HCI Group, Inc. 10-Q

10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-34126 HCI Group, Inc. (Exact name of registrant as specified in its charter) Florida 20-5961396 (State of Incorporation) (IRS Employer Identification No.) 3802 Coconut Palm Drive Tampa , FL 33619 (Address, including zip code, of principal executive offices) ( 813 ) 849-9500 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Trading Symbol Name of Each Exchange on Which Registered Common Shares , no par value HCI New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ The aggregate number of shares of the registrant’s common stock, no par value, outstanding on April 29, 2022 was 10,119,663 . HCI GROUP, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets: March 31, 2022 (unaudited) and December 31, 2021 1 - 2 Consolidated Statements of Income: Three months ended March 31, 2022 and 2021 (unaudited) 3 Consolidated Statements of Comprehensive Income: Three months ended March 31, 2022 and 2021 (unaudited) 4 Consolidated Statements of Equity: Three months ended March 31, 2022 and 2021 (unaudited) 5 - 6 Consolidated Statements of Cash Flows: Three months ended March 31, 2022 and 2021 (unaudited) 7 - 9 Notes to Consolidated Financial Statements (unaudited) 10 - 38 Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 39 - 49 Item 3 Quantitative and Qualitative Disclosures about Market Risk 50 - 51 Item 4 Controls and Procedures 52 PART II – OTHER INFORMATION Item 1 Legal Proceedings 53 Item 1A Risk Factors 53 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 53 - 54 Item 3 Defaults Upon Senior Securities 54 Item 4 Mine Safety Disclosures 54 Item 5 Other Information 54 Item 6 Exhibits 55 - 60 Signatures 61 Certifications PART I – FINANCI AL INFORMATION Item 1 – Financ ial Statements HCI GROUP, INC. AND SUBSIDIARIES Consolidated B alance Sheets (Dollar amounts in thousands) March 31, December 31, 2022 2021 (Unaudited) Assets Fixed-maturity securities, available for sale, at fair value (amortized cost: $ 153,776 and $ 41,953 , respectively and allowance for credit losses: $ 0 and $ 0 , respectively) $ 150,684 $ 42,583 Equity securities, at fair value (cost: $ 39,316 and $ 46,276 , respectively) 41,204 51,740 Limited partnership investments 28,166 28,133 Investment in unconsolidated joint venture, at equity 350 363 Real estate investments 73,387 73,896 Total investments 293,791 196,715 Cash and cash equivalents 569,040 628,943 Restricted cash 2,400 2,400 Accrued interest and dividends receivable 674 353 Income taxes receivable — 4,084 Premiums receivable, net (allowance: $ 2,459 and $ 1,750 , respectively) 39,890 68,157 Prepaid reinsurance premiums 11,561 26,355 Reinsurance recoverable, net of allowance for credit losses: Paid losses and loss adjustment expenses (allowance: $ 0 and $ 0 , respectively) 14,720 11,985 Unpaid losses and loss adjustment expenses (allowance: $ 79 and $ 90 , respectively) 54,876 64,665 Deferred policy acquisition costs 53,670 57,695 Property and equipment, net 15,469 14,232 Right-of-use assets - operating leases 2,673 2,204 Intangible assets, net 15,105 10,636 Funds withheld for assumed business 84,068 73,716 Other assets 17,313 14,717 Total assets $ 1,175,250 $ 1,176,857 (continued) 1 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets – (Continued) (Dollar amounts in thousands) March 31, December 31, 2022 2021 (Unaudited) Liabilities and Equity Losses and loss adjustment expenses $ 234,792 $ 237,165 Unearned premiums 365,112 366,744 Advance premiums 23,898 13,771 Reinsurance payable on paid losses and loss adjustment expenses 6,657 4,017 Ceded reinsurance premiums payable 20,899 19,318 Accrued expenses 16,899 15,453 Income tax payable 3,061 — Deferred income taxes, net 4,834 11,739 Revolving credit facility 15,000 15,000 Long-term debt 45,295 45,504 Lease liabilities - operating leases 2,662 2,203 Other liabilities 24,418 31,485 Total liabilities 763,527 762,399 Commitments and contingencies (Note 20) Redeemable noncontrolling interest (Note 17) 89,695 89,955 Equity: Common stock ( no par value, 40,000,000 shares authorized, 10,125,927 and 10,131,399 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively) — — Additional paid-in capital 79,131 76,077 Retained income 243,647 246,790 Accumulated other comprehensive (loss) income, net of taxes ( 2,185 ) 498 Total stockholders’ equity 320,593 323,365 Noncontrolling interests 1,435 1,138 Total equity 322,028 324,503 Total liabilities, redeemable noncontrolling interest and equity $ 1,175,250 $ 1,176,857 See accompanying Notes to Consolidated Financial Statements (unaudited) . 2 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Stat ements of Income (Unaudited) (Dollar amounts in thousands, except per share amounts) Three Months Ended March 31, 2022 2021 Revenue Gross premiums earned $ 178,925 $ 130,942 Premiums ceded ( 53,162 ) ( 43,099 ) Net premiums earned 125,763 87,843 Net investment income 2,868 4,594 Net realized investment (losses) gains ( 314 ) 1,113 Net unrealized investment losses ( 3,576 ) ( 269 ) Policy fee income 1,057 970 Other 1,242 623 Total revenue 127,040 94,874 Expenses Losses and loss adjustment expenses 72,704 45,751 Policy acquisition and other underwriting expenses 29,408 23,065 General and administrative personnel expenses 14,034 9,650 Interest expense 601 2,079 Other operating expenses 6,292 4,227 Total expenses 123,039 84,772 Income before income taxes 4,001 10,102 Income tax expense 1,210 3,257 Net income 2,791 6,845 Net income attributable to redeemable noncontrolling interest (Note 17) ( 2,248 ) ( 794 ) Net loss attributable to noncontrolling interests 360 97 Net income after noncontrolling interests $ 903 $ 6,148 Basic earnings per share $ 0.09 $ 0.82 Diluted earnings per share $ 0.09 $ 0.75 See accompanying Notes to Consolidated Financial Statements (unaudited). 3 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Unaudited) (Amounts in thousands) Three Months Ended March 31, 2022 2021 Net income $ 2,791 $ 6,845 Other comprehensive loss: Change in unrealized loss on investments: Net unrealized losses arising during the period ( 4,151 ) ( 182 ) Call and repayment gains charged to investment income — ( 2 ) Reclassification adjustment for net realized losses (gains) 429 ( 1 ) Net change in unrealized losses ( 3,722 ) ( 185 ) Deferred income taxes on above change 938 45 Total other comprehensive loss, net of income taxes ( 2,784 ) ( 140 ) Comprehensive income 7 6,705 Comprehensive loss attributable to noncontrolling interests 461 98 Comprehensive income after noncontrolling interests $ 468 $ 6,803 See accompanying Notes to Consolidated Financial Statements (unaudited). 4 HCI GROUP, INC. AND SUBSIDIARIES Consolidated State ments of Equity For the Three Months Ended March 31, 2022 (Unaudited) (Dollar amounts in thousands, except per share amount) Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Income (Loss), Total Stockholders’ Noncontrolling Total Shares Amount Capital Income Net of Tax Equity Interests Equity Balance at December 31, 2021 10,131,399 $ — $ 76,077 $ 246,790 $ 498 $ 323,365 $ 1,138 $ 324,503 Net income (loss) — — — 2,978 — 2,978 ( 187 ) 2,791 Net income attributable to redeemable noncontrolling interest — — — ( 2,075 ) — ( 2,075 ) ( 173 ) ( 2,248 ) Total other comprehensive loss, net of income taxes — — — — ( 2,683 ) ( 2,683 ) ( 101 ) ( 2,784 ) Issuance of restricted stock 4,000 — — — — — — — Forfeiture of restricted stock ( 3,265 ) — — — — — — — Repurchase and retirement of common stock ( 6,207 ) — ( 398 ) — — ( 398 ) — ( 398 ) Dilution from subsidiary stock-based compensation — — — — — — 758 758 Common stock dividends ($ 0.40 per share) — — — ( 4,046 ) — ( 4,046 ) — ( 4,046 ) Stock-based compensation — — 3,452 — — 3,452 — 3,452 Balance at March 31, 2022 10,125,927 $ — $ 79,131 $ 243,647 $ ( 2,185 ) $ 320,593 $ 1,435 $ 322,028 See accompanying Notes to Consolidated Financial Statements (unaudited). 5 HCI GROUP, INC. AND SUBSIDIARIES Consolidated State ments of Equity – (Continued) For the Three Months Ended March 31, 2021 (Unaudited) (Dollar amounts in thousands, except per share amount) Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Income, Total Stockholders’ Noncontrolling Total Shares Amount Capital Income Net of Tax Equity Interests Equity Balance at December 31, 2020 7,785,617 $ — $ — $ 199,592 $ 1,544 $ 201,136 $ — $ 201,136 Net income (loss) — — — 6,942 — 6,942 ( 97 ) 6,845 Net income attributable to redeemable noncontrolling interest — — — ( 794 ) — ( 794 ) — ( 794 ) Cumulative effect of change in accounting principle — — — ( 3,018 ) — ( 3,018 ) — ( 3,018 ) Total other comprehensive loss, net of income taxes — — — — ( 139 ) ( 139 ) ( 1 ) ( 140 ) Issuance of restricted stock 548,086 — — — — — — — Forfeiture of restricted stock ( 2,050 ) — — — — — — — Cancellation of restricted stock ( 141,600 ) — — — — — — — Repurchase and retirement of common stock ( 371 ) — ( 20 ) — — ( 20 ) — ( 20 ) Issuance of common stock 100,000 — 5,410 — — 5,410 — 5,410 Dilution from subsidiary stock-based compensation — — — — — — 215 215 Issuance of warrants, net of issuance costs (Note 17) — — 8,640 — — 8,640 — 8,640 Common stock dividends ($ 0.40 per share) — — — ( 2,793 ) — ( 2,793 ) — ( 2,793 ) Stock-based compensation — — 2,127 — — 2,127 — 2,127 Additional paid-in capital shortfall adjustment allocated to retained income — — ( 16,157 ) 16,157 — — — — Balance at March 31, 2021 8,289,682 $ — $ — $ 216,086 $ 1,405 $ 217,491 $ 117 $ 217,608 See accompanying Notes to Consolidated Financial Statements (unaudited) . 6 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statem ents of Cash Flows (Unaudited) (Amounts in thousands) Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net income after noncontrolling interests $ 903 $ 6,148 Net income attributable to noncontrolling interests 1,888 697 Net income 2,791 6,845 Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation expense 4,337 2,342 Net (accretion of discount) amortization of premiums on investments in fixed-maturity securities ( 3 ) 77 Depreciation and amortization 1,516 1,363 Deferred income tax benefit ( 5,967 ) ( 847 ) Net realized investment losses (gains) 314 ( 1,113 ) Net unrealized investment losses 3,576 269 Credit loss expense - reinsurance recoverable ( 11 ) ( 12 ) Loss from unconsolidated joint venture 13 25 Net income from limited partnership interests ( 1,780 ) ( 787 ) Distributions received from limited partnership interests 811 478 Foreign currency remeasurement loss 19 9 Other non-cash items 11 21 Changes in operating assets and liabilities: Accrued interest and dividends receivable ( 321 ) ( 7 ) Income taxes 7,145 4,073 Premiums receivable, net 28,267 38,923 Prepaid reinsurance premiums 14,794 21,402 Reinsurance recoverable 7,065 13,436 Deferred policy acquisition costs 4,025 3,392 Funds withheld for assumed business ( 10,352 ) ( 41,355 ) Other assets ( 3,102 ) ( 4,453 ) Losses and loss adjustment expenses ( 2,373 ) ( 6,396 ) Unearned premiums ( 1,632 ) ( 5,094 ) Advance premiums 10,127 12,921 Assumed reinsurance balances payable — 1 Reinsurance payable on paid losses and loss adjustment expenses 2,640 2,317 Ceded reinsurance premiums payable 1,581 ( 449 ) Accrued expenses and other liabilities ( 6,142 ) ( 11,241 ) Net cash provided by operating activities 57,349 36,140 (continued) 7 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows – (Continued) (Unaudited) (Amounts in thousands) Three Months Ended March 31, 2022 2021 Cash flows from investing activities: Investments in limited partnership interests — ( 272 ) Return of excess investments in limited partnership interests 151 — Distributions received from limited partnership interests 785 1,546 Purchase of property and equipment ( 1,861 ) ( 697 ) Purchase of real estate investments — ( 55 ) Purchase of intangible assets ( 3,800 ) — Purchase of fixed-maturity securities ( 122,557 ) ( 1,263 ) Purchase of equity securities ( 11,486 ) ( 27,128 ) Purchase of short-term and other investments — ( 990 ) Proceeds from sales of fixed-maturity securities 9,058 36 Proceeds from calls, repayments and maturities of fixed-maturity securities 1,250 12,486 Proceeds from sales of equity securities 18,369 34,378 Proceeds from sales, redemptions and maturities of short-term and other investments 192 1,100 Net cash (used in) provided by investing activities ( 109,899 ) 19,141 Cash flows from financing activities: Cash dividends paid ( 4,123 ) ( 2,869 ) Cash dividends received under share repurchase forward contract 77 76 Net repayment under revolving credit facility — ( 23,750 ) Proceeds from issuance of redeemable noncontrolling interest and warrants — 100,000 Issuance costs - redeemable noncontrolling interest — ( 6,262 ) Cash dividends paid to redeemable noncontrolling interest ( 2,508 ) — Repayment of long-term debt ( 249 ) ( 239 ) Repurchases of common stock ( 398 ) ( 20 ) Purchase of noncontrolling interests ( 127 ) — Debt issuance costs — ( 152 ) Net cash (used in) provided by financing activities ( 7,328 ) 66,784 Effect of exchange rate changes on cash ( 25 ) ( 9 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 59,903 ) 122,056 Cash, cash equivalents, and restricted cash at beginning of period 631,343 433,741 Cash, cash equivalents, and restricted cash at end of period $ 571,440 $ 555,797 (continued) 8 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows – (Continued) (Unaudited) (Amounts in thousands) Three Months Ended March 31, 2022 2021 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 32 $ 31 Cash paid for interest $ 727 $ 3,186 Non-cash investing and financing activities: Unrealized loss on investments in available-for-sale securities, net of tax $ ( 2,784 ) $ ( 140 ) Receivable from sales of equity securities $ — $ 46 Warrants issued in Centerbridge transaction $ — $ 9,217 Acquisition of intangibles: Common stock issued $ — $ 5,410 Contingent consideration payable $ 1,069 $ 2,419 See accompanying Notes to Consolidated Financial Statements (unaudited) . 