HCI Group Inc

General

Incorporated in 2006, HCI Group, Inc. is a Florida-based company that, through its subsidiaries, is engaged in property and casualty insurance, information technology services, insurance management, real estate and reinsurance. References to “we,” “our,” “us,” “the Company,” or “HCI” in this Form 10-K generally refer to HCI Group, Inc. and its subsidiaries. Our principal executive offices are located at 3802 Coconut Palm Drive, Tampa, Florida 33619, and our telephone number is (813) 849-9500.

During the fourth quarter of 2023, Core Risk Managers, LLC (“CRM”), a wholly owned subsidiary of HCI, entered into an attorney-in-fact (“AIF”) agreement with Condo Owners Reciprocal Exchange (“CORE”). Under the AIF agreement, CRM is responsible for conducting daily operations on behalf of CORE. Although we do not have any equity interest in CORE, CORE’s operating results will be regularly reviewed by us.

As such, we now manage our operations in the following organizational segments, based on managerial emphasis and evaluation of financial and operating performances:

a)

HCPCI Insurance Operations

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Property and casualty insurance

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Reinsurance and other auxiliary operations

b)

TypTap Group

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Property and casualty insurance

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Information technology

c)

CORE Insurance Operations

d)

Real Estate Operations

e)

Other Operations

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Holding company operations

HCPCI Insurance Operations

Property and Casualty Insurance

Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”) was incorporated and began operations in 2007. HCPCI provides various forms of residential insurance products such as homeowners insurance, fire insurance, flood insurance and wind-only insurance to homeowners, condominium owners and tenants for properties primarily located in Florida and in various states outside of Florida. Due to the reduced availability and affordability of flood reinsurance coverage, HCPCI ceased to offer flood insurance policies in Florida during 2023. Gross earned premiums from such policies comprised less than 1% of total HCPCI gross premiums earned during 2022.

HCPCI began operations by participating in a “take-out program” through which we assumed insurance policies issued by Citizens Property Insurance Corporation (“Citizens”), a Florida state-supported insurer. The take-out program is a legislatively mandated program designed to reduce the State’s risk exposure by encouraging private companies to assume policies from Citizens. We selectively pursue additional assumption transactions with Citizens when opportunities arise. In 2023, HCPCI assumed approximately 53,400 policies from Citizens, representing $196.8 million in annualized gross premiums written.

As an established carrier, HCPCI has also accepted the transfer or assumption of policies from other insurance companies in Florida or any states in which it operates. For example, in 2011 we accepted approximately 70,000 homeowners’ insurance policies representing $106 million in written premium from a carrier placed into receivership, approximately 43,000 homeowners’ insurance policies representing $69 million of annualized premium in April 2020 from a ratings-downgraded carrier that ceased conducting business, and approximately 6,000 homeowners’ insurance policies representing $20 million of annualized gross written premium from a carrier liquidated in August 2021.

In 2021, HCPCI assumed personal lines insurance business in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island (collectively “Northeast Region”) from United Property & Casualty Insurance Company, an insurance subsidiary of United Insurance Holdings Corporation (“United”). HCPCI began renewing and/or replacing United policies in two states of the Northeast Region in December 2021, a third state in January 2022, and the fourth state in April 2022. In 2022, HCPCI assumed personal lines insurance business in the states of Georgia, North Carolina, and South Carolina (collectively “Southeast Region”) from United. HCPCI began renewing United policies in South Carolina in September 2022. HCPCI is authorized to write residential property and casualty insurance in the states of Arkansas, California, Connecticut, Florida, Maryland, Massachusetts, New Jersey, North Carolina, Ohio,

Pennsylvania, Rhode Island, South Carolina and Texas. Written premium generated by HCPCI in states other than Florida during 2023, including from assumed business, totaled approximately $80.8 million.

