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 September 30, 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 November 1, 2022 was 8,756,970 . HCI GROUP, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets: September 30, 2022 (unaudited) and December 31, 2021 1 - 2 Consolidated Statements of Income: Three and nine months ended September 30, 2022 and 2021 (unaudited) 3 Consolidated Statements of Comprehensive Income: Three and nine months ended September 30, 2022 and 2021 (unaudited) 4 Consolidated Statements of Equity: Three and nine months ended September 30, 2022 and 2021 (unaudited) 5 - 8 Consolidated Statements of Cash Flows: Nine months ended September 30, 2022 and 2021 (unaudited) 9 - 11 Notes to Consolidated Financial Statements (unaudited) 12 - 48 Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 49 - 64 Item 3 Quantitative and Qualitative Disclosures About Market Risk 65 - 66 Item 4 Controls and Procedures 67 PART II – OTHER INFORMATION Item 1 Legal Proceedings 68 Item 1A Risk Factors 68 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 68 - 69 Item 3 Defaults Upon Senior Securities 69 Item 4 Mine Safety Disclosures 69 Item 5 Other Information 69 Item 6 Exhibits 70 - 77 Signatures 78 Certifications PART I – FINANCI AL INFORMATION Item 1 – Financ ial Statements HCI GROUP, INC. AND SUBSIDIARIES Consolidated B alance Sheets (Dollar amounts in thousands) September 30, December 31, 2022 2021 (Unaudited) Assets Fixed-maturity securities, available for sale, at fair value (amortized cost: $ 371,877 and $ 41,953 , respectively and allowance for credit losses: $ 0 and $ 0 , respectively) $ 360,639 $ 42,583 Equity securities, at fair value (cost: $ 36,639 and $ 46,276 , respectively) 33,946 51,740 Limited partnership investments 25,405 28,133 Investment in unconsolidated joint venture, at equity 18 363 Real estate investments 71,500 73,896 Total investments 491,508 196,715 Cash and cash equivalents 355,699 628,943 Restricted cash 2,900 2,400 Accrued interest and dividends receivable 2,032 353 Income taxes receivable 8,134 4,084 Premiums receivable, net (allowance: $ 4,573 and $ 1,750 , respectively) 51,762 68,157 Prepaid reinsurance premiums 104,539 26,355 Reinsurance recoverable, net of allowance for credit losses: Paid losses and loss adjustment expenses (allowance: $ 0 and $ 0 , respectively) 14,592 11,985 Unpaid losses and loss adjustment expenses (allowance: $ 451 and $ 90 , respectively) 938,404 64,665 Deferred policy acquisition costs 48,258 57,695 Property and equipment, net 17,749 14,232 Right-of-use assets - operating leases 1,597 2,204 Intangible assets, net 13,651 10,636 Funds withheld for assumed business 67,313 73,716 Other assets 26,605 14,717 Total assets $ 2,144,743 $ 1,176,857 (continued) 1 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets – (Continued) (Dollar amounts in thousands) September 30, December 31, 2022 2021 (Unaudited) Liabilities and Equity Losses and loss adjustment expenses $ 1,201,842 $ 237,165 Unearned premiums 379,609 366,744 Advance premiums 28,672 13,771 Reinsurance payable on paid losses and loss adjustment expenses 3,046 4,017 Ceded reinsurance premiums payable — 19,318 Accrued expenses 18,788 15,453 Deferred income taxes, net 1,705 11,739 Revolving credit facility — 15,000 Long-term debt 211,667 45,504 Lease liabilities - operating leases 1,539 2,203 Other liabilities 33,453 31,485 Total liabilities 1,880,321 762,399 Commitments and contingencies (Note 20) Redeemable noncontrolling interest (Note 17) 91,248 89,955 Equity: Common stock ( no par value, 40,000,000 shares authorized, 8,926,845 and 10,131,399 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively) — — Additional paid-in capital 9,969 76,077 Retained income 175,056 246,790 Accumulated other comprehensive (loss) income, net of taxes ( 10,795 ) 498 Total stockholders’ equity 174,230 323,365 Noncontrolling interests ( 1,056 ) 1,138 Total equity 173,174 324,503 Total liabilities, redeemable noncontrolling interest and equity $ 2,144,743 $ 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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenue Gross premiums earned $ 181,713 $ 149,809 $ 541,762 $ 420,191 Premiums ceded ( 74,741 ) ( 55,577 ) ( 184,108 ) ( 145,112 ) Net premiums earned 106,972 94,232 357,654 275,079 Net investment income 18,530 2,520 25,082 9,749 Net realized investment (losses) gains ( 884 ) 1,232 ( 1,204 ) 4,952 Net unrealized investment losses ( 347 ) ( 1,869 ) ( 8,157 ) ( 649 ) Policy fee income 1,071 1,000 3,180 2,962 Other 1,312 2,102 3,065 3,502 Total revenue 126,654 99,217 379,620 295,595 Expenses Losses and loss adjustment expenses 139,794 62,664 299,328 164,332 Policy acquisition and other underwriting expenses 24,678 23,340 80,949 69,574 General and administrative personnel expenses 15,848 11,537 45,183 31,733 Interest expense 2,813 1,664 4,929 5,743 Debt conversion expense — 1,273 — 1,273 Other operating expenses 7,123 5,243 20,392 14,245 Total expenses 190,256 105,721 450,781 286,900 (Loss) income before income taxes ( 63,602 ) ( 6,504 ) ( 71,161 ) 8,695 Income tax (benefit) expense ( 12,099 ) ( 1,636 ) ( 13,907 ) 2,888 Net (loss) income ( 51,503 ) ( 4,868 ) ( 57,254 ) 5,807 Net income attributable to redeemable noncontrolling interest (Note 17) ( 2,285 ) ( 2,202 ) ( 6,801 ) ( 5,175 ) Net loss attributable to noncontrolling interests 2,829 833 4,018 1,196 Net (loss) income after noncontrolling interests $ ( 50,959 ) $ ( 6,237 ) $ ( 60,037 ) $ 1,828 Basic (loss) earnings per share $ ( 5.66 ) $ ( 0.72 ) $ ( 6.26 ) $ 0.23 Diluted (loss) earnings per share $ ( 5.66 ) $ ( 0.72 ) $ ( 6.26 ) $ 0.22 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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net (loss) income $ ( 51,503 ) $ ( 4,868 ) $ ( 57,254 ) $ 5,807 Other comprehensive loss: Change in unrealized loss on investments: Net unrealized losses arising during the period ( 5,969 ) ( 258 ) ( 12,294 ) ( 341 ) Call and repayment gains charged to investment income — — — ( 2 ) Reclassification adjustment for net realized losses (gains) 5 ( 88 ) 426 ( 665 ) Net change in unrealized losses ( 5,964 ) ( 346 ) ( 11,868 ) ( 1,008 ) Deferred income taxes on above change ( 1,337 ) 85 154 247 Total other comprehensive loss, net of income taxes ( 7,301 ) ( 261 ) ( 11,714 ) ( 761 ) Comprehensive (loss) income ( 58,804 ) ( 5,129 ) ( 68,968 ) 5,046 Comprehensive loss attributable to noncontrolling interests 3,095 839 4,439 1,212 Comprehensive (loss) income after noncontrolling interests $ ( 55,709 ) $ ( 4,290 ) $ ( 64,529 ) $ 6,258 See accompanying Notes to Consolidated Financial Statements (unaudited). 