HCI Group Reports Fourth Quarter and Full Year 2022 Results

Florida Passes Historic Tort Reforms
Fourth Quarter Gross Loss Ratio Declined to 39.4%

TAMPA, Fla., March 09, 2023 (GLOBE NEWSWIRE) -- HCI Group, Inc. (NYSE:HCI), a holding company with operations in homeowners insurance, information technology services, real estate, and reinsurance, reported net income of $2.7 million, or $0.18 diluted earnings per share in the fourth quarter of 2022, compared with net income of $1.4 million, or $0.01 diluted earnings per share, in the fourth quarter of 2021.

Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the fourth quarter of 2022 was $1.6 million, or $0.06 diluted earnings per share, compared with adjusted net loss of $0.1 million, or $0.14 loss per share, in the fourth 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”).

Management Commentary
“We were pleased to see further improvement in our underlying profitability this quarter,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “The bills passed by the Florida Legislature in 2022 squarely address the rising cost of litigation and social inflation in the Florida homeowners industry. We believe these reforms will support a healthier market for private insurance in Florida in the years to come.”

Fourth Quarter 2022 Commentary
Consolidated gross premiums earned of $183.0 million increased 16.6% from $156.9 million in the fourth quarter of 2021, reflecting higher average premium per policy.

Premiums ceded for reinsurance of $77.0 million increased from $54.6 million in the fourth quarter of 2021. Ceded premiums represented 42.1% and 34.8% of gross premiums earned in the fourth quarters of 2022 and 2021, respectively.

Net investment income of $7.4 million increased from $2.6 million in the fourth quarter of 2021 as the company repositioned the investment portfolio to take advantage of higher interest rates.

Losses and loss adjustment expenses of $72.1 million increased from $63.2 million in the same period of 2021. Losses and loss adjustment expenses as a percent of gross premiums earned declined to 39.4% from 40.3% in the fourth quarter of 2021.

Policy acquisition and other underwriting expenses of $24.0 million decreased from $24.2 million in the same quarter of 2021 and declined from 15.4% of gross premiums earned to 13.1%, reflecting a higher mix of renewal policies, lower commissions, and lower policy acquisition costs related to United Property and Casualty Insurance Company (UPC) policies.

General and administrative personnel expenses of $11.3 million decreased from $13.7 million for the fourth quarter of 2021 due primarily to a reduction in stock-based compensation and a decrease in employee and executive bonuses.

Full Year 2022 Results
For the year ended December 31, 2022, the company reported a net loss of $54.6 million, or $6.24 loss per share, compared with net income of $7.2 million, or $0.21 diluted earnings per share, for the year ended December 31, 2021.

Adjusted net loss (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the twelve-month period was $47.5 million, or $5.48 loss per share compared with adjusted net income of $6.2 million, or $0.10 diluted earnings per share, in the same period of 2021. An explanation of this non-GAAP financial measure and reconciliations to the applicable GAAP numbers accompany this press release.

Consolidated gross premiums earned of $724.7 million increased 25.6% from $577.0 million in the year ended December 31, 2021, reflecting higher average premium per policy.

Premiums ceded for reinsurance of $261.1 million increased from $199.7 million in the twelve months of 2021. The increase over last year also included an adjustment to reduce benefits under a multi-year reinsurance contract with retrospective provisions as a result of Hurricane Ian. Ceded premiums increased as a percentage of gross premiums earned from 34.6% to 36.0% in the twelve months of 2022.

Net investment income of $32.4 million increased from $12.3 million in the year ended December 31, 2021 as the company repositioned the investment portfolio to take advantage of higher interest rates. The increase also included a gain of $13.4 million on the sale of a portion of one of the properties in the Greenleaf portfolio.

Net realized and unrealized investment losses were $8.3 million compared with net realized and unrealized investment gains of $7.8 million in the year ended December 31, 2021. The decrease was due to an overall decline in the market for equity securities compared with the year ended December 31, 2021.