Reinsurance and other auxiliary operations

We have a Bermuda domiciled wholly owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd (“Claddaugh”). We selectively retain risk in Claddaugh, reducing the cost of third party reinsurance. Claddaugh fully collateralizes its exposure to HCPCI and TypTap Insurance Company (“TypTap”) by depositing funds into a trust account. Claddaugh may mitigate a portion of its risk through retrocession contracts, however Claddaugh did not enter into any retrocession contracts for the 2022-2023 treaty year. Currently, Claddaugh does not provide reinsurance to non-affiliates. Other auxiliary operations also include claim adjusting and processing services.

For the years ended December 31, 2023, 2022 and 2021, revenues from HCPCI insurance operations before intracompany elimination represented 63.8%, 66.1% and 74.6%, respectively, of total revenues of all operating segments. At December 31, 2023 and 2022, HCPCI insurance operations’ total assets represented 55.3% and 53.4%, respectively, of the combined assets of all operating segments. See Note 17 -- “Segment Information” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

TypTap Group

TypTap Insurance Group, Inc. (“TTIG”), our majority-owned subsidiary, currently has four subsidiaries: TypTap, TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company which also owns Exzeo Software Private Limited, a subsidiary domiciled in India. TTIG is primarily engaged in the property and casualty insurance business, focusing on standalone flood and homeowners multi-peril policies. TTIG uses internally developed software technologies to drive efficiency in claim processing and claims settlements, identify profitable underwriting opportunities, generate savings and streamline operations across its insurance operations. In addition, software is also used to analyze potential and current properties based on statistical models for catastrophic events, allowing us to pursue the optimal candidates for insurance coverage.

In November 2021, we first announced our intention to list TTIG’s common shares on a major U.S. stock exchange through a planned initial public offering to raise additional capital to fund its growth plan. In January 2022, we announced our postponement of TTIG’s initial public offering due to market conditions not favorable to its success and realization of true value. However, we remain committed to our plan to list TTIG’s common shares on a major U.S. stock exchange.

Property and Casualty Insurance

TypTap, TTIG’s insurance subsidiary, was incorporated in 2015 and began operations in 2016 and has been the primary source of our organic growth in gross written premium since then. Gross written premium consists of the sum of direct premiums written and assumed premiums written. In its first year of operation in 2016, gross written premium was $2.5 million and by 2023 it has grown to $363.6 million. Since TypTap began applying for approval to offer homeowners coverage in states outside of Florida in October 2020, TypTap has received approvals from 31 states. Written premiums generated by TypTap in states other than Florida during 2023, including from assumed business, totaled approximately $87.3 million. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently.

In addition to the expansion in TypTap business, we also expect continued growth from the policies assigned to TypTap in connection with the aforementioned assumed personal lines insurance business in the Northeast and Southeast Regions from United. TypTap began renewing and/or replacing United policies in two states of the Northeast Region in December 2021, a third state in January 2022, and the fourth state in April 2022. In June 2022, TypTap assumed personal lines insurance business in the Southeast Region from United and simultaneously began renewing United policies in South Carolina. TypTap began renewing and/or replacing United policies in Georgia in October 2022. In December 2022, TypTap began renewing United policies in North Carolina. TypTap assumed approximately 6,700 policies from Citizens in 2023 and approximately 9,470 policies in 2024, representing approximately $77.6 million of annualized gross premiums written in aggregate.

TypTap ceased to offer flood insurance products during 2023 due to the reduced availability and affordability of flood reinsurance coverage. Gross earned premiums from such policies comprised less than 5% of total TypTap gross premiums earned during 2022.

