HCI Group Reports Fourth Quarter and Full Year 2020 Results

Rhea-AI Summary

HCI Group, Inc. (NYSE:HCI) reported a Q4 2020 net income of $2.7 million ($0.35 EPS), down from $6.4 million ($0.82 EPS) in Q4 2019. Adjusted net income fell to $1.8 million ($0.22 EPS) from $5.9 million ($0.76 EPS). Gross written premiums surged by 109.2% to $139.3 million, chiefly due to Homeowners Choice and TypTap Insurance. However, losses increased to $40.4 million from $28.9 million in 2019, influenced by Tropical Storm Eta. The full year's net income rose to $27.6 million ($3.49 EPS) from $26.6 million ($3.31 EPS) in 2019.

Positive

• Gross written premiums for Q4 2020 increased by 109.2% to $139.3 million.
• Full year 2020 net income increased to $27.6 million ($3.49 EPS) from $26.6 million ($3.31 EPS) in 2019.
• Adjusted net income for the full year rose to $27.1 million ($3.44 EPS) compared to $20.6 million ($2.57 EPS) in 2019.
• Gross premiums earned for full year 2020 increased by 21.6% to $415.9 million.

Negative

• Q4 2020 net income decreased by 57.9% to $2.7 million compared to $6.4 million in Q4 2019.
• Q4 2020 adjusted net income fell to $1.8 million from $5.9 million in Q4 2019.
• Net investment income dropped significantly to $4.6 million from $13.6 million in 2019.
• Losses and loss adjustment expenses increased to $160.0 million from $107.5 million in 2019.

TAMPA, Fla., March 11, 2021 (GLOBE NEWSWIRE) -- HCI Group, Inc. (NYSE:HCI), an InsurTech company with operations in insurance, software development and real estate, reported results for the three and twelve months ended December 31, 2020.

Fourth Quarter 2020 - Financial Results
Net income for the fourth quarter of 2020 totaled $2.7 million or $0.35 diluted earnings per share compared with $6.4 million or $0.82 diluted earnings per share in the fourth quarter of 2019. Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the quarter was $1.8 million or $0.22 diluted earnings per share compared with $5.9 million or $0.76 diluted earnings per share in the fourth quarter of 2019. The company has included in this press release an explanation of adjusted net income as well as a reconciliation to net income and earnings per share calculated in accordance with generally accepted accounting principles (known as “GAAP”).

Consolidated gross written premiums of $139.3 million for the fourth quarter of 2020 were up 109.2% from $66.6 million in the fourth quarter of 2019. The increase was due to the growth of Homeowners Choice gross written premiums from $42.5 million to $97.2 million and the growth of TypTap Insurance Company gross written premium from $24 million to $42.1 million. Included in the gross written premiums of Homeowners Choice was $44.6 million assumed from United Property & Casualty Insurance Company as part of a quota share agreement.

Consolidated gross premiums earned of $109.1 million for the fourth quarter of 2020 were up 21.0% from $90.2 million in the fourth quarter of 2019.

Premiums ceded for reinsurance for the fourth quarter of 2020 increased to $44.2 million from $31.5 million in the fourth quarter of 2019 and represented 40.5% and 34.9%, respectively, of gross premiums earned.

Net investment income was $1.3 million compared with $2.5 million in the fourth quarter of 2019. The decrease was primarily due to a decrease in income from limited partnership investments and lower interest income from fixed-maturity securities and cash balances.

Net unrealized investment gains were $1.3 million in the fourth quarter of 2020 compared with $0.7 million in 2019.

Losses and loss adjustment expenses were $40.4 million compared with $28.9 million in the same period in 2019. The increase was driven by growth in gross premiums earned as well as reserves recorded for Tropical Storm Eta of $10.0 million. These increases were offset somewhat by lower prior year development.

Policy acquisition and other underwriting expenses were $14.8 million compared with $11.8 million in the same quarter of 2019. The increase primarily relates to growth in gross premiums earned.

Full Year 2020 - Financial Results
Net income for the twelve months ended December 31, 2020 totaled $27.6 million or $3.49 diluted earnings per share compared with $26.6 million or $3.31 diluted earnings per share for the twelve months ended December 31, 2019.

Adjusted net income (a non-GAAP measure which excludes unrealized gains or losses on equity securities) for the twelve-month period was $27.1 million or $3.44 diluted earnings per share compared with $20.6 million or $2.57 diluted earnings per share in the same period of 2019. An explanation of this non-GAAP financial measure and reconciliations to the applicable GAAP numbers accompany this press release.

Consolidated gross written premiums of $504.2 million for the year 2020 were up 38% from $364.9 million in 2019. The increase was due to the growth of Homeowners Choice gross written premiums from $304.7 million to $399.3 million and the growth of TypTap Insurance Company gross written premium from $60.3 million to $104.9 million. Included in the gross written premiums of Homeowners Choice was $44.6 million assumed from United Property & Casualty Insurance Company as part of a quota share agreement.

In-force premiums for TypTap at December 31, 2020 were $105.4 million compared with $59.6 million at December 31, 2019.