4 HCI GROUP, INC. AND SUBSIDIARIES Consolidated State ments of Equity For the Three Months Ended September 30, 2022 (Unaudited) (Dollar amounts in thousands, except per share amount) Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Loss, Total Stockholders’ Noncontrolling Total Shares Amount Capital Income Net of Tax Equity Interests Equity Balance at June 30, 2022 9,047,972 $ — $ 12,887 $ 229,621 $ ( 3,760 ) $ 238,748 $ 1,187 $ 239,935 Net loss — — — ( 48,846 ) — ( 48,846 ) ( 2,657 ) ( 51,503 ) Net income attributable to redeemable noncontrolling interest — — — ( 2,113 ) — ( 2,113 ) ( 172 ) ( 2,285 ) Total other comprehensive loss, net of income taxes — — — — ( 7,035 ) ( 7,035 ) ( 266 ) ( 7,301 ) Forfeiture of restricted stock ( 1,665 ) — — — — — — — Repurchase and retirement of common stock under share repurchase plan ( 119,462 ) — ( 6,179 ) — — ( 6,179 ) — ( 6,179 ) Dilution from subsidiary stock-based compensation — — — — — — 852 852 Common stock dividends ($ 0.40 per share) — — — ( 3,606 ) — ( 3,606 ) — ( 3,606 ) Stock-based compensation — — 3,261 — — 3,261 — 3,261 Balance at September 30, 2022 8,926,845 $ — $ 9,969 $ 175,056 $ ( 10,795 ) $ 174,230 $ ( 1,056 ) $ 173,174 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 September 30, 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 June 30, 2021 8,265,640 $ — $ — $ 215,612 $ 1,054 $ 216,666 $ 1,383 $ 218,049 Net loss — — — ( 4,346 ) — ( 4,346 ) ( 522 ) ( 4,868 ) Net income attributable to redeemable noncontrolling interest — — — ( 1,891 ) — ( 1,891 ) ( 311 ) ( 2,202 ) Total other comprehensive loss, net of income taxes — — — — ( 255 ) ( 255 ) ( 6 ) ( 261 ) Issuance of restricted stock 2,340 — — — — — — — Forfeiture of restricted stock ( 38,855 ) — — — — — — — Common stock issued on conversions of 4.25 % senior notes 1,361,954 — 82,339 — — 82,339 — 82,339 Dilution from subsidiary stock-based compensation — — — — — — 472 472 Common stock dividends ($ 0.40 per share) — — — ( 3,261 ) — ( 3,261 ) — ( 3,261 ) Stock-based compensation — — 2,260 — — 2,260 — 2,260 Additional paid-in capital shortfall adjustment allocated to retained income — — ( 44,694 ) 44,694 — — — — Balance at September 30, 2021 9,591,079 $ — $ 39,905 $ 250,808 $ 799 $ 291,512 $ 1,016 $ 292,528 See accompanying Notes to Consolidated Financial Statements (unaudited). 6 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Equity – (Continued) For the Nine Months Ended September 30, 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 loss — — — ( 53,753 ) — ( 53,753 ) ( 3,501 ) ( 57,254 ) Net income attributable to redeemable noncontrolling interest — — — ( 6,284 ) — ( 6,284 ) ( 517 ) ( 6,801 ) Total other comprehensive loss, net of income taxes — — — — ( 11,293 ) ( 11,293 ) ( 421 ) ( 11,714 ) Issuance of restricted stock 7,000 — — — — — — — Forfeiture of restricted stock ( 5,630 ) — — — — — — — Repurchase and retirement of common stock ( 1,056,997 ) — ( 68,103 ) — — ( 68,103 ) — ( 68,103 ) Repurchase and retirement of common stock under share repurchase plan ( 148,927 ) — ( 8,063 ) — — ( 8,063 ) — ( 8,063 ) Dilution from subsidiary stock-based compensation — — — — — — 2,245 2,245 Common stock dividends ($ 1.20 per share) — — — ( 11,697 ) — ( 11,697 ) — ( 11,697 ) Stock-based compensation — — 10,058 — — 10,058 — 10,058 Balance at September 30, 2022 8,926,845 $ — $ 9,969 $ 175,056 $ ( 10,795 ) $ 174,230 $ ( 1,056 ) $ 173,174 See accompanying Notes to Consolidated Financial Statements (unaudited). 7 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Equity – (Continued) For the Nine Months Ended September 30, 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) — — — 6,692 — 6,692 ( 885 ) 5,807 Net income attributable to redeemable noncontrolling interest — — — ( 4,864 ) — ( 4,864 ) ( 311 ) ( 5,175 ) Cumulative effect of change in accounting principle — — — ( 3,018 ) — ( 3,018 ) — ( 3,018 ) Total other comprehensive loss, net of income taxes — — — — ( 745 ) ( 745 ) ( 16 ) ( 761 ) Issuance of restricted stock 553,426 — — — — — — — Forfeiture of restricted stock ( 49,965 ) — — — — — — — Cancellation of restricted stock ( 142,760 ) — — — — — — — Repurchase and retirement of common stock ( 17,193 ) — ( 1,308 ) — — ( 1,308 ) — ( 1,308 ) Issuance of common stock 100,000 — 5,410 — — 5,410 — 5,410 Common stock issued on conversions of 4.25 % senior notes 1,361,954 — 82,339 — — 82,339 — 82,339 Dilution from subsidiary stock-based compensation — — — — — — 2,228 2,228 Issuance of warrants, net of issuance costs (Note 17) — — 8,640 — — 8,640 — 8,640 Common stock dividends ($ 1.20 per share) — — — ( 9,713 ) — ( 9,713 ) — ( 9,713 ) Stock-based compensation — — 6,943 — — 6,943 — 6,943 Additional paid-in capital shortfall adjustment allocated to retained income — — ( 62,119 ) 62,119 — — — — Balance at September 30, 2021 9,591,079 $ — $ 39,905 $ 250,808 $ 799 $ 291,512 $ 1,016 $ 292,528 See accompanying Notes to Consolidated Financial Statements (unaudited) . 