U.S. Markets closed

HCI Group Reports Third Quarter 2018 Results

TAMPA, Fla., Nov. 06, 2018 (GLOBE NEWSWIRE) -- HCI Group, Inc. (HCI), a holding company primarily engaged in homeowners insurance, with additional operations in reinsurance, real estate and information technology, reported results for the three and nine months ended September 30, 2018.

Third Quarter 2018 - Financial Results
Net income for the third quarter of 2018 totaled $9.0 million or $1.00 diluted earnings per share compared with a net loss of $40.5 million or $4.44 loss per share in the third quarter of 2017, which was impacted by Hurricane Irma. Adjusted net income (a non-GAAP financial measure which excludes unrealized gains and losses on equity securities) for the quarter was $9.3 million or $1.02 per fully diluted share. 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”). 

Gross premiums earned totaled $86.2 million compared with $88.7 million in the same period in 2017. The decrease was primarily attributable to attrition in the number of insurance policies outstanding.

Gross premiums written were $90.4 million compared with $94.9 million in the same quarter of 2017. 

Premiums ceded decreased to $32.0 million or 37.1% of gross premiums earned from $44.7 million or 50.4% of gross premiums earned in the third quarter of 2017. The primary reason for the decrease was an unfavorable adjustment made in the third quarter of 2017 related to retrospective reinsurance provisions.

Net premiums earned (defined as gross premiums earned less premiums ceded to reinsurers) were $54.2 million compared with $44.0 million in the same period in 2017. 

Net premiums written (defined as gross premiums written less premiums ceded to reinsurers) were $58.4 million compared with $50.2 million in the same period in 2017.

Net investment income was $5.1 million compared with $2.9 million in the same quarter of 2017. The increase was primarily attributable to an increase in income from limited partnerships and higher interest income on fixed-maturity securities, short-term investments and cash.

Net realized investment gains were $1.6 million compared with losses of $0.2 million in the same period of 2017.

Losses and loss adjustment expenses were $25.8 million compared with $89.2 million in the same period in 2017. In the third quarter of 2017, losses and loss adjustment expenses were impacted by $54.0 million of losses incurred as a result of Hurricane Irma, adverse development related to Hurricane Matthew, and strengthening of loss reserves in response to assignment of insurance benefits and related litigation. 

Income tax expense was $2.9 million on pre-tax net income of $11.9 million for the third quarter of 2018. The effective tax rate was 24.5% for 2018 and 38.6% for 2017. The decrease in rate was primarily attributable to lower federal corporate income tax rates effective January 1, 2018.

Third Quarter 2018 - Financial Ratios
The loss ratio was 29.9% of gross premiums earned for the third quarter of 2018 compared with 100.6% in the third quarter of 2017. The decrease was primarily due to losses incurred from Hurricane Irma during the third quarter of 2017.

The combined ratio (total of all expenses in relation to net premiums earned) was 92.0% for the third quarter of 2018 compared with 258.2% in the third quarter of 2017.

Nine Months Ended September 30, 2018 - Financial Results
Net income for the nine months ended September 30, 2018 totaled $26.2 million or $3.03 diluted earnings per share compared with a net loss of $19.0 million or $2.05 loss per share for the nine months ended September 30, 2017. Adjusted net income (a non-GAAP measure which excludes unrealized gains and losses on equity securities) for the nine-month period was $29.6 million or $3.30 per fully diluted share. An explanation of this non-GAAP financial measure and reconciliations to the applicable GAAP numbers accompany this press release.

Gross premiums earned decreased to $257.9 million from $270.4 million in the same period in 2017. The decrease was primarily attributable to attrition in the number of insurance policies outstanding. Gross premiums written were $292.9 million compared with $300.7 million in the same nine-month period of 2017.

Premiums ceded were $97.2 million or 37.7% of gross premiums earned compared with $101.5 million or 37.6% of gross premiums earned during the same period in 2017.

Net premiums earned decreased to $160.7 million from $168.8 million for the nine months ended September 30, 2017.

Net realized investment gains were $6.5 million compared with $2.3 million during the same period in 2017.

Losses and loss adjustment expenses for the nine months ended September 30, 2018 and 2017 were $67.2 million and $142.4 million, respectively. Losses and loss adjustment expenses for the nine months ended September 30, 2017 were significantly impacted by the losses incurred as a result of Hurricane Irma and Hurricane Matthew and the strengthening of loss reserves in response to trends involving assignment of insurance benefits and related litigation. 

Interest expense was $13.5 million compared with $12.3 million in the same nine-month period in 2017. The increase resulted from the effect of the issuance of 4.25% convertible senior notes in March 2017, offset in part by the redemption of the 8% senior notes in April 2017.