Gross premiums earned increased 21.6% to $415.9 million from $342.1 million in 2019.

Premiums ceded were $153.5 million or 36.9% of gross premiums earned compared with $125.8 million or 36.8% of gross premiums earned during 2019.

Net investment income was $4.6 million compared with $13.6 million in the year ended December 31, 2019. The decrease was primarily due to a decrease in income from limited partnership investments and lower interest income from fixed-maturity securities and cash balances.

The gain on involuntary conversion of $37.0 million for the year ended December 31, 2020 was attributable to an eminent domain proceeding by the Florida Department of Transportation related to a highway expansion project in Tampa, Florida.

Losses and loss adjustment expenses for the years ended December 31, 2020 and 2019 were $160.0 million and $107.5 million, respectively. The increase was driven by increases in gross premiums earned and losses related to Hurricane Sally of $20.3 million and losses related to Tropical Storm Eta of $10.0 million.

Policy acquisition and other underwriting expenses were $53.9 million compared with $42.5 million in 2019. The increase relates primarily to higher agent commission rates and property inspection costs associated with the organic growth of TypTap.

Management Commentary
“Despite the pandemic and the most active hurricane season on record, we were profitable in all four quarters and gross written premiums grew $139.2 million, driven primarily by organic policy growth at TypTap Insurance Company,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “We remain focused on generating profits and shareholder returns.”

Conference Call
HCI Group will hold a conference call later today, March 11, 2021, to discuss these financial results. Chairman and Chief Executive Officer Paresh Patel and Chief Financial Officer Mark Harmsworth will host the call starting at 4:45 p.m. Eastern time. A question-and-answer session will follow management's presentation.

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

Listen-only toll-free number: (888) 506-0062
Listen-only international number: (973) 528-0011
Entry Code: 559623

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 April 11, 2021.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 39938

About HCI Group, Inc.

HCI Group, Inc. is an InsurTech company with operations in insurance, software development and real estate. HCI’s leading insurance operation, TypTap Insurance Company, is a rapidly growing, technology-driven insurance company 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:
Rachel Swansiger, Esq.
Investor Relations
HCI Group, Inc.
Tel (813) 405-3206
rswansiger@hcigroup.com

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

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

- Tables to follow -

HCI GROUP, INC. AND SUBSIDIARIES
        Consolidated Balance Sheets        

(Dollar amounts in thousands)

		At December 31, 2020			At December 31, 2019
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $70,265 and $199,954, respectively) (allowance for credit losses: $588 and $0, respectively)		$	71,722		$	202,839
Equity securities, at fair value (cost: $47,029 and $31,863, respectively)			51,130			35,285
Short-term investments, at fair value			—			491
Limited partnership investments, at equity			27,691			28,346
Investment in unconsolidated joint venture, at equity			705			762
Real estate investments			74,472			73,763
Total investments			225,720			341,486
Cash and cash equivalents			431,341			229,218
Restricted cash			2,400			700
Accrued interest and dividends receivable			588			1,616
Income taxes receivable			4,554			1,040
Premiums receivable, net			68,382			20,255
Prepaid reinsurance premiums			36,376			17,983
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 in 2020 and 2019)			14,127			16,155
Unpaid losses and loss adjustment expenses (allowance: $85 and $0, respectively)			71,019			116,523
Deferred policy acquisition costs			43,858			21,663
Property and equipment, net			12,767			14,698
Right-of-use-assets - operating lease			4,002			484
Intangible assets, net			3,568			4,192
Other assets			22,611			16,596
Total assets		$	941,313		$	802,609
Liabilities and Stockholders’ Equity
Losses and loss adjustment expenses		$	212,169		$	214,697
Unearned premiums			269,399			181,163
Advance premiums			11,370			5,589
Assumed reinsurance balances payable			87			76
Accrued expenses			10,181			10,059
Deferred income taxes, net			11,925			4,008
Revolving credit facility			23,750			9,750
Long-term debt			156,511			163,695
Lease liabilities - operating leases			4,014			513
Other liabilities			40,771			27,516
Total liabilities			740,177			617,066
Stockholders’ equity:
7% Series A cumulative convertible preferred stock (no par value, 1,500,000 shares authorized, no shares issued and outstanding)			—			—
Series B junior participating preferred stock (no par value, 400,000 shares authorized, no shares issued or outstanding)			—			—
Preferred stock (no par value, 18,100,000 shares authorized, no shares issued or outstanding)			—			—
Common stock, (no par value, 40,000,000 shares authorized, 7,785,617 and 7,764,564 shares issued and outstanding in 2020 and 2019, respectively)			—			—
Additional paid-in capital			—			—
Retained income			199,592			183,365
Accumulated other comprehensive income, net of taxes			1,544			2,178
Total stockholders’ equity			201,136			185,543
Total liabilities and stockholders’ equity		$	941,313		$	802,609