CORE Insurance Operations

CORE, a reciprocal insurance exchange organized in November 2023 to offer commercial residential multiple peril insurance products, is owned by its policyholders, referred to as subscribers, who gain ownership by buying an insurance policy. The subscribers then assume one another’s risks by exchanging insurance contracts, so they are both the insurers and the insureds. The daily operations of CORE are directly or indirectly conducted by CRM, an AIF company. Such daily operations include general administration, marketing, underwriting, accounting, policy administration, claim adjusting, and information technology. CRM is permitted to outsource any of these services to other HCI subsidiaries. See Note 16 -- “Variable Interest Entity” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

Information Technology

Our information technology operations include a team of experienced software developers with extensive knowledge in designing and creating web-based applications. The operations, which are located in Tampa, Florida and Noida, India, are focused on developing cloud-based, innovative products and services that support in-house operations as well as our third-party relationships with our agency partners and claim vendors. Products created thus far have been solely for use by the Company’s insurance-related subsidiaries.

SAMSTM

SAMS is an online policy administration platform used by HCPCI. SAMS processes the full life cycle of a policy from policy quoting and issuance to agency management, cash receipts/disbursements, claims reserving and claim payments.

Harmony TM

Harmony is the next generation policy administration platform used by both HCPCI and TypTap. The innovative Harmony system easily supports multiple companies and their products. In addition to supporting the full life cycle of a policy, Harmony also provides advanced underwriting capabilities as well as a simplified user experience for quoting and binding.

ClaimColony TM

ClaimColony is an end-to-end claims management platform used by insurance companies, third-party administrators, independent adjusters and insurance litigation services. Its unique capabilities include customizable workflows, real-time reporting, vendor management, and the ability to efficiently handle high claim volume. ClaimColony supports the entire claim lifecycle and also provides accounting and bookkeeping support as well as rich integration capabilities with policy administration systems such as SAMSand Harmony.

AtlasViewer®

AtlasViewer is a mapping and data visualization platform. AtlasViewer allows users to map location-based data from multiple sources for a customized view of their data. The unique multilayered analysis improves decision making by providing unique insights into the data. Users can also securely share their maps and data with others, making the information instantly available to all invited users.

For the years ended December 31, 2023, 2022 and 2021, revenues from TypTap Group before intracompany elimination represented 34.5%, 29.9% and 22.7%, respectively, of total revenues of all operating segments. At December 31, 2023 and 2022, TypTap Group’s total assets represented 33.6% and 37.9%, respectively, of the combined assets of all operating segments. See Note 17 -- “Segment Information” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

Shared Support Services

HCPCI’s and TypTap’s operations are supported by HCI Group, Inc. and certain HCI subsidiaries. Such operational support services consist of general administration, marketing, underwriting, accounting, policy administration, claim adjusting, and information technology. In particular, we leverage our internally developed software technologies to drive efficiency in claim process and claims settlement, identify underwriting profitability, and improve satisfaction of our policyholders and agents within our insurance business.

Nature of Our Business

The nature of our business is to cover losses that may arise from, among other things, hurricanes and other catastrophic events such as tornadoes, floods and winter storms. The occurrence of any such catastrophes could have a significant adverse effect on our business, results of operations, and financial condition. To mitigate the risk associated with catastrophic events, we purchase reinsurance from other large insurance companies. Even without catastrophic events, we may incur losses and loss adjustment expenses that deviate substantially from our estimates and that may exceed our reserves, in which case our net income and capital would decrease. Our operating and growth strategies may also be impacted by regulation of our business by the State of Florida and other states in which we may operate. For example, insurance regulators must approve our policy forms and premium rates as well as monitor our compliance with financial and regulatory requirements. See Item 1A, “Risk Factors,” below.

Business Strategy

We operate in highly competitive markets where we face competition from national, regional and residual market insurance companies and, in the case of flood insurance, a program backed by the U.S. government. We may also face competition from new entrants in our markets, and such entrants may create pricing pressure that could lead to overall premium reductions.

Our competitive strategies focus on the following key areas:

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Exceptional service – We are committed to maintaining superior service to our policyholders and agents.

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Claims settlement practices – We focus on fair and timely settlement of policyholder claims.

