve Months or Longer
Total
Gross
Estimated
Gross
Estimated
Gross
Estimated
Unrealized
Fair
Unrealized
Fair
Unrealized
Fair
As of March 31, 2025
Loss
Value
Loss
Value
Loss
Value
U.S. Treasury and U.S. government
agencies
$
(
1
)
$
498
$
(
305
)
$
83,792
$
(
306
)
$
84,290
Corporate bonds
(
19
)
5,814
(
223
)
7,851
(
242
)
13,665
Exchange-traded debt
(
30
)
464
—
—
(
30
)
464
Total available-for-sale securities
$
(
50
)
$
6,776
$
(
528
)
$
91,643
$
(
578
)
$
98,419
Less Than Twelve Months
Twelve Months or Longer
Total
Gross
Estimated
Gross
Estimated
Gross
Estimated
Unrealized
Fair
Unrealized
Fair
Unrealized
Fair
As of December 31, 2024
Loss
Value
Loss
Value
Loss
Value
U.S. Treasury and U.S. government
agencies
$
(
2,063
)
$
97,771
$
(
663
)
$
104,872
$
(
2,726
)
$
202,643
Corporate bonds
(
53
)
6,296
(
318
)
15,255
(
371
)
21,551
Total available-for-sale securities
$
(
2,116
)
$
104,067
$
(
981
)
$
120,127
$
(
3,097
)
$
224,194
At March 31, 2025 and December 31, 2024, there were
34
an
d
56
securities, respectively, in an unrealized loss position.
14
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Allowance for Credit Losses of Available-for-Sale Fixed-Maturity Securities
The Company regularly reviews its individual investment securities for credit impairment. The Company considers various factors in determining whether a credit loss exists for each individual security, including-
•
the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;
•
the extent to which the market value of the security has been below its cost or amortized cost;
•
general market conditions and industry or sector specific factors and other qualitative factors;
•
nonpayment by the issuer of its contractually obligated interest and principal payments; and
•
the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.
There
was
no
balance or activity in th
e allowance for credit losses of available-for-sale fixed-maturity securities during the three months ended March 31, 2025 and 2024.
b) Equity Securities
The Company holds investments in equity securities measured at fair values which are readily determinable.
At
March 31, 2025 and December 31, 2024, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:
Gross
Unrealized
Gross
Unrealized
Estimated
Fair
Cost
Gain
Loss
Value
March 31, 2025
$
52,962
$
4,573
$
(
2,309
)
$
55,226
December 31, 2024
$
52,030
$
6,427
$
(
2,257
)
$
56,200
The table below presents the portion of unrealized gains and losses in the Company’s consolidated statements of income related to equity securities still held.
Three Months Ended
March 31,
2025
2024
Net (losses) gains recognized
$
(
759
)
$
2,667
Exclude: Net realized gains recognized for
securities sold
1,147
32
Net unrealized (losses) gains recognized
$
(
1,906
)
$
2,635
15
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Sales of Equity Securities
Proceeds received, and the gross realized gains and losses from sales of equity securities, for the
three months ended March 31, 2025 and 2024 were as follows:
Gross
Realized
Gross
Realized
Proceeds
Gains
Losses
Three months ended March 31, 2025
$
9,542
$
1,331
$
(
184
)
Three months ended March 31, 2024
$
3,516
$
173
$
(
141
)
c) Limited Partnership Investments
The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships.
The following table provides information related to the Company’s investments in limited partnerships:
March 31, 2025
December 31, 2024
Carrying
Unfunded
Carrying
Unfunded
Investment Strategy
Value
Balance
(%) (a)
Value
Balance
(%) (a)
Primarily in senior secured loans and, to
a limited extent, in other debt and
equity securities of private U.S. lower-
middle-market companies. (b)(c)(e)
$
2,307
$
—
15.37
$
2,400
$
—
15.37
Value creation through active distressed
debt investing primarily in bank loans,
public and private corporate bonds,
asset-backed securities, and equity
securities received in connection with
debt restructuring. (b)(d)(e)
717
—
1.04
1,082
—
1.13
High returns and long-term capital
appreciation through investments in
the power, utility and energy industries,
and in the infrastructure sector. (b)(f)(g)
3,242
—
0.17
3,407
—
0.18
Value-oriented investments in less liquid
and mispriced senior and junior debts
of private equity-backed companies.
(b)(h)(i)
2,061
—
0.51
2,053
—
0.52
Value-oriented investments in mature real
estate private equity funds and portfolios
globally. (b)(j)
6,605
2,350
1.31
6,781
2,445
1.31
Risk-adjusted returns on credit and equity
investments, primarily in private
equity-owned companies. (b)(k)
5,244
810
0.54
5,079
810
0.55
Total
$
20,176
$
3,160
$
20,802
$
3,255
16
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
(a)
Represents the Company’s percentage investment in the fund at each balance sheet date.
(b)
Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.
(c)
The term is expected to be
two years
following the maturity of the fund’s outstanding leverage. Although the capital commitment period has expired, follow-on investments and pending commitments may require additional fundings.
(d)
Effective July 1, 2023, this investment is in the process of winding down.
Although the capital commitment period has ended, the general partner could still request an additional funding under certain circumstances.
(e)
At the fund manager’s discretion, the term of the fund may be extended for up to
two
additional one-year periods.
(f)
Expected to have a
ten-year
term. The capital commitment period has expired but the general partner may request additional funding for follow-on investment.
(g)
With the consent of a supermajority of partners, the term of the fund may be extended for up to
three
additional one-year periods.
(h)
Expected to have an
eight-year
term from the commencement date, which can be extended for up to
two
additional one-year periods with the consent of either the advisory committee or a majority of limited partners.
(i)
The capital commitment period has ended but an additional funding may be requested.
(j)
The term is expected to end
November 27, 2027
. The term may be extended for up to
four
additional one-year periods at the general partner’s discretion, and up to
two
additional one-year periods with the consent of the advisory committee.
(k)
Expected to have an
eight-year
term after the final admission date. The term may be extended for an additional
one-year
period at the general partner’s discretion, and up to
two
additional one-year periods with the consent of either the advisory committee or a majority of limited partners.
The following is the summary of aggregated unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Company’s respective balance sheet dates. The financial statements of these limited partnerships are audited annually.
Three Months Ended
March 31,
2025
2024
Operating results:
Total income*
$
(
8,373
)
$
3,066
Total expenses
(
16,215
)
(
25,601
)
Net loss
$
(
24,588
)
$
(
22,535
)
*Includes net change in unrealized gains or losses on investments.
March 31,
December 31,
2025
2024
Balance sheet:
Total assets
$
3,979,579
$
4,118,765
Total liabilities
$
172,868
$
157,420
17
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
For the three months ended March 31, 2025 and 2024
, the Company recognized net investment loss from limited partnerships of $
626
and net investment income of
$
195
, respectively.
Included in net investment income for the three months ended March 31, 2025 and 2024 was an estimated unfavorable cha
nge in net asset value of $
175
and an estimated favorable change in net asset value of $
100
, respectively. For the
three months ended March 31, 2025 and 2024
, the Company received total cash distributions of $
95
and $
162
, respectively, representing returns of capital.
At March 31, 2025 and December 31, 2024
, the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $
23,346
and $
20,987,
respectively, and the Company’s maximum exposure to loss aggregated $
20,176
and $
20,802
, respectively.
d) Real Estate Investments
Real estate investments consist of the following as of
March 31, 2025 and December 31, 2024:
March 31,
December 31,
2025
2024
Land
$
41,818
$
42,272
Land improvements
10,578
4,843
Buildings and building improvements
30,680
18,772
Tenant and leasehold improvements
2,265
2,265
Construction in progress - Haines City
1,427
17,373
Other
1,233
1,106
Total, at cost
88,001
86,631
Less: accumulated depreciation and amortization
(
7,850
)
(
7,511
)
Real estate investments
$
80,151
$
79,120
Depreciation and amortization expense related to real estate investments was $
339
and $
269
for the
three months ended March 31, 2025 and 2024, respectively.
In March 2025, the Company sold an outparcel of land in Sorrento, Florida for proceeds of $
824
.
e) Net Investment Income
Net investment income (loss), by source, is summarized as follows:
Three Months Ended
March 31,
2025
2024
Available-for-sale fixed-maturity securities
$
7,514
$
4,827
Equity securities
487
442
Investment expense
(
185
)
(
79
)
Limited partnership investments
(
626
)
195
Real estate investments
318
1,493
Cash and cash equivalents
6,243
7,189
Net investment income
$
13,751
$
14,067
18
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
For the three months ended March 31, 2025, income from real estate investments included a net gain of $
370
in connection with the sale of one outparcel in Sorrento, Florida as described in
d) Real Estate Investments
.
Note 6 -- Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and other comprehensive income or loss, which for the Company includes changes in unrealized gains or losses of available-for-sale fixed-maturity securities carried at fair value and changes to any credit losses related to these investments. Reclassification adjustments for realized (gains) losses are reflected in net realized investment gains (losses) on the consolidated statements of income.
The components of other comprehensive income or loss and the related tax effects allocated to each component were as follows:
Three Months Ended
Three Months Ended
March 31, 2025
March 31, 2024
Before
Income
Net of
Before
Income
Net of
Tax
Tax Effect
Tax
Tax
Tax Effect
Tax
Net unrealized gains
$
2,809
$
703
$
2,106
$
52
$
13
$
39
Reclassification adjustment for net
realized (gains) losses
(
20
)
(
5
)
$
(
15
)
32
8
$
24
Total other comprehensive income
$
2,789
$
698
$
2,091
$
84
$
21
$
63
Note 7 -- Fair Value Measurements
The Company records and discloses certain financial assets at their estimated fair values. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1
–
Unadjusted quoted prices in active markets for identical assets.