Income tax expense was $12.1 million on pre-tax net income of $38.2 million for the nine months ended September 30, 2018. In the same nine months of 2017, an income tax benefit of $13.6 million offset a pre-tax operating loss of $32.6 million attributable primarily to losses sustained from Hurricane Irma. The effective tax rate was 31.5% for the nine-month period in 2018 and 41.7% for the nine-month period in 2017. The decrease in rate was primarily attributable to a lower federal corporate income tax rate effective January 1, 2018, offset by $1.6 million of derecognized deferred tax assets and $1.7 million of nondeductible expense of dividends paid, both of which related to restricted stock awards with market conditions that will not be met.

Book value per share, defined as shareholders’ equity divided by common shares outstanding at the end of the respective reporting periods, was $22.96 at September 30, 2018 compared with $22.14 at December 31, 2017.

Nine Months Ended September 30, 2018 - Financial Ratios
The loss ratio was 26.1% of gross premiums earned for the nine months ended September 30, 2018 compared with 52.7% in the nine months ended September 30, 2017.

The combined ratio was 87.2% compared with 127.5% in the same period in 2017.

Conference Call
HCI Group will hold a conference call later today, November 6, 2018, 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: (877) 407-8033
Listen-only international number: (201) 689-8033

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 Liolios Group 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 December 6, 2018.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 37843

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. The company's largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., is a leading provider of property and casualty insurance in the state of Florida.

The company's common shares trade on the New York Stock Exchange under the ticker symbol "HCI" and are included in the Russell 2000 Index and the 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

Company Contact:
Kevin Mitchell, Senior Vice President of Investor Relations
HCI Group, Inc.
Tel (813) 405-3603
kmitchell@hcigroup.com

Investor Relations Contact:
Matt Glover or Najim Mostamand, CFA
Liolios Group, Inc.
Tel (949) 574-3860
HCI@liolios.com

-     Tables to follow     -


HCI GROUP, INC. AND SUBSIDIARIES 
Consolidated Balance Sheets 
(Dollar amounts in thousands)
           
      At September 30, 2018   At December 31, 2017
      (Unaudited)    
Assets          
           
Fixed-maturity securities, available for sale, at fair value (amortized cost: $147,193 and $235,633, respectively)   $     145,719         237,484
Equity securities, at fair value (cost: $44,184 and $54,282, respectively)         45,311         59,956
Short-term investments, at fair value         87,778         -
Limited partnership investments, at equity         28,944         23,184
Investment in unconsolidated joint venture, at equity         860         1,304
Real estate investments         63,892         58,358
Total investments       372,504       380,286
           
Cash and cash equivalents         249,083         255,884
Restricted cash         700         809
Accrued interest and dividends receivable         1,527         1,983
Income taxes receivable         3,005         16,192
Premiums receivable         25,461         17,807
Prepaid reinsurance premiums         27,458         22,286
Reinsurance recoverable:          
Paid losses and loss adjustment expenses         22,200         2,344
Unpaid losses and loss adjustment expenses         50,895         100,760
Deferred policy acquisition costs         20,669         16,712
Property and equipment, net         13,183         12,465
Intangible assets, net         4,951         4,995
Other assets         24,701         9,741
           
Total assets   $   816,337       842,264
           
Liabilities and Stockholders’ Equity          
Losses and loss adjustment expenses   $     138,414         198,578
Unearned premiums         199,050         164,896
Advance premiums         10,350         4,948
Assumed reinsurance balances payable         142         15
Accrued expenses         11,759         6,035
Reinsurance recovered in advance on unpaid losses         -         13,885
Deferred income taxes, net         2,221         1,890
Long-term debt         248,544         237,835
Other liabilities         13,722         20,207
           
  Total liabilities       624,202       648,289
           
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, 8,368,188 and 8,762,416 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively)       —        — 
Additional paid-in capital       —        — 
Retained income       193,236       189,409
Accumulated other comprehensive (loss) income, net of taxes         (1,101 )       4,566
           
Total stockholders’ equity       192,135       193,975
           
Total liabilities and stockholders’ equity   $   816,337       842,264
             

 

HCI GROUP, INC. AND SUBSIDIARIES 
Consolidated Statements of Income
   (Unaudited)         
(Dollar amounts in thousands, except per share amounts) 
                   
      Three Months Ended
  Nine Months Ended
      September 30,
  September 30,
      2018
  2017   2018   2017
             
                       
Revenue                      
                   
Gross premiums earned    $    86,163       88,669       257,854       270,376  
Premiums ceded       (31,986 )     (44,705 )     (97,190 )     (101,529 )
                   
Net premiums earned       54,177       43,964       160,664       168,847  
                   
Net investment income       5,054       2,878       11,671       8,522  
Net realized investment gains (losses)       1,626       (226 )     6,520       2,276  
Net unrealized investment (losses) gains       (390 )     74       (4,547 )     74  
Net other-than-temporary impairment losses       -       (474 )     (80 )     (864 )
Policy fee income       843       905       2,563       2,721  
Other       433       369       1,504       1,207  
                   