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Disciplined underwriting – We analyze exposures and utilize available underwriting data to ensure policies meet our selective criteria.

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New product offerings – We may cross-sell additional insurance products to our existing policyholders in order to broaden our lines of business and product mix or identify other lines of insurance to offer.

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Effective and efficient use of technology – We strive to add or improve technology that can effectively and efficiently enhance service to our policyholders and agents. For instance, we use our internally developed application, ClaimColony TM, to increase the efficiency of our claims processing and settlement.

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Geographical expansion – We continue to pursue opportunities to further expand our business within the state of Florida and in other states to increase overall geographic diversification. HCPCI and TypTap currently have regulatory approvals to underwrite residential property and casualty insurance in various states.

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Distribution channel – We continue to improve our relationship with independent agents through collaboration and implementation of technologies that facilitate independent agents in finding the right insurance policies for their clients. In fact, this agency relationship is very essential to the organic growth of TypTap.

Seasonality of Our Business

Our insurance business is seasonal. Hurricanes and tropical storms affecting Florida, our primary market, and other southeastern states typically occur during the period from June 1 st through November 30 th of each year. Winter storms in the northeast usually occur during the period between December 1 st and March 31 st of each year. In addition, our reinsurance contracts are generally effective June 1 st of each year, and any variation in the cost of our reinsurance, whether due to changes in reinsurance rates, coverage levels or changes in the total insured value of our policy base, will be reflected in our financial results beginning June 1 st of each year.

Government Regulation

We are subject to the laws and regulations in any state in which we conduct our insurance business. The regulations cover all aspects of our business and are generally designed to protect the interests of insurance policyholders as opposed to the interests of shareholders. Such regulations relate to a wide variety of financial and non-financial matters including:

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authorized lines of business;

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capital and surplus requirements;

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approval of allowable rates and forms;

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approval of reinsurance contracts;

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investment parameters;

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underwriting limitations;

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transactions with affiliates;

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dividend limitations;

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changes in control; and

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market conduct.

Our failure to comply with certain provisions of applicable insurance laws and regulations could have a material, adverse effect on our business, results of operations or financial condition.

State Licensure and Approval

All states require licensure and regulatory approval prior to the marketing of insurance products. Typically, licensure review is comprehensive and includes a review of a company’s business plan, solvency, reinsurance, rates, and forms, the character of its officers and directors and other of its financial and non-financial aspects. The regulatory authorities may prevent entry into a new market by not granting a license. In addition, regulatory authorities may preclude or delay our entry into markets by disapproving or withholding approval of our product filings.

Statutory Reporting and Examination

All insurance companies must file quarterly and annual statements with certain regulatory agencies in any state in which they are licensed to transact business and are subject to regular and special examinations by those agencies. The National Association of Insurance Commissioners mandates that all insurance companies be examined a minimum of once every five years. However, the Florida Department of Financial Services, Office of Insurance Regulation (“FLOIR”) has the authority to conduct an examination whenever it is deemed appropriate. As of the date of issuance of this report, the FLOIR is conducting a financial examination of HCPCI and TypTap for the year ended December 31, 2023.

Liability for Losses and Loss Adjustment Expenses

Our liability for losses and loss adjustment expenses represents our estimate of the total cost of (i) claims that have been incurred, but not yet paid (“case reserves”), (ii) losses that have been “incurred but not yet reported” (“IBNR”), and (iii) loss adjustment expenses (“LAE”) which are intended to cover the ultimate cost of adjusting, investigating and settling claims, including investigation and defense of lawsuits resulting from such claims. We base our estimates on various assumptions and actuarial data we believe to be reasonable under the circumstances. The process of estimating the liability is inherently subjective and is influenced by many variables such as past loss experience, current claim trends and the prevailing social, economic and legal environments.