9 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 1 -- Nat ure of Operations HCI Group, Inc., together with its subsidiaries (“HCI” or the “Company”), is primarily engaged in the property and casualty insurance business through two Florida domiciled insurance companies, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”) and TypTap Insurance Company (“TypTap”). Both HCPCI and TypTap are authorized to underwrite various homeowners’ property and casualty insurance products and allied lines business in the state of Florida and in other states. The operations of both insurance subsidiaries are supported by HCI Group, Inc. and certain HCI subsidiaries. The Company emphasizes the use of internally developed technologies to collect and analyze claims and other supplemental data to generate savings and efficiency for the operations of the insurance subsidiaries. In addition, Greenleaf Capital, LLC, the Company’s real estate subsidiary, is primarily engaged in the business of owning and leasing real estate and operating marina facilities. Assumed Business Northeast Region In 2021, the Company began providing quota share reinsurance on all in-force, new and renewal policies issued by United Property & Casualty Insurance Company, an insurance subsidiary of United Insurance Holdings Corporation (“United”) in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island (collectively “Northeast Region”). Through its insurance subsidiaries, the Company began renewing and/or replacing United policies in two states in December 2021 and a third state in January 2022. Southeast Region In February 2022, HCPCI entered into another reinsurance agreement with United where HCPCI provides 85 % quota share reinsurance on all of United’s personal lines insurance business in the states of Georgia, North Carolina, and South Carolina (collectively “Southeast Region”) from December 31, 2021 through May 31, 2022. Under this agreement, HCPCI paid United a catastrophe allowance of 9 % of premium and a provisional ceding commission of 25 % of premium. That percentage could increase up to 32 % depending on the direct loss ratio results from the reinsured business. The Company also entered into a renewal rights agreement with United in connection with the Southeast Region assumed business. Under the renewal rights agreement, the Company has the right to renew and/or replace United’s insurance policies at the end of their respective policy periods. The ability to replace policies is subject to regulatory approvals in the three states. The policy replacement date is June 1, 2022 or such other date as mutually agreed by both parties. In connection with the transaction, United agrees to not compete with the Company for the issuance of personal lines homeowners business in these three states until July 1, 2025. As part of the transaction, United will receive a renewal rights ceding commission of 6 %, with a portion of the ceding commission paid up-front. See Note 7 -- “Intangible Assets, Net” for additional information. 10 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 2 -- Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements for HCI Group, Inc. and its majority-owned and controlled subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2022 and the results of operations and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2022. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s Form 10-K, which was filed with the SEC on March 10, 2022. In preparing the interim unaudited consolidated financial statements, management was required to make certain judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term are related to the Company’s losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. The Company uses various assumptions and actuarial data it believes to be reasonable under the circumstances to make these estimates. In addition, accounting policies specific to reinsurance with retrospective provisions, reinsurance recoverable, deferred income taxes, limited partnership investments, warrants, redeemable noncontrolling interest, intangible assets acquired from United, and stock-based compensation expense involve significant judgments and estimates material to the Company’s consolidated financial statements. All significant intercompany balances and transactions have been eliminated. Revenue from Claims Processing Services Revenue related to claims processing services is included in other revenue in the consolidated statement of income. For the three months ended March 31, 2022, revenues from claims processing services were $ 1,007 . At March 31, 2022 and December 31, 2021, other assets included $ 248 and $ 314 , respectively, of amounts receivable attributable to this service. Reclassification Certain prior year amounts have been reclassified to conform to the current year presentation. Ceded reinsurance premiums payable were reclassified out of other liabilities and funds withheld for assumed business were reclassified out of other assets for the three months ended March 31, 2021 within the consolidated statement of cash flows to conform with the current year presentation. 11 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 3 -- Cash, Cash Equivalents, and Restricted Cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows. March 31, December 31, 2022 2021 Cash and cash equivalents $ 569,040 $ 628,943 Restricted cash 2,400 2,400 Total $ 571,440 $ 631,343 Restricted cash represents funds in the Company’s sole ownership held by certain states in which the Company’s insurance subsidiaries conduct business to meet regulatory requirements and not available for immediate business use. Funds withheld in an account for which the Company is a co-owner but not the named beneficiary are not considered restricted cash. Note 4 -- Investments a) Available-for-Sale Fixed-Maturity Securities The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At March 31, 2022 and December 31, 2021, the cost or amortized cost, allowance for credit loss, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows: Cost or Amortized Allowance for Credit Gross Unrealized Gross Unrealized Estimated Fair Cost Loss Gain Loss Value As of March 31, 2022 U.S. Treasury and U.S. government agencies $ 130,261 $ — $ 4 $ ( 3,048 ) $ 127,217 Corporate bonds 20,947 — 161 ( 247 ) 20,861 States, municipalities, and political subdivisions 1,760 — 16 — 1,776 Exchange-traded debt 701 — 24 ( 1 ) 724 Redeemable preferred stock 107 — — ( 1 ) 106 Total $ 153,776 $ — $ 205 $ ( 3,297 ) $ 150,684 As of December 31, 2021 U.S. Treasury and U.S. government agencies $ 17,046 $ — $ 64 $ ( 86 ) $ 17,024 Corporate bonds 21,913 — 632 ( 53 ) 22,492 States, municipalities, and political subdivisions 1,759 — 49 — 1,808 Exchange-traded debt 767 — 44 — 811 Redeemable preferred stock 468 — — ( 20 ) 448 Total $ 41,953 $ — $ 789 $ ( 159 ) $ 42,583 12 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities as of March 31, 2022 and December 31, 2021 are as follows: March 31, 2022 December 31, 2021 Cost or Estimated Cost or Estimated Amortized Cost Fair Value Amortized Cost Fair Value Available-for-sale Due in one year or less $ 10,232 $ 10,259 $ 10,734 $ 10,826 Due after one year through five years 139,407 136,546 19,222 19,820 Due after five years through ten years 3,643 3,365 11,503 11,403 Due after ten years 494 514 494 534 $ 153,776 $ 150,684 $ 41,953 $ 42,583 Sales of Available-for-Sale Fixed-Maturity Securities Proceeds received, and the gross realized gains and losses from sales of available-for-sale fixed-maturity securities, for the three months ended March 31, 2022 and 2021 were as follows: Gross Realized Gross Realized Proceeds Gains Losses Three months ended March 31, 2022 $ 9,058 $ 2 $ ( 431 ) Three months ended March 31, 2021 $ 36 $ 1 $ — Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities Securities with gross unrealized loss positions at March 31, 2022 and December 31, 2021, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows: Less Than Twelve Months Twelve Months or Longer Total Gross Estimated Gross Estimated Gross Estimated Unrealized Fair Unrealized Fair Unrealized Fair As of March 31, 2022 Loss Value Loss Value Loss Value U.S. Treasury and U.S. government agencies $ ( 2,964 ) $ 123,394 $ ( 84 ) $ 2,062 $ ( 3,048 ) $ 125,456 Corporate bonds ( 247 ) 6,945 — — ( 247 ) 6,945 Exchange-traded debt ( 1 ) 25 — — ( 1 ) 25 Redeemable preferred stock ( 1 ) 106 — — ( 1 ) 106 Total available-for-sale securities $ ( 3,213 ) $ 130,470 $ ( 84 ) $ 2,062 $ ( 3,297 ) $ 132,532 13 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Less Than Twelve Months Twelve Months or Longer Total Gross Estimated Gross Estimated Gross Estimated Unrealized Fair Unrealized Fair Unrealized Fair As of December 31, 2021 Loss Value Loss Value Loss Value U.S. Treasury and U.S. government agencies $ ( 73 ) $ 9,809 $ ( 13 ) $ 616 $ ( 86 ) $ 10,425 Corporate bonds ( 53 ) 4,452 — — ( 53 ) 4,452 Redeemable preferred stock ( 20 ) 442 — — ( 20 ) 442 Total available-for-sale securities $ ( 146 ) $ 14,703 $ ( 13 ) $ 616 $ ( 159 ) $ 15,319 At March 31, 2022 and December 31, 2021 , there were 46 and 23 securities, respectively, in an unrealized loss position. Allowance for Credit Losses of Available-for-Sale Fixed-Maturity Securities The Company regularly reviews its individual investment securities for credit impairment. The Company considers various factors in determining whether a credit loss exists for each individual security, including- • the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings; • the extent to which the market value of the security has been below its cost or amortized cost; • general market conditions and industry or sector specific factors and other qualitative factors; • nonpayment by the issuer of its contractually obligated interest and principal payments; and • the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs. The table below summarizes the activity in the allowance for credit losses of available-for-sale securities for the three months ended March 31, 2022 and 2021: 2022 2021 Balance at January 1 $ — $ 588 Reductions for securities sold — ( 9 ) Balance at March 31 $ — $ 579 b) Equity Securities The Company holds investments in equity securities measured at fair values which are readily determinable. At March 31, 2022 and December 31, 2021, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows: Gross Unrealized Gross Unrealized Estimated Fair Cost Gain Loss Value March 31, 2022 $ 39,316 $ 3,561 $ ( 1,673 ) $ 41,204 December 31, 2021 $ 46,276 $ 6,335 $ ( 871 ) $ 51,740 14 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The table below presents the portion of unrealized gains and losses in the Company’s consolidated statements of income for the periods related to equity securities still held. Three Months Ended March 31, 2022 2021 Net (losses) gains recognized $ ( 3,542 ) $ 467 Exclude: Net realized gains recognized for securities sold 34 736 Net unrealized losses recognized $ ( 3,576 ) $ ( 269 ) Sales of Equity Securities Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three months ended March 31, 2022 and 2021 were as follows: Gross Realized Gross Realized Proceeds Gains Losses Three months ended March 31, 2022 $ 18,369 $ 1,420 $ ( 1,386 ) Three months ended March 31, 2021 $ 34,378 $ 1,142 $ ( 406 ) 15 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) c) Limited Partnership Investments The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships. The following table provides information related to the Company’s investments in limited partnerships: March 31, 2022 December 31, 2021 Carrying Unfunded Carrying Unfunded Investment Strategy Value Balance (%) (a) Value Balance (%) (a) Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e) $ 5,335 $ — 15.37 $ 6,076 $ 2,085 15.37 Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e) 3,410 — 1.67 3,423 — 1.69 High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(f)(g) 6,704 — 0.18 6,270 1,401 0.18 Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(h)(i) 4,030 — 0.57 4,437 — 0.57 Value-oriented investments in mature real estate private equity funds and portfolios globally. (b)(j) 6,719 4,548 1.34 5,977 4,537 1.36 Risk-adjusted returns on credit and equity investments, primarily in private equity-owned companies. (b)(k) 1,968 3,202 0.47 1,950 3,050 0.47 Total $ 28,166 $ 7,750 $ 28,133 $ 11,073 (a) Represents the Company’s percentage investment in the fund at each balance sheet date. (b) Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated. (c) Expected to have a ten-year term. Although the capital commitment period has expired, follow-on investments and pending commitments may require additional fundings. (d) The term has been extended for a one-year additional period to June 30, 2022. Although the capital commitment period has ended, the general partner could still request an additional funding under certain circumstances. (e) At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods. (f) Expected to have a ten-year term. The capital commitment period has expired but the general partner may request additional funding for follow-on investment. (g) With the consent of a supermajority of partners, the term of the fund may be extended for up to three additional one-year periods. (h) Expected to have a six-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners. 16 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) (i) The capital commitment period has ended but an additional funding may be requested. (j) Expected to have an eight-year term from November 27, 2019. (k) Expected to have an eight-year term after the final admission date. The following is the summary of aggregated unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Company’s respective balance sheet dates. The financial statements of these limited partnerships are audited annually. Three Months Ended March 31, 2022 2021 Operating results: Total income $ 336,828 $ ( 10,948 ) Total expenses ( 49,317 ) ( 55,512 ) Net income (loss) $ 287,511 $ ( 66,460 ) March 31, December 31, 2022 2021 Balance sheet: Total assets $ 5,988,314 $ 5,855,616 Total liabilities $ 603,967 $ 564,732 For the three months ended March 31, 2022 and 2021, the Company recognized net investment income of $ 1,780 and $ 787 , respectively. During the three months ended March 31, 2022 and 2021, the Company received total cash distributions of $ 1,596 and $ 2,024 , respectively, including returns on investment of $ 811 and $ 478 , respectively. At March 31, 2022 and December 31, 2021 , the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $ 27,435 and $ 28,371 , respectively, and the Company’s maximum exposure to loss aggregated $ 28,166 and $ 28,133 , respectively. d) Investment in Unconsolidated Joint Venture Melbourne FMA, LLC, a wholly owned subsidiary, currently has an equity investment in FMKT Mel JV, a Florida limited liability company treated as a joint venture under U.S. GAAP. At March 31, 2022 and December 31, 2021 , the Company’s maximum exposure to loss relating to the variable interest entity was $ 350 and $ 363 , respectively, representing the carrying value of the investment. There wer e no c ash distributions during the three months ended March 31, 2022 and 2021. At March 31, 2022 and December 31, 2021, there was no un distributed income from this equity method