Level 2
–
Other inputs that are observable for the asset, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset.
Level 3
–
Inputs that are unobservable.
Valuation Methodology
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of money-market funds and certificates of deposit maturing within
90
days. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.
Restricted Cash
Restricted cash represents cash held by state authorities and the carrying value approximates fair value.
19
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Fixed-Maturity and Equity Securities
Estimated fair values of the Company’s fixed-maturity and equity securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.
The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, which are level 2 inputs. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies, and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.
Revolving Credit Facility
From time to time, the Company has an amount outstanding under a revolving credit facility. The interest rate is variable and is periodically adjusted based on the Secured Overnight Financing Rate (“SOFR”) plus a ten basis points adjustment plus a margin based on the debt-to-capital ratio. As a result, carrying value, when outstanding, approximates fair value.
Long-Term Debt
The following table summarizes components of the Company’s long-term debt and methods used in estimating their fair values:
Maturity
Date
Valuation Methodology
4.75
% Convertible Senior Notes
2042
Quoted price
4.55
% Promissory Note
2036
Discounted cash flow method/Level 3 inputs
5.50
% Promissory Note
2033
Discounted cash flow method/Level 3 inputs
20
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Assets Measured at Estimated Fair Value on a Recurring Basis
The following tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The tables indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of
March 31, 2025 and December 31, 2024:
Fair Value Measurements Using
(Level 1)
(Level 2)
(Level 3)
Total
As of March 31, 2025
Financial Assets:
Cash and cash equivalents
$
754,481
$
—
$
—
$
754,481
Restricted cash
$
3,722
$
—
$
—
$
3,722
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies
$
626,082
$
491
$
—
$
626,573
Corporate bonds
18,656
7,168
—
25,824
Exchange-traded debt
464
—
—
464
Total available-for-sale securities
$
645,202
$
7,659
$
—
$
652,861
Equity securities
$
55,226
$
—
$
—
$
55,226
Fair Value Measurements Using
(Level 1)
(Level 2)
(Level 3)
Total
As of December 31, 2024
Financial Assets:
Cash and cash equivalents
$
532,471
$
—
$
—
$
532,471
Restricted cash
$
3,714
$
—
$
—
$
3,714
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies
$
686,929
$
487
$
—
$
687,416
Corporate bonds
21,358
9,267
—
30,625
Exchange-traded debt
496
—
—
496
Total available-for-sale securities
$
708,783
$
9,754
$
—
$
718,537
Equity securities
$
56,200
$
—
$
—
$
56,200
Liabilities Carried at Other Than Fair Value
The following tables present fair value information for liabilities that are carried on the consolidated balance sheets at amounts other than fair value as of
March 31, 2025 and December 31, 2024:
Carrying
Fair Value Measurements Using
Estimated
Value
(Level 1)
(Level 2)
(Level 3)
Fair Value
As of March 31, 2025
Financial Liabilities:
Revolving credit facility
$
42,000
$
—
$
42,000
$
—
$
42,000
Long-term debt:
4.75
% Convertible Senior Notes
$
169,602
$
—
$
323,746
$
—
$
323,746
4.55
% Promissory Note
4,296
—
—
4,057
4,057
5.50
% Promissory Note
11,434
—
—
11,676
11,676
Total long-term debt
$
185,332
$
—
$
323,746
$
15,733
$
339,479
21
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Carrying
Fair Value Measurements Using
Estimated
Value
(Level 1)
(Level 2)
(Level 3)
Fair Value
As of December 31, 2024
Financial Liabilities:
Revolving credit facility
$
44,000
$
—
$
44,000
$
—
$
44,000
Long-term debt:
4.75
% Convertible Senior Notes
$
169,397
$
—
$
266,989
$
—
$
266,989
5.50
% Promissory Note
11,491
—
—
11,307
11,307
4.55
% Promissory Note
4,366
—
—
4,043
4,043
Total long-term debt
$
185,254
$
—
$
266,989
$
15,350
$
282,339
Note 8 -- Intangible Assets, Net
The Company’s intangible assets, net consist of the following:
March 31,
December 31,
2025
2024
In-place leases
2,221
$
2,221
Policy renewal rights - United
10,100
10,100
Non-compete agreements - United (a)
314
314
Total, at cost
12,635
12,635
Less: accumulated amortization
(
8,070
)
(
7,429
)
Intangible assets, net
$
4,565
$
5,206
(a)
Fully amortized.
The remaining weighted-average amortization periods for the intangible assets as of
March 31, 2025 are summarized in the table below:
In-place leases
17.9
years
Policy renewal rights - United
1.1
years
At March 31, 2025 and December 31, 2024, contingent liabilities related to renewal rights intangible assets wer
e $
371
and
are included in other liabilities on the consolidated balance sheets.
22
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 9 -- Other Assets
The following table summarizes the Company’s other assets:
March 31,
December 31,
2025
2024
Prepaid premium taxes
1,396
1,045
Prepaid brokerage fees
433
657
Other prepaid expenses
3,006
3,966
Deposits
439
583
Lease acquisition costs, net
805
822
Other
3,563
2,745
Total other assets
$
9,642
$
9,818
Note 10 -- Revolving Credit Facility
At March 31, 2025, the Company h
ad $
42,000
outstanding under the credit facility. For the three months ended March 31, 2025 and 2024
, interest expense was $
669
a
nd $
738
, respectively, includi
ng $
15
a
nd $
15
of amortization of issuance costs, respectively. At
March 31, 2025, the Company was in compliance with all required covenants and had available borrowing capacity of $
33,000
.
Note 11 -- Long-Term Debt
The following table summarizes the Company’s long-term debt:
March 31,
December 31,
2025
2024
4.75
% Convertible Senior Notes, due
June 1, 2042
$
172,250
$
172,500
4.55
% Promissory Note, due through
August 1, 2036
4,347
4,419
5.50
% Promissory Note, due through
July 1, 2033
11,609
11,670
Total principal amount
188,206
188,589
Less: unamortized issuance costs
(
2,874
)
(
3,335
)
Total long-term debt
$
185,332
$
185,254
The following table summarizes future maturities of long-term debt as of
March 31, 2025
, which takes into consideration that the Company intends to redeem the
4.75
% Convertible Senior Notes on June 5, 2025. See
4.75
% Convertible Senior Notes
within this note for additional information:
Due in 12 months following March 31,
Amount
2025
$
172,799
2026
577
2027
607
2028
638
2029
670
Thereafter
12,915
Total
$
188,206
23
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Information with respect to interest expense related to long-term debt is as follows:
Three Months Ended
March 31,
2025
2024
Interest Expense:
Contractual interest
$
2,258
$
2,118
Non-cash expense (a)
457
293
Total
$
2,715
$
2,411
(a)
Includes amortization of debt issuance costs.
4.75% Convertible Senior Notes
On March 28, 2025, the Company notified all noteholders that it will redeem all of the outstanding
4.75
% Convertible Notes on
June 5, 2025
for a redemption price equal to the principal amount of the notes plus any accrued and unpaid interest. As a consequence of this notice, the noteholders are entitled to convert their notes into shares of common stock until the end of the day
June 4, 2025
. The conversion ratio is
12.6789
shares of common stock per $
1
principal amount of notes.
During the first quarter of 2025, the Company converted $
250
in aggregate principal of
4.75
% Convertible Senior Notes for aggregate consideration of
3,169
shares of HCI’s common stock plus cash consideration in lieu of fractional shares.
With the redemption date of June 5, 2025, the effective interest rate, taking into account both cash and non-cash components, approximates
13.5
%. As of
March 31, 2025
, the remaining amortization period of the debt issuance costs was expected to be two months.
Note 12 -- Reinsurance
Reinsurance obtained from other insurance companies
The Company cedes a portion of its homeowners’ insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and a portion of its flood insurance exposure under one quota share reinsurance agreement. Ceded premiums under most catastrophe excess of loss reinsurance contracts are subject to revision resulting from subsequent adjustments in total insured value. Under the terms of the quota share reinsurance agreement, the Company is entitled to a
30
% ceding commission on ceded premiums written and a profit commission equal to
10
% of net profit.
The Company remains liable for claims payments in the event that any reinsurer is unable to meet its obligations under the reinsurance agreements. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1
st
of each year. The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions.
24
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The impact of the reinsurance contracts on premiums written and earned is as follows:
Three Months Ended
March 31,
2025
2024
Premiums Written:
Direct
$
268,456
$
211,895
Assumed
20,790
43,091
Gross written
289,246
254,986
Ceded
(
99,635
)
(
68,106
)
Net premiums written
$
189,611
$
186,880
Premiums Earned:
Direct
$
249,402
$
189,675
Assumed
50,981
66,969
Gross earned
300,383
256,644
Ceded
(
99,635
)
(
68,106
)
Net premiums earned
$
200,748
$
188,538
During the three months ended March 31, 2025
, the Company derecognized $
6
of ceded losses, thereby increasing losses and loss adjustment expenses. There were
no
ceded losses recognized during the
three months ended March 31, 2024. At March 31, 2025 and December 31, 2024
, there were
44
reinsurers, participating in the Company’s reinsurance program. Total net amounts recoverable and receivable from reinsurers at
March 31, 2025 and December 31, 2024
were $
527,769
and $
558,441
, respectively. Approximatel
y
74.6
% of
the paid reinsurance recoverable balance at March 31, 2025 was receivable from four reinsurers, one of which was the Florida Hurricane Catastrophe Fund, a tax-exempt state trust fund. Based on all available information considered in the rating-based method, the Company recogn
ized decreases in credit loss expense of $
35
and $
49
for the
three months ended March 31, 2025 and 2024
, respectively. Allowances for credit losses related to the reinsurance recoverable balance were $
151
and $
186
at
March 31, 2025 and December 31, 2024, respectively.