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

		Three Months Ended								Years Ended
		December 31,								December 31,
		2020				2019				2020				2019
Revenue
Gross premiums earned		$	109,057			$	90,165			$	415,918			$	342,079
Premiums ceded			(44,155	)			(31,467	)			(153,458	)			(125,765	)
Net premiums earned			64,902				58,698				262,460				216,314
Net investment income			1,320				2,517				4,564				13,642
Net realized investment gains (losses)			1,632				281				1,000				(254	)
Net unrealized investment gains			1,260				689				679				7,950
Net other-than-temporary impairment losses			—				(289	)			—				(289	)
Credit losses on investments			(15	)			—				(611	)			—
Policy fee income			951				823				3,522				3,229
Gain on involuntary conversion			—				—				36,969				—
Other			263				512				1,854				1,882
Total revenue			70,313				63,231				310,437				242,474
Expenses
Losses and loss adjustment expenses			40,372				28,898				160,036				107,514
Policy acquisition and other underwriting expenses			14,832				11,759				53,859				42,497
General and administrative personnel expenses			5,860				7,799				33,829				31,112
Interest expense			2,888				2,927				11,734				13,055
Loss on repurchases of convertible senior notes			—				—				150				—
Loss on extinguishment of debt			—				—				98				—
Other operating expenses			3,449				3,072				13,803				12,203
Total expenses			67,401				54,455				273,509				206,381
Income before income taxes			2,912				8,776				36,928				36,093
Income tax expense			205				2,344				9,348				9,517
Net income		$	2,707			$	6,432			$	27,580			$	26,576
Basic earnings per share		$	0.35			$	0.84			$	3.55			$	3.32
Diluted earnings per share		$	0.35			$	0.82			$	3.49			$	3.31
Dividends per share		$	0.40			$	0.40			$	1.60			$	1.60

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

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

		Three Months Ended												Year Ended
GAAP		December 31, 2020												December 31, 2020
		Income				Shares				Per Share				Income				Shares				Per Share
		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Net income		$	2,707											$	27,580
Less: Income attributable to participating securities			(145	)											(1,462	)
Basic Earnings Per Share:
Income allocated to common stockholders			2,562				7,357			$	0.35				26,118				7,351			$	3.55
Effect of Dilutive Securities:
Stock options			—				39								—				23
Convertible senior notes*			—				—								7,705				2,320
Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions		$	2,562				7,396			$	0.35			$	33,823				9,694			$	3.49

*For the three months ended December 31, 2020, convertible senior notes were excluded due to anti-dilutive effect.

Non-GAAP Financial Measures

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

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income

		Three Months Ended								Year Ended
		December 31, 2020								December 31, 2020
GAAP net income						$	2,707							$	27,580
Net unrealized investment losses (gains)		$	(1,260	)						$	(679	)
Less: Tax effect at 24.52182%		$	309							$	167
Net adjustment to Net income						$	(951	)						$	(512	)
Non-GAAP Adjusted Net income						$	1,756							$	27,068

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

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

		Three Months Ended												Year Ended
Non-GAAP		December 31, 2020												December 31, 2020
		Income				Shares				Per Share				Income				Shares				Per Share
		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Adjusted net income (non-GAAP)		$	1,756											$	27,068
Less: Income attributable to participating securities			(92	)											(1,434	)
Basic Earnings Per Share before unrealized gains/losses on equity securities:
Income allocated to common stockholders			1,664				7,357			$	0.23				25,634				7,351			$	3.49
Effect of Dilutive Securities:
Stock options			—				39								—				23
Convertible senior notes*			—				—								7,705				2,320
Diluted Earnings Per Share before unrealized gains/losses on equity securities:
Income available to common stockholders and assumed conversions		$	1,664				7,396			$	0.22			$	33,339				9,694			$	3.44
*For the three months ended December 31, 2020, convertible senior notes were excluded due to anti-dilutive effect.

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

		Three Months Ended									Year Ended
		December 31, 2020									December 31, 2020
GAAP diluted Earnings Per Share						$	0.35								$	3.49
Net unrealized investment losses (gains)		$	(0.17	)							$	(0.07	)
Less: Tax effect at 24.52182%		$	0.04								$	0.02
Net adjustment to GAAP diluted EPS						$	(0.13	)							$	(0.05	)
Non-GAAP Adjusted diluted EPS						$	0.22								$	3.44

FAQ

What were HCI Group's Q4 2020 earnings results?

HCI Group reported a net income of $2.7 million or $0.35 EPS for Q4 2020, down from $6.4 million or $0.82 EPS in Q4 2019.

How much did HCI Group's gross written premiums increase in Q4 2020?

Gross written premiums increased by 109.2% to $139.3 million in Q4 2020.

What was the full year 2020 net income for HCI Group?

HCI Group's full year 2020 net income totaled $27.6 million, or $3.49 per share.

Did HCI Group experience any losses in Q4 2020?

Yes, HCI Group's losses and loss adjustment expenses rose to $40.4 million in Q4 2020, compared to $28.9 million in the same period of 2019.

What is the significance of the adjusted net income reported by HCI Group?

The adjusted net income for the full year 2020 was $27.1 million or $3.44 EPS, indicating a positive growth compared to $20.6 million or $2.57 EPS in 2019.