investment. The following tables provide FMJV’s summarized unaudited financial results and the unaudited financial positions: Three Months Ended March 31, 2022 2021 Operating results: Total revenues $ — $ — Total expenses ( 14 ) ( 28 ) Net loss $ ( 14 ) $ ( 28 ) The Company’s share of net loss* $ ( 13 ) $ ( 25 ) 17 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) * Included in net investment income in the Company’s consolidated statements of income. March 31, December 31, 2022 2021 Balance sheet: Property and equipment, net $ 353 $ 357 Cash 21 29 Other 18 18 Total assets $ 392 $ 404 Other liabilities $ 2 $ — Members’ capital 390 404 Total liabilities and members’ capital $ 392 $ 404 Investment in unconsolidated joint venture, at equity** $ 350 $ 363 ** Includes the 90 % share of FMKT Mel JV’s operating results. e) Real Estate Investments Real estate investments consist of the following as of March 31, 2022 and December 31, 2021: March 31, December 31, 2022 2021 Land $ 39,720 $ 39,720 Land improvements 11,917 11,917 Buildings and building improvements 29,410 29,405 Tenant and leasehold improvements 1,532 1,511 Other 1,236 1,265 Total, at cost 83,815 83,818 Less: accumulated depreciation and amortization ( 10,428 ) ( 9,922 ) Real estate investments $ 73,387 $ 73,896 Depreciation and amortization expense related to real estate investments was $ 506 and $ 491 for the three months ended March 31, 2022 and 2021, respectively. g) Net Investment Income (Loss) Net investment income (loss), by source, is summarized as follows: Three Months Ended March 31, 2022 2021 Available-for-sale fixed-maturity securities $ 448 $ 441 Equity securities 287 352 Investment expense ( 134 ) ( 126 ) Limited partnership investments 1,780 787 Real estate investments 347 2,997 Loss from unconsolidated joint venture ( 13 ) ( 25 ) Cash and cash equivalents 153 168 Net investment income $ 2,868 $ 4,594 18 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) For the three months ended March 31, 2021, income from real estate investments included a net gain of $ 2,790 resulting from a legal settlement with The Kroger Co. in a lawsuit filed by a real estate subsidiary of the Company to enforce a guaranty of a commercial lease. h) Other Investments From time to time, the Company may invest in financial assets other than stocks, mutual funds and bonds. For the three months ended March 31, 2022 and 2021, net realized gains related to other investments were $ 81 and $ 375 , respectively. Note 5 -- Comprehensive Income (Loss) Comprehensive income (loss) includes net income and other comprehensive income or loss, which for the Company includes changes in unrealized gains or losses of investments carried at fair value and changes to the credit losses related to these investments. Reclassification adjustments for realized (gains) losses are reflected in net realized investment gains (losses) on the consolidated statements of income. The components of other comprehensive income or loss and the related tax effects allocated to each component were as follows: Three Months Ended Three Months Ended March 31, 2022 March 31, 2021 Before Income Net of Before Income Net of Tax Tax Effect Tax Tax Tax Effect Tax Net unrealized losses $ ( 4,151 ) $ ( 1,047 ) $ ( 3,104 ) $ ( 182 ) $ ( 45 ) $ ( 137 ) Call and repayment gains charged to investment income — — — ( 2 ) — ( 2 ) Reclassification adjustment for realized losses (gains) 429 109 320 ( 1 ) — ( 1 ) Total other comprehensive loss $ ( 3,722 ) $ ( 938 ) $ ( 2,784 ) $ ( 185 ) $ ( 45 ) $ ( 140 ) Note 6 -- Fair Value Measurements The Company records and discloses certain financial assets at their estimated fair values. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows: Level 1 – Unadjusted quoted prices in active markets for identical assets. Level 2 – Other inputs that are observable for the asset, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset. Level 3 – Inputs that are unobservable. 19 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Valuation Methodology Cash and Cash Equivalents Cash and cash equivalents primarily consist of money-market funds and certificates of deposit maturing within 90 days. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds. Restricted Cash Restricted cash represents cash held by state authorities and the carrying value approximates fair value. Fixed-Maturity and Equity Securities Estimated fair values of the Company’s fixed-maturity and equity securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange. The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, which are level 2 inputs. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies, and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values. Revolving Credit Facility The Company’s revolving credit facility is a variable-rate loan. The interest rate is periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, its carrying value approximates fair value. Long-Term Debt The following table summarizes components of the Company’s long-term debt and methods used in estimating their fair values: Maturity Date Valuation Methodology 4.25 % Convertible Senior Notes 2037 Quoted price 3.90 % Promissory Note 2032 Discounted cash flow method/Level 3 inputs 3.75 % Callable Promissory Note 2036 Discounted cash flow method/Level 3 inputs 4.55 % Promissory Note 2036 Discounted cash flow method/Level 3 inputs 20 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Assets Measured at Estimated Fair Value on a Recurring Basis The following tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The tables indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of March 31, 2022 and December 31, 2021: Fair Value Measurements Using (Level 1) (Level 2) (Level 3) Total As of March 31, 2022 Financial Assets: Cash and cash equivalents $ 569,040 $ — $ — $ 569,040 Restricted cash $ 2,400 $ — $ — $ 2,400 Fixed-maturity securities: U.S. Treasury and U.S. government agencies $ 125,775 $ 1,442 $ — $ 127,217 Corporate bonds 20,861 — — 20,861 State, municipalities, and political subdivisions — 1,776 — 1,776 Exchange-traded debt 724 — — 724 Redeemable preferred stock 106 — — 106 Total available-for-sale securities $ 147,466 $ 3,218 $ — $ 150,684 Equity securities $ 41,204 $ — $ — $ 41,204 Fair Value Measurements Using (Level 1) (Level 2) (Level 3) Total As of December 31, 2021 Financial Assets: Cash and cash equivalents $ 628,943 $ — $ — $ 628,943 Restricted cash $ 2,400 $ — $ — $ 2,400 Fixed-maturity securities: U.S. Treasury and U.S. government agencies $ 15,536 $ 1,488 $ — $ 17,024 Corporate bonds 22,492 — — 22,492 State, municipalities, and political subdivisions — 1,808 — 1,808 Exchange-traded debt 811 — — 811 Redeemable preferred stock 448 — — 448 Total available-for-sale securities $ 39,287 $ 3,296 $ — $ 42,583 Equity securities $ 51,740 $ — $ — $ 51,740 Liabilities Carried at Other Than Fair Value The following tables present fair value information for liabilities that are carried on the consolidated balance sheets at amounts other than fair value as of March 31, 2022 and December 31, 2021: Carrying Fair Value Measurements Using Estimated Value (Level 1) (Level 2) (Level 3) Fair Value As of March 31, 2022 Financial Liabilities: Revolving credit facility $ 15,000 $ — $ 15,000 $ — $ 15,000 Long-term debt: 4.25 % Convertible Senior Notes $ 23,916 $ — $ 27,111 $ — $ 27,111 3.90 % Promissory Note 9,203 — — 9,455 9,455 3.75 % Callable Promissory Note 7,063 — — 7,132 7,132 4.55 % Promissory Note 5,087 — — 5,387 5,387 Total long-term debt $ 45,269 $ — $ 27,111 $ 21,974 $ 49,085 21 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Carrying Fair Value Measurements Using Estimated Value (Level 1) (Level 2) (Level 3) Fair Value As of December 31, 2021 Financial Liabilities: Revolving credit facility $ 15,000 $ — $ 15,000 $ — $ 15,000 Long-term debt: 4.25 % Convertible Senior Notes $ 23,885 $ — $ 33,248 $ — $ 33,248 3.90 % Promissory Note 9,287 — — 10,488 10,488 3.75 % Callable Promissory Note 7,153 — — 7,852 7,852 4.55 % Promissory Note 5,148 — — 6,051 6,051 Total long-term debt $ 45,473 $ — $ 33,248 $ 24,391 $ 57,639 Note 7 -- Intangible Assets, Net The Company’s intangible assets, net consist of the following: March 31, December 31, 2022 2021 Anchor tenant relationships (a) $ 1,761 $ 1,761 In-place leases 4,215 4,215 Policy renewal rights - United 12,384 7,634 Non-compete agreements - United (b) 314 195 Total, at cost 18,674 13,805 Less: accumulated amortization ( 3,569 ) ( 3,169 ) Intangible assets, net $ 15,105 $ 10,636 The remaining weighted-average amortization periods for the intangible assets at March 31, 2022 are summarized in the table below: Anchor tenant relationships 12.2 years In-place leases 9.9 years Policy renewal rights - United 3.9 years Non-compete agreements - United 1.1 years (a) An anchor tenant is a tenant that attracted more customers than other tenants. (b) $ 195 was fully amortized in June 2021. In connection with the Southeast Region assumed business as described in Note 1 -- “Nature of Operations” the Company recorded intangible assets of $ 4,869 representing the renewal rights and non-compete agreement in exchange for contingent consideration consisting of a 6 % commission on any replacement premium which includes $ 3,800 of commission prepaid up-front. The contingent consideration was estimated at $4,869 with the $ 1,069 contingent liability included in other liabilities on the consolidated balance sheet. Amortization of the intangible assets related to the Southeast Region is expected to begin June 1, 2022 . The renewal rights and non-compete intangible assets acquired do not meet the definition of a business as substantially all of the fair value of the intangible assets acquired are concentrated in a group of similar assets. Therefore, the Company accounted for the purchase of the renewal rights and non-compete intangible assets as an asset acquisition. 22 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 8 -- Other Assets The following table summarizes the Company’s other assets: March 31, December 31, 2022 2021 Benefits receivable related to retrospective reinsurance contracts $ 4,548 $ 3,064 Reimbursement receivable under TPA service 4,651 3,525 Prepaid expenses 2,734 2,853 Deposits 482 406 Lease acquisition costs, net 557 505 Other 4,341 4,364 Total other assets $ 17,313 $ 14,717 Note 9 -- Revolving Credit Facility For the three months ended March 31, 2022 and 2021, interest expense was $ 89 a nd $ 104 , respectively, includi ng $ 25 a nd $ 25 of amortization of issuance costs, respectively. At March 31, 2022 , the Company was in compliance with all required covenants, and there were $ 15,000 of borrowings outstanding. Note 10 -- Long-Term Debt The following table summarizes the Company’s long-term debt: March 31, December 31, 2022 2021 4.25 % Convertible Senior Notes, due March 1, 2037 $ 23,916 $ 23,916 3.90 % Promissory Note, due through April 1, 2032 9,343 9,431 3.75 % Callable Promissory Note, due through September 1, 2036 7,153 7,246 4.55 % Promissory Note, due through August 1, 2036 5,162 5,225 Finance lease liabilities, due through October 15, 2024 26 31 Total principal amount 45,600 45,849 Less: unamortized issuance costs ( 305 ) ( 345 ) Total long-term debt $ 45,295 $ 45,504 The following table summarizes future maturities of long-term debt as of March 31, 2022 , which takes into consideration the assumption that the 4.25 % Convertible Senior Notes are repurchased at the next earliest call date: Due in 12 months following March 31, 2022 $ 1,017 2023 1,050 2024 1,086 2025 1,129 2026 25,091 Thereafter 16,227 Total $ 45,600 23 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Information with respect to interest expense related to long-term debt is as follows: Three Months Ended March 31, 2022 2021 Interest Expense: Contractual interest $ 472 $ 1,707 Non-cash expense (a) 40 268 $ 512 $ 1,975 (a) Includes amortization of debt issuance costs. Convertible Senior Notes 4.25% Convertible Senior Notes . On March 1, 2022, none of the holders of the 4.25% Convertible Senior Notes exercised the put option, which would have required the Company to repurchase for cash all or any portion of the notes at par. The Company’s recent cash dividends on common stock have exceeded $ 0.35 per share, resulting in adjustments to the conversion rate of the 4.25% Convertible Senior Notes. Accordingly, as of March 31, 2022 , the conversion rate of the Company’s 4.25 % Convertible Senior Notes was 16.4853 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $ 60.66 per share. As of March 31, 2022 , the debt issuance costs for the 4.25% Convertible Senior Notes had been fully amortized. Note 11 -- Reinsurance Reinsurance obtained from other insurance companies The Company cedes a portion of its homeowners’ insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and a portion of its flood insurance exposure under one quota share reinsurance agreement. Ceded premiums under most catastrophe excess of loss reinsurance contracts are subject to revision resulting from subsequent adjustments in total insured value. Under the terms of the quota share reinsurance agreement, the Company is entitled to a 30 % ceding commission on ceded premiums written and a profit commission equal to 10 % of net profit. 24 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The Company remains liable for claims payments in the event that any reinsurer is unable to meet its obligations under the reinsurance agreements. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1 st of each year. The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions. The impact of the reinsurance contracts on premiums written and earned is as follows: Three Months Ended March 31, 2022 2021 Premiums Written: Direct $ 171,981 $ 110,131 Assumed 5,313 15,717 Gross written 177,294 125,848 Ceded ( 53,162 ) ( 43,099 ) Net premiums written $ 124,132 $ 82,749 Premiums Earned: Direct $ 148,846 $ 110,292 Assumed 30,079 20,650 Gross earned 178,925 130,942 Ceded ( 53,162 ) ( 43,099 ) Net premiums earned $ 125,763 $ 87,843 During the three months ended March 31, 2022 and 2021, the Company recognized ceded losses of $ 870 and $ 107 , respectively, as reductions in losses and loss adjustment expenses. At March 31, 2022 and December 31, 2021, there were 55 reinsurers participating in the Company’s reinsurance program. Total net amounts recoverable and receivable from reinsurers at March 31, 2022 and December 31, 2021 were $ 69,596 and $ 76,650 , respectively. Approximatel y 66.1 % of the reinsurance recoverable balance at March 31, 2022 was receivable from three reins urers, one of which was the Florida Hurricane Catastrophe Fund, a tax-exempt state trust fund. Based on all available information considered in the rating-based method, the Company recognized decreases in credit loss expense of $ 11 and $ 12 for the three months ended March 31, 2022 and 2021, respectively. Allowances for credit losses related to the reinsurance recoverable balance were $ 79 and $ 90 at March 31, 2022 and December 31, 2021, respectively. The Company has reinsurance contracts that include retrospective provisions that adjust premiums in the event losses are minimal or zero. For the three months ended March 31, 2022 and 2021, the Company recognized reductions in premiums ceded of $ 1,484 and $ 4,680 , respectively, related to these adjustments in the consolidated statements of income. 