One of the existing reinsurance contracts includes retrospective provisions that adjust premiums in the event losses are minimal or zero. Due to the losses from Hurricane Helene and Hurricane Milton during the third and fourth quarters of 2024, these retrospective provisions were fully exhausted and as such, no benefits were accrued during the three months ended March 31, 2025. In contrast, for the three months ended March 31, 2024
, the Company recognized reductions in premiums ceded of $
6,993
related to these adjustments in the consolidated statement of income.
There were
no
benefits accrued under the multi-year reinsurance contract with retrospective provisions at
March 31, 2025 and December 31, 2024.
Reinsurance provided to other insurance companies
United
The Company formerly provided quota share reinsurance to United Property & Casualty Insurance Company (“United”) on its policies in the northeast and southeast regions of the United States. United was placed into receivership by the State of Florida due to its financial insolvency and, as a result, the Company ceased
25
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
providing quota share reinsurance on United policies. At March 31, 2025 and December 31, 2024, the Company had a net balance o
f $
831
d
ue to United related to the northeast region, representing ceding commission payable.
At March 31, 2025 and December 31, 2024, the Company had a net balance of
$
1,438
due to United related to the southeast region, consisting of premiums payable of $
1,712,
offset by ceding commission receivable of $
274
.
At March 31, 2025, the Company had a net amount due to United of
$
2,269
and
funds withheld for assumed business in trust accounts totaling
$
8,451
for the benefit of policies assumed from United. The Company cannot predict the actions a receiver might take, which may include restrictions on, or use of, funds held in trust. Any such actions could have a material adverse effect on the Company’s financial position and results of operations.
At March 31, 2025 and December 31, 2024
, the balance of funds withheld for assumed business related to the Company’s quota share reinsurance agreements with United was $
8,451
and $
11,690
, respectively.
Citizens Assumption
Assumed premiums written related to Citizens policies were approximately $
20,790
and $
43,091
for the
three months ended March 31, 2025 and 2024
, respectively.
26
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 13 -- Losses and Loss Adjustment Expenses
The liability for losses and loss adjustment expenses (“LAE”) is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claims development and losses incurred but not reported.
The Company primarily writes insurance in states which could be exposed to hurricanes or other natural catastrophes. The occurrence of a major catastrophe could have a significant effect on the Company’s quarterly results and cause a temporary disruption of the normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.
Activity in the liability for losses and LAE is summarized as follows:
Three Months Ended
March 31,
2025
2024
Net balance, beginning of period*
$
323,335
$
254,351
Incurred, net of reinsurance, related to:
Current period
59,291
79,922
Prior periods
—
—
Total incurred, net of reinsurance
59,291
79,922
Paid, net of reinsurance, related to:
Current period
(
13,095
)
(
17,789
)
Prior periods
(
52,970
)
(
43,059
)
Total paid, net of reinsurance
(
66,065
)
(
60,848
)
Net balance, end of period
316,561
273,425
Add: reinsurance recoverable before allowance for credit losses
481,585
305,287
Gross balance, end of period
$
798,146
$
578,712
*
Net balance represents beginning-of-period liability for unpaid losses and LAE less beginning-of-period reinsurance recoverable for unpaid losses and LAE.
The establishment of loss and LAE reserves is an inherently uncertain process and changes in loss and LAE reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such estimates are adjusted. Losses and LAE for the three months ended March 31, 2025
included net estimated losses of approximately $
10,775
related to Citizens policies assumed. Excluding Citizens-related losses, lower losses and LAE for the three months ended March 31, 2025 resulted from a decre
ase in reported claims and litigation frequency.
27
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 14 -- Variable Interest Entities
The Company holds variable interests in two reciprocal insurance exchanges, CORE and Tailrow. The reciprocal insurance exchanges are owned by their policyholders, referred to as subscribers, who gain ownership by buying an insurance policy and making a surplus contribution. The Company is required to assess whether it has a controlling financial interest in its variable interest entities. A controlling financial interest exists if an entity has both: 1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and 2) the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE. Under U.S. GAAP, an entity meeting these requirements is considered to be the primary beneficiary of a VIE and is required to consolidate the VIE.
CORE was organized to offer commercial residential multiple peril and wind insurance products and Tailrow was organized to provide commercial residential multiple peril insurance. Based on management’s current evaluation, CORE and Tailrow are considered variable interest entities (VIEs), and the Company has determined that it is the primary beneficiary of both entities.
Tailrow’s and CORE’s assets are legally restricted for the purpose of fulfilling their obligations. The creditors of the VIEs have no legal right to pursue additional sources of payment from the Company.
28
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table summarizes the assets and liabilities related to the Company’s variable interests in consolidated VIEs which are included in the accompanying consolidated balance sheets:
March 31,
December 31,
2025
2024
Assets:
Cash and cash equivalents
$
100,286
$
74,886
Restricted cash
616
611
Income taxes receivable
—
463
Deferred income taxes, net
1,502
72
Premiums receivable, net
(allowance: $
205
and $
1,085
, respectively)
4,143
4,230
Prepaid reinsurance premium
6,582
13,886
Reinsurance recoverable, net of allowance for
credit losses:
Unpaid losses and loss adjustment expenses
(allowance: $
2
and $
4
, respectively)
3,598
3,596
Deferred policy acquisition costs
2,538
2,709
Other assets
626
891
Total assets
$
119,891
$
101,344
Liabilities:
Losses and loss adjustment expenses
$
19,042
$
17,415
Unearned premiums
40,474
30,204
Advance premiums
327
—
Assumed premiums payable
1,362
656
Accrued expenses
889
915
Income taxes payable
2,535
19
Deferred income taxes, net
—
261
Other liabilities
1,398
1,131
Total liabilities
$
66,027
$
50,601
29
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 15 -- Segment Information
The Company identifies its operating divisions based on managerial emphasis, organizational structure and revenue source. The Company has
five
reportable segments: insurance operations, Exzeo Group, reciprocal exchange operations, real estate operations, and corporate and other. Due to their economic characteristics, the Company’s property and casualty insurance division and reinsurance operations, excluding the insurance operations under reciprocal exchange operations, are grouped together into one reportable segment under insurance operations. The Exzeo Group segment includes insurance solutions, information technology operations, and its management company’s activities. The reciprocal exchange segment represents the insurance operations of CORE and Tailrow, consolidated VIEs. The real estate operations segment includes companies engaged in operating commercial properties the Company owns for investment purposes or for use in its own operations. The corporate and other segment represents the activities of the holding companies and any other companies, such as CRM and TRM, that do not meet the quantitative and qualitative thresholds for a reportable segment. The determination of segments may change over time due to changes in operational emphasis, revenues, and results of operations. The Company’s chief executive officer, who serves as the Company’s chief operating decision maker, evaluates each division’s financial and operating performance based on revenue and operating income.
For the three months ended March 31, 2025 and 2024, revenues from the insurance operations segment before intracompany elimination represente
d
77.0
% and
85.1
%, respectively, and revenues from the
Exzeo
Group segment represented
16.7
% and
12.7
%, respectively, of total revenues of all operating segments. At March 31, 2025 and December 31, 2024, insurance operations’ total assets represent
ed
81.1
% and
83.6
%, respectively, and
Exzeo
Group’s total assets represented
5.5
% and
3.7
%,
respectively, of the combined assets of all operating segments.
30
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following tables present segment information reconciled to the Company’s consolidated statements of income. Intersegment transactions are not eliminated from segment results. However, intracompany transactions are eliminated in segment results below.
For Three Months Ended
March 31, 2025
Insurance
Operations
Exzeo
Group
Reciprocal
Exchange
Operations
Real
Estate (a)
Corporate/
Other (b)
Reclassification/
Elimination
Consolidated
Revenue:
Gross premiums earned (c)
$
282,135
$
—
$
19,447
$
—
$
—
$
(
1,199
)
$
300,383
Premiums ceded
(
93,427
)
—
(
7,407
)
—
—
1,199
(
99,635
)
Net premiums earned
188,708
—
12,040
—
—
—
200,748
Net income from investment portfolio
10,859
398
780
—
1,765
(
790
)
13,012
Policy fee income
2,229
—
—
—
—
—
2,229
Other
2,746
52,407
(
9
)
2,840
3,655
(
61,195
)
444
Total revenue
204,542
52,805
12,811
2,840
5,420
(
61,985
)
216,433
Expenses:
Losses and loss adjustment expenses
70,815
—
2,772
—
—
(
14,296
)
59,291
Amortization of deferred policy
acquisition costs
25,244
—
1,067
—
—
—
26,311
Other policy acquisition expenses
18,333
12,667
2,521
—
2,128
(
34,673
)
976
Stock-based compensation expense
473
723
—
—
1,776
—
2,972
Interest expense
—
—
1,108
216
3,168
(
1,108
)
3,384
Depreciation and amortization
611
708
—
510
191
(
374
)
1,646
Personnel and other operating expenses
11,244
14,512
255
1,733
4,155
(
10,385
)
21,514
Total expenses
126,720
28,610
7,723
2,459
11,418
(
60,836
)
116,094
Income (loss) before income taxes (d)
$
77,822
$
24,195
$
5,088
$
381
$
(
5,998
)
$
(
1,149
)
$
100,339
Total revenue from non-affiliates (e)
$
201,050
$
398
$
14,010
$
1,975
$
838
Gross premiums written
$
259,529
$
—
$
29,717
(a)
Other revenue under real estate primarily consisted of rental income from investment properties.
