HCI Group Reports First Quarter 2022 Results

Rhea-AI Summary

HCI Group reported a net income of $2.8 million for Q1 2022, down from $6.8 million in Q1 2021. Diluted earnings per share decreased to $0.09 from $0.75. Adjusted net income, excluding unrealized gains, was $5.5 million or $0.34 per share, compared to $7.0 million or $0.77 a year earlier. Gross written premiums surged 40.9% to $177.3 million, driven by Homeowners Choice and TypTap growth. However, losses and loss adjustment expenses rose to $72.7 million, up from $45.8 million, largely due to weather-related claims in Florida.

Positive

• Gross written premiums increased 40.9% to $177.3 million.
• Homeowners Choice gross written premiums rose from $81.0 million to $91.1 million.
• TypTap gross written premiums grew from $44.8 million to $86.2 million.

Negative

• Net income fell to $2.8 million from $6.8 million year-over-year.
• Losses and loss adjustment expenses increased to $72.7 million from $45.8 million.
• Net investment income declined to $2.9 million from $4.6 million.

TAMPA, Fla., May 04, 2022 (GLOBE NEWSWIRE) -- HCI Group, Inc. (NYSE:HCI), a holding company with operations in homeowners insurance, information technology services, real estate, and reinsurance, reported results for the quarter ended March 31, 2022.

First Quarter 2022 - Financial Results
Net income for the first quarter of 2022 totaled $2.8 million or $0.09 diluted earnings per share compared with net income of $6.8 million or $0.75 diluted earnings per share in the first quarter of 2021. Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the first quarter of 2022 was $5.5 million or $0.34 diluted earnings per share compared with adjusted net income of $7.0 million or $0.77 diluted earnings per share in the first quarter of 2021. This press release includes an explanation of adjusted net income as well as a reconciliation to net income and earnings per share calculated in accordance with generally accepted accounting principles (known as “GAAP”).

Consolidated gross written premiums of $177.3 million for the first quarter of 2022 increased 40.9% from $125.8 million in the first quarter of 2021. Homeowners Choice gross written premiums grew from $81.0 million to $91.1 million, and TypTap Insurance Company gross written premiums grew from $44.8 million to $86.2 million.

Consolidated gross premiums earned of $178.9 million for the first quarter of 2022 increased 36.6% from $130.9 million in the first quarter of 2021. Homeowners Choice gross premiums earned grew from $102.1 million to $118.3 million, and TypTap gross premiums earned grew from $28.8 million to $60.6 million.

Premiums ceded for reinsurance for the first quarter of 2022 increased to $53.2 million from $43.1 million in the first quarter of 2021 and represented 29.7% and 32.9%, respectively, of gross premiums earned. The increase in reinsurance costs primarily reflects premium growth at both Homeowners Choice and TypTap.

Net investment income for the first quarter of 2022 was $2.9 million compared with $4.6 million in the first quarter of 2021. The decrease was primarily attributable to a $2.7 million decrease in income from real estate investments primarily due to a gain from a legal settlement in the first quarter of 2021, offset by a $1 million increase in income from limited partnership investments.

Net realized investment losses were $0.3 million in the first quarter of 2022 compared with $1.1 million of net realized investment gains in the first quarter of 2021. Net unrealized investment losses were $3.6 million in the first quarter of 2022 compared with net unrealized investment losses of $0.3 million in the first quarter of 2021.

Losses and loss adjustment expenses for the first quarter of 2022 were $72.7 million compared with $45.8 million in the same period of 2021. The increase was primarily attributable to the company’s growing premium base and weather-related losses in Florida.

Policy acquisition and other underwriting expenses for the first quarter of 2022 were $29.4 million compared with $23.1 million in the same quarter of 2021. The increase primarily relates to premium growth for both Homeowners Choice and TypTap.

General and administrative personnel expenses increased to $14.0 million in the first quarter of 2022 from $9.7 million for the first quarter of 2021 due primarily to higher stock-based compensation expense and an increase in payroll related to growth of the business.

Interest expense for the first quarter of 2022 was $0.6 million compared with $2.1 million in the same period of 2021. The decrease resulted from conversions of our 4.25% convertible senior notes to common stock during the second half of 2021.

Management Commentary
“In the first quarter, results across our geographic footprint again validated the effectiveness of the technology that we’ve built,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “We continue to execute on our nationwide expansion plan and because of the confidence we have in our technology capabilities, we plan to take advantage of potential opportunities in the future.”

Conference Call
HCI Group will hold a conference call tomorrow, May 5, 2022, to discuss these financial results. Chairman and Chief Executive Officer Paresh Patel, Chief Operating Officer Karin Coleman and Chief Financial Officer Mark Harmsworth will host the call starting at 8:30 a.m. Eastern time.

Interested parties can listen to the live presentation by dialing the listen-only number below or by clicking the webcast link available on the Investor Information section of the company's website at www.HCIGroup.com.

Listen-only toll-free number: (888) 506-0062
Listen-only international number: (973) 528-0011
Entry Code: 655834

Please call the conference telephone number 10 minutes before the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at (949) 574-3860.