25 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Amounts receivable pursuant to retrospective provisions are reflected in other assets. At March 31, 2022 and December 31, 2021, other assets included $ 4,548 and $ 3,064 , respectively. Management believes the credit risk associated with the collectability of accrued benefits is minimal as the amount receivable is concentrated with two reinsurers and the Company monitors the creditworthiness of these reinsurers based on available information about each reinsurer’s financial condition. Reinsurance provided to other insurance companies For the three months ended March 31, 2022, $ 6,849 of assumed premiums written related to the Northeast Region’s insurance policies was derecognized, which primarily resulted from the return of the unearned portion of assumed written premiums subsequent to the Company's renewal and/or replacement of insurance policies in the State of New Jersey. For the three months ended March 31, 2021, assumed premiums written were $ 15,717 . At March 31, 2022, the Company had a net balance of $ 4,305 due to United related to the Northeast Region, consisting of ceding commission payable of $ 1,418 and payable on paid losses and loss adjustment expenses of $ 5,190 , offset by premiums receivable of $ 2,303 . At December 31, 2021, the Company had a net balance of $ 4,486 due to United related to the Northeast Region, consisting of ceding commission payable of $ 535 and payable on paid losses and loss adjustment expenses of $ 4,017 , offset by premiums receivable of $ 66 . Effective December 31, 2021, the Company entered into a separate agreement to provide 85% quota share reinsurance on United’s personal lines insurance policies in the states of Georgia, South Carolina and North Carolina. For the three months ended March 31, 2022, assumed premiums written related to the Southeast Region’s insurance policies were $ 12,162 . At March 31, 2022, the Company had a net balance of $ 1,178 receivable from United, consisting of premiums receivable of $ 4,792 offset by ceding commission payable of $ 1,198 , a catastrophe cost allowance of $ 949 and payable on paid losses and loss adjustment expenses of $ 1,467 . At December 31, 2021, there was an amount receivable from United of $ 23,325 , net of a ceding commission of $ 8,835 and a catastrophe cost allowance of $ 3,181 . At March 31, 2022 and December 31, 2021, the balance of funds withheld for assumed business related to the Company’s quota share reinsurance agreements with United was $ 84,068 and $ 73,716 , respectively. Note 12 -- Losses and Loss Adjustment Expenses The liability for losses and loss adjustment expenses (“LAE”) is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and losses incurred but not reported. The Company primarily writes insurance in states which could be exposed to hurricanes or other natural catastrophes. The occurrence of a major catastrophe could have a significant effect on the Company’s quarterly results and cause a temporary disruption of the normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter. 26 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Activity in the liability for losses and LAE is summarized as follows: Three Months Ended March 31, 2022 2021 Net balance, beginning of period* $ 172,410 $ 141,065 Incurred, net of reinsurance, related to: Current period 70,076 41,920 Prior period 2,628 3,831 Total incurred, net of reinsurance 72,704 45,751 Paid, net of reinsurance, related to: Current period ( 18,796 ) ( 7,596 ) Prior period ( 46,481 ) ( 34,590 ) Total paid, net of reinsurance ( 65,277 ) ( 42,186 ) Net balance, end of period 179,837 144,630 Add: reinsurance recoverable before allowance for credit losses 54,955 61,143 Gross balance, end of period $ 234,792 $ 205,773 * Net balance represents beginning-of-period liability for unpaid losses and LAE less beginning-of-period reinsurance recoverable for unpaid losses and LAE. The establishment of loss and LAE reserves is an inherently uncertain process and changes in loss and LAE reserve estimates are expected as these estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such estimates are adjusted. During the three months ended March 31, 2022, the Company recognized losses related to prior periods of $ 2,628 primarily to increase the reserve resulting from increased litigation. Losses for the three months ended March 31, 2022 included estimated losses, net of reinsurance, of approximately $ 12,961 related to policies assumed from United, approximately $ 2,055 of which pertained to TypTap. In addition, the Company recognized $ 6,121 of losses related to weather events in Florida during the three months ended March 31, 2022. 27 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 13 -- Segment Information The Company identifies its operating divisions or segments based on managerial emphasis, organizational structure and revenue source. In the first quarter of 2021, the Company reorganized its operations to focus on specific business segments, resulting in the creation of TTIG with a separate workforce, board of directors and financial reporting structure. Companies under TTIG include TypTap, TypTap Management Company, Exzeo USA, Inc., and Cypress Tech Development Company, Inc., the parent company of an India company, Exzeo Software Private Limited. TTIG and its subsidiaries are considered a new reporting segment known as TypTap Group. The Company has four reportable segments: HCPCI insurance operations, TypTap Group, real estate operations, and corporate and other. Due to their economic characteristics, the Company’s property and casualty insurance division and reinsurance operations, excluding the insurance operations under TypTap Group, are grouped together into one reportable segment under HCPCI insurance operations. The TypTap Group segment includes its property and casualty insurance operations, information technology operations and its management company’s activities. The real estate operations segment includes companies engaged in operating commercial properties the Company owns for investment purposes or for use in its own operations. The corporate and other segment represents the activities of the holding companies and any other companies that do not meet the quantitative and qualitative thresholds for a reportable segment. The determination of segments may change over time due to changes in operational emphasis, revenues, and results of operations. The Company’s chief executive officer, who serves as the Company’s chief operating decision maker, evaluates each division’s financial and operating performance based on revenue and operating income. For the three months ended March 31, 2022 and 2021, revenues from the HCPCI insurance operations segment before intracompany elimination represente d 69.8 % and 77.7 %, respectively, and revenues from the TypTap Group segment represented 28.3 % and 17.2 %, respectively, of total revenues of all operating segments. At March 31, 2022 and December 31, 2021, HCPCI insurance operations’ total assets represented 55.6 % and 58.7 %, respectively, and TypTap Group’s total assets represented 32.3 % and 29.3 %, respectively, of the combined assets of all operating segments. 28 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The following tables present segment information reconciled to the Company’s consolidated statements of income. Intersegment transactions are not eliminated from segment results. However, intracompany transactions are eliminated in segment results below. HCPCI Insurance TypTap Real Corporate/ Reclassification/ For Three Months Ended March 31, 2022 Operations Group Estate (a) Other (b) Elimination Consolidated Revenue: Gross premiums earned (c) $ 119,305 $ 60,622 $ — $ — $ ( 1,002 ) $ 178,925 Premiums ceded ( 36,953 ) ( 16,933 ) — — 724 ( 53,162 ) Net premiums earned 82,352 43,689 — — ( 278 ) 125,763 Net (loss) income from investment portfolio ( 1,457 ) ( 16 ) — 316 135 ( 1,022 ) Policy fee income 654 403 — — — 1,057 Other 1,247 469 2,403 836 ( 3,713 ) 1,242 Total revenue 82,796 44,545 2,403 1,152 ( 3,856 ) 127,040 Expenses: Losses and loss adjustment expenses 43,995 28,988 — — ( 279 ) 72,704 Amortization of deferred policy acquisition costs 19,102 9,422 — — — 28,524 Other policy acquisition expenses 663 283 — — — 946 Stock-based compensation expense 1,144 885 — 2,308 — 4,337 Interest expense — 200 227 374 ( 200 ) 601 Depreciation and amortization 114 561 605 172 ( 623 ) 829 Personnel and other operating expenses 7,318 7,493 1,307 1,734 ( 2,754 ) 15,098 Total expenses 72,336 47,832 2,139 4,588 ( 3,856 ) 123,039 Income (loss) before income taxes $ 10,460 $ ( 3,287 ) $ 264 $ ( 3,436 ) $ — $ 4,001 Total revenue from non-affiliates (d) $ 81,733 $ 44,823 $ 2,064 $ 449 Gross premiums written $ 91,141 $ 86,153 (a) Other revenue under real estate primarily consisted of rental income from investment properties. (b) Other revenue under corporate and other primarily consisted of revenue from marina business. (c) Gross premiums earned consist of $ 118,303 from HCPCI and $ 1,002 from a reinsurance company. (d) Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation. 29 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) HCPCI Insurance TypTap Real Corporate/ Reclassification/ For Three Months Ended March 31, 2021 Operations Group Estate (a) Other (b) Elimination Consolidated Revenue: Gross premiums earned (c) $ 104,521 $ 28,811 $ — $ — $ ( 2,390 ) $ 130,942 Premiums ceded ( 35,980 ) ( 9,509 ) — — 2,390 ( 43,099 ) Net premiums earned 68,541 19,302 — — — 87,843 Net income from investment portfolio 880 336 — 1,495 2,727 5,438 Policy fee income 712 258 — — — 970 Other 521 175 5,134 560 ( 5,767 ) 623 Total revenue 70,654 20,071 5,134 2,055 ( 3,040 ) 94,874 Expenses: Losses and loss adjustment expenses 33,439 12,312 — — — 45,751 Amortization of deferred policy acquisition costs 12,747 4,637 — — — 17,384 Other policy acquisition expenses 4,824 1,041 — — ( 184 ) 5,681 Stock-based compensation expense 761 367 — 1,214 — 2,342 Interest expense — 90 482 1,752 ( 245 ) 2,079 Depreciation and amortization 20 288 587 176 ( 633 ) 438 Personnel and other operating expenses 5,058 5,122 1,201 1,694 ( 1,978 ) 11,097 Total expenses 56,849 23,857 2,270 4,836 ( 3,040 ) 84,772 Income (loss) before income taxes $ 13,805 $ ( 3,786 ) $ 2,864 $ ( 2,781 ) $ — $ 10,102 Total revenue from non-affiliates (d) $ 70,200 $ 20,379 $ 4,795 $ 1,524 Gross premiums written $ 80,988 $ 44,890 (a) Other revenue under real estate primarily consisted of rental income from investment properties. (b) Other revenue under corporate and other primarily consisted of revenue from marina business. (c) Gross premiums earned consist of $ 102,131 from HCPCI and $ 2,390 from a reinsurance company. (d) Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation. The following table presents segment assets reconciled to the Company’s total assets on the consolidated balance sheets: March 31, December 31, 2022 2021 Segments: HCPCI Insurance Operations $ 637,294 $ 676,509 TypTap Group 403,557 369,600 Real Estate Operations 128,067 127,651 Corporate and Other 74,145 65,349 Consolidation and Elimination ( 67,813 ) ( 62,252 ) Total assets $ 1,175,250 $ 1,176,857 30 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 14 -- Leases The table below summarizes the Company’s right-of-use (“ROU”) assets and corresponding liabilities for operating and finance leases: March 31, December 31, 2022 2021 Operating leases: ROU Assets $ 2,673 $ 2,204 Liabilities $ 2,662 $ 2,203 Finance leases: ROU Assets $ 86 $ 86 Liabilities $ 26 $ 31 The Company’s lease of office space in India for its information technology operations expired in January 2022 and a new lease agreement was entered into effective February 2022 with an initial term of nine years. The following table summarizes the Company’s operating and finance leases in which the Company is a lessee: Renewal Other Terms and Class of Assets Initial Term Option Conditions Operating lease: Office equipment 1 to 51 months Yes (a), (b) Office space 3 to 9 years Yes (b), (c) Finance lease: Office equipment 3 to 5 years Not applicable (d) (a) At the end of the lease term, the Company can purchase the equipment at fair market value. (b) There are no variable lease payments. (c) Rent escalation provisions exist. (d) There is a bargain purchase option. As of March 31, 2022, maturities of lease liabilities were as follows: Leases Operating Finance Due in 12 months following March 31, 2022 $ 1,509 $ 17 2023 565 9 2024 101 1 2025 106 — 2026 112 — Thereafter 481 — Total lease payments 2,874 27 Less: interest 212 1 Total lease obligations $ 2,662 $ 26 31 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The following table provides quantitative information with regards to the Company’s operating and finance leases: Three Months Ended March 31, 2022 2021 Lease costs: Finance lease costs: Amortization – ROU assets* $ 5 $ 4 Interest expense — 1 Operating lease costs* 374 454 Short-term lease costs* 110 37 Total lease costs $ 489 $ 496 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows – finance leases $ — $ 1 Operating cash flows – operating leases $ 372 $ 458 Financing cash flows – finance leases $ 5 $ 4 March 31, 2022 Weighted-average remaining lease term: Finance leases (in years) 2.8 Operating leases (in years) 4.4 Weighted-average discount rate: Finance leases (%) 3.5 % Operating leases (%) 3.1 % * Included in other operating expenses on the consolidated statements of income. The following table summarizes the Company’s operating leases in which the Company is a lessor: Renewal Other Terms and Class of Assets Initial Term Option Conditions Operating lease: Office space 1 to 3 years Yes (e) Retail space 3 to 20 years Yes (e) Boat docks/wet slips 1 to 12 months Yes (e) (e) There are no purchase options. Note 15 -- Income Taxes During the three months ended March 31, 2022 and 2021, the Company recorded approximately $ 1,210 and $ 3,257 , re spectively, of income taxes, which resulted in effective tax rates of 30.2 % and 32.2 %, respectively. The decrease in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to the recognition of tax benefits attributable to restricted stock that vested in February 2022, offset by the increased Florida corporate tax rate effective January 1, 2022 . The Company’s estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items. 