(b)
Other revenue under corporate and other primarily consisted of revenue from marina operations and management fees for attorney-in-fact services.
(c)
Gross premiums earned under insurance operations includes $
1,199
earned from reciprocal exchange operations.
(d)
The income (loss) before income taxes in the reclassification/elimination column is attributable to intercompany transactions among operating segments. The insurance operations and the reciprocal exchange operations record service fee expenses based on earned premiums or other appropriate measures, while Exzeo Group and the AIF operations recognize service fee revenues according to revenue recognition standards. Although both service fee expenses and revenues are fully eliminated on consolidation, they do not completely offset each other in this presentation due to the different methods of recognition.
(e)
Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.
31
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
For Three Months Ended
March 31, 2024
Insurance
Operations
Exzeo
Group
Reciprocal
Exchange
Operations
Real
Estate (a)
Corporate/
Other (b)
Reclassification/
Elimination
Consolidated
Revenue:
Gross premiums earned (c)
$
253,472
$
—
$
3,625
$
—
$
—
$
(
453
)
$
256,644
Premiums ceded
(
66,341
)
—
(
2,218
)
—
—
453
(
68,106
)
Net premiums earned
187,131
—
1,407
—
—
—
188,538
Net income from investment portfolio
12,758
13
56
—
4,694
(
819
)
16,702
Policy fee income
1,019
—
—
—
—
—
1,019
Other
3,092
32,929
—
3,447
1,030
(
40,143
)
355
Total revenue
204,000
32,942
1,463
3,447
5,724
(
40,962
)
206,614
Expenses:
Losses and loss adjustment expenses
84,024
—
1,268
—
—
(
5,370
)
79,922
Amortization of deferred policy
acquisition costs
20,931
—
—
—
—
—
20,931
Other policy acquisition expenses
15,415
11,158
546
—
—
(
25,911
)
1,208
Stock-based compensation expense
369
701
—
—
512
—
1,582
Interest expense
—
1,500
812
223
2,926
(
2,312
)
3,149
Depreciation and amortization
612
614
—
380
160
(
276
)
1,490
Personnel and other operating expenses
13,433
11,869
54
1,434
3,733
(
9,621
)
20,902
Total expenses
134,784
25,842
2,680
2,037
7,331
(
43,490
)
129,184
Income (loss) before income taxes (d)
$
69,216
$
7,100
$
(
1,217
)
$
1,410
$
(
1,607
)
$
2,528
$
77,430
Total revenue from non-affiliates (e)
$
200,803
$
13
$
1,916
$
2,606
$
2,784
Gross premiums written
$
235,499
$
—
$
19,487
(a)
Other revenue under real estate primarily consisted of rental income from investment properties.
(b)
Other revenue under corporate and other primarily consisted of revenue from marina operations and management fees for attorney-in-fact services.
(c)
Gross premiums earned under insurance operations include $
453
earned from the reciprocal exchange operations.
(d)
The income (loss) before income taxes in the reclassification/elimination column is attributable to intercompany transactions among operating segments. The insurance operations and the reciprocal exchange operations record service fee expenses based on earned premiums or other appropriate measures, while Exzeo Group and the AIF operations recognize service fee revenues according to revenue recognition standards. Although both service fee expenses and revenues are fully eliminated on consolidation, they do not completely offset each other in this presentation due to the different methods of recognition.
(e)
Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.
32
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table presents gross premium earned by geographic location:
Three Months Ended March 31,
2025
2024
Florida
$
270,805
$
227,249
Non-Florida
29,578
29,395
Total gross premiums earned
$
300,383
$
256,644
The following table presents segment assets reconciled to the Company’s total assets on the consolidated balance sheets:
March 31,
December 31,
2025
2024
Segments:
Insurance Operations
$
1,906,645
$
1,905,878
Exzeo Group
135,824
89,441
Reciprocal Exchange Operations
125,383
105,556
Real Estate Operations
98,731
96,795
Corporate and Other
215,068
175,282
Consolidation and Elimination
(
174,983
)
(
142,739
)
Total assets
$
2,306,668
$
2,230,213
33
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 16 -- Leases
The table below summarizes the Company’s right-of-use (“ROU”) assets and corresponding liabilities for operating and finance leases:
March 31,
December 31,
2025
2024
Operating leases:
ROU assets
$
1,124
$
1,182
Liabilities
$
1,131
$
1,185
The following table summarizes the Company’s operating and finance leases in which the Company is a lessee:
Renewal
Other Terms and
Class of Assets
Initial Term
Option
Conditions
Operating lease:
Office equipment
36
to
63
months
Yes
(a)
Office space
5
to
9
years
Yes
(a), (b)
(a)
There are no variable lease payments.
(b)
Rent escalation provisions exist.
As of
March 31, 2025, maturities of operating lease liabilities were as follows:
Due in 12 months following March 31,
2025
$
294
2026
303
2027
313
2028
157
2029
115
Thereafter
99
Total lease payments
1,281
Less: interest
150
Total lease obligations
$
1,131
34
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
The following table provides quantitative information with regard to the Company’s operating and finance leases:
Three Months Ended
March 31,
2025
2024
Lease costs:
Operating lease costs*
$
76
$
68
Short-term lease costs*
80
92
Total lease costs
$
156
$
160
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows – operating leases
$
72
$
70
Financing cash flows – finance leases
$
—
$
1
March 31,
2025
Weighted-average remaining lease term:
Operating leases (in years)
4.4
Weighted-average discount rate:
Operating leases (%)
6.0
%
*
Included in other operating expenses on the consolidated statements of income.
The following table summarizes the Company’s operating leases in which the Company is a lessor:
Renewal
Other Terms and
Class of Assets
Initial Term
Option
Conditions
Operating lease:
Office space
1
to
3
years
Yes
(c)
Retail space
3
to
20
years
Yes
(c)
Boat docks/wet slips
1
to
12
months
Yes
(c)
(c)
There are no purchase options.
In March 2025,
the Company entered into an operating lease agreement with tenant Government Employees Insurance Company (“GEICO”) for its 189,147-square-foot commercial real estate investment property located in Tampa, Florida. The lease term is
128
months, includes two options to renew for additional
60
-month terms, and is expected to commence in the third quarter of 2025. GEICO also has the option to terminate, either partially or wholly, the lease agreement at the end of the seventh year after commencement of the lease. Under the office lease, the Company will waive rent for all three buildings during the first eight months of the lease term, rent for the first building during months 9 - 12, and fifty percent of rent for the first building during months 13 - 18.
The Company will own all building improvements performed by the tenant. The total consideration in the lease agreement is allocated between the lease and non-lease components based on their relative standalone prices, with the lease component representing the right to use office space and the non-lease component comprising various property maintenance and administrative services provided by the Company. The lease agreement does not include any residual value guarantees.
35
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Note 17 -- Income Taxes
A valuation allowance must be established for deferred tax assets when it is more likely than not that the deferred tax assets will not be realized based on available evidence both positive and negative, including recent operating results, available tax planning strategies, and projected future taxable income. The Company evaluates the realizability of its deferred tax assets each quarter, and as of March 31, 2025, based on all of the available evidence, management concluded that it is more likely than not that the deferred tax assets will be realized other than a valuation allowance on the sale of TTIC by Exzeo to HCI in the amount of $
544
related to the deferred intercompany taxable loss that arose during the third quarter of 2024. The Company did
no
t have a valuation allowance established as of March 31, 2024.
During the three months ended March 31, 2025 and 2024
, the Company recorded approximately $
26,109
and $
20,474
of income tax expense, respectively, resulting in effective tax rates of
26.0
% and
26.4
%, respectively. The decrease in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to a higher prior year effect tax rate resulting from certain non-deductible compensation expense for the first quarter of 2024. The Company’s estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items.
Note 18 -- Earnings Per Share
U.S. GAAP requires the Company to use the two-class method in computing basic earnings (loss) per share since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating securities affect the computation of both basic and diluted earnings (loss) per share during periods of net income or loss. For a majority-owned subsidiary, its basic and diluted earnings (loss) per share are first computed separately. Then, the Company’s proportionate share in that majority-owned subsidiary’s earnings is added to the computation of both basic and diluted earnings (loss) per share at a consolidated level.
36
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
A summary of the numerator and denominator of the basic and diluted earnings per common share is presented below:
Three Months Ended
Three Months Ended
March 31, 2025
March 31, 2024
Income
Shares (a)
Per Share
Income
Shares (a)
Per Share
(Numerator)
(Denominator)
Amount
(Numerator)
(Denominator)
Amount
Net income
$
74,230
$
56,956
Less: Net income attributable to
redeemable noncontrolling
interests
—
(
10,149
)
Less: Net (income) loss
attributable to noncontrolling
interests
(
4,546
)
804
Net income attributable to HCI
69,684
47,611
Less: Income attributable to
participating securities
(
3,103
)
(
1,218
)
Basic Earnings Per Share:
Income allocated to common
stockholders
66,581
10,286
$
6.47
46,393
9,751
$
4.76
Effect of Dilutive Securities:
Stock options
—
350
—
280
Convertible senior notes
1,873
2,142
1,640
2,282
Warrants
—
7
—
305
Diluted Earnings Per Share:
Income available to common
stockholders and assumed
conversions
$
68,454
12,785
$
5.35
$
48,033
12,618
$
3.81
(a)
Shares in thousands
.