Losses and loss adjustment expenses of $371.5 million increased from $227.5 million in the year ended December 31, 2021. The increase in losses and loss adjustment expenses was due to Hurricane Ian, growth at TypTap, and policies assumed or renewed from UPC.

Policy acquisition and other underwriting expenses of $105.0 million increased from $93.7 million in the year ended December 31, 2021 but declined from 16.2% of gross premiums earned to 14.5%, reflecting a higher mix of renewal policies, lower commissions, and lower policy acquisition costs related to UPC policies.

General and administrative personnel expenses of $56.5 million increased from $45.4 million in the year ended December 31, 2021 due primarily to an increase in personnel related expenses and benefits.

Conference Call
HCI Group will hold a conference call later today, March 9, 2023, 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 4:45 p.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: (877) 545-0523
Listen-only international number: (973) 528-0016
Entry Code: 228446

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 March 9, 2024.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 47646

About HCI Group, Inc.
HCI Group, Inc. owns subsidiaries engaged in diverse, yet complementary business activities, including homeowners insurance, information technology services, insurance management, real estate, and reinsurance. HCI’s leading insurance operation, TypTap Insurance Company, is a technology-driven homeowners insurance company. 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

- Tables to follow -

HCI GROUP, INC. AND SUBSIDIARIES Selected Financial Metrics (Dollar amounts in thousands, except per share amounts)
		FY 2022				Q4 2022				Q3 2022				Q2 2022				Q1 2022				FY 2021
						(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Insurance Operations
Gross Written Premiums:
Homeowners Choice		$	377,860			$	54,180			$	119,400			$	113,139			$	91,141			$	426,910
TypTap Insurance Company			348,159				117,212				71,781				73,013				86,153				247,479
Total Gross Written Premiums			726,019				171,392				191,181				186,152				177,294				674,389
Gross Premiums Earned:
Homeowners Choice			426,502				95,533				98,985				113,681				118,303				401,137
TypTap Insurance Company			298,214				87,421				82,728				67,443				60,622				175,907
Total Gross Premiums Earned			724,716				182,954				181,713				181,124				178,925				577,044
Gross Premiums Earned Loss Ratio			51.3	%			39.4	%			76.9	%			47.9	%			40.6	%			39.4	%
Per Share Metrics
GAAP Diluted EPS		$	(6.24	)		$	0.18			$	(5.66	)		$	(1.04	)		$	0.09			$	0.21
Non-GAAP Adjusted Diluted EPS		$	(5.48	)		$	0.06			$	(5.62	)		$	(0.71	)		$	0.34			$	0.10
Dividends per share		$	1.60			$	0.40			$	0.40			$	0.40			$	0.40			$	1.60
Book value per share at the end of period		$	18.91			$	18.91			$	19.52			$	26.39			$	31.66			$	31.92
Shares outstanding at the end of period			8,598,682				8,598,682				8,926,845				9,047,972				10,125,927				10,131,399