8 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statem ents of Cash Flows (Unaudited) (Amounts in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net (loss) income after noncontrolling interests $ ( 60,037 ) $ 1,828 Net income attributable to noncontrolling interests 2,783 3,979 Net (loss) income ( 57,254 ) 5,807 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Stock-based compensation expense 12,709 9,229 Net (accretion of discount) amortization of premiums on investments in fixed-maturity securities ( 922 ) 180 Depreciation and amortization 5,659 4,276 Deferred income tax benefit ( 9,880 ) ( 6,989 ) Net realized investment losses (gains) 1,204 ( 4,952 ) Net unrealized investment losses 8,157 649 Credit loss expense - reinsurance recoverable 361 ( 41 ) Net income from unconsolidated joint venture ( 495 ) ( 423 ) Distributions received from unconsolidated joint venture 489 114 Net income from limited partnership interests ( 3,064 ) ( 3,491 ) Distributions received from limited partnership interests 2,417 2,345 Debt conversion expense — 1,273 Gain on involuntary conversion ( 13,402 ) — Gain on sale of real estate investments ( 376 ) — Foreign currency remeasurement loss 91 48 Other non-cash items ( 38 ) 37 Changes in operating assets and liabilities: Accrued interest and dividends receivable ( 1,679 ) 125 Income taxes ( 4,050 ) 8,128 Premiums receivable, net 16,395 25,304 Prepaid reinsurance premiums ( 78,184 ) ( 11,592 ) Reinsurance recoverable ( 876,707 ) 36,061 Deferred policy acquisition costs 9,437 ( 3,271 ) Funds withheld for assumed business 6,403 ( 79,965 ) Other assets ( 11,317 ) 5,727 Losses and loss adjustment expenses 964,677 ( 8,992 ) Unearned premiums 12,865 64,900 Advance premiums 14,901 7,692 Assumed reinsurance balances payable — 1 Reinsurance payable on paid losses and loss adjustment expenses ( 971 ) 4,727 Ceded reinsurance premiums payable ( 19,318 ) ( 7,447 ) Accrued expenses and other liabilities 3,631 ( 789 ) Net cash (used in) provided by operating activities ( 18,261 ) 48,671 (continued) 9 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows – (Continued) (Unaudited) (Amounts in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from investing activities: Investments in limited partnership interests ( 1,357 ) ( 837 ) Distributions received from limited partnership interests 4,732 3,635 Distributions received from unconsolidated joint venture 351 623 Purchase of property and equipment ( 5,431 ) ( 2,583 ) Purchase of real estate investments ( 445 ) ( 657 ) Purchase of intangible assets ( 3,800 ) — Purchase of fixed-maturity securities ( 393,145 ) ( 10,504 ) Purchase of equity securities ( 20,921 ) ( 72,707 ) Purchase of short-term and other investments ( 32 ) ( 1,161 ) Compensation received for property relinquished through eminent domain 14,500 — Proceeds from sales of real estate investments 667 — Proceeds from sales of fixed-maturity securities 11,694 18,838 Proceeds from calls, repayments and maturities of fixed-maturity securities 52,023 16,734 Proceeds from sales of equity securities 29,316 81,292 Proceeds from sales, redemptions and maturities of short-term and other investments 496 2,414 Net cash (used in) provided by investing activities ( 311,352 ) 35,087 Cash flows from financing activities: Cash dividends paid ( 11,774 ) ( 9,943 ) Cash dividends received under share repurchase forward contract 77 230 Net repayment under revolving credit facility ( 15,000 ) ( 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 ( 5,508 ) ( 2,542 ) Proceeds from issuance of long-term debt 172,500 — Repayment of long-term debt ( 754 ) ( 724 ) Repurchases of common stock ( 68,103 ) ( 1,308 ) Repurchases of common stock under share repurchase plan ( 8,063 ) — Purchase of noncontrolling interests ( 406 ) ( 58 ) Debt conversion expense paid — ( 1,414 ) Debt issuance costs ( 6,014 ) ( 152 ) Net cash provided by financing activities 56,955 54,077 Effect of exchange rate changes on cash ( 86 ) ( 42 ) Net (decrease) increase in cash, cash equivalents, and restricted cash ( 272,744 ) 137,793 Cash, cash equivalents, and restricted cash at beginning of period 631,343 433,741 Cash, cash equivalents, and restricted cash at end of period $ 358,599 $ 571,534 (continued) 10 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows – (Continued) (Unaudited) (Amounts in thousands) Nine Months Ended September 30, 2022 2021 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 100 $ 1,748 Cash paid for interest $ 1,665 $ 6,686 Non-cash investing and financing activities: Unrealized loss on investments in available-for-sale securities, net of tax $ ( 11,714 ) $ ( 761 ) Receivable from maturities of fixed-maturity securities $ — $ 18 Common stock issued on conversions of 4.25 % senior notes $ — $ 82,339 Warrants issued in Centerbridge transaction $ — $ 9,217 Asset acquired under finance lease $ — $ 7 Acquisition of intangibles: Common stock issued $ — $ 5,410 Contingent consideration payable $ 1,069 $ 2,419 See accompanying Notes to Consolidated Financial Statements (unaudited) . 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 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. Impact of Hurricane Ian On September 28, 2022, Hurricane Ian made landfall in southwestern Florida as a dangerous, high-end Category 4 storm. After crossing the Florida peninsula, it made a second landfall on September 30, 2022 in coastal South Carolina. On a pre-tax consolidated basis, estimated gross losses related to Hurricane Ian totaled $ 970,000 . After anticipated reinsurance recoveries, the Company incurred a net estimated loss of approximately $ 65,000 . Gross loss estimates, including loss adjustment expenses, for HCPCI and TypTap were $ 550,518 and $ 419,482 , respectively. As a result of Hurricane Ian, the balance of previously accrued benefits under one multi-year reinsurance contract with retrospective provisions was decreased by $ 12,600 during the third quarter of 2022. In addition, the Company recognized an allowance for credit losses of approximately $ 399 related to Hurricane Ian’s unpaid ceded reinsurance recoverable. On September 28, 2022, the Florida Office of Insurance Regulation issued an emergency order in response to Hurricane Ian preventing insurers regulated under the Florida Insurance Code from cancelling or non-renewing a policy as well as issuing a notice of cancellation or nonrenewal of a policy between September 28, 2022 and November 28, 2022, except at the written request of the policyholder. This rule does not apply to new policies effective on or after September 28, 2022. 