Note 19 -- Redeemable Noncontrolling Interests
Exzeo
- Series A Preferred Stock
Exzeo previously issued shares of its Series A Preferred Stock to a private investment management fund. These shares were presented as redeemable noncontrolling interest on the consolidated balance sheet until the redemption was completed during the first quarter of 2024. For the three months ended March 31, 2024
, net income attributable to redeemable noncontrolling interest was $
10,149
, consisting of accrued cash dividends of $
424
, accretion related to increasing dividend rates of $
111
, an adjustment to maximum redemption value of $
6,228
, and a deemed dividend resulting from warrant modifications of $
3,386
.
VIE - Subscriber Surplus Contribution
Subscriber surplus contributions in redeemable noncontrolling interests represent a refundable portion of the surplus contributions received from policyholders of the VIEs.
The following table summarizes the activity of the subscriber surplus contribution during the
three months ended March 31, 2025 and 2024:
37
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
2025
2024
Balance at January 1
$
1,691
$
—
Cash contribution
833
—
Return of contribution
(
3
)
—
Noncash reclassification
(
884
)
—
Balance at March 31
$
1,637
$
—
Note 20 -- Equity
Stockholders’ Equity
Common Stock
On
January 14, 2025
, the Company’s Board of Directors declared a quarterly dividend of $
0.40
per common share. The dividends were paid on
March 21, 2025
to stockholders of record on
February 21, 2025
.
Noncontrolling Interests
Exzeo
During the three months ended March 31, 2025, Exzeo did not repurchase and retire any shares of common stock from current or former employees. For the three months ended March 31, 2024
, Exzeo repurchased and retired a total of
22,787
shares of its common stock surrendered by its employees to satisfy payroll tax liabilities associated with the vesting of restricted shares. The total cost of purchasing noncontrolling interests during the three months ended March 31, 2024 wa
s $
33
.
At March 31, 2025, there w
ere
82,709,589
s
hares of Exzeo’s common stock outstanding, of which
7,709,589
shares were not owned by HCI.
Consolidated Variable Interest Entities
As described in Note 14 -- “V
ariable Interest Entities,” the Company has no equity interest at risk in consolidated VIEs. An insurance exchange receives surplus contributions from its subscribers in addition to policy premiums. The surplus contribution is payable to an insurance exchange on or prior to the initial effective date of coverage, in installments for certain payment plans, and on or prior to the effective date of all endorsements generating an additional premium.
Note 21 -- Stock-Based Compensation
2012 Omnibus Incentive Plan
The Company currently has outstanding stock-based awards granted under the Plan which is currently active and available for future grants. At March 31, 2025
, there were
691,596
shares available for grant.
Stock Options
Stock options granted and outstanding under the incentive plan vest over a period of
four years
and are exercisable over the contractual term of
ten years
.
38
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
A summary of the stock option activity for the
three months ended March 31, 2025 and 2024 is as follows (option amounts not in thousands):
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Price
Term
Value
Outstanding at January 1, 2025
590,000
$
51.54
4.9
years
$
37,523
Outstanding at March 31, 2025
590,000
$
51.54
4.6
years
$
58,367
Exercisable at March 31, 2025
590,000
$
51.54
4.6
years
$
58,367
Outstanding at January 1, 2024
590,000
$
51.54
5.9
years
$
21,156
Outstanding at March 31, 2024
590,000
$
51.54
5.6
years
$
38,077
Exercisable at March 31, 2024
590,000
$
51.54
5.6
years
$
38,077
There w
ere
no
options
exercised during the three months ended March 31, 2025 and 2024. For the three months ended March 31, 2025 and 2024, the Company recognized
$
0
and $
14
, respectively, of compensation expense related to stock options which is included in general and administrative personnel expenses. There we
re
no
deferred tax benefits r
elated to stock options recognized for the three months ended March 31, 2025 and 2024. At March 31, 2025 and December 31, 2024, there was
no
unrecognized compensation expense related to nonvested stock options.
Restricted Stock Awards
From time to time, the Company has granted and may grant restricted stock awards to certain executive officers, other employees, and non-employee directors in connection with their service to the Company. The terms of the Company’s outstanding restricted stock grants may include service, performance, and market-based conditions. The determination of fair value with respect to the awards containing only service-based conditions is based on the market value of the Company’s common stock on the grant date. For awards with market-based conditions, the fair value is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome.
39
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
Information with respect to the activity of unvested restricted stock awards during the
three months ended March 31, 2025 and 2024 is as follows:
Number of
Weighted
Restricted
Average
Stock
Grant Date
Awards
Fair Value
Nonvested at January 1, 2025
486,115
$
63.00
Granted
1,000
$
138.94
Vested
(
18,405
)
$
61.38
Forfeited
(
750
)
$
109.72
Nonvested at March 31, 2025
467,960
$
63.15
Nonvested at January 1, 2024
271,417
$
37.12
Vested
(
29,690
)
$
56.05
Forfeited
(
200
)
$
51.87
Nonvested at March 31, 2024
241,527
$
34.78
The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $
2,249
and $
867
for the
three months ended March 31, 2025 and 2024, respectively. At March 31, 2025 and December 31, 2024
, there was approximately $
18,083
and $
20,296
, respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period o
f
2
.
7
yea
rs.
The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to restricted stock awards and paid dividends, and the fair value of vested restricted stock for the
three months ended March 31, 2025 and 2024.
Three Months Ended
March 31,
2025
2024
Deferred tax benefits recognized
$
201
$
99
Tax benefits realized for restricted stock and paid dividends
$
608
$
511
Fair value of vested restricted stock
$
1,130
$
1,664
Subsidiary Equity Plan
For the three months ended March 31, 2025 and 2024
, Exzeo Group recognized compensation expense related to its stock-based awards of $
703
and $
701
, respectively. At
March 31, 2025 and December 31, 2024
, there was $
8,491
and $
9,495
, respectively, of unrecognized compensation expense related to nonvested subsidiary restricted stock and stock options.
Note 22 -- Commitments and Contingencies
Capital Commitments
As described in Note 5 -- “Investments” under
Limited Partnership Investments
, the Company is contractually committed to capital contributions for limited partnership interests. At March 31, 2025
, there was an aggregate unfunded balance of $
3,160
.
40
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
(Amounts in thousands, except share and per share amounts, unless otherwise stated)
FIGA Assessments
The Company’s insurance subsidiaries, as member insurers, are required to collect and remit the pass-through assessments to FIGA on a quarterly basis. As of March 31, 2025
, the FIGA assessments payable by the Company were $
2,164
and are included in other liabilities on the consolidated balance sheet.
Note 23 -- Related Party Transaction
HCPCI and TTIC have reinstatement premium protection reinsurance contracts (“RPP”) with various reinsurers. For one of the RPP contracts, Oxbridge Reinsurance Limited (“Oxbridge”) participates as a subscribing reinsurer. One of the Company’s non-employee directors, Jay Madhu, serves as Oxbridge’s chairman of its board of directors and chief executive officer and is an investor in that company. Under the contracts, Oxbridge agrees to indemnify HCPCI and TTIC for a portion of reinstatement premium which HCPCI or TTIC pays or becomes liable to pay to reinstate reinsurance protection. The $
1,099
premium is paid over four installments, each of which is to be deposited into a trust account in order to fully collateralize Oxbridge’s obligations. Trust assets may be withdrawn by HCPCI and TTIC or the trust beneficiaries in the event amounts are due under the
2024-2025 RPP contracts.
Note 24 -- Subsequent Events
On April 11, 2025, the Company entered into an agreement with a holder of its
4.75
% Convertible Senior Notes, whereby the noteholder converted $
61,761
in aggregate principal amount in exchange for
783,061
shares of HCI’s common stock and $
1,125
in cash. The transaction was accounted for as an induced conversion. As such, the Company recognized induced conversion expense of $
1,125
, representing the excess of the fair value of the total consideration transferred over the fair value of the common stock issued.
On
April 23, 2025
, the Company’s Board of Directors declared a quarterly dividend of $
0.40
per common share. The dividends are payable on
Ju
ne 20, 2025
to stockholders of record on
May 16, 2
025
.
41
ITEM 2 –
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion under this Item 2 in conjunction with our consolidated financial statements and related notes and information included elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2025. Unless the context requires otherwise, as used in this Form 10-Q, the terms “HCI,” “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to HCI Group, Inc., a Florida corporation incorporated in 2006, and its subsidiaries. All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in whole dollars unless specified otherwise.
Forward-Looking Statements
In addition to historical information, this quarterly report contains forward-looking statements as defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effects of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; changes in the demand for, pricing of, availability of or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; the severity and impact of a pandemic; and other risks and uncertainties detailed herein and from time to time in our SEC reports.
OVERVIEW –
General
HCI Group, Inc. is a Florida-based company with operations in property and casualty insurance, information technology services, insurance management, real estate and reinsurance. We utilize innovative technology to promote efficiency, refine risk assessment and enhance experiences for clients throughout the insurance process. We manage our operations in the following organizational segments, based on managerial emphasis and evaluation of financial and operating performances:
a)
Insurance Operations
▪
Property and casualty insurance
▪
Reinsurance and other auxiliary operations
b)
Exzeo Group
▪
Insurance solutions
▪
Information technology
▪
Reinsurance brokerage services
c)
Reciprocal Exchange Operations
d)
Real Estate Operations
e)
Other Operations
42
▪
Attorney-in-fact services
▪
Holding company operations
For the three months ended March 31, 2025 and 2024, revenues from insurance operations before intracompany elimination represented 77.0% and 85.1%, respectively, and revenues from Exzeo Group represented 16.7% and 12.7%, respectively, of total revenues of all operating segments. At March 31, 2025 and December 31, 2024, insurance operations’ total assets represented 81.1% and 83.6%, respectively, and Exzeo Group’s total assets represented 5.5% and 3.7%, respectively, of the combined assets of all operating segments. See Note 15 -- “Segment Information” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
Insurance Operations
Property and Casualty Insurance
We currently have three insurance subsidiaries: Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”) and TypTap Insurance Company (“TTIC”). A third insurance subsidiary, perRisk Insurance Company, has yet to conduct its surplus lines insurance business. We provide various forms of residential insurance products such as homeowners insurance, fire insurance, and wind-only insurance to homeowners, condominium owners and tenants for properties primarily located in Florida and in various states outside of Florida. Although we conduct insurance business in many states, Florida remains our primary market. We utilize internally developed software technologies to drive efficiency in claim processing and claims settlements, identify profitable underwriting opportunities, generate savings and streamline operations across its insurance operations.