HCI GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollar amounts in thousands)
		December 31, 2022				December 31, 2021
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $494,197 and $41,953, respectively and allowance for credit losses: $0 and $0, respectively)		$	483,901			$	42,583
Equity securities, at fair value (cost: $36,272 and $46,276, respectively)			34,583				51,740
Limited partnership investments			25,702				28,133
Investment in unconsolidated joint venture, at equity			18				363
Real estate investments			71,388				73,896
Total investments			615,592				196,715
Cash and cash equivalents			234,863				628,943
Restricted cash			2,900				2,400
Accrued interest and dividends receivable			1,952				353
Income taxes receivable			2,807				4,084
Premiums receivable, net (allowance: $5,362 and $1,750, respectively)			34,998				68,157
Prepaid reinsurance premiums			66,627				26,355
Reinsurance recoverable, net of allowance for credit losses:
Paid losses and loss adjustment expenses (allowance: $0 and $0, respectively)			71,594				11,985
Unpaid losses and loss adjustment expenses (allowance: $454 and $90, respectively)			616,765				64,665
Deferred policy acquisition costs			45,522				57,695
Property and equipment, net			17,910				14,232
Right-of-use-assets - operating leases			777				2,204
Intangible assets, net			10,578				10,636
Funds withheld for assumed business			48,772				73,716
Other assets			31,671				14,717
Total assets		$	1,803,328			$	1,176,857
Liabilities and Equity
Losses and loss adjustment expenses		$	863,765			$	237,165
Unearned premiums			368,047				366,744
Advance premiums			18,587				13,771
Reinsurance payable on paid losses and loss adjustment expenses			8,606				4,017
Ceded reinsurance premiums payable			17,646				19,318
Accrued expenses			14,534				15,453
Reinsurance recovered in advance on unpaid losses			19,863				—
Deferred income taxes, net			1,704				11,739
Revolving credit facility			—				15,000
Long-term debt			211,687				45,504
Lease liabilities - operating leases			721				2,203
Other liabilities			23,361				31,485
Total liabilities			1,548,521				762,399
Commitments and contingencies
Redeemable noncontrolling interest			93,553				89,955
Equity:
Common stock, (no par value, 40,000,000 shares authorized, 8,598,682 and 10,131,399 shares issued and outstanding in 2022 and 2021, respectively)			—				—
Additional paid-in capital			—				76,077
Retained income			172,482				246,790
Accumulated other comprehensive (loss) income, net of taxes			(9,886	)			498
Total stockholders' equity			162,596				323,365
Noncontrolling interests			(1,342	)			1,138
Total equity			161,254				324,503
Total liabilities, redeemable noncontrolling interest, and equity		$	1,803,328			$	1,176,857

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,
		2022				2021				2022				2021
		(Unaudited)				(Unaudited)
Revenue
Gross premiums earned		$	182,954			$	156,853			$	724,716			$	577,044
Premiums ceded			(77,036	)			(54,629	)			(261,144	)			(199,741	)
Net premiums earned			105,918				102,224				463,572				377,303
Net investment income			7,365				2,586				32,447				12,335
Net realized investment gains (losses)			17				1,520				(1,187	)			6,472
Net unrealized investment gains (losses)			1,004				2,012				(7,153	)			1,363
Policy fee income			1,099				1,033				4,279				3,995
Gain from remeasurement of contingent liabilities			3,117				—				3,117				—
Other			1,423				2,945				4,488				6,447
Total revenue			119,943				112,320				499,563				407,915
Expenses
Losses and loss adjustment expenses			72,135				63,193				371,463				227,525
Policy acquisition and other underwriting expenses			24,028				24,158				104,977				93,732
General and administrative personnel expenses			11,328				13,695				56,511				45,428
Interest expense			2,839				657				7,768				6,400
Impairment loss			2,284				—				2,284				—
Debt conversion expense			—				481				—				1,754
Other operating expenses			4,586				7,598				24,978				21,843
Total expenses			117,200				109,782				567,981				396,682
Income (loss) before income taxes			2,743				2,538				(68,418	)			11,233
Income tax expense (benefit)			92				1,103				(13,815	)			3,991
Net income (loss)		$	2,651			$	1,435			$	(54,603	)		$	7,242
Net income attributable to redeemable noncontrolling interest			(2,305	)			(2,224	)			(9,106	)			(7,399	)
Net loss attributable to noncontrolling interests			1,180				817				5,198				2,013
Net income (loss) after noncontrolling interests		$	1,526			$	28			$	(58,511	)		$	1,856
Basic earnings (loss) per share		$	0.18			$	0.01			$	(6.24	)		$	0.23
Diluted earnings (loss) per share		$	0.18			$	0.01			$	(6.24	)		$	0.21
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 (loss) per common share calculated in accordance with GAAP is presented below.