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, a third state in January 2022, and the fourth state in April 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. 12 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Under this agreement, HCPCI paid United a catastrophe allowance of 9 % of premium and a provisional ceding commission of 25 % of premium. 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 was set for June 1, 2022 or such other date as mutually agreed by both parties. In connection with the transaction, United agreed 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, and the aggregate ceding commission amount will not exceed $ 6,000 . See Note 7 -- “Intangible Assets, Net” for additional information. The Company began renewing United’s policies in South Carolina on June 1, 2022. The policy replacement date for North Carolina policies has yet to be determined and the C ompany, through TypTap, entered into a new quota share reinsurance agreement in June 2022 to provide 100 % reinsurance on all of United’s in-force, new and renewal policies in the Southeast Region from June 1, 2022 through May 31, 2023. In exchange, TypTap pays United a ceding commission of 16 % of premium. See Note 21 -- “Subsequent Events” for additional information. 13 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 September 30, 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, 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. Allowance for Credit Losses Allowance for credit losses represents an estimation of potential losses that the Company may experience due to credit risk. The allowance for credit losses account is a contra account of a financial asset to reflect the net amount expected to be collected. For certain financial assets related to insurance business such as reinsurance recoverable and reinsurance receivable for premium refund, the Company uses a rating-based method, which is a modified version of the probability of default method. It requires two key inputs: a) the liquidation rate and b) the amount of loss exposure. The liquidation rate, which is published annually, is the ratio of impaired insurance companies that were eventually liquidated to the group of insurance companies considered by A.M. Best in its study. The amount of loss exposure represents the future billing balance, net of any collateral, spread over the projected periods that are based on the Company’s historical claim payment pattern. The rating-based method measures credit losses by multiplying the future billings grouped by insurance rating over the projected periods by their corresponding liquidation rates by insurance rating. For paid reinsurance recoverable which is due within 90 days after billing, the Company will rely heavily on each reinsurer’s current rating, recent financial condition, and historical collection problems, if any, in 14 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) determining the expected credit loss. For risk attributable to disagreements between an insurer and reinsurer regarding a difference in interpretation of provisions in a reinsurance agreement (“dispute risk”), the Company will continue to use an incurred loss method to estimate losses. At September 30, 2022, there was no dispute risk associated with the reinsurance recoverable balance. Long-Term Debt Long-term debt includes debt instruments and finance lease obligations. A debt instrument is generally classified as a liability and carried at amortized cost, net of any issuance costs. Debt issuance costs are capitalized and amortized to interest expense over the expected life of the debt instrument using the effective interest method. At issuance, a debt instrument with embedded features such as conversion and redemption options is evaluated to determine whether bifurcation and derivative accounting is applicable. Any embedded feature other than the conversion option is evaluated at issuance to determine if it is probable that such embedded feature will be exercised. If the Company concludes that the exercisability of that embedded feature is not probable, the embedded feature is considered to be non-substantive and would not impact the initial measurement and expected life of the debt instrument. Revenue from Claims Processing Services Revenue related to claims processing services is included in other revenue in the consolidated statements of income. For the three and nine months ended September 30, 2022 , revenues from claims processing services were $ 903 and $ 2,282 , respectively. For the three and nine months ended September 30, 2021 , revenues from claims processing services were $ 1,709 and $ 1,916 , respectively. At September 30, 2022 and December 31, 2021 , other assets included $ 1,418 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 for the nine months ended September 30, 2021 within the consolidated statement of cash flows to conform with the current year presentation. 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. September 30, December 31, 2022 2021 Cash and cash equivalents $ 355,699 $ 628,943 Restricted cash 2,900 2,400 Total $ 358,599 $ 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 and are included in funds withheld for assumed business on the consolidated balance sheets. 