Exhibit 99.1

 

LOGO

HCI Group Reports First Quarter 2018 Results

Tampa, Fla. – May 1, 2018 – HCI Group, Inc. (NYSE:HCI), a holding company primarily engaged in homeowners insurance, with additional operations in reinsurance, real estate and information technology, reported results for the quarter ended March 31, 2018.

First Quarter 2018 - Financial Results

Net income for the first quarter of 2018 totaled $10.8 million or $1.11 diluted earnings per share compared with $12 million or $1.15 diluted earnings per share in the first quarter of 2017. Adjusted net income (a non-GAAP measure which excludes unrealized gains or losses on equity securities) for the quarter was $12.7 million or $1.26 per fully diluted share. The company has included in this press release an explanation of adjusted net income as well as a reconciliation to GAAP net income and earnings per share.

Gross premiums earned totaled $85.8 million compared with $91.6 million in the same period in 2017. The decrease in 2018 was primarily attributable to policy attrition.

Gross premiums written were $70.1 million compared with $71.4 million in the same quarter of 2017.

Premiums ceded increased to $32.3 million or 37.6% of gross premiums earned from $28.6 million or 31.2% of gross premiums earned in the first quarter of 2017. The increase was primarily due to a net increase of ceded premiums attributable to retrospective provisions under certain reinsurance contracts as opposed to a net reduction in ceded premiums in the same period in 2017.

Net premiums earned (defined as gross premiums earned less premiums ceded to reinsurance) were $53.5 million compared with $63 million in the same period in 2017.

Net premiums written (defined as gross premiums written less premiums ceded to reinsurance) were $37.9 million compared with $42.8 million in the same period in 2017.

Net realized investment gains were $2.2 million compared with $0.7 million in the same period in 2017. The gains in 2018 resulted primarily from sales intended to rebalance the company’s investment portfolio. Net unrealized investment losses were $2.6 million representing a net unfavorable change in the fair value of equity securities during the first quarter of 2018 subsequent to the adoption of a new accounting standard requiring unrealized holding gains and losses on equity securities to be reported in the statement of income.

Losses and loss adjustment expenses were $19.7 million compared with $25.5 million in the same period in 2017. There were two reasons for the decrease. The $25.5 million in 2017 included loss reserve strengthening of $2.5 million in response to trends involving assignment of insurance benefits and related litigation, and there was no material reserve strengthening in the first quarter of 2018. Second, there was a substantial decrease in the number of non-catastrophe claims in the first quarter of 2018 compared to the first quarter of 2017.

General and administrative personnel expenses were $6.3 million compared with $7 million in the same period in 2017.

The decrease related to lower stock-based compensation and payroll costs associated with the processing and settlement of Hurricane Irma claims which are recoverable from reinsurers.

Interest expense was $4.5 million compared with $3.5 million in the same period in 2017. The change primarily resulted from interest expense related to the 4.25% convertible debt offering which was completed in March 2017.


Income tax expense was $4 million compared to $7.1 million in the same quarter in 2017, which resulted primarily from a reduced federal tax rate attributable to the Tax Cut and Jobs Act of 2017 that became effective January 1, 2018. The effective tax rate in the quarter was 27.1% as compared to 37.2% in the same quarter of 2017.

Book value per share, defined as shareholders’ equity divided by common shares outstanding at the end of the period, was $22.45 at March 31, 2018 compared with $22.14 at December 31, 2017.

First Quarter 2018 - Financial Ratios

The loss ratio (defined as losses and loss adjustment expenses related to net premiums earned) for the first quarter of 2018 was 36.7% compared with 40.5% in 2017. The decrease was primarily due to fewer losses and loss adjustment expenses in the first quarter of 2018 compared to the first quarter of 2017.

The expense ratio (defined as underwriting expenses, general and administrative personnel expenses, interest and other operating expenses related to net premiums earned) was 43.5% compared with 36.6% in the same prior year period in 2017. The increase was primarily attributable to the decrease in net premiums earned.

The combined ratio (total of all expenses in relation to net premiums earned) is the measure of overall underwriting profitability before other income. The combined loss and expense ratio for the current quarter was 80.2% compared with 77.1% in the same prior year period of 2017.

Due to the impact reinsurance costs have on net premiums earned from period to period, the company believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned was 50.1% for the quarter compared with 53% for the first quarter of 2017.

Management Commentary

“Our insurance operations have reached an important inflection point,” said Paresh Patel, HCI Group’s chairman and chief executive officer. “The recent implementation of our positive underwriting technology now gives HCI the ability to deliver superior underwriting results.”

Conference Call

HCI Group will hold a conference call later today, May 1, 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 June 1, 2018.

Toll-free replay number: (877) 481-4010

International replay number: (919) 882-2331

Replay ID: 27671

 

2


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.