		Three Months Ended												Year Ended
GAAP		December 31, 2022												December 31, 2022
		Income (Numerator)				Shares (a) (Denominator)				Per Share Amount				Loss (Numerator)				Shares (a) (Denominator)				Per Share Amount
Net income (loss)		$	2,651											$	(54,603	)
Less: Net income attributable to redeemable noncontrolling interest			(2,305	)											(9,106	)
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities			1,182												5,198
Net income (loss) attributable to HCI			1,528												(58,511	)
Less: Income (loss) attributable to participating securities			(42	)											3,463
Basic Earnings (Loss) Per Share:
Income (loss) allocated to common stockholders			1,486				8,356			$	0.18				(55,048	)			8,817			$	(6.24	)
Effect of Dilutive Securities:*
Stock options			—				—								—				—
Convertible senior notes			—				—								—				—
Warrants			—				—								—				—
Diluted Earnings (Loss) Per Share:
Income (loss) available to common stockholders and assumed conversions		$	1,486				8,356			$	0.18			$	(55,048	)			8,817			$	(6.24	)
(a) Shares in thousands.
* Convertible senior notes, stock options, and warrants were excluded due to antidilutive effect.

Non-GAAP Financial Measures

Adjusted net income (loss) is a Non-GAAP financial measure that removes from net income (loss) 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 (loss) to Non-GAAP Adjusted net income (loss) and GAAP diluted earnings (loss) per share to Non-GAAP Adjusted diluted earnings (loss) per share is provided below.

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

		Three Months Ended									Year Ended
		December 31, 2022									December 31, 2022
GAAP Net income (loss)						$	2,651								$	(54,603	)
Net unrealized investment (gains) losses		$	(1,004	)							$	7,153
Less: Tax effect at 0%*		$	-								$	-
Net adjustment to Net income (loss)						$	(1,004	)							$	7,153
Non-GAAP Adjusted Net income (loss)						$	1,647								$	(47,450	)
*A valuation allowance was established as of December 31, 2022 on the deferred tax assets related to the 2022 pre-tax loss due to the impacts of Hurricane Ian. Consequently, there is no tax effect for net unrealized gains or losses.

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 (loss) per common share calculated with the Non-GAAP financial measure Adjusted net income (loss) is presented below.

		Three Months Ended												Year Ended
Non-GAAP		December 31, 2022												December 31, 2022
		Income (Numerator)				Shares (a) (Denominator)				Per Share Amount				Loss (Numerator)				Shares (a) (Denominator)				Per Share Amount
Adjusted net income (loss) (non-GAAP)		$	1,647											$	(47,450	)
Less: Net income attributable to redeemable noncontrolling interest			(2,305	)											(9,106	)
Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities			1,190												5,156
Net income (loss) attributable to HCI			532												(51,400	)
Less: (Income) loss attributable to participating securities			(1	)											3,046
Basic Earnings (Loss) Per Share before unrealized gains/losses on equity securities:
Income (loss) allocated to common stockholders			531				8,356			$	0.06				(48,354	)			8,817			$	(5.48	)
Effect of Dilutive Securities:*
Stock options			—				—								—				—
Convertible senior notes			—				—								—				—
Warrants			—				—								—				—
Diluted Earnings (Loss) Per Share before unrealized gains/losses on equity securities:
Income (loss) available to common stockholders and assumed conversions		$	531			$	8,356			$	0.06			$	(48,354	)		$	8,817			$	(5.48	)
(a) Shares in thousands.
* Convertible senior notes, stock options, and warrants were excluded due to antidilutive effect.

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

		Three Months Ended									Year Ended
		December 31, 2022									December 31, 2022
GAAP diluted Earnings (Loss) Per Share						$	0.18								$	(6.24	)
Net unrealized investment (gains) losses		$	(0.12	)							$	0.76
Less: Tax effect at 0%*		$	-								$	-
Net adjustment to GAAP diluted EPS						$	(0.12	)							$	0.76
Non-GAAP Adjusted diluted EPS						$	0.06								$	(5.48	)
*A valuation allowance was established as of December 31, 2022 on the deferred tax assets related to the 2022 pre-tax loss due to the impacts of Hurricane Ian. Consequently, there is no tax effect for net unrealized losses.