15 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) 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 September 30, 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 September 30, 2022 U.S. Treasury and U.S. government agencies $ 339,666 $ — $ 1 $ ( 9,814 ) $ 329,853 Corporate bonds 29,642 — — ( 1,410 ) 28,232 States, municipalities, and political subdivisions 1,762 — — ( 11 ) 1,751 Exchange-traded debt 700 — 3 ( 2 ) 701 Redeemable preferred stock 107 — — ( 5 ) 102 Total $ 371,877 $ — $ 4 $ ( 11,242 ) $ 360,639 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 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 September 30, 2022 and December 31, 2021 are as follows: September 30, 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 $ 124,676 $ 124,402 $ 10,734 $ 10,826 Due after one year through five years 242,499 232,166 19,222 19,820 Due after five years through ten years 4,208 3,577 11,503 11,403 Due after ten years 494 494 494 534 $ 371,877 $ 360,639 $ 41,953 $ 42,583 16 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) 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 and nine months ended September 30, 2022 and 2021 were as follows: Gross Realized Gross Realized Proceeds Gains Losses Three months ended September 30, 2022 $ 200 $ — $ ( 5 ) Three months ended September 30, 2021 $ 4,158 $ 94 $ ( 6 ) Nine months ended September 30, 2022 $ 11,694 $ 13 $ ( 439 ) Nine months ended September 30, 2021 $ 18,838 $ 671 $ ( 6 ) Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities Securities with gross unrealized loss positions at September 30, 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 September 30, 2022 Loss Value Loss Value Loss Value U.S. Treasury and U.S. government agencies $ ( 9,677 ) $ 324,643 $ ( 137 ) $ 2,233 $ ( 9,814 ) $ 326,876 Corporate bonds ( 1,164 ) 26,947 ( 246 ) 1,285 ( 1,410 ) 28,232 States, municipalities, and political subdivisions ( 11 ) 1,751 — — ( 11 ) 1,751 Exchange-traded debt ( 2 ) 517 — — ( 2 ) 517 Redeemable preferred stock ( 5 ) 102 — — ( 5 ) 102 Total available-for-sale securities $ ( 10,859 ) $ 353,960 $ ( 383 ) $ 3,518 $ ( 11,242 ) $ 357,478 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 September 30, 2022 and December 31, 2021 , there were 88 and 23 securities, respectively, in an unrealized loss position. 17 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) 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 and nine months ended September 30, 2022 and 2021: 2022 2021 Balance at January 1 $ — $ 588 Reductions for securities sold — ( 9 ) Balance at March 31 $ — $ 579 Reductions for securities exchanged — ( 579 ) Balance at June 30 $ — $ — Balance at September 30 $ — $ — b) Equity Securities The Company holds investments in equity securities measured at fair values which are readily determinable. At September 30, 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 September 30, 2022 $ 36,639 $ 1,873 $ ( 4,566 ) $ 33,946 December 31, 2021 $ 46,276 $ 6,335 $ ( 871 ) $ 51,740 The table below presents the portion of unrealized gains and losses in the Company’s consolidated statements of income related to equity securities still held. Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net (losses) gains recognized $ ( 1,279 ) $ ( 916 ) $ ( 9,144 ) $ 2,620 Exclude: Net realized (losses) gains recognized for securities sold ( 932 ) 953 ( 987 ) 3,269 Net unrealized losses recognized $ ( 347 ) $ ( 1,869 ) $ ( 8,157 ) $ ( 649 ) 18 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Sales of Equity Securities Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and nine months ended September 30, 2022 and 2021 were as follows: Gross Realized Gross Realized Proceeds Gains Losses Three months ended September 30, 2022 $ 4,889 $ 135 $ ( 1,067 ) Three months ended September 30, 2021 $ 24,781 $ 1,141 $ ( 188 ) Nine months ended September 30, 2022 $ 29,316 $ 1,988 $ ( 2,975 ) Nine months ended September 30, 2021 $ 81,292 $ 4,266 $ ( 997 ) 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: September 30, 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) $ 4,120 $ — 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) 3,312 — 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) 4,421 — 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) 3,757 — 0.57 4,437 — 0.57 Value-oriented investments in mature real estate private equity funds and portfolios globally. (b)(j) 7,103 3,633 1.32 5,977 4,537 1.36 Risk-adjusted returns on credit and equity investments, primarily in private equity-owned companies. (b)(k) 2,692 2,629 1.07 1,950 3,050 0.47 Total $ 25,405 $ 6,262 $ 28,133 $ 11,073 (a) Represents the Company’s percentage investment in the fund at each balance sheet date. 19 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) (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) The term is expected to be the later of ten years or two years following the maturity of the fund’s outstanding leverage. 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 second additional one-year period to June 30, 2023 . 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 an eight-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. (i) The capital commitment period has ended but an additional funding may be requested. (j) The term is expected to end November 27, 2027 . The term may be extended for up to four additional one-year periods at the general partner’s discretion, and up to two additional one-year periods with the consent of the advisory committee. (k) Expected to have an eight-year term after the final admission date. The term may be extended for an additional one-year period at the general partner’s discretion, and up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners. 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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Operating results: Total income $ 208,468 $ ( 13,796 ) $ 724,413 $ 359,885 Total expenses ( 45,537 ) ( 24,828 ) ( 117,877 ) ( 105,548 ) Net income (loss) $ 162,931 $ ( 38,624 ) $ 606,536 $ 254,337 September 30, December 31, 2022 2021 Balance sheet: Total assets $ 5,488,857 $ 5,855,616 Total liabilities $ 409,604 $ 564,732 For the three and nine months ended September 30, 2022 , the Company recognized net investment income of $ 1,265 and $ 3,064 , respectively. During the three and nine months ended September 30, 2022 , the Company received total cash distributions of $ 2,768 and $ 7,149 , respectively, including returns on investment of $ 371 and $ 2,417 , respectively. For the three and nine months ended September 30, 2021 , the Company recognized net investment income of $ 1,132 and $ 3,491 , respectively. During the three and nine months ended September 30, 2021 , the Company 20 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) received total cash distributions of $ 1,535 and $ 5,980 , respectively, including returns on investment of $ 553 and $ 2,345 , respectively. At September 30, 2022 and December 31, 2021 , the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $ 24,996 and $ 28,371 , respectively, and the Company’s maximum exposure to loss aggregated $ 25,405 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 September 30, 2022 and December 31, 2021 , the Company’s maximum exposure to loss relating to the variable interest entity was $ 18 and $ 363 , respectively, representing the carrying value of the investment. In June 2022, the joint venture sold its last outparcel and recognized a gain of $ 572 . During the three and nine months ended September 30, 2022, the Company received a cash distribution of $ 840 , including return on investment of $ 489 . During the three and nine months ended September 30, 2021, the Company received a cash distribution of $ 737 , including return on investment of $ 114 . At September 30, 2022 and December 31, 2021, there wa s no undistributed income from this equity method investment. The following tables provide FMJV’s summarized unaudited financial results and the unaudited financial positions: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Operating results: Total revenues $ — $ 540 $ 572 $ 540 Total expenses — ( 14 ) ( 22 ) ( 70 ) Net income $ — $ 526 $ 550 $ 470 The Company’s share of net income* $ — $ 473 $ 495 $ 423 * Included in net investment income in the Company’s consolidated statements of income. September 30, December 31, 2022 2021 Balance sheet: Property and equipment, net $ — $ 357 Cash 2 29 Other 18 18 Total assets $ 20 $ 404 Members’ capital $ 20 $ 404 Total members’ capital $ 20 $ 404 Investment in unconsolidated joint venture, at equity** $ 18 $ 363 ** Includes the 90 % share of FMKT Mel JV’s operating results. 21 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) e) Real Estate Investments Real estate investments consist of the following as of September 30, 2022 and December 31, 2021: September 30, December 31, 2022 2021 Land $ 38,327 $ 39,720 Land improvements 12,138 11,917 Buildings and building improvements 29,410 29,405 Tenant and leasehold improvements 1,554 1,511 Other 1,462 1,265 Total, at cost 82,891 83,818 Less: accumulated depreciation and amortization ( 11,391 ) ( 9,922 ) Real estate investments $ 71,500 $ 73,896 In May 2022, the Company sold one outparcel in Sorrento, Florida for net proceeds of $ 667 . On July 1, 2022, the Company closed on its agreement to sell 1.5 acres of land in Tampa, Florida for net proceeds of $ 14,500 to the Florida Department of Transportation (“FDOT”) in connection with an eminent domain proceeding for a planned road improvement project. See additional information under f) Net Investment Income (Loss) below. Depreciation and amortization expense related to real estate investments was $ 480 and $ 475 for the three months ended September 30, 2022 and 2021 , respectively, and $ 1,469 and $ 1,445 for the nine months ended September 30, 2022 and 2021, respectively. f) Net Investment Income (Loss) Net investment income (loss), by source, is summarized as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Available-for-sale fixed-maturity securities $ 2,125 $ 266 $ 3,710 $ 1,091 Equity securities 288 322 875 1,013 Investment expense ( 117 ) ( 134 ) ( 367 ) ( 388 ) Limited partnership investments 1,265 1,132 3,064 3,491 Real estate investments 13,897 305 15,782 3,646 Net income from unconsolidated joint venture — 473 495 423 Cash and cash equivalents 1,072 156 1,523 473 Net investment income $ 18,530 $ 2,520 $ 25,082 $ 9,749 For the three months ended September 30, 2022, income from real estate investments included a net realized gain of $ 13,402 resulting from the sale of 1.5 acres of land in Tampa, Florida in July 2022 for net proceeds of $ 14,500 to the FDOT in connection with an eminent domain proceeding for a planned road improvement project. For the nine months ended September 30, 2022, in addition to the aforementioned sale of land, income from real estate investments included a net gain of $ 376 resulting from the sale of the outparcel described in e) Real Estate Investments and $ 451 of income from selling the liquor license previously owned by the Company’s restaurant business which was discontinued in 2020. For the nine months ended September 30, 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. 22 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) g) 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 September 30, 2022 and 2021 , net realized gains related to other investments were $ 53 and $ 191 , respectively, and $ 209 and $ 1,018 for the nine months ended September 30, 2022 and 2021 , 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 any 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 September 30, 2022 September 30, 2021 Before Income Net of Before Income Net of Tax Tax Effect Tax Tax Tax Effect Tax Net unrealized losses $ ( 5,969 ) $ 1,336 $ ( 7,305 ) $ ( 258 ) $ ( 63 ) $ ( 195 ) Reclassification adjustment for realized losses (gains) 5 1 4 ( 88 ) ( 22 ) ( 66 ) Total other comprehensive loss $ ( 5,964 ) $ 1,337 $ ( 7,301 ) $ ( 346 ) $ ( 85 ) $ ( 261 ) Nine Months Ended Nine Months Ended September 30, 2022 September 30, 2021 Before Income Net of Before Income Net of Tax Tax Effect Tax Tax Tax Effect Tax Net unrealized losses $ ( 12,294 ) $ ( 262 ) $ ( 12,032 ) $ ( 341 ) $ ( 83 ) $ ( 258 ) Call and repayment gains charged to investment income — — — ( 2 ) ( 1 ) ( 1 ) Reclassification adjustment for realized losses (gains) 426 108 318 ( 665 ) ( 163 ) ( 502 ) Total other comprehensive loss $ ( 11,868 ) $ ( 154 ) $ ( 11,714 ) $ ( 1,008 ) $ ( 247 ) $ ( 761 ) 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. 23 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 From time to time, the Company has an amount outstanding under a revolving credit facility. The interest rate is variable and is periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, carrying value, when outstanding, approximates fair value. 