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HCI Group Reports First Quarter 2020 Results

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TAMPA, Fla., May 07, 2020 (GLOBE NEWSWIRE) -- HCI Group, Inc. (HCI), an InsurTech company with operations in insurance, software development and real estate, reported results for the quarter ended March 31, 2020.

First Quarter 2020 - Financial Results
Net income for the first quarter of 2020 totaled $0.5 million or $0.07 diluted earnings per share compared with $6.7 million or $0.82 diluted earnings per share in the first quarter of 2019. Adjusted net income (a non-GAAP measure which excludes net unrealized gains or losses on equity securities) for the quarter was $4.2 million or $0.54 diluted earnings per share compared with $2.8 million or $0.35 diluted earnings per share in the first 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”).

Net income for the quarter was impacted by $4.8 million of net unrealized losses on equity securities, $2.2 million of net realized losses on investment sales, and $3.0 million of reductions in the estimated value of limited partnership investments resulting from declines in the financial markets caused by economic uncertainty attributable to the effects of the COVID-19 pandemic crisis.

The combined ratio, a measure of overall underwriting profitability before other income, was 88.8% for the first quarter of 2020 compared with 100.3% in the same prior year period.

Consolidated gross written premiums of $76.5 million for the first quarter of 2020 were up 13.2% from $67.6 million in the first quarter of 2019, reflecting the continued growth of TypTap Insurance Company, HCI’s technology-driven insurance subsidiary. TypTap gross written premiums grew to $18.4 million in the first quarter compared with $6.1 million in the first quarter of 2019.

Consolidated gross premiums earned of $92.4 million for the first quarter of 2020 were up 11.8% from $82.6 million in the first quarter of 2019, again driven by the growth of TypTap.

Net investment loss of $0.2 million in the first quarter of 2020 includes the effect of a reduction in the estimated value of limited partnership interests in the amount of $3.0 million. Net realized investment losses were $2.2 million in the first quarter of 2020 compared with $0.4 million in 2019. The losses in the first quarter of 2020 were primarily due to sales intended to rebalance our investment portfolio. Net unrealized investment losses were $4.8 million in the first quarter of 2020 compared with net unrealized gains of $5.3 million in 2019. The unrealized investment losses in the first quarter of 2020 reflect an adverse change in the fair value of equity securities due to the economic uncertainty caused by COVID-19.

Losses and loss adjustment expenses were $28.1 million compared with $27.0 million in the same period in 2019. The increase of $1.1 million was primarily due to an increase in loss reserves related to the growth of TypTap premiums, offset by lower loss reserves related to a severe storm event in March 2019.

Policy acquisition expenses were $11.8 million compared with $9.7 million in the same quarter of 2019. The increase relates to premium growth in TypTap.

Interest expense was $3.0 million compared with $4.3 million in the same period in 2019. The decrease was primarily due to the repayment of the 3.875% Convertible Senior Notes in March 2019.

On April 1, 2020, approximately 41,000 Anchor policies representing approximately $66 million in annualized premiums were replaced with policies from Homeowners Choice Property & Casualty Insurance Company. The premiums from these policies will begin to come into written and earned premium in the second quarter of this year.

Management Commentary

“With the exception of unrealized investment losses, we had a very good quarter,” said HCI Group’s chairman and chief executive officer Paresh Patel. “Our cash flow is healthy and our balance sheet remains strong.”

Conference Call

HCI Group will hold a conference call later today, May 7, 2020, to discuss these financial results. Chairman and Chief Executive Officer Paresh Patel and Chief Financial Officer Mark Harmsworth will host the call starting at 4:45 p.m. Eastern time. A question and answer session will follow management's presentation.

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

Listen-only toll-free number: (844) 369-8774
Listen-only international number: (862) 298-0844

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

A replay of the call will be available by telephone after 8:00 p.m. Eastern time on the same day as the call and via the Investor Information section of the HCI Group website at www.hcigroup.com through June 7, 2020.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 34545

About HCI Group, Inc.

HCI Group, Inc. is an InsurTech company with operations in insurance, software development and real estate. HCI’s leading insurance operation, TypTap Insurance Company, is a rapidly growing, technology-driven insurance company, which provides homeowners’ insurance and flood insurance primarily in Florida. TypTap’s operations are powered in large part by insurance-related information technology developed by HCI’s software subsidiary, Exzeo USA, Inc. HCI’s largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., provides homeowners’ insurance primarily in Florida. HCI’s real estate subsidiary, Greenleaf Capital, LLC, owns and operates multiple properties in Florida, including office buildings, retail centers and marinas.