Reinsurance and other auxiliary operations
We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd (“Claddaugh”). We selectively retain risk in Claddaugh, reducing the cost of third-party reinsurance. Claddaugh fully collateralizes its exposure to HCPCI, TypTap, and CORE by depositing funds into a trust account. Claddaugh may mitigate a portion of its risk through retrocession contracts, however Claddaugh did not enter into any retrocession contracts for the 2024-2025 treaty year. Currently, Claddaugh does not provide reinsurance to non-affiliates. Other auxiliary operations also include claim adjusting and processing services.
Exzeo Group
Exzeo Group, Inc. (“Exzeo”), our majority-owned subsidiary, currently has four subsidiaries: Exzeo Insurance Services, Inc (“EIS”) which was formerly known as TypTap Management Company, Exzeo USA, Inc. (“Exzeo USA”), Dark Horse Re, LLC (“Dark Horse”), and Cypress Tech Development Company which also owns Exzeo Software Private Limited (“Exzeo India”), a subsidiary domiciled in India. Exzeo provides a turn-key insurance technology and operations solutions to third-party insurance carriers based on a proprietary platform of purpose-built software and data-analytics applications that are specifically designed for the property and casualty insurance ecosystem. Exzeo's platform of products and services is highly scalable and poised to continue to optimize the performance of insurance markets, to the benefit of policyholders, capital providers, as well as the overall insurance value chain. The advanced data analytics algorithms and software tools enable insurance carriers to maximize efficiency of their systems, optimize underwriting outcomes and ultimately serve their customers more effectively.
43
Insurance Solutions
Exzeo provides operational services through EIS, which performs end-to-end services including underwriting support, insurance application processing, policyholder service, premium collection activities and claims administration. Additionally, EIS leverages data analytics to monitor claims and market trends to improve pricing models, advising on insurance policy design, and ensuring compliance with regulatory requirements.
Information Technology
Exzeo’s information technology operations are anchored by its software development and data analytics capabilities, primarily supported by Exzeo USA and Exzeo India, which design and maintain components of Exzeo’s technology infrastructure along with research and development. Exzeo's proprietary platform includes configurable applications designed to support the full insurance value chain from quoting and underwriting, policy management, claims management, geolocation visualization tools, as well as financial reporting. Key products currently in use or under development include AtlasViewer®, an online data visualization and geographic tool,
SAMS
TM
, a policy administration platform,
Harmony
TM
, a next generation policy administration platform under development, and
ClaimColony
TM
, an application that provides intelligent automation of insurance claims and other business processes.
Reinsurance Brokerage Services
Through our subsidiary Dark Horse, we provide expert reinsurance brokerage services to help insurance companies manage risk by acting as an intermediary between the insurer client and reinsurers. We design tailored reinsurance solutions by assessing our insurer client’s risk portfolio.
Reciprocal Exchange Operations
Reciprocal Exchange Operations refer to the activities of consolidated variable interest entities, Condo Owners Reciprocal Exchange (“CORE”) and Tailrow Insurance Exchange (“Tailrow”). CORE provides commercial residential multiple peril insurance, while Tailrow specializes in fire and homeowners multiple peril insurance.
A reciprocal insurance exchange is a policyholder-owned entity where members, known as subscribers, gain ownership by purchasing an insurance policy. These subscribers collectively assume one another’s risks by exchanging insurance contracts, effectively acting as both insurers and insureds. The exchange’s operations are managed by an attorney-in-fact (“AIF”) company, which oversees general administration, marketing, underwriting, accounting, policy administration, claims adjusting, and information technology.
Real Estate Operations
Our real estate operations consist of multiple properties we own and operate for investment purposes and also properties we own and use for our own operations. Properties used in operations consist of two Tampa office buildings and an insurance operations site in Ocala, Florida. Our investment properties include retail shopping centers, two marinas, undeveloped land in Tampa and land under development in Haines City, Florida.
Other Operations
Holding company operations
Activities of our holding company, HCI Group, Inc., plus other companies that do not meet the quantitative and qualitative thresholds for a reportable segment comprise the operations of this segment.
44
Recent Events
On April 11, 2025, we entered into an agreement with a holder of our 4.75% Convertible Senior Notes, whereby the noteholder converted $61,761,000 in aggregate principal amount in exchange for 783,061 shares of HCI’s common stock and approximately $1,125,000 in cash. The transaction was accounted for as an induced conversion. As such, we recognized induced conversion expense of $1,125,000, representing the excess of the fair value of the total consideration transferred over the fair value of the common stock issued.
On April 23, 2025, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on June 20, 2025 to stockholders of record on May 16, 2025.
45
RESULTS OF OPERATIONS
The following table summarizes our results of operations for the three months ended March 31, 2025 and 2024 (dollar amounts in thousands, except per share amounts):
Three Months Ended
March 31,
2025
2024
Revenue
Gross premiums earned
$
300,383
$
256,644
Premiums ceded
(99,635
)
(68,106
)
Net premiums earned
200,748
188,538
Net investment income
13,751
14,067
Net realized investment gains
1,167
—
Net unrealized investment (losses) gains
(1,906
)
2,635
Policy fee income
2,229
1,019
Other income
444
355
Total revenue
216,433
206,614
Expenses
Losses and loss adjustment expenses
59,291
79,922
Policy acquisition and other underwriting expenses
27,287
22,139
General and administrative personnel expenses
20,483
16,274
Interest expense
3,384
3,149
Other operating expenses
5,649
7,700
Total expenses
116,094
129,184
Income before income taxes
100,339
77,430
Income tax expense
26,109
20,474
Net income
74,230
56,956
Net income attributable to noncontrolling interests
(4,546
)
(9,345
)
Net income after noncontrolling interests
$
69,684
$
47,611
Ratios to Net Premiums Earned:
Loss Ratio
29.54
%
42.39
%
Expense Ratio (excluding interest expense)
26.61
%
24.46
%
Combined Ratio (excluding interest expense)
56.15
%
66.85
%
Ratios to Gross Premiums Earned:
Loss Ratio
19.74
%
31.14
%
Expense Ratio (excluding interest expense)
17.78
%
17.97
%
Combined Ratio (excluding interest expense)
37.52
%
49.11
%
Earnings Per Share Data:
Basic
$
6.47
$
4.76
Diluted
$
5.35
$
3.81
Comparison of the Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024
Our results of operations for the three months ended March 31, 2025 reflect net income of approximately $74,230,000 or $5.35 diluted earnings per share, compared with net income of approximately $56,956,000 or $3.81 diluted earnings per share, for the three months ended March 31, 2024. The quarter-over-quarter increase was primarily due to a $20,631,000 decrease in losses and loss adjustment expenses and a $12,210,000 increase in net premiums earned, offset by a $4,209,000 increase in general and administrative personnel expenses, a $3,690,000 net decrease in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains or losses), and a $3,097,000 increase in policy acquisition, underwriting, and other operating expenses .
46
Revenue
Gross Premiums Earned
on a consolidated basis for the three months ended March 31, 2025 and 2024 were approximately $300,383,000 and $256,644,000, respectively. The $43,739,000 increase was primarily attributable to the policies assumed from Citizens. Gross premiums earned from insurance operations were $282,135,000 for the three months ended March 31, 2025 compared with $253,472,000 for the three months ended March 31, 2024. Gross premiums earned from reciprocal exchange operations were $19,447,000 for the three months ended March 31, 2025 compared to $3,625,000 for the three months ended March 31, 2024.
Premiums Ceded
for the three months ended March 31, 2025 and 2024 were approximately $99,635,000 and $68,106,000, respectively, representing 33.2% and 26.5%, respectively, of gross premiums earned. The $31,529,000 increase was primarily attributable to higher reinsurance rates for the 2024-2025 contract year, increased coverage due to growth in the number of policies in force and total insured value.
Our premiums ceded represent costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts or to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. Reinsurance costs can be decreased by a reduction in premiums ceded attributable to retrospective provisions under reinsurance contracts. For the three months ended March 31, 2025, there was no adjustment in premiums ceded related to retrospective provisions as opposed to a decrease of $6,993,000 for the three months ended March 31, 2024.
Net Premiums Written
for the three months ended March 31, 2025 and 2024 totaled approximately $189,611,000 and $186,880,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The increase in 2025 primarily resulted from an increase in gross premiums written from the assumption of Citizens insurance policies, offset by an increase in premiums ceded. We had approximately 278,400 policies in force at March 31, 2025 as compared with approximately 250,500 policies in force at March 31, 2024.
Net Premiums Earned
for the three months ended March 31, 2025 and 2024 were approximately $200,748,000 and $188,538,000, respectively, and reflect the gross premiums earned less reinsurance costs as described above.