24 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) 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 4.75 % Convertible Senior Notes 2042 Quoted price 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 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 September 30, 2022 and December 31, 2021: Fair Value Measurements Using (Level 1) (Level 2) (Level 3) Total As of September 30, 2022 Financial Assets: Cash and cash equivalents $ 355,699 $ — $ — $ 355,699 Restricted cash $ 2,900 $ — $ — $ 2,900 Fixed-maturity securities: U.S. Treasury and U.S. government agencies $ 321,520 $ 8,333 $ — $ 329,853 Corporate bonds 28,232 — — 28,232 State, municipalities, and political subdivisions — 1,751 — 1,751 Exchange-traded debt 701 — — 701 Redeemable preferred stock 102 — — 102 Total available-for-sale securities $ 350,555 $ 10,084 $ — $ 360,639 Equity securities $ 33,946 $ — $ — $ 33,946 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 25 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) 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 September 30, 2022 and December 31, 2021: Carrying Fair Value Measurements Using Estimated Value (Level 1) (Level 2) (Level 3) Fair Value As of September 30, 2022 Financial Liabilities: Long-term debt: 4.75 % Convertible Senior Notes $ 166,859 $ — $ 134,388 $ — $ 134,388 4.25 % Convertible Senior Notes 23,916 — 20,527 — 20,527 3.90 % Promissory Note 9,031 — — 8,058 8,058 3.75 % Callable Promissory Note 6,881 — — 6,137 6,137 4.55 % Promissory Note 4,963 — — 4,610 4,610 Total long-term debt $ 211,650 $ — $ 154,915 $ 18,805 $ 173,720 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: September 30, 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 ( 5,023 ) ( 3,169 ) Intangible assets, net $ 13,651 $ 10,636 (a) An anchor tenant is a tenant that attracted more customers than other tenants. (b) $ 119 was fully amortized in June 2022 and $ 195 was fully amortized in June 2021. 26 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The remaining weighted-average amortization periods for the intangible assets at September 30, 2022 are summarized in the table below: Anchor tenant relationships 11.7 years In-place leases 9.8 years Policy renewal rights - United 3.6 years 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 consideration consisting of a 6 % commission on any replacement premium which includes $ 3,800 of commission prepaid up-front. The consideration was estimated at $4,869 with a $ 1,069 contingent liability. At September 30, 2022 and December 31, 2021, contingent liabilities related to renewal rights intangible assets were $ 3,488 and $ 2,419 , respectively, with the contingent liabilities included in other liabilities on the consolidated balance sheets. 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. Note 8 -- Other Assets The following table summarizes the Company’s other assets: September 30, December 31, 2022 2021 Benefits receivable related to retrospective reinsurance contracts $ 14,781 $ 3,064 Reimbursement receivable under TPA service 801 3,525 Prepaid expenses 3,384 2,853 Deposits 3,592 406 Lease acquisition costs, net 665 505 Other 3,382 4,364 Total other assets $ 26,605 $ 14,717 Note 9 -- Revolving Credit Facility In May 2022, the Company repaid the entire credit facility balance of $ 15,000 and at September 30, 2022 had no borrowings under the credit facility. For the three months ended September 30, 2022 and 2021, interest expense was $ 25 a nd $ 24 , respectively, includi ng $ 25 a nd $ 25 of amortization of issuance costs, respectively. For the nine months ended September 30, 2022 and 2021 , interest expense was $ 176 and $ 153 , respectively, including $ 74 and $ 74 of amortization of issuance costs, respectively. At September 30, 2022 , the Company was in compliance with all required covenants and had available borrowing capacity of $ 65,000 . See Note 21 -- “Subsequent Events” for information with regards to amendments to the terms of the credit agreement. 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 10 -- Long-Term Debt The following table summarizes the Company’s long-term debt: September 30, December 31, 2022 2021 4.75 % Convertible Senior Notes, due June 1, 2042 $ 172,500 $ — 4.25 % Convertible Senior Notes, due March 1, 2037 23,916 23,916 3.90 % Promissory Note, due through April 1, 2032 9,163 9,431 3.75 % Callable Promissory Note, due through September 1, 2036 6,966 7,246 4.55 % Promissory Note, due through August 1, 2036 5,033 5,225 Finance lease liabilities, due through October 15, 2024 17 31 Total principal amount 217,595 45,849 Less: unamortized issuance costs ( 5,928 ) ( 345 ) Total long-term debt $ 211,667 $ 45,504 The following table summarizes future maturities of long-term debt as of September 30, 2022 , which takes into consideration the assumption that the 4.75 % Convertible Senior Notes and 4.25 % Convertible Senior Notes are repurchased at their respective next earliest call dates: Due in 12 months following September 30, 2022 $ 1,036 2023 1,065 2024 1,106 2025 1,151 2026 197,615 Thereafter 15,622 Total $ 217,595 Information with respect to interest expense related to long-term debt is as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Interest Expense: Contractual interest $ 2,516 $ 1,421 $ 4,322 $ 4,832 Non-cash expense (a) 272 219 431 758 Total $ 2,788 $ 1,640 $ 4,753 $ 5,590 (a) Includes amortization of debt issuance costs. 