Significant time can elapse between the occurrence of an insured loss, the reporting of the loss to us and our payment of that loss. Our liability for losses and LAE, which we believe represents the best estimate at a given point in time based on facts, circumstances and historical trends then known, may necessarily be adjusted to reflect additional facts that become available during the loss settlement period.

For a discussion and summary of the activity in the liability for losses and LAE for the years ended December 31, 2023, 2022 and 2021, see Note 15 -- “Losses and Loss Adjustment Expenses” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

Loss Development

Our liability for losses and LAE represents estimated costs ultimately required to settle all claims for a given period. See Note 15 -- “Losses and Loss Adjustment Expenses” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K for the net incurred and paid loss development tables for the years 2014 through 2023 and their reconciliation to the estimated liability for losses and LAE as of December 31, 2023.

Real Estate Operations

Our real estate operations consist of multiple properties we own and operate for investment purposes and also properties we own and use for our own operations.

Properties Used in Operations

Our real estate used in operations consists of an office building located in the Sabal Palms Industrial Park in Tampa, Florida with gross area of 63,880 square feet, our insurance operations site with gross area of approximately 16,000 square feet in Ocala, Florida, as well as an office building located in the Westshore district of Tampa, Florida with a gross area of 71,177 square feet. The Ocala location, in addition to day-to-day operational use, serves as our alternative site in the event we experience any significant disruption at our Tampa offices.

Investment Properties

Our portfolio of investment properties includes two waterfront properties consisting of a total of 17.1 acres and a five-acre submerged land lease. One waterfront property contains a building structure that we currently lease to Crabby Bill’s restaurant and a marina while the second houses retail space and a marina with high and dry storage. We acquired the restaurant and marina operations in connection with our purchase of the waterfront properties and we continue to operate two marinas to enhance the property values. The table below sets forth information concerning our investment properties.

(a)

Affiliate.

(b)

Other Real Estate Investments

Melbourne FMA, LLC, our wholly owned subsidiary, had a 90% interest in a joint venture company which was dissolved in December 2022. Seed) Investment in Unconsolidated Joint Venture in Note 5 -- “Investments” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K for additional information.

Other Operations

Holding company operations

Activities of our holding company, HCI Group, Inc., plus other companies that do not meet the quantitative and qualitative thresholds for a reportable segment comprise the operations of this segment.

Financial Highlights

The following table summarizes our financial performance during the years ended December 31, 2023, 2022 and 2021:

*Net of cash dividends received under share repurchase forward contract.

Environmental Matters

As a property owner, we are subject to regulations under various federal, state, and local laws concerning the environment, including laws addressing the discharge of pollutants into the air and water and the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites.

Work Environment

We adhere to a harassment prevention policy which details how to report and respond to harassment issues and prohibits any form of retaliation. This includes mandatory harassment prevention training for all employees.

We are committed to paying a living wage to all of our full-time employees. We offer competitive benefits to our employees including options for health coverage and short-term and long-term disability insurance at no cost to the employee. We also award restricted stock to employees to align their interests with stockholder interests.

Additionally, our Bravo program allows employees to earn paid time off as well as cash bonuses for engaging in charitable causes, continued education and professional development activities.

Diversity

We value a diverse and inclusive work environment and accordingly our workforce consists of men and women of many races, religions, and national origins. We forbid any form of discrimination based upon race, gender, religion, or ethnicity.

Our Board is highly diverse in terms of gender, ethnicity, culture, education and business backgrounds, and our U.S.-based workforce is 62% female and approximately 42% non-white.

Employees

As of February 17, 2024, we employed a total of 547 full-time individuals. In addition, we employed 12 employees through a professional employer organization.

Available Information

We file annual, quarterly, and current reports with the U.S. Securities and Exchange Commission (“SEC”). These filings are accessible free of charge on our website, www.hcigroup.com (click “SEC filings” at the “Investor Information” tab), as soon as reasonably practicable after they have been electronically filed with or furnished to the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, which can be accessed via the SEC’s website at www.sec.gov.