A replay of the call will be available by telephone after 8:00 p.m. Eastern time on the same day as the call and via the Investor Information section of the HCI Group website at www.HCIGroup.com through June 4, 2022.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 45165

About HCI Group, Inc.
HCI Group, Inc. owns subsidiaries engaged in diverse, yet complementary business activities, including homeowners insurance, reinsurance, real estate and information technology services. HCI’s leading insurance operation, TypTap Insurance Company, is a rapidly growing, technology-driven insurance company that is expanding nationwide to provide homeowners and flood insurance. TypTap’s operations are powered in large part by insurance-related information technology developed by HCI’s software subsidiary, Exzeo USA, Inc. HCI’s largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., provides homeowners’ insurance primarily in Florida. HCI’s real estate subsidiary, Greenleaf Capital, LLC, owns and operates multiple properties in Florida, including office buildings, retail centers and marinas.

The company's common shares trade on the New York Stock Exchange under the ticker symbol "HCI" and are included in the Russell 2000 and S&P SmallCap 600 Index. HCI Group, Inc. regularly publishes financial and other information in the Investor Information section of the company’s website. For more information about HCI Group and its subsidiaries, visit www.HCIGroup.com.

Forward-Looking Statements
This news release may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "estimate," "expect," "intend," "plan," "confident," "prospects" and "project" and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. For example, the estimation of reserves for losses and loss adjustment expenses is an inherently imprecise process involving many assumptions and considerable management judgment. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial condition and results of operations. HCI Group, Inc. disclaims all obligations to update any forward-looking statements.

Company Contact:
Simon Rosenberg
Investor Relations
HCI Group, Inc.
Tel (813) 405-5261
srosenberg@hcigroup.com

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

Media Contact:
Catherine Adcock
Gateway Group, Inc.
Tel (949) 574-6860
catherine@gatewayir.com

- Tables to follow -

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

	March 31, 2022				December 31, 2021
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $153,776 and $41,953, respectively and allowance for credit losses: $0 and $0, respectively)	$	150,684			$	42,583
Equity securities, at fair value (cost: $39,316 and $46,276, respectively)		41,204				51,740
Limited partnership investments		28,166				28,133
Investment in unconsolidated joint venture, at equity		350				363
Real estate investments		73,387				73,896
Total investments		293,791				196,715
Cash and cash equivalents		569,040				628,943
Restricted cash		2,400				2,400
Accrued interest and dividends receivable		674				353
Income taxes receivable		—				4,084
Premiums receivable, net (allowance: $2,459 and $1,750, respectively)		39,890				68,157
Prepaid reinsurance premiums		11,561				26,355
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)		14,720				11,985
Unpaid losses and loss adjustment expenses (allowance: $79 and $90, respectively)		54,876				64,665
Deferred policy acquisition costs		53,670				57,695
Property and equipment, net		15,469				14,232
Right-of-use-assets - operating leases		2,673				2,204
Intangible assets, net		15,105				10,636
Funds withheld for assumed business		84,068				73,716
Other assets		17,313				14,717
Total assets	$	1,175,250			$	1,176,857
Liabilities and Equity
Losses and loss adjustment expenses	$	234,792			$	237,165
Unearned premiums		365,112				366,744
Advance premiums		23,898				13,771
Reinsurance payable on paid losses and loss adjustment expenses		6,657				4,017
Ceded reinsurance premiums payable		20,899				19,318
Accrued expenses		16,899				15,453
Income tax payable		3,061				—
Deferred income taxes, net		4,834				11,739
Revolving credit facility		15,000				15,000
Long-term debt		45,295				45,504
Lease liabilities - operating leases		2,662				2,203
Other liabilities		24,418				31,485
Total liabilities		763,527				762,399
Commitments and contingencies
Redeemable noncontrolling interest		89,695				89,955
Equity:
Common stock, (no par value, 40,000,000 shares authorized, 10,125,927 and 10,131,399 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)		—				—
Additional paid-in capital		79,131				76,077
Retained income		243,647				246,790
Accumulated other comprehensive (loss) income, net of taxes		(2,185	)			498
Total stockholders' equity		320,593				323,365
Noncontrolling interests		1,435				1,138
Total equity		322,028				324,503
Total liabilities, redeemable noncontrolling interest, and equity	$	1,175,250			$	1,176,857

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(Dollar amounts in thousands, except per share amounts)

	Three Months Ended
	March 31,
	2022				2021
Revenue
Gross premiums earned	$	178,925			$	130,942
Premiums ceded		(53,162	)			(43,099	)
Net premiums earned		125,763				87,843
Net investment income		2,868				4,594
Net realized investment (losses) gains		(314	)			1,113
Net unrealized investment losses		(3,576	)			(269	)
Policy fee income		1,057				970
Other		1,242				623
Total revenue		127,040				94,874
Expenses
Losses and loss adjustment expenses		72,704				45,751
Policy acquisition and other underwriting expenses		29,408				23,065
General and administrative personnel expenses		14,034				9,650
Interest expense		601				2,079
Other operating expenses		6,292				4,227
Total expenses		123,039				84,772
Income before income taxes		4,001				10,102
Income tax expense		1,210				3,257
Net income	$	2,791			$	6,845
Net income attributable to redeemable noncontrolling interest		(2,248	)			(794	)
Net loss attributable to noncontrolling interests		360				97
Net income after noncontrolling interests	$	903			$	6,148
Basic earnings per share	$	0.09			$	0.82
Diluted earnings per share	$	0.09			$	0.75
Dividends per share	$	0.40			$	0.40