Total revenue       61,743       47,490       178,295       182,783  
                   
Expenses                  
                   
Losses and loss adjustment expenses       25,769       89,231       67,227       142,425  
Policy acquisition and other underwriting expenses       9,829       9,926       29,148       29,645  
Impairment Loss       -       38       -       38  
General and administrative personnel expenses       6,781       6,672       20,904       21,021  
Interest expense       4,552       4,408       13,527       12,328  
Loss on repurchases of senior notes       -       -       -       743  
Other operating expenses       2,889       3,233       9,242       9,154  
                   
Total expenses       49,820       113,508       140,048       215,354  
                   
Income (loss) before income taxes       11,923       (66,018 )     38,247       (32,571 )
                   
Income tax expense (benefit)       2,926       (25,472 )     12,056       (13,587 )
                   
Net income    $    8,997       (40,546 )     26,191       (18,984 )
                   
Basic earnings (loss) per share    $    1.08       (4.44 )     3.29       (2.05 )
                   
Diluted earnings (loss) per share    $    1.00       (4.44 )     3.03       (2.05 )
                   
Dividends per share    $    0.375       0.35       1.10       1.05  
                   

 

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
  Nine Months Ended
GAAP September 30, 2018
  September 30, 2018
  Income
  Shares
  Per Share
  Income
  Shares
  Per Share
  (Numerator)
  (Denominator)
  Amount
  (Numerator)
  (Denominator)
  Amount
Net income $   8,997                 $   26,191              
Less: Income attributable to participating securities*     (591 )                   (92 )            
                                       
Basic Earnings Per Share:                                      
Income allocated to common stockholders     8,406         7,791   $   1.08       26,099         7,931   $   3.29
                                       
Effect of Dilutive Securities:                                      
Stock options    --          17            --          17      
Convertible senior notes     3,188         3,808             9,481         3,803      
                                       
Diluted Earnings Per Share:                                      
Income available to common stockholders and assumed conversions $   11,594         11,616   $   1.00   $   35,580         11,751   $   3.03
                                       
*Income attributable to participating securities for the three and nine months ended September 30, 2018 included the reclassification of cumulative dividends paid on certain restricted stock with market based vesting conditions from retained income to expense.
 

Non-GAAP Financial Measures
Adjusted net income is a non-GAAP financial measure that removes from net income the effect of unrealized gains and losses on equity securities that are required to be included in results of operations in accordance with a new accounting standard effective January 1, 2018. HCI Group believes net income without the effect of volatility in equity prices is more comparable to prior period 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
  Nine Months Ended
  September 30, 2018
  September 30, 2018
                                         
GAAP Net Income         $   8,997                   $   26,191      
Add back: Net unrealized investment losses $ 390                   $   4,547              
Less: Tax effect at 25.345% $   (99 )                 $   (1,152 )            
Net adjustment to Net Income         $   291                   $   3,395      
Non-GAAP Adjusted Net Income         $   9,288                   $   29,586      
                                         
                                         
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
  Nine Months Ended
Non-GAAP September 30, 2018
  September 30, 2018
  Income
  Shares
  Per Share
  Income

  Shares
 
Per Share
  (Numerator)
  (Denominator)
  Amount
  (Numerator)
  (Denominator)
  Amount
Adjusted net income (non-GAAP) $   9,288                   $   29,586              
Less: Income attributable to participating securities*     (614 )                     (332 )            
                                         
Basic Earnings Per Share before unrealized gains/losses on equity securities:                                        
Income allocated to common stockholders     8,674         7,791   $   1.11         29,254         7,931   $   3.69
                                         
Effect of Dilutive Securities:                                        
Stock options    --          17              --          17      
Convertible senior notes     3,188         3,808               9,481         3,803      
                                         
Diluted Earnings Per Share before unrealized gains/losses on equity securities:                                        
Income available to common stockholders and assumed conversions $   11,862         11,616   $   1.02     $   38,735         11,751   $   3.30
                                         
*Income attributable to participating securities for the three and nine months ended September 30, 2018 included the reclassification of cumulative dividends paid on certain restricted stock with market based vesting conditions from retained income to expense.
                                         
                                         
Reconciliation of GAAP Diluted EPS to non-GAAP Adjusted Diluted EPS
  Three Months Ended
  Nine Months Ended
  September 30, 2018
  September 30, 2018
GAAP diluted Earnings Per Share         $   1.00                   $   3.03      
Add back: Net unrealized investment losses $   0.03                   $   0.39              
Less: Tax effect at 25.345% $   (0.01 )                 $   (0.11 )            
Net adjustment to GAAP diluted EPS         $   0.02                   $   0.28      
Non-GAAP Adjusted diluted EPS         $   1.02                   $   3.30