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:

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    -

 

3


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)

 

     At March 31, 2018     At December 31, 2017  
     (Unaudited)        
Assets     

Fixed-maturity securities, available for sale, at fair value (amortized cost: $197,135 and $235,633, respectively)

   $ 195,703       237,484  

Equity securities, at fair value (cost: $42,535 and $54,282, respectively)

     45,609       59,956  

Short-term investments

     55,433       —    

Limited partnership investments, at equity

     25,247       23,184  

Investment in unconsolidated joint venture, at equity

     1,253       1,304  

Real estate investments

     58,024       58,358  
  

 

 

   

 

 

 

Total investments

     381,269       380,286  

Cash and cash equivalents

     226,210       255,884  

Restricted cash

     809       809  

Accrued interest and dividends receivable

     1,588       1,983  

Income taxes receivable

     11,014       16,192  

Premiums receivable

     16,930       17,807  

Prepaid reinsurance premiums

     8,100       22,286  

Reinsurance recoverable:

    

Paid losses and loss adjustment expenses

     28,760       2,344  

Unpaid losses and loss adjustment expenses

     57,183       100,760  

Deferred policy acquisition costs

     15,334       16,712  

Property and equipment, net

     12,603       12,465  

Intangible assets, net

     4,844       4,995  

Other assets

     8,580       9,741  
  

 

 

   

 

 

 

Total assets

   $ 773,224       842,264  
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Losses and loss adjustment expenses

   $ 148,586       198,578  

Unearned premiums

     148,686       164,896  

Advance premiums

     15,888       4,948  

Assumed reinsurance balances payable

     114       15  

Accrued expenses

     8,311       6,035  

Reinsurance recovered in advance on unpaid losses

     —         13,885  

Deferred income taxes, net

     1,043       1,890  

Long-term debt

     239,392       237,835  

Other liabilities

     18,302       20,207  
  

 

 

   

 

 

 

Total liabilities

     580,322       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, 8,593,850 and 8,762,416 shares issued and outstanding in March 31, 2018 and December 31, 2017, respectively)

     —         —    

Additional paid-in capital

     —         —    

Retained income

     193,971       189,409  

Accumulated other comprehensive income, net of taxes

     (1,069     4,566  
  

 

 

   

 

 

 

Total stockholders’ equity

     192,902       193,975  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 773,224       842,264  
  

 

 

   

 

 

 

 

4


HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Dollar amounts in thousands, except per share amounts)

 

     Three Months Ended
March 31,
 
     2018     2017  
     (Unaudited)  

Revenue

    

Gross premiums earned

   $ 85,772       91,619  

Premiums ceded

     (32,250     (28,583
  

 

 

   

 

 

 

Net premiums earned

     53,522       63,036  

Net investment income

     3,218       2,834  

Net realized investment gains

     2,232       715  

Net unrealized investment losses

     (2,600     —    

Net other-than-temporary impairment losses

     (40     (213

Policy fee income

     865       908  

Other

     542       433  
  

 

 

   

 

 

 

Total revenue

     57,739       67,713  
  

 

 

   

 

 

 

Expenses

    

Losses and loss adjustment expenses

     19,655       25,529  

Policy acquisition and other underwriting expenses

     9,360       9,649  

General and administrative personnel expenses

     6,283       6,975  

Interest expense

     4,470       3,542  

Other operating expenses

     3,167       2,876  
  

 

 

   

 

 

 

Total operating expenses

     42,935       48,571  
  

 

 

   

 

 

 

Income before income taxes

     14,804       19,142  

Income tax expense

     4,013       7,122  
  

 

 

   

 

 

 

Net income

   $ 10,791       12,020  
  

 

 

   

 

 

 

Basic earnings per share

   $ 1.25       1.27  
  

 

 

   

 

 

 

Diluted earnings per share

   $ 1.11       1.15  
  

 

 

   

 

 

 

Dividends per share

   $ 0.35       0.35  
  

 

 

   

 

 

 

 

5


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, 2018      March 31, 2017  
     Income     Shares      Per Share      Income     Shares      Per Share  
     (Numerator)     (Denominator)      Amount      (Numerator)     (Denominator)      Amount  

Net income

   $ 10,791           $ 12,020       

Less: Income attributable to participating securities

     (701           (708     
  

 

 

         

 

 

      

Basic Earnings Per Share:

               

Income allocated to common stockholders

     10,090       8,082      $ 1.25        11,312       8,918      $ 1.27  
       

 

 

         

 

 

 

Effect of Dilutive Securities:

               

Stock options

     —         17           —         45     

Convertible senior notes

     3,133       3,799           1,499       2,177     
  

 

 

   

 

 

       

 

 

   

 

 

    

Diluted Earnings Per Share:

               

Income available to common stockholders and assumed conversions

   $ 13,223       11,898      $ 1.11      $ 12,811       11,140      $ 1.15  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

6


HCI Group and Subsidiaries

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 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.

(Amounts in thousands, except per share amounts)

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

 

GAAP Net Income

      $ 10,791  

Add back: Net unrealized investment losses

   $ 2,600     

Less: Tax effect at 25.345%

   $ (659   
  

 

 

    

 

 

 

Net adjustment to Net Income

      $ 1,941  
     

 

 

 

Non-GAAP Adjusted Net Income

      $ 12,732  
     

 

 

 

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.

 

Non-GAAP    Three Months Ended
March 31, 2018
 
     Income      Shares      Per Share  
     (Numerator)      (Denominator)      Amount  

Adjusted net income (non-GAAP)

   $ 12,732        

Less: Income attributable to participating securities

     (833      
  

 

 

       

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

        

Income allocated to common stockholders

     11,899        8,082      $ 1.47  
        

 

 

 

Effect of Dilutive Securities:

        

Stock options

     —          17     

Convertible senior notes

     3,133        3,799     
  

 

 

    

 

 

    

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

        

Income available to common stockholders and assumed conversions

   $ 15,032        11,898      $ 1.26  
  

 

 

    

 

 

    

 

 

 

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

 

GAAP diluted Earnings Per Share

      $ 1.11  

Add back: Net unrealized investment losses

   $ 0.22     

Less: Tax effect at 25.345%

   $ (0.07   
  

 

 

    

 

 

 

Net adjustment to GAAP diluted EPS

      $ 0.15  
     

 

 

 

Non-GAAP Adjusted diluted EPS

      $ 1.26  
     

 

 

 

 

7

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