32 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 16 -- Earnings Per Share U.S. GAAP requires the Company to use the two-class method in computing basic earnings per share since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating securities affect the computation of both basic and diluted earnings per share during periods of net income or loss. For a majority-owned subsidiary, its basic and diluted earnings per share are first computed separately. Then, the Company’s proportionate share in that majority-owned subsidiary’s earnings is added to the computation of both basic and diluted earnings per share at a consolidated level. A summary of the numerator and denominator of the basic and diluted earnings per common share is presented below: Three Months Ended Three Months Ended March 31, 2022 March 31, 2021 Income Shares (a) Per Share Income Shares (a) Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Net income $ 2,791 $ 6,845 Less: Net income attributable to redeemable noncontrolling interest ( 2,248 ) ( 794 ) Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities 360 97 Net income attributable to HCI 903 6,148 Less: Income attributable to participating securities ( 52 ) ( 18 ) Basic Earnings Per Share: Income allocated to common stockholders 851 9,479 $ 0.09 6,130 7,474 $ 0.82 Effect of Dilutive Securities: Stock options — 135 — 96 Convertible senior notes* — — 1,312 2,288 Warrants — 153 — 72 Diluted Earnings Per Share: Income available to common stockholders and assumed conversions $ 851 9,767 $ 0.09 $ 7,442 9,930 $ 0.75 (a) Shares in thousands. * For the three months ended March 31, 2022, convertible senior notes were excluded due to anti-dilutive effect. 33 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 17 -- Redeemable Noncontrolling Interest The following table summarizes the activity of redeemable noncontrolling interest during the three months ended March 31, 2022 and 2021: 2022 2021 Balance at January 1 $ 89,955 $ — Initial proceeds from Centerbridge — 100,000 Increase (decrease): Proceeds allocated to warrants* — ( 9,217 ) Issuance costs — ( 6,262 ) Issuance costs allocated to warrants* — 577 Accrued cash dividends 1,342 458 Accretion - increasing dividend rates 906 336 Dividends paid ( 2,508 ) — Balance at March 31 $ 89,695 $ 85,892 *Net decrease related to warrants of $ 8,640 . For the three months ended March 31, 2022 and 2021, net income attributable to redeemable noncontrolling interest was $ 2,248 and $ 794 , respectively, consisting of accrued cash dividends of $ 1,342 and $ 458 , respectively, and accretion related to increasing dividend rates of $ 906 and $ 336 , respectively. Note 18 -- Equity Stockholders’ Equity Common Stock In March 2022, the Company’s Board of Directors authorized a plan to repurchase up to $ 20,000 of the Company’s common shares before commissions and fees during 2022. During the three months ended March 31, 2022, there were no shares repurchased by the Company. On January 20, 2022 , the Company’s Board of Directors declared a quarterly dividend of $ 0.40 per common share. The dividends were paid on March 18, 2022 to stockholders of record on February 18, 2022 . Warrants At March 31, 2022, there were warrants outstanding and exercisable to purchase 750,000 shares of HCI common stock at an exercise price of $ 54.40 . The warrants expire on February 26, 2025 . 34 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Prepaid Share Repurchase Forward Contract In March 2022, the Company’s share repurchase forward contract with Societe Generale, entered into in conjunction with the 2017 issuance of the 4.25 % Convertible Senior Notes, was physically settled with the delivery from Societe Generale of 191,100 shares of HCI’s common stock to the Company. Noncontrolling Interests At March 31, 2022, there were 81,132,790 shares of TTIG’s common stock outstanding, of which 6,132,790 shares were not owned by HCI. In February 2022, TTIG repurchased and retired a total of 21,744 shares of its common stock surrendered by its employees to satisfy payroll tax liabilities associated with the vesting of restricted shares. The total cost of purchasing noncontrolling interests w as $ 127 . Note 19 -- Stock-Based Compensation 2012 Omnibus Incentive Plan The Company currently has outstanding stock-based awards granted under the Plan which is currently active and available for future grants. At March 31, 2022 , there were 1,111,240 shares available for grant. Stock Options Stock options granted and outstanding under the incentive plan vest over a period of four years and are exercisable over the contractual term of ten years . A summary of the stock option activity for the three months ended March 31, 2022 and 2021 is as follows (option amounts not in thousands): Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Options Price Term Value Outstanding at January 1, 2022 440,000 $ 45.25 6.6 years $ 18,119 Outstanding at March 31, 2022 440,000 $ 45.25 6.3 years $ 10,494 Exercisable at March 31, 2022 357,500 $ 44.23 6.0 years $ 8,891 Outstanding at January 1, 2021 440,000 $ 45.25 7.6 years $ 3,113 Outstanding at March 31, 2021 440,000 $ 45.25 7.3 years $ 13,464 Exercisable at March 31, 2021 275,000 $ 43.40 6.8 years $ 8,924 35 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) There were no options exercised during the three months ended March 31, 2022 and 2021. For the three months ended March 31, 2022 and 2021 , the Company recognized $ 184 and $ 223 , respectively, of compensation expense which was included in general and administrative personnel expenses. Deferred tax benefits related to stock options were $ 0 and $ 1 for the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022 and December 31, 2021 , there was $ 821 and $ 1,005 , respectively, of unrecognized compensation expense related to nonvested stock options. The Company expects to recognize the remaining compensation expense over a weighted-average period of 1.5 years. Restricted Stock Awards From time to time, the Company has granted and may grant restricted stock awards to certain executive officers, other employees and nonemployee directors in connection with their service to the Company. The terms of the Company’s outstanding restricted stock grants may include service, performance and market-based conditions. The determination of fair value with respect to the awards containing only service-based conditions is based on the market value of the Company’s common stock on the grant date. For awards with market-based conditions, the fair value is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome. Information with respect to the activity of unvested restricted stock awards during the three months ended March 31, 2022 and 2021 is as follows: Number of Weighted Restricted Average Stock Grant Date Awards Fair Value Nonvested at January 1, 2022 679,997 $ 39.72 Granted 4,000 $ 70.58 Vested ( 50,667 ) $ 50.68 Forfeited ( 3,265 ) $ 45.85 Nonvested at March 31, 2022 630,065 $ 39.00 Nonvested at January 1, 2021 423,787 $ 43.79 Granted 548,086 $ 36.95 Vested ( 41,250 ) $ 42.18 Cancelled ( 141,600 ) $ 43.76 Forfeited ( 2,050 ) $ 45.67 Nonvested at March 31, 2021 786,973 $ 39.11 36 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $ 3,268 and $ 1,905 for the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022 and December 31, 2021 , there was approximately $ 15,859 and $ 18,995 , respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period of 2.2 years. The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to restricted stock awards and paid dividends, and the fair value of vested restricted stock for the three months ended March 31, 2022 and 2021. Three Months Ended March 31, 2022 2021 Deferred tax benefits recognized (derecognized) $ 652 $ ( 36 ) Tax benefits realized for restricted stock and paid dividends $ 402 $ 55 Fair value of vested restricted stock $ 2,568 $ 1,740 In February 2021, the Company cancelled 141,600 shares of restricted stock for employees who transitioned to TypTap Group. In exchange, these employees received replacement restricted stock issued under TTIG’s equity incentive plan. Subsidiary Equity Plan For the three months ended March 31, 2022 and 2021, TypTap Group recognized compensation expense related to its stock-based awards of $ 885 and $ 215 , respectively. At March 31, 2022 and December 31, 2021, there was $ 10,189 and $ 11,230 , respectively, of unrecognized compensation expense related to nonvested restricted stock and stock options. Note 20 -- Commitments and Contingencies Obligations under Multi-Year Reinsurance Contracts As of March 31, 2022, the Company has contractual obligations related to two multi-year reinsurance contracts. These contracts may be cancelled only with the other party’s consent or when their respective experience accounts are positive at the end of each contract year. See Note 21 -- “Subsequent Events” for additional information. Capital Commitments As described in Note 4 -- “Investments” under Limited Partnership Investments , the Company is contractually committed to capital contributions for limited partnership interests. At March 31, 2022 , there was an aggregate unfunded balance of $ 7,750 . FIGA Assessments In October 2021, the Florida Office of Insurance Regulation approved a 2022 assessment for the Florida Insurance Guaranty Association (“FIGA”) which is necessary to secure funds for the payment of covered claims of insolvent insurance companies. The 2022 FIGA assessment is levied at 0.70 % on collected premiums of all 37 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) covered lines of business except auto insurance. The surcharge, which is collectible from a policyholder, will be assessed on new and renewal policies with effective dates beginning January 1, 2022 through December 31, 2022. In March 2022, the Florida Office of Insurance Regulation approved an assessment for FIGA which is necessary to secure funds for the payment of covered claims relating to the liquidation of one insurance company. The FIGA assessment is levied at 1.3 % on collected premiums of all covered lines of business except auto insurance. The surcharge, which is collectible from a policyholder, will be assessed on new and renewal policies with effective dates beginning July 1, 2022 through June 30, 2023. The Company’s insurance subsidiaries, as member insurers, are required to collect and remit the pass-through assessments to FIGA on a quarterly basis. As of March 31, 2022, the FIGA assessments payable by the Company were $ 983 . Note 21 -- Subsequent Events The Company has submitted written notice indicating its intention to commute both multi-year reinsurance contracts described in Note 20 -- “Commitments and Contingencies” ending May 31, 2022. On April 26, 2022 , the Company’s Board of Directors declared a quarterly dividend of $ 0.40 per common share. The dividends are payable on June 17, 2022 to stockholders of record on May 17, 2022 . 38 ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion under this Item 2 in conjunction with our consolidated financial statements and related notes and information included elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2022. Unless the context requires otherwise, as used in this Form 10-Q, the terms “HCI,” “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to HCI Group, Inc., a Florida corporation incorporated in 2006, and its subsidiaries. All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in whole dollars unless specified otherwise. Forward-Looking Statements In addition to historical information, this quarterly report contains forward-looking statements as defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effects of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; changes in the demand for, pricing of, availability of or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; the severity and impact of the novel coronavirus (“COVID-19”) pandemic; and other risks and uncertainties detailed herein and from time to time in our SEC reports. OVERVIEW – General HCI Group, Inc. is a Florida-based InsurTech company with operations in property and casualty insurance, reinsurance, real estate and information technology. After the reorganization of our business in the first quarter of 2021, 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 ▪ Property and casualty insurance ▪ Reinsurance and other auxiliary operations b) TypTap Group ▪ Property and casualty insurance ▪ Information technology c) Real Estate Operations d) Other Operations ▪ Holding company operations For the three months ended March 31, 2022 and 2021, revenues from HCPCI insurance operations before intracompany elimination represented 69.8% and 77.7%, respectively, and revenues from TypTap Group represented 28.3% and 17.2%, respectively, of total revenues of all operating segments. At March 31, 2022 and December 31, 2021, HCPCI insurance operations’ total assets represented 55.6% and 58.7%, respectively, and 39 TypTap Group’s total assets represented 32.3% and 29.3%, respectively, of the combined assets of all operating segments. See Note 13 -- “Segment Information” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information. HCPCI Insurance Operations Property and Casualty Insurance HCPCI provides various forms of residential insurance products such as homeowners insurance, fire insurance, flood insurance and wind-only insurance. 