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

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

	Three Months Ended									Three Months Ended
GAAP	March 31, 2022									March 31, 2021
	Income				Shares (a)		Per Share			Income				Shares (a)		Per Share
	(Numerator)				(Denominator)		Amount			(Numerator)				(Denominator)		Amount
Net income	$	2,791								$	6,845
Less: Net income attributable to redeemable noncontrolling interest		(2,248	)								(794	)
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities		360									97
Net income attributable to HCI		903									6,148
Less: Income attributable to participating securities		(52	)								(18	)
Basic Earnings Per Share:
Income allocated to common stockholders		851			9,479		$	0.09			6,130			7,474		$	0.82
Effect of Dilutive Securities:
Stock options		—			135						—			96
Convertible senior notes*		—			—						1,312			2,288
Warrants		—			153						—			72
Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions	$	851			9,767		$	0.09		$	7,442			9,930		$	0.75
(a) Shares in thousands.
* For the three months ended March 31, 2022, convertible senior notes were excluded due to anti-dilutive effect.

Non-GAAP Financial Measures

Adjusted net income is a Non-GAAP financial measure that removes from net income of HCI's portion of the effect of unrealized gains or losses on equity securities required to be included in results of operations in accordance with Accounting Standards Codification 321. HCI Group believes net income without the effect of volatility in equity prices more accurately depicts operating results. This financial measurement is not recognized in accordance with accounting principles generally accepted in the United States of America ("GAAP") and should not be viewed as an alternative to GAAP measures of performance. A reconciliation of GAAP Net income to Non-GAAP Adjusted net income and GAAP diluted earnings per share to Non-GAAP Adjusted diluted earnings per share is provided below.

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net (Loss) Income

	Three Months Ended							Three Months Ended
	March 31, 2022							March 31, 2021
GAAP Net income					$	2,791						$	6,845
Net unrealized investment losses	$	3,576						$	269
Less: Tax effect at 25.345% and 24.52182%, respectively	$	(906	)					$	(66	)
Net adjustment to Net income					$	2,670						$	203
Non-GAAP Adjusted Net income					$	5,461						$	7,048

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

A summary of the numerator and denominator of the basic and diluted income per common share calculated with the Non-GAAP financial measure Adjusted net income is presented below.

	Three Months Ended										Three Months Ended
Non-GAAP	March 31, 2022										March 31, 2021
	Income				Shares (a)			Per Share			Income			Shares (a)			Per Share
	(Numerator)				(Denominator)			Amount			(Numerator)			(Denominator)			Amount
Adjusted net income (non-GAAP)	$	5,461									$	7,048
Less: Net income attributable to redeemable noncontrolling interest		(2,248	)								$	(794
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities		340										97
Net income attributable to HCI		3,553										6,351
Less: Income attributable to participating securities		(222	)									(31
Basic Earnings Per Share before unrealized gains/losses on equity securities:
Income allocated to common stockholders		3,331				9,479		$	0.35			6,320			7,474		$	0.85
Effect of Dilutive Securities:
Stock options		—				135						—			96
Convertible senior notes*		—				—						1,312			2,288
Warrants		—				153						—			72
Diluted Earnings Per Share before unrealized gains/losses on equity securities:
Income available to common stockholders and assumed conversions	$	3,331			$	9,767		$	0.34		$	7,632		$	9,930		$	0.77
(a) Shares in thousands.
* For the three months ended March 31, 2022, convertible senior notes were excluded due to anti-dilutive effect.

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

	Three Months Ended							Three Months Ended
	March 31, 2022							March 31, 2021
GAAP diluted Earnings Per Share					$	0.09						$	0.75
Net unrealized investment losses	$	0.37						$	0.03
Less: Tax effect at 25.345% and 24.52182%, respectively	$	(0.12	)					$	(0.01	)
Net adjustment to GAAP diluted EPS					$	0.25						$	0.02
Non-GAAP Adjusted diluted EPS					$	0.34						$	0.77

FAQ

What were HCI Group's Q1 2022 financial results?

HCI Group reported a net income of $2.8 million and diluted earnings per share of $0.09 for Q1 2022, down from $6.8 million and $0.75 in Q1 2021.

How did HCI Group's gross written premiums perform in Q1 2022?

Gross written premiums increased by 40.9% to $177.3 million in Q1 2022, driven by significant growth in both Homeowners Choice and TypTap.

What were the key challenges faced by HCI Group in Q1 2022?

HCI Group faced increased losses and loss adjustment expenses totaling $72.7 million, attributed to weather-related claims in Florida.

What is the adjusted net income for HCI Group in Q1 2022?

HCI Group's adjusted net income for Q1 2022 was $5.5 million or $0.34 per share, compared to $7.0 million or $0.77 in Q1 2021.