The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended March 31, 2025 and 2024 (amounts in thousands):
Three Months Ended
March 31,
2025
2024
Net Premiums Written
$
189,611
$
186,880
Decrease in Unearned Premiums
11,137
1,658
Net Premiums Earned
$
200,748
$
188,538
Net Investment Income
for the three months ended March 31, 2025 and 2024 was approximately $13,751,000 and $14,067,000, respectively. The $316,000 decrease was primarily attributable to a $1,175,000 decrease in income from real estate investments, a $946,000 decrease in interest income from cash and cash equivalents, and a $821,000 decrease in income from limited partnership investments, offset by an increase of $2,687,000 in interest income from available-for-sale fixed-maturity securities. See
Net Investment Income
under Note 5 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
47
Net Realized Investment Gains
for the three months ended March 31, 2025 were approximately $1,167,000 as opposed to $0 for the three months ended March 31, 2024. The increase was primarily attributable to net realized gains of approximately $1,115,000 from sales of equity securities during the three months ended March 31, 2025 as opposed to $0 from sales of these securities during the corresponding period in 2024.
Net Unrealized Investment Losses
for the three months ended March 31, 2025 was approximately $1,906,000 as opposed to net unrealized investment gains of approximately $2,635,000 for the three months ended March 31, 2024. The decrease was primarily attributable to an unfavorable change in the equity market compared with the three months ended March 31, 2024.
Expenses
Our consolidated
Losses and Loss Adjustment Expenses
amounted to approximately $59,291,000 and $79,922,000 for the three months ended March 31, 2025 and 2024, respectively. The decrease is primarily driven by a decline in claims and litigation frequency. The decrease was offset in part by losses on policies assumed from Citizens by the reciprocal exchange operations during 2025. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”
Policy Acquisition and Other Underwriting Expenses
for the three months ended March 31, 2025 and 2024 were approximately $27,287,000 and $22,139,000 on a consolidated basis, respectively, and primarily reflect the amortization of deferred acquisition costs such as commissions payable to agents for production and renewal of policies and premium taxes. The increase in amortized costs was primarily due to an increase in premiums in force associated with policy renewals in the insurance and reciprocal exchange operations.
General and Administrative Personnel Expenses
for the three months ended March 31, 2025 and 2024 were approximately $20,483,000 and $16,274,000, respectively. Our general and administrative personnel expenses include salaries, wages, payroll taxes, stock-based compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to projects to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The quarter-over-quarter increase of $4,209,000 was primarily attributable to an increase in employee incentive bonus, an increase in stock-based compensation expense, an increase in employee health benefits, and merit increases for non-executive employees effective in March 2025, offset by higher payroll costs recoverable from reinsurers
Interest Expense
for the three months ended March 31, 2025 and 2024 was approximately $3,384,000 and $3,149,000, respectively. The increase was primarily attributable to the accelerated amortization of debt issuance costs in connection with the planned redemption of our 4.75% Convertible Senior Notes on June 5, 2025.
Income Tax Expense
for the three months ended March 31, 2025 and 2024 was approximately $26,109,000 and $20,474,000, respectively, for state, federal, and foreign income taxes, resulting in effective tax rates of 26.0% and 26.4%, respectively.
Ratios:
The loss ratio applicable to the three months ended March 31, 2025 (losses and loss adjustment expenses incurred related to net premiums earned) was 29.5% compared with 42.4% for the three months ended March 31, 2024. The decrease was primarily attributable to the decrease in losses and loss adjustment expenses and the increase in net premiums earned.
48
The expense ratio applicable to the three months ended March 31, 2025 (defined as total expenses excluding losses and loss adjustment expenses and interest expense related to net premiums earned) was 26.6% compared with 24.5% for the three months ended March 31, 2024. The increase in our expense ratio was primarily attributable to the increase in policy acquisition and other underwriting expense and the increase in general and administrative personnel expenses.
The combined ratio (total of all expenses excluding interest expense in relation to net premiums earned) is the measure of overall underwriting profitability before other income. Our combined ratio for the three months ended March 31, 2025 was 56.1% compared with 66.9% for the three months ended March 31, 2024. The decrease in 2025 was attributable to the factors described above.
Seasonality of Our Business
Our insurance business is seasonal as hurricanes and tropical storms affecting Florida, our primary market, and other southeastern states typically occur during the period from June 1
st
through November 30
th
of each year. Winter storms in the northeast usually occur during the period between December 1
st
and March 31
st
of each year. Also, with our reinsurance treaty year typically effective on June 1
st
of each year, any variation in the cost of our reinsurance, whether due to changes in reinsurance rates, coverage levels or changes in the total insured value of our policy base, will occur and be reflected in our financial results beginning on June 1
st
of each year.
LIQUIDITY AND CAPITAL RESOURCES
Throughout our history, our liquidity requirements have been met through issuances of our common and preferred stock, debt offerings and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by our insurance subsidiaries from premiums written and investment income. We may consider raising additional capital through debt and/or equity offerings to support our growth and future investment opportunities.
Our insurance subsidiaries require liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. In addition, we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets. In the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and losses and loss adjustment expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. With the exception of litigated claims, substantially all of our losses and loss adjustment expenses are fully settled and paid within approximately 90 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.
We believe that we maintain sufficient liquidity to pay claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position.
In the future, we anticipate our primary use of funds will be to pay claims, reinsurance premiums, interest, and dividends and to fund operating expenses and real estate acquisitions.
The following table summarizes the principal and interest payment obligations of our indebtedness at March 31, 2025:
Maturity Date
Payment Due Date
4.75% Convertible Senior Notes*
June 2042
June 1 and December 1
4.55% Promissory Note
Through August 2036
1
st
day of each month
5.50% Promissory Note
Through July 2033
1
st
day of each month
Revolving credit facility
Through November 2028
January 1, April 1, July 1, October 1
*
All of the outstanding Notes are scheduled to be redeemed on June 5, 2025. Noteholders are entitled to convert their notes into common stock until the end of the day on June 4, 2025.
See Note 11 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
Limited Partnership Investments
Our limited partnership investments consist of six private equity funds managed by their general partners. Two of these funds have unexpired capital commitments which are callable at the discretion of the fund’s general partner for funding new investments or expenses of the fund. Although capital commitments for the four remaining funds have expired, the general partners may request additional funds under certain circumstances. At March 31, 2025, there was an aggregate unfunded capital balance of $3,160,000. See
Limited Partnership Investments
under Note 5 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
Real Estate Investment
Real estate has long been a significant component of our overall investment portfolio. It diversifies our portfolio and helps offset the volatility of other higher-risk assets. Thus, we may consider expanding our real estate investment portfolio should an opportunity arise.
Sources and Uses of Cash
Cash Flows for the Three Months Ended March 31, 2025
Net cash provided by operating activities for the three months ended March 31, 2025 was approximately $162,006,000, which consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $30,707,000 less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of $66,271,000 was primarily due to the proceeds from calls, repayments and maturities of fixed-maturity securities of $81,211,000, the proceeds from sales of fixed-maturity and equity securities of $12,152,000, and the proceeds from the sale of real estate property of $824,000, offset by the purchases of fixed-maturity and equity securities of $24,327,000, the purchases of real estate investments of $1,857,000, and the purchases of property and equipment of $1,732,000. Net cash used in financing activities totaled $6,248,000, which was primarily due to $4,306,000 of cash dividend payments, net repayment of our revolving credit facility of $2,000,000, $639,000 of share repurchases, and repayments of long-term debt of $133,000, offset by net contribution from noncontrolling interests of $830,000.
50
Cash Flows for the Three Months Ended March 31, 2024
Net cash provided by operating activities for the three months ended March 31, 2024 was approximately $181,989,000, which consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $19,151,000 less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $4,872,000 was primarily due to the purchases of fixed-maturity and equity securities of $180,015,000 and purchases of real estate investments of $5,244,000, offset by the proceeds from calls, repayments and maturities of fixed-maturity securities of $172,024,000 and the proceeds from sales of fixed-maturity and equity securities of $9,546,000. Net cash used in financing activities totaled $58,199,000, which was primarily due to the redemption of redeemable noncontrolling interests of $100,000,000, $3,993,000 of cash dividend payments, and cash dividends paid to redeemable noncontrolling interest of $2,923,000, offset by $50,000,000 of net borrowing under the line of credit agreement.
Investments
The main objective of our investment policy is to maximize our after-tax investment income with a reasonable level of risk given the current financial market. Our excess cash is invested primarily in money market accounts, certificates of deposit, and fixed-maturity and equity securities.
At March 31, 2025, we had $708,087,000 of fixed-maturity and equity investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed-maturity investments but increases the market value of existing fixed-maturity investments, creating the opportunity for realized investment gains on disposition.
In the future, we may alter our investment policy with regard to investments in federal, state and municipal obligations, preferred and common equity securities and real estate mortgages, as permitted by applicable law, including insurance regulations.
OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2025, we had unexpired capital commitments for limited partnerships in which we hold interests. Such commitments are not recognized in the consolidated financial statements but are required to be disclosed in the notes to the consolidated financial statements. See Note 22 -- “Commitments and Contingencies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments to develop amounts reflected and disclosed in our consolidated financial statements. Material estimates that are particularly susceptible to significant change in the near term are related to our losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. We base our estimates on various assumptions and actuarial data we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates.
51
We believe our accounting policies specific to losses and loss adjustment expenses, reinsurance recoverable, reinsurance with retrospective provisions, deferred income taxes, stock-based compensation expense, limited partnership investments, acquired intangible assets, warrants, and redeemable noncontrolling interest involve our most significant judgments and estimates material to our consolidated financial statements.