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. Currently, Florida is HCPCI’s primary market. In 2021, HCPCI began providing quota share reinsurance on all in-force, new and renewal policies issued by United in the Northeast Region. HCPCI began renewing and/or replacing United policies in two states in December 2021 and a third state in January 2022. In February 2022, HCPCI entered into another reinsurance agreement with United where HCPCI provides 85% quota share reinsurance on all of United’s personal lines insurance business in the states of Georgia, North Carolina, and South Carolina (collectively “Southeast Region”) from December 31, 2021 through May 31, 2022. Under this agreement, HCPCI paid United a catastrophe allowance of 9% of premium and a provisional ceding commission of 25% of premium. That percentage could increase up to 32% depending on the direct loss ratio results from the reinsured business. Reinsurance and other auxiliary operations We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd. We selectively retain risk in Claddaugh, reducing the cost of third-party reinsurance. Claddaugh fully collateralizes its exposure to HCPCI and TypTap by depositing funds into a trust account. Claddaugh may mitigate a portion of its risk through retrocession contracts. Currently, Claddaugh does not provide reinsurance to non-affiliates. Other auxiliary operations also include claim adjusting and processing services. TypTap Group Property and Casualty Insurance TypTap Insurance Group, Inc. (“TTIG”), our majority-owned subsidiary, currently has four subsidiaries: TypTap Insurance Company (“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 and is currently using in-house developed technology to collect and analyze claims and other supplemental data to generate savings and efficiency for its insurance operations. TypTap, TTIG’s insurance subsidiary, has been the primary source of our organic growth in gross written premium since 2016. TypTap’s policies in force have increased from 6,721 in January 2018 to 68,748 at March 31, 2022. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently. As of April 20, 2022, TypTap has been approved to offer homeowners coverage in 18 states outside of Florida. TypTap is currently operating in twelve states. In addition to the expansion in TypTap business, we also expect continued growth from the United policies assigned to TypTap through the renewal rights agreements acquired by HCI. 40 In 2021, TypTap began providing quota share reinsurance on all in-force, new and renewal policies issued by United in the Northeast Region. TypTap began renewing and/or replacing United policies in two states in December 2021 and a third state in January 2022. Information Technology Our information technology operations include a team of experienced software developers with extensive knowledge in developing web-based products and applications for mobile devices. The operations, which are 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. These products include SAMS TM , Harmony TM , AtlasViewer ® and ClaimColony TM . Real Estate Operations Our real estate operations consist of properties we own and use for our own operations and multiple properties we own and operate for investment purposes. Properties used in operations consist of one Tampa office building and an insurance operations site in Ocala, Florida. Our investment properties include retail shopping centers, one office building, two marinas, and undeveloped land near TTIG’s headquarters in Tampa, Florida. 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. Recent Events On April 26, 2022, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on June 17, 2022 to stockholders of record on May 17, 2022. 41 RESULTS OF OPERATIONS The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021 (dollar amounts in thousands, except per share amounts): Three Months Ended March 31, 2022 2021 Revenue Gross premiums earned $ 178,925 $ 130,942 Premiums ceded (53,162 ) (43,099 ) Net premiums earned 125,763 87,843 Net investment income 2,868 4,594 Net realized investment (losses) gains (314 ) 1,113 Net unrealized investment losses (3,576 ) (269 ) Policy fee income 1,057 970 Other income 1,242 623 Total revenue 127,040 94,874 Expenses Losses and loss adjustment expenses 72,704 45,751 Policy acquisition and other underwriting expenses 29,408 23,065 General and administrative personnel expenses 14,034 9,650 Interest expense 601 2,079 Other operating expenses 6,292 4,227 Total expenses 123,039 84,772 Income before income taxes 4,001 10,102 Income tax expense 1,210 3,257 Net income 2,791 6,845 Net income attributable to noncontrolling interests (1,888 ) (697 ) Net income after noncontrolling interests $ 903 $ 6,148 Ratios to Net Premiums Earned: Loss Ratio 57.81 % 52.08 % Expense Ratio 40.02 % 44.91 % Combined Ratio 97.83 % 96.99 % Ratios to Gross Premiums Earned: Loss Ratio 40.63 % 34.94 % Expense Ratio 28.14 % 30.13 % Combined Ratio 68.77 % 65.07 % Earnings Per Share Data: Basic $ 0.09 $ 0.82 Diluted $ 0.09 $ 0.75 Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021 Our results of operations for the three months ended March 31, 2022 reflect net income of approximately $2,791,000 or $0.09 diluted earnings per share, compared with approximately $6,845,000 or $0.75 diluted earnings per share, for the three months ended March 31, 2021. The quarter-over-quarter decrease was primarily due to a $26,953,000 increase in losses and loss adjustment expenses, a net decrease in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains or losses) of $6,460,000, a $6,449,000 increase in personnel and other operating expenses, and a $6,343,000 increase in policy acquisition and other underwriting expenses, offset by an increase in net premiums earned of $37,920,000 and a $1,478,000 decrease in interest expense. 42 Revenue Gross Premiums Earned on a consolidated basis for the three months ended March 31, 2022 and 2021 were approximately $178,925,000 and $130,942,000, respectively. HCPCI gross premiums earned were $118,303,000 for the three months ended March 31, 2022 compared to $102,131,000 for the three months ended March 31, 2021. Gross premiums earned from the United insurance policies assumed were $30,079,000 for the three months ended March 31, 2022 compared to $20,650,000 for the three months ended March 31, 2021. TypTap’s gross premiums earned were $60,622,000 versus $28,811,000 for the same comparative period with the increase due to a greater number of policies in force from the organic growth in TypTap’s business and from the business assumed from United beginning June 1, 2021. Premiums Ceded for the three months ended March 31, 2022 and 2021 were approximately $53,162,000 and $43,099,000, respectively, representing 29.7% and 32.9%, respectively, of gross premiums earned. The $10,063,000 increase was primarily attributable to higher reinsurance costs effective June 1, 2021 due to an increased overall reinsurance coverage amount as a result of premium growth and expansion. Our premiums ceded represent costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts or to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. Reinsurance costs can be decreased by a reduction in premiums ceded attributable to retrospective provisions under multi-year reinsurance contracts. For the three months ended March 31, 2022, premiums ceded included a decrease of $1,484,000 related to retrospective provisions compared with a decrease of $4,680,000 for the three months ended March 31, 2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.” Net Premiums Written for the three months ended March 31, 2022 and 2021 totaled approximately $124,132,000 and $82,749,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The increase in 2022 resulted from an increase in gross premiums written from the United insurance policies assumed and the growth of TypTap business. We had approximately 211,800 policies in force at March 31, 2022 (excluding policies assumed from United) as compared with approximately 154,000 policies in force at March 31, 2021. Net Premiums Earned for the three months ended March 31, 2022 and 2021 were approximately $125,763,000 and $87,843,000, respectively, and reflect the gross premiums earned less reinsurance costs as described above. The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended March 31, 2022 and 2021 (amounts in thousands): Three Months Ended March 31, 2022 2021 Net Premiums Written $ 124,132 $ 82,749 Decrease in Unearned Premiums 1,631 5,094 Net Premiums Earned $ 125,763 $ 87,843 Net Investment Income for the three months ended March 31, 2022 and 2021 was approximately $2,868,000 and $4,594,000, respectively. The $1,726,000 decrease was primarily attributable to a $2,650,000 decrease in income from real estate investments, offset by a $993,000 increase in income from limited partnership investments. See Net Investment Income (loss) under Note 4 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q. 43 Net Realized Investment Losses for the three months ended March 31, 2022 were approximately $314,000 versus $1,113,000 of net realized investment gains for the three months ended March 31, 2021. The $1,427,000 decrease was primarily attributable to net gains from selling equity securities and other investments during 2021. Net Unrealized Investment Losses for the three months ended March 31, 2022 and 2021 were approximately $3,576,000 and $269,000, respectively. The net unrealized investment loss for the three months ended March 31, 2022 was primarily attributable to an overall decline in the equity market compared with the three months ended March 31, 2021. Expenses Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $72,704,000 and $45,751,000 for the three months ended March 31, 2022 and 2021, respectively. HCPCI losses and loss adjustment expenses were $43,995,000 for the three months ended March 31, 2022 compared to $33,439,000 for the three months ended March 31, 2021. The increase was primarily attributable to $4,197,000 of losses associated with growth in HCPCI’s Florida portfolio, a $6,070,000 net increase in losses attributable to the United policies assumed due to an increase in the number of policies assumed from United and weather-related losses incurred during the first quarter of 2022. Losses and loss adjustment expenses for TypTap were $28,988,000 versus $12,312,000 for the same comparative period. The increase was attributable to the greater number of TypTap policies in force. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.” Policy Acquisition and Other Underwriting Expenses for the three months ended March 31, 2022 and 2021 were approximately $29,408,000 and $23,065,000 on a consolidated basis, respectively, and primarily reflect the amortization of deferred acquisition costs such as commissions payable to agents for production and renewal of policies, catastrophe allowance payable to United, and premium taxes. Policy acquisition expenses for HCPCI insurance operations were $19,765,000 for the three months ended March 31, 2022 compared to $17,571,000 for the three months ended March 31, 2021. The increase was due to amortization of increased costs associated with the increase in the number of policies assumed from United. TypTap Group policy acquisition expenses were $9,705,000 versus $5,678,000 for the same comparative period, with the increase attributable to amortization of increased commission costs related to the growth of TypTap’s policies in force over the past 12 months and the policies assumed from United. General and Administrative Personnel Expenses for the three months ended March 31, 2022 and 2021 were approximately $14,034,000 and $9,650,000, respectively. Our general and administrative personnel expenses include salaries, wages, payroll taxes, stock-based compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The period-over-period increase of $4,384,000 was primarily attributable to increased stock-based compensation expense, an increase in the headcount of temporary and full-time employees, and merit increases for non-executive employees effective in late February 2022. Interest Expense for the three months ended March 31, 2022 and 2021 was approximately $601,000 and $2,079,000, respectively. The decrease primarily resulted from conversions of our 4.25% convertible senior notes during the second half of 2021. 44 Income Tax Expense for the three months ended March 31, 2022 and 2021 was approximately $1,210,000 and $3,257,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 30.2% for 2022 and 32.2% for 2021. The decrease in the effective tax rate was primarily due to the recognition of tax benefits attributable to restricted stock that vested in February 2022, offset by the increased Florida corporate tax rate effective January 1, 2022. Ratios: The loss ratio applicable to the three months ended March 31, 2022 (losses and loss adjustment expenses incurred related to net premiums earned) was 57.8% compared with 52.1% for the three months ended March 31, 2021. The increase was primarily due to the increase in losses and loss adjustment expenses as further described above, offset in part by the increase in net premiums earned. The expense ratio applicable to the three months ended March 31, 2022 (defined as total expenses excluding losses and loss adjustment expenses related to net premiums earned) was 40.0% compared with 44.9% for the three months ended March 31, 2021. The decrease in our expense ratio was primarily attributable to the increase in net premiums earned and the decrease in interest expense, offset by the increase in policy acquisition, underwriting and personnel expenses. The combined ratio (total of all expenses in relation to net premiums earned) is the measure of overall underwriting profitability before other income. Our combined ratio for the three months ended March 31, 2022 was 97.8% compared with 97.0% for the three months ended March 31, 2021. The slight increase in 2022 was attributable to the factors described above. Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the three months ended March 31, 2022 was 68.8% compared with 65.1% for the three months ended March 31, 2021. The increase in 2022 was primarily attributable to the increase in losses and loss adjustment expenses, offset by the increase in gross premiums earned. Seasonality of Our Business Our insurance business is seasonal as 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. Also, with our reinsurance treaty year typically effective June 1 st of each year, 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 occur and be reflected in our financial results beginning June 1 st of each year. LIQUIDITY AND CAPITAL RESOURCES Throughout our history, our liquidity requirements have been met through issuances of our common and preferred stock, debt offerings and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by our insurance subsidiaries from premiums written and investment income. We may consider raising additional capital through debt and equity offerings to support our growth and future investment opportunities. Our insurance subsidiaries require liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. In addition, we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets. In 45 the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and losses and loss adjustment expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. With the exception of litigated claims, substantially all of our losses and loss adjustment expenses are fully settled and paid within 100 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses. We believe that we maintain sufficient liquidity to pay claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position. In the future, we anticipate our primary use of funds will be to pay claims, reinsurance premiums, interest, and dividends and to fund operating expenses and real estate acquisitions. Revolving Credit Facility, Convertible Senior Notes, Promissory Notes, and Finance Leases The following table summarizes the principal and interest payment obligations of our indebtedness at March 31, 2022: Maturity Date Payment Due Date 4.25% Convertible Senior Notes March 2037 March 1 and September 1 3.75% Callable Promissory Note Through September 2036 1 st day of each month 4.55% Promissory Note Through August 2036 1 st day of each month 3.90% Promissory Note Through April 2032 1 st day of each month Finance leases Through October 2024 Various Revolving credit facility Through December 2023 January 1, April 1, July 1, October 1 See Note 10 -- “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q. Share Repurchase Plan In March 2022, the Board approved a plan to repurchase up to $20,000,000 of common shares during 2022 under which we may purchase shares of common stock in open market purchases, block transactions and privately negotiated transactions in accordance with applicable federal securities laws. See Note 18 -- “Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for more information. Limited Partnership Investments Our limited partnership investments consist of six private equity funds managed by their general partners. Four of these funds have unexpired capital commitments which are callable at the discretion of the fund’s general partner for funding new investments or expenses of the fund. Although capital commitments for two of the remaining funds have expired, the general partners may request additional funds under certain circumstances. At March 31, 2022, there was an aggregate unfunded capital balance of $7,750,000. See Limited Partnership Investments under Note 4 -- “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information. 46 Real Estate Investment Real estate has long been a significant component of our overall investment portfolio. It diversifies our portfolio and helps offset the volatility of other higher-risk investments. Thus, we may consider increasing our real estate investment portfolio should an opportunity arise. We currently have a 90% equity interest in FMKT Mel JV, LLC, a Florida limited liability company for which we are not the primary beneficiary. FMKT Mel JV’s real estate portfolio consists of an outparcel for ground lease or sale. We have the option to take full ownership of this outparcel by acquiring the remaining 10% interest. Alternatively, we may sell this outparcel and allocate the profits from the sale before liquidating FMKT Mel JV. Sources and Uses of Cash Cash Flows for the Three Months Ended March 31, 2022 Net cash provided by operating activities for the three months ended March 31, 2022 was approximately $57,349,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately $7,936,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $109,899,000 was primarily due to the purchases of fixed-maturity and equity securities of $134,043,000, the purchase of intangible assets from United of $3,800,000, and the purchases of property and equipment of $1,861,000, offset by the proceeds from sales of fixed-maturity and equity securities of $27,427,000, the proceeds from calls, repayments and maturities of fixed-maturity securities of $1,250,000, and distributions received from limited partnership investments of $785,000. Net cash used in financing activities totaled $7,328,000, which was primarily due to $4,046,000 of net cash dividend payments, cash dividends paid to redeemable noncontrolling interest of $2,508,000, $398,000 of share repurchases, and repayments of long-term debt of $249,000. Cash Flows for the Three Months Ended March 31, 2021 Net cash provided by operating activities for the three months ended March 31, 2021 was approximately $36,140,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately $13,543,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of $19,141,000 was primarily due to the proceeds from sales of fixed-maturity and equity securities of $34,378,000, the proceeds from calls, repayments and maturities of fixed-maturity securities of $12,486,000, and distributions received from limited partnership investments of $1,546,000, offset by the purchases of fixed-maturity and equity securities of $28,391,000, and the purchases of property and equipment of $697,000. Net cash provided by financing activities totaled $66,784,000, which consisted of net proceeds of $93,738,000 from Centerbridge for investment in TTIG, offset by $2,793,000 of net cash dividend payments, and net repayment of our revolving credit facility of $23,750,000. Investments The main objective of our investment policy is to maximize our after-tax investment income with a reasonable level of risk given the current financial market. Our excess cash is invested primarily in money market accounts, certificates of deposit, and fixed-maturity and equity securities. At March 31, 2022, we had $191,888,000 of fixed-maturity and equity investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed-maturity investments but increases the 47 market value of existing fixed-maturity investments, creating the opportunity for realized investment gains on disposition. In the future, we may alter our investment policy as to investments in federal, state and municipal obligations, preferred and common equity securities and real estate mortgages, as permitted by applicable law, including insurance regulations. OFF-BALANCE SHEET ARRANGEMENTS As of March 31, 2022, we had unexpired capital commitments for limited partnerships in which we hold interests. Such commitments are not recognized in the financial statements but are required to be disclosed in the notes to the financial statements. See Note 20 -- “Commitments and Contingencies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments to develop amounts reflected and disclosed in our financial statements. Material estimates that are particularly susceptible to significant change in the near term are related to our losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. We base our estimates on various assumptions and actuarial data we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates. We believe our accounting policies specific to losses and loss adjustment expenses, reinsurance recoverable, reinsurance with retrospective provisions, deferred income taxes, stock-based compensation expense, limited partnership investments, acquired intangible assets, warrants, and redeemable noncontrolling interest involve our most significant judgments and estimates material to our consolidated financial statements. Reserves for Losses and Loss Adjustment Expenses Our liability for losses and loss adjustment expense (“Reserves”) is specific to property insurance, which is our insurance subsidiaries’ only line of business. The Reserves include both case reserves on reported claims and our reserves for incurred but not reported (“IBNR”) losses. At each period end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are adjusted. The IBNR represents our estimate of the ultimate cost of all claims that have occurred but have not been reported to us, and in some cases may not yet be known to the insured, and future development of reported claims. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At March 31, 2022, $172,959,000 of the total $234,792,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $61,833,000 relates to known cases which have been reported but not yet fully settled in which case we have established a reserve based on currently available information and our best estimate of the cost to settle each claim. At March 31, 2022, $49,063,000 of the $61,833,000 in reserves for known cases relates to claims incurred during prior years. 48 Our Reserves decreased from $237,165,000 at December 31, 2021 to $234,792,000 at March 31, 2022. The $2,373,000 decrease is comprised of reductions in our Reserves of $9,193,000 specific to Hurricane Irma, Hurricane Michael, Hurricane Sally and Tropical Storm Eta, and reductions in our non-catastrophe Reserves of $33,673,000 for 2021 and $10,787,000 for 2020 and prior loss years, offset by $51,280,000 in reserves established for the 2022 loss year. The Reserves established for 2022 claims is primarily driven by an allowance for those claims that have been incurred but not reported to the company as of March 31, 2022. The decrease of $53,653,000 specific to our 2021 and prior loss-year reserves is due to settlement of claims related to those loss years. Based on all information known to us, we consider our Reserves at March 31, 2022 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made, and the liabilities may deviate substantially from prior estimates. Economic Impact of Reinsurance Contracts with Retrospective Provisions Two of our reinsurance contracts include retrospective provisions that adjust premiums in the event losses are minimal or zero. In accordance with accounting principles generally accepted in the United States of America, we will recognize an asset in the period in which the absence of loss experience obligates the reinsurer to pay cash or other consideration under the contract. In the event that a loss arises, we will derecognize such asset in the period in which a loss arises. Such adjustments to the asset, which accrue throughout the contract term, will negatively impact our operating results when a catastrophic loss event occurs during the contract term. For the three months ended March 31, 2022 and 2021, we accrued benefits of $1,484,000 and $4,680,000, respectively. The accrual of benefits was recognized as a reduction in ceded premiums. As of March 31, 2022, we had $4,548,000 of accrued benefits, the amount that would be charged to earnings in the event we experience a catastrophic loss that exceeds the coverage limit provided under such agreement. We believe the credit risk associated with the collectability of accrued benefits is minimal based on available information about the reinsurer’s financial position and the reinsurer’s demonstrated ability to comply with contract terms. The above and other accounting estimates and their related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form 10-K, which we filed with the SEC on March 10, 2022. For the three months ended March 31, 2022, there have been no other material changes with respect to any of our critical accounting policies. RECENT ACCOUNTING PRONOUNCEMENTS There have been no recent accounting pronouncements or changes in recent accounting pronouncements during the three months ended March 31, 2022, as compared to those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, that are of significance, or potential significance, to the Company . 49 ITEM 3 – QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK Our investment portfolios at March 31, 2022 included fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by outside investment advisors and are overseen by the investment committee appointed by our Board of Directors. From time to time, our investment committee may decide to invest in low risk assets such as U.S. government bonds. Our investment portfolios are exposed to interest rate risk, credit risk and equity price risk. Fiscal and economic uncertainties caused by any government action or inaction may exacerbate these risks and potentially have adverse impacts on the value of our investment portfolios. We classify our fixed-maturity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity. As such, any material temporary changes in their fair value can adversely impact the carrying value of our stockholders’ equity. In addition, we recognize any unrealized gains or losses related to our equity securities in our statement of income. As a result, our results of operations can be materially affected by the volatility in the equity market. Interest Rate Risk Our fixed-maturity securities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movement in interest rates and considering our future capital needs. The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed-maturity securities at March 31, 2022 (amounts in thousands): Hypothetical Change in Interest Rates Estimated Fair Value Change in Estimated Fair Value Percentage Increase (Decrease) in Estimated Fair Value 300 basis point increase $ 140,613 $ (10,071 ) -6.68 % 200 basis point increase 143,969 (6,715 ) -4.46 % 100 basis point increase 147,326 (3,358 ) -2.23 % 100 basis point decrease 154,040 3,356 2.23 % 200 basis point decrease 157,375 6,691 4.44 % 300 basis point decrease 158,815 8,131 5.40 % Credit Risk Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuers of our fixed-maturity securities. We mitigate the risk by investing in fixed-maturity securities that are generally investment grade, by diversifying our investment portfolio to avoid concentrations in any single issuer or business sector, and by continually monitoring each individual security for declines in credit quality. While we emphasize credit quality in our investment selection process, significant downturns in the markets or general economy may impact the credit quality of our portfolio. 50 The following table presents the composition of our fixed-maturity securities, by rating, at March 31, 2022 (amounts in thousands): % of Total % of Total Amortized Amortized Estimated Estimated Comparable Rating Cost Cost Fair Value Fair Value AAA $ 601 1 $ 588 1 AA+, AA, AA- 131,844 86 128,763 85 A+, A, A- 6,908 4 6,803 5 BBB+, BBB, BBB- 12,615 8 12,714 8 CCC+, CC and Not rated 1,808 1 1,816 1 Total $ 153,776 100 $ 150,684 100 Equity Price Risk Our equity investment portfolio at March 31, 2022 included common stocks, perpetual preferred stocks, mutual funds and exchange-traded funds. We may incur losses due to adverse changes in equity security prices. We manage the risk primarily through industry and issuer diversification and asset mix. The following table illustrates the composition of our equity securities at March 31, 2022 (amounts in thousands): % of Total Estimated Estimated Fair Value Fair Value Stocks by sector: Financial $ 8,147 20 Consumer 7,034 17 Technology 2,902 7 Communications 1,920 5 Other (1) 1,634 4 21,637 53 Mutual funds and exchange-traded funds by type: Debt 16,767 40 Equity 2,800 7 Total $ 41,204 100 (1) Represents an aggregate of less than 5% sectors. Foreign Currency Exchange Risk At March 31, 2022, we did not have any material exposure to foreign currency related risk . 