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

Forward-Looking Statements

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

Company Contact:
Rachel Swansiger, Esq.
Investor Relations
HCI Group, Inc.
Tel (813) 405-3206
rswansiger@hcigroup.com

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

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

- Tables to follow -



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

At March 31, 2020

At December 31, 2019

(Unaudited)

Assets

Fixed-maturity securities, available for sale, at fair value (amortized cost: $186,224 and $199,954, respectively) (allowance for credit losses: $439 and $0, respectively)

$

185,845

$

202,839

Equity securities, at fair value (cost: $25,514 and $31,863, respectively)

24,131

35,285

Short-term investments, at fair value

464

491

Limited partnership investments

25,634

28,346

Investment in unconsolidated joint venture, at equity

746

762

Real estate investments

75,770

73,763

Total investments

312,590

341,486

Cash and cash equivalents

317,078

229,218

Restricted cash

700

700

Accrued interest and dividends receivable

1,924

1,616

Income taxes receivable

916

1,040

Premiums receivable

18,898

20,255

Prepaid reinsurance premiums

7,620

17,983

Reinsurance recoverable, net of allowance for credit losses:

Paid losses and loss adjustment expenses (allowance: $134 and $0, respectively)

16,766

16,155

Unpaid losses and loss adjustment expenses (allowance: $295 and $0, respectively)

100,937

116,523

Deferred policy acquisition costs

20,338

21,663

Property and equipment, net

14,569

14,698

Intangible assets, net

4,034

4,192

Other assets

19,969

17,080

Total assets

$

836,339

$

802,609

Liabilities and Stockholders’ Equity

Losses and loss adjustment expenses

$

207,108

$

214,697

Unearned premiums

165,155

181,163

Advance premiums

44,545

5,589

Assumed reinsurance balances payable

54

76

Accrued expenses

9,275

10,059

Deferred income taxes, net

3,268

4,008

Revolving credit facility

23,750

9,750

Long-term debt

165,416

163,695

Other liabilities

38,512

28,029

Total liabilities

657,083

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, 7,735,204 and 7,764,564 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively)

Additional paid-in capital

Retained income

179,210

183,365

Accumulated other comprehensive income, net of taxes

46

2,178

Total stockholders’ equity

179,256

185,543

Total liabilities and stockholders’ equity

$

836,339

$

802,609



HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income
(Unaudited)
(Dollar amounts in thousands, except per share amounts)

Three Months Ended

March 31,

2020

2019

Revenue

Gross premiums earned

$

92,365

$

82,597

Premiums ceded

(30,719

)

(31,413

)

Net premiums earned

61,646

51,184

Net investment (loss) income

(192

)

3,278

Net realized investment losses

(2,244

)

(372

)

Net unrealized investment (losses) gains

(4,805

)

5,293

Credit losses on investments

(439

)

Policy fee income

829

795

Other

585

456

Total revenue

55,380

60,634

Expenses

Losses and loss adjustment expenses

28,078

26,996

Policy acquisition and other underwriting expenses

11,826

9,673

General and administrative personnel expenses

8,367

7,364

Interest expense

2,970

4,337

Other operating expenses

3,482

2,981

Total expenses

54,723

51,351

Income before income taxes

657

9,283

Income tax expense

110

2,545

Net income

$

547

$

6,738

Basic earnings per share

$

0.07

$

0.82

Diluted earnings per share

$

0.07

$

0.82

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, 2020

March 31, 2019

Income

Shares

Per Share

Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Net income

$

547

$

6,738

Less: Income attributable to participating securities

(13

)

(408

)

Basic Earnings Per Share:

Income allocated to common stockholders

534

7,369

$

0.07

6,330

7,736

$

0.82

Effect of Dilutive Securities: *

Stock options

9

19

Diluted Earnings Per Share:

Income available to common stockholders and assumed conversions

$

534

7,378

$

0.07

$

6,330

7,755

$

0.82


*Convertible senior notes for the three months ended March 31, 2020 and 2019 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

Three Months Ended

March 31, 2020

March 31, 2019

GAAP Net income

$

547

$

6,738

Net unrealized investment losses (gains)

$

4,805

$

(5,293

)

Less: Tax effect at 24.52182% (2020) & 25.345% (2019)

$

(1,178

)

$

1,342

Net adjustment to Net income

$

3,627

$

(3,951

)

Non-GAAP Adjusted Net income

$

4,174

$

2,787

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, 2020

March 31, 2019

Income

Shares

Per Share

Income

Shares

Per Share

(Numerator)

(Denominator)

Amount

(Numerator)

(Denominator)

Amount

Adjusted net income (non-GAAP)

$

4,174

$

2,787

Less: Income attributable to participating securities

(200

)

(103

)

Basic Earnings Per Share before unrealized gains/losses on equity securities:

Income allocated to common stockholders

3,973

7,369

$

0.54

2,684

7,736

$

0.35

Effect of Dilutive Securities: *

Stock options

9

19

Diluted Earnings Per Share before unrealized gains/losses on equity securities:

Income available to common stockholders and assumed conversions

$

3,973

7,378

$

0.54

$

2,684

7,755

$

0.35


*Convertible senior notes for the three months ended March 31, 2020 and 2019 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, 2020

March 31, 2019

GAAP diluted Earnings Per Share

$

0.07

$

0.82

Net unrealized investment losses (gains)

$

0.65

$

(0.68

)

Less: Tax effect at 24.52182% (2020) & 25.345% (2019)

$

(0.18

)

$

0.21

Net adjustment to GAAP diluted EPS

$

0.47

$

(0.47

)

Non-GAAP Adjusted diluted EPS

$

0.54

$

0.35