Reserves for Losses and Loss Adjustment Expenses
Our liability for losses and loss adjustment expense (“Reserves”) is specific to property insurance, which is our insurance subsidiaries’ only line of business. The Reserves include both case reserves on reported claims and our reserves for incurred but not reported (“IBNR”) losses. At each period end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are adjusted.
The IBNR represents our estimate of the ultimate cost of all claims that have occurred but have not been reported to us, and in some cases may not yet be known to the insured, and future development of reported claims. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At March 31, 2025, $715,819,000 of the total $798,146,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $82,327,000 relates to known cases which have been reported but not yet fully settled in which case we have established a reserve based on currently available information and our best estimate of the cost to settle each claim. At March 31, 2025, $76,962,000 of the $82,327,000 in reserves for known cases relates to claims incurred during prior years.
Our Reserves decreased from $845,900,000 at December 31, 2024 to $798,146,000 at March 31, 2025. The $47,754,000 decrease is comprised of reductions in our catastrophe Reserves of $56,785,000 primarily specific to Hurricane Ian, Hurricane Helene as well as Hurricane Milton, and reductions in our non-catastrophe Reserves of $23,808,000 for 2024 and $13,357,000 for 2023 and prior loss years, offset by $46,196,000 in reserves established for 2025 loss year. The Reserves established for 2025 claims are primarily driven by an allowance for those claims that have been incurred but not reported to the company as of March 31, 2025. The decrease of $93,950,000 specific to our 2024 and prior loss-years reserves is due to settlement of claims related to those loss years.
Based on all information known to us, we consider our Reserves at March 31, 2025 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made, and the liabilities may deviate substantially from prior estimates.
The above and other accounting estimates and their related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form 10-K, which we filed with the SEC on February 28, 2025. For the three months ended March 31, 2025, there have been no other material changes with respect to any of our critical accounting policies.
52
RECENT ACCOUNTING PRONOUNCEMENTS
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our unaudited consolidated financial statements, see Note 3 -- “Recent Accounting Pronouncements” to our consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.
53
ITEM 3 –
QUANTITATIVE AND QUALITAT
IVE DISCLOSURES ABOUT MARKET RISK
Our investment portfolio at March 31, 2025 included fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by outside investment advisors and are overseen by the investment committee appointed by our Board of Directors. From time to time, our investment committee may decide to invest in low-risk assets such as U.S. government bonds.
Our investment portfolio is exposed to interest rate risk, credit risk and equity price risk. Fiscal and economic uncertainties caused by any government action or inaction may exacerbate these risks and potentially have adverse impacts on the value of our investment portfolio.
We classify our fixed-maturity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity. As such, any material temporary changes in their fair value can adversely impact the carrying value of our stockholders’ equity. In addition, we recognize any unrealized gains or losses related to our equity securities in our statement of income. As a result, our results of operations can be materially affected by the volatility in the equity market.
Interest Rate Risk
Our fixed-maturity securities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movement in interest rates and considering our future capital needs.
The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed-maturity securities at March 31, 2025 (dollar amounts in thousands):
Hypothetical Change in Interest Rates
Estimated
Fair Value
Change in
Estimated
Fair Value
Percentage
Increase
(Decrease)
in Estimated
Fair Value
300 basis point increase
$
620,525
$
(32,336
)
-4.95
%
200 basis point increase
631,296
(21,565
)
-3.30
%
100 basis point increase
642,074
(10,787
)
-1.65
%
100 basis point decrease
663,655
10,794
1.65
%
200 basis point decrease
674,457
21,596
3.31
%
300 basis point decrease
685,266
32,405
4.96
%
Credit Risk
Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuers of our fixed-maturity securities. We mitigate the risk by investing in fixed-maturity securities that are generally investment grade, by diversifying our investment portfolio to avoid concentrations in any single issuer or business sector, and by continually monitoring each individual security for declines in credit quality. While we emphasize credit quality in our investment selection process, significant downturns in the markets or general economy may impact the credit quality of our portfolio.
54
The following table presents the composition of our fixed-maturity securities, by rating, at March 31, 2025 (dollar amounts in thousands):
Cost or
% of Total
% of Total
Amortized
Amortized
Estimated
Estimated
Comparable Rating
Cost
Cost
Fair Value
Fair Value
AA+, AA, AA-
626,923
96
628,855
96
A+, A, A-
14,645
2
14,548
2
BBB+, BBB, BBB-
9,503
2
9,458
2
Total
$
651,071
100
$
652,861
100
Equity Price Risk
Our equity investment portfolio at March 31, 2025 included common stocks, perpetual preferred stocks, mutual funds and exchange-traded funds. We may incur potential losses due to adverse changes in equity security prices. We manage the risk primarily through industry and issuer diversification and asset mix.
The following table illustrates the composition of our equity securities at March 31, 2025 (dollar amounts in thousands):
% of Total
Estimated
Estimated
Fair Value
Fair Value
Stocks by sector:
Financial
$
5,546
10
Consumer
6,429
12
Communications
2,922
5
Technology
2,884
5
Other (1)
2,070
4
19,851
36
Mutual funds and exchange-traded funds by type:
Debt
28,816
52
Equity
6,513
12
Alternative
46
—
35,375
64
Total
$
55,226
100
(1)
Represents an aggregate of less than 5% sectors.
Foreign Currency Exchange Risk
At March 31, 2025, we did not have any material exposure to foreign currency related risk
.
55
ITEM 4 –
CONTROL
S AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial and accounting officer), we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, our chief executive officer and our chief financial officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, implementation of possible controls and procedures depends on management’s judgment in evaluating their benefits relative to costs.
56
PART II – OTHE
R INFORMATION
ITEM 1 –
LEGAL
PROCEEDINGS
We are a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot predict with certainty the ultimate resolution of the claims and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
ITEM 1A –
RI
SK FACTORS
There have been no material changes in the risk factors previously disclosed in the section entitled “Risk Factors” in our Form 10-K, which was filed with the SEC on February 28, 2025.
ITEM 2 –
UNREGISTERED SALES OF EQUI
TY SECURITIES AND USE OF PROCEEDS
(a)
Sales of Unregistered Securities and Use of Proceeds
None.
(b)
Repurchases of Securities
The table below summarizes the number of common shares surrendered by employees to satisfy payroll tax liabilities associated with the vesting of restricted shares (dollar amounts in thousands, except share and per share amounts):
Total
Number
of Shares
Average
Price
Paid
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced Plans
Maximum
Dollar
Value of Shares
That May Yet
Be Purchased
Under
The Plans
For the Month Ended
Purchased
Per Share
or Programs
or Programs
January 31, 2025
—
$
—
—
$
—
February 28, 2025
5,267
$
121.33
—
$
—
March 31, 2025
—
$
—
—
$
—
5,267
$
121.33
—
Working Capital Restrictions and Other Limitations on the Payment of Dividends
We are not subject to working capital restrictions or other limitations on the payment of dividends. Our insurance subsidiaries, however, are subject to restrictions on the dividends they may pay. Those restrictions could impact HCI’s ability to pay future dividends.
57
Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholders except out of that part of its available and accumulated capital and surplus funds which is derived from realized net operating profits on its business and net realized capital gains. Additionally, a Florida domestic insurer may not make dividend payments or distributions to its stockholders without prior approval of the Florida Office of Insurance Regulation (“FLOIR”) if the dividend or distribution would exceed the larger of (1) the lesser of (a) 10.0% of its capital surplus or (b) net income, not including realized capital gains, plus a two year carry forward, (2) 10.0% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (3) the lesser of (a) 10.0% of capital surplus or (b) net investment income plus a three year carry forward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.
Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the FLOIR if (1) the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards to policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, (2) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (3) the insurer files a notice of the dividend or distribution with the FLOIR at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the FLOIR or (2) 30 days after the FLOIR has received notice of such dividend or distribution and has not disapproved it within such time.
During the three months ended March 31, 2025, our insurance subsidiaries paid dividends of $14,000,000 to HCI
.
ITEM 3 –
DEFAULTS UP
ON SENIOR SECURITIES
None.
ITEM 4 –
MINE SAF
ETY DISCLOSURES
None.
ITEM 5 –
OTHER
INFORMATION
None of our directors or officers
adopted
or
terminated
a Rule 10b5-1 trading arrangement or a “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K) during the first quarter of 2025.
58
ITEM 6 –
EXHIBITS
The following documents are filed as part of this report:
See Exhibits
3.1
,
3.1.1
,
3.1.2
and
3.2
of this report for provisions of the Articles of Incorporation, as amended, and our Bylaws, as amended, defining certain rights of security holders.
Security and Pledge Agreement and Revolving Credit Promissory Note, dated June 2, 2023, between HCI Group, Inc. and Fifth Third Bank. Incorporated by reference to Exhibits
99.2
, and
99.3
to our Form 8-K filed June 8, 2023.
10.64
Second Amended and Restated Credit Agreement, Second Amended and Restated Security and Pledge Agreement, and Renewed, Amended and Restated Revolving Credit Promissory Note, dated November 3, 2023, between HCI Group, Inc. and Fifth Third Bank. Incorporated by reference to Exhibits
99.1
,
99.2
, and
99.3
to our Form 8-K filed November 9, 2023.
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
** Management contract or compensatory plan
.
65
SIGNA
TURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, who have signed this report on behalf of the Company.
HCI GROUP, INC.
May 9, 2025
By:
/s/ Paresh Patel
Paresh Patel
Chief Executive Officer
(Principal Executive Officer)
May 9, 2025
By:
/s/ James Mark Harmsworth
James Mark Harmsworth
Chief Financial Officer
(Principal Financial and Accounting Officer)
A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
(We are using algorithms to extract and display detailed data. This is a hard problem and we are working continuously to classify data in an accurate and useful manner.)