51 ITEM 4 – CONTROL S AND PROCEDURES Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial and accounting officer), we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, our chief executive officer and our chief financial officer have concluded that these disclosure controls and procedures are effective. Changes in Internal Control Over Financial Reporting There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on Effectiveness of Controls and Procedures In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, implementation of possible controls and procedures depends on management’s judgment in evaluating their benefits relative to costs. 52 PART II – OTHE R INFORMATION ITEM 1 – LEGAL PROCEEDINGS The Company is a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot predict with certainty the ultimate resolution of the claims and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position, results of operations or cash flows. ITEM 1A – RI SK FACTORS There have been no material changes from the risk factors previously disclosed in the section entitled “Risk Factors” in our Form 10-K, which was filed with the SEC on March 10, 2022. ITEM 2 – UNREGISTERED SALES OF EQUI TY SECURITIES AND USE OF PROCEEDS (a) Sales of Unregistered Securities and Use of Proceeds None. (b) Repurchases of Securities The table below summarizes the number of common shares surrendered by employees to satisfy payroll tax liabilities associated with the vesting of restricted shares (dollar amounts in thousands, except share and per share amounts): Total Number of Shares Average Price Paid Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Dollar Value of Shares That May Yet Be Purchased Under The Plans For the Month Ended Purchased Per Share or Programs or Programs (a) January 31, 2022 — $ — — $ — February 28, 2022 6,207 $ 64.17 — $ — March 31, 2022 — $ — — $ 20,000 6,207 $ 64.17 — (a) Represents the balances before commissions and fees at the end of each month. See Note 18 -- “Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information. Working Capital Restrictions and Other Limitations on Payment of Dividends We are not subject to working capital restrictions or other limitations on the payment of dividends. Our insurance subsidiaries, however, are subject to restrictions on the dividends they may pay. Those restrictions could impact HCI’s ability to pay future dividends. 53 Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholder except out of that part of its available and accumulated capital and surplus funds which is derived from realized net operating profits on its business and net realized capital gains. Additionally, a Florida domestic insurer may not make dividend payments or distributions to its stockholder without prior approval of the Florida Office of Insurance Regulation if the dividend or distribution would exceed the larger of (1) the lesser of (a) 10.0% of its capital surplus or (b) net income, not including realized capital gains, plus a two year carry forward, (2) 10.0% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (3) the lesser of (a) 10.0% of capital surplus or (b) net investment income plus a three year carry forward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains. Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the Florida Office of Insurance Regulation (1) if the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, (2) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (3) the insurer files a notice of the dividend or distribution with the Florida Office of Insurance Regulation at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the Florida Office of Insurance Regulation or (2) 30 days after the Florida Office of Insurance Regulation has received notice of such dividend or distribution and has not disapproved it within such time. During the three months ended March 31, 2022, our insurance subsidiaries paid dividends of $12,000,000 to HCI . ITEM 3 – DEFAULTS UP ON SENIOR SECURITIES None. ITEM 4 – MINE SAF ETY DISCLOSURES None. ITEM 5 – OTHER INFORMATION None. 54 ITEM 6 – EXHIBITS The following documents are filed as part of this report: EXHIBIT NUMBER DESCRIPTION 3.1 Articles of Incorporation, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 7, 2013. 3.1.1 Articles of Amendment to Articles of Incorporation designating the rights, preferences and limitations of Series B Junior Participating Preferred Stock. Incorporated by reference to Exhibit 3.1 to our Form 8-K filed October 18, 2013. 3.1.2 Articles of Amendment to Articles of Incorporation cancelling the rights, preferences and limitations of Series B Junior Participating Preferred Stock. Incorporated by reference to Exhibit 3.1 to our Form 8-K filed May 15, 2020. 3.2 Bylaws, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our Form 8-K filed September 13, 2019. 4.1 Form of common stock certificate. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed November 7, 2013. 4.2 Common Stock Purchase Warrant, dated February 26, 2021, issued by HCI Group, Inc. to CB Snowbird Holdings, L.P. Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 1, 2021. 4.6 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 12, 2021. 4.9 See Exhibits 3.1 , 3.1.1 , 3.1.2 and 3.2 of this report for provisions of the Articles of Incorporation, as amended, and our Bylaws, as amended, defining certain rights of security holders. 4.10 Indenture, dated March 3, 2017, between HCI Group, Inc. and The Bank of New York Mellon Trust Company, N.A. Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 3, 2017. 4.11 Form of Global 4.25% Convertible Senior Note due 2037 (included in Exhibit 4.1). Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 3, 2017. 10.1 Preferred Stock Purchase Agreement, dated February 26, 2021, among TypTap Insurance Group, Inc., HCI Group, Inc., and CB Snowbird Holdings, L.P. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021. 10.2 Amended and Restated Articles of Incorporation of TypTap Insurance Group, Inc. filed February 26, 2021. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021. 10.3 Shareholders Agreement, dated February 26, 2021, among TypTap Insurance Group, Inc., CB Snowbird Holdings, L.P., HCI Group, Inc., and the other shareholders party thereto. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021. 10.4 Parent Guaranty Agreement, dated February 26, 2021, between HCI Group, Inc. and CB Snowbird Holdings, L.P. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed March 1, 2021. 55 10.5** HCI Group, Inc. 2012 Omnibus Incentive Plan as revised April 26, 2022. 10.6** HCI Group, Inc. (formerly known as Homeowners Choice, Inc.) 2007 Stock Option and Incentive Plan. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 29, 2008. 10.7** Executive Employment Agreement dated November 23, 2016 between Mark Harmsworth and HCI Group, Inc. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2017. 10.31 Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.32 Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.33 Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.34 Joinder, Second Amendment to Credit Agreement and Modification of Other Loan Documents. Incorporated by reference to the corresponding numbered exhibit to our Form 8-K filed January 28, 2021. 10.40 Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.41 Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.42 Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.43 Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 56 10.44 7th Layer Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.45 Flood Property Catastrophe Excess of Loss Reinsurance Contract effective July 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.48** TypTap Insurance Group, Inc. 2021 Equity Incentive Plan. Incorporated by reference to Exhibit 10.5 of our Form 8-K filed March 1, 2021. 10.49** Form of Restricted Stock Award Agreement of TypTap Insurance Group, Inc. Incorporated by reference to Exhibit 10.6 of our Form 8-K filed March 1, 2021. 10.50 Exchange Agreement, dated August 26, 2021, by and between HCI Group, Inc. and Citadel Equity Fund Ltd. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed November 9, 2021. 10.51** Stock Option Agreement between Paresh Patel and TypTap Insurance Group, Inc. dated October 1, 2021. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed October 7, 2021. 10.52** TypTap Insurance Group, Inc. 2021 Omnibus Incentive Plan. Incorporated by reference to Exhibit 99.2 of our Form 8-K filed October 7, 2021. 10.57 Form of executive restricted stock award contract. Incorporated by reference to Exhibit 10.57 to our Form 10-Q filed May 1, 2014. 10.58 Purchase Agreement, dated February 28, 2017, by and between HCI Group, Inc. and JMP Securities LLC and SunTrust Robinson Humphrey, Inc., as representatives of the several initial purchasers named therein. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed February 28, 2017. 10.59 Prepaid Forward Contract, dated February 28, 2017 and effective as of March 3, 2017, between HCI Group, Inc. and Societe Generale. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed March 3, 2017. 10.60 Credit Agreement, Promissory Note, Security and Pledge Agreement, dated December 5, 2018, between HCI Group, Inc. and Fifth Third Bank. Incorporated by reference to Exhibits 99.1, 99.2, and 99.3 of our Form 8-K filed December 6, 2018. 10.88** Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 7, 2017. Incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 11, 2017. 10.99** Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 7, 2017. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed January 11, 2017. 10.101** Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated February 8, 2018. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed February 14, 2018. 10.102** Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated February 8, 2018. Incorporated by reference to Exhibit 99.2 to our Form 8-K filed February 14, 2018. 10.103** Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 15, 2019. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed January 22, 2019. 57 10.104** Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 15, 2019. Incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 22, 2019. 10.105** Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 16, 2020. Incorporated by reference to Exhibit 99.1 to our Form 8-K filed January 23, 2020. 10.106** Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 16, 2020. Incorporated by reference to Exhibit 99.2 to our Form 8-K filed January 23, 2020. 10.107 Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.108 Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.109 Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.110 Non-Florida Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.111 Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021, issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.112 Top Layer Flood/Wind Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.113 Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.114 Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 58 10.115 Reinstatement Premium Protection Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.116 Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.117 Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat) effective June 1, 2021 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.118 Non-Florida Property Catastrophe $6MXS$4M Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.119 Non-Florida Reinstatement Premium Protection Reinsurance Contract (For $6MXS$4M Excess Cat) effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.120 Reimbursement Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by the State Board of Administration of the State of Florida. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.121 Reimbursement Contract effective June 1, 2021 issued to TypTap Insurance Company by the State Board of Administration of the State of Florida. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.122 Multi-Year Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.123 Multi-Year Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2021 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 6, 2021. 10.124 Property Quota Share Reinsurance Contract effective December 31, 2020 issued to United Property and Casualty Insurance Company by Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022. 59 10.125 Renewal Rights Agreement effective January 18, 2021 by and among United Property and Casualty Insurance Company, Inc., United Insurance Holdings Corp., United Insurance Management, L.C. and Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022. 10.126 Property Quota Share Reinsurance Contract effective June 1, 2021 issued to United Property and Casualty Insurance Company by Homeowners Choice Property & Casualty Insurance Company and TypTap Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022. 10.127 Renewal Rights Agreement effective December 30, 2021 by and among United Property and Casualty Insurance Company, Inc., United Insurance Holdings Corp., United Insurance Management, L.C. and Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022. 10.128 Property Quota Share Reinsurance Contract effective December 31, 2021 issued to United Property and Casualty Insurance Company, by Homeowners Choice Property & Casualty Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-K filed March 10, 2022. 31.1 Certification of the Chief Executive Officer 31.2 Certification of the Chief Financial Officer 32.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.ss.1350 32.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.ss.1350 101.INS Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL documents. 101.SCH Inline XBRL Taxonomy Extension Schema. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase. 101.DEF Inline XBRL Definition Linkbase. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ** Management contract or compensatory plan . 60 SIGNA TURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, who has signed this report on behalf of the Company. HCI GROUP, INC. May 6, 2022 By: /s/ Paresh Patel Paresh Patel Chief Executive Officer (Principal Executive Officer) May 6, 2022 By: /s/ James Mark Harmsworth James Mark Harmsworth Chief Financial Officer (Principal Financial and Accounting Officer) A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 61