4.75% Convertible Senior Notes In May 2022, the Company issued 4.75% Convertible Senior Notes in a private offering for an aggregate principal amount of $ 172,500 . The net proceeds of the 4.75% Convertible Senior Notes were $ 166,486 after $ 6,014 in related issuance and transaction costs. These notes mature June 1, 2042 and the cash interest is payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2022. The 4.75% Convertible Senior Notes rank equally in right of payment to the Company’s existing and future unsecured and unsubordinated obligations. The 4.75% Convertible Senior Notes do not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or 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 issuance or repurchase of securities by the Company or any of its subsidiaries. The 4.75% Convertible Senior Notes provide no protection to the note holders in the event of a fundamental change or other corporate transaction involving the Company except those described in the indenture. The 4.75% Convertible Senior Notes do not require a sinking fund to be established for the purpose of redemption. In conjunction with the issuance of the 4.75% Convertible Senior Notes, the Company entered into a share repurchase agreement providing for the repurchase of shares of the Company’s common stock. See Note 18 -- “Equity” under Share Repurchase Agreement for additional information. Embedded Conversion Feature The conversion feature of the 4.75 % Convertible Senior Notes is subject to conversion rate adjustments upon the occurrence of specified events (including payment of dividends above a specified amount) but will not be adjusted for any accrued and unpaid interest. The conversion rate of the 4.75 % Convertible Senior Notes is currently 12.4166 shares of common stock for each $1 in principal amount, which is the equivalent of approximately $ 80.54 per share. The holders of the 4.75% Convertible Senior Notes may convert all or a portion of their convertible senior notes during specified periods prior to the maturity date as follows: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2022, if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130 % of the conversion price on each applicable trading day; (2) during the five business-day period after any ten consecutive trading-day period in which the trading price per $1 principal amount of the 4.75% Convertible Senior Notes is less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if specified corporate events, including a change in control, occur; (4) if any or all of the 4.75% Convertible Senior Notes are called for redemption, at any time prior to the close of business on the business day prior to the redemption date; or (5) during either the period beginning on, and including, March 1, 2027 and ending at the close of business on the business day immediately preceding June 7, 2027 , or the period beginning on, and including, March 1, 2042 and ending at the close of business on the business day immediately preceding the maturity date. The note holders who elect to convert their convertible senior notes in connection with a fundamental change as described in the indenture will be entitled to a “make-whole” adjustment in the form of an increase in the conversion rate. Upon conversion, the Company has the option to satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock. As of September 30, 2022, none of the conditions allowing the holders of the 4.75% Convertible Senior Notes to convert had been met. The Company determined that the 4.75% Convertible Senior Notes’ embedded conversion feature is not a derivative financial instrument and does not require bifurcation. Embedded Redemption Feature – Fundamental Change The note holders have the right to require the Company to repurchase for cash all or any portion of the 4.75% Convertible Senior Notes at par prior to the maturity date should any of the fundamental change events described in the indenture occur. The Company concluded that this embedded redemption feature is not a derivative financial instrument, does not require bifurcation, and that it is not probable at issuance that any of the 29 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) specified fundamental change events will occur. Therefore, this embedded redemption feature is not substantive and will not affect the expected life of the liability. Embedded Redemption Feature – Put Option of the Note Holder At the option of the holders of the 4.75% Convertible Senior Notes, the Company is required to repurchase for cash all or any portion of the 4.75% Convertible Senior Notes at par on June 1, 2027 , June 1, 2032 or June 1, 2037 . The Company concluded that this embedded feature is not a derivative financial instrument and does not require bifurcation. Due to this provision, the Company determined that it is appropriate to amortize the debt issuance costs from the date the debt is issued to the earliest date at which the holders of the 4.75% Convertible Senior Notes can demand payment. Thus, the Company amortizes the issuance costs associated with the 4.75% Convertible Senior Notes over the period from May 23, 2022 to June 1, 2027. The effective interest rate for the 4.75% Convertible Senior Notes, taking into account both cash and non-cash components, approximates 5.6 %. Had a 20-year term been used for the amortization of the issuance costs of the 4.75% Convertible Senior Notes, the annual effective interest rate charged to earnings would have decreased to approximately 5.0 %. As of September 30, 2022 , the remaining amortization period of the debt issuance costs was expected to be 4.7 years for the 4.75% 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 September 30, 2022 , the conversion rate of the Company’s 4.25 % Convertible Senior Notes was 16.5108 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $ 60.57 per share. The debt issuance costs for the 4.25% Convertible Senior Notes had been fully amortized as of February 2022. 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. 30 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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Premiums Written: Direct $ 182,039 $ 143,426 $ 541,812 $ 396,781 Assumed 9,142 30,840 12,815 88,311 Gross written 191,181 174,266 554,627 485,092 Ceded ( 74,741 ) ( 55,577 ) ( 184,108 ) ( 145,112 ) Net premiums written $ 116,440 $ 118,689 $ 370,519 $ 339,980 Premiums Earned: Direct $ 166,116 $ 120,763 $ 479,849 $ 346,788 Assumed 15,597 29,046 61,913 73,403 Gross earned 181,713 149,809 541,762 420,191 Ceded ( 74,741 ) ( 55,577 ) ( 184,108 ) ( 145,112 ) Net premiums earned $ 106,972 $ 94,232 $ 357,654 $ 275,079 During the three and nine months ended September 30, 2022 , the Company recognized ceded losses of $ 907,541 and $ 910,928 , respectively, as reductions in losses and loss adjustment expenses. During the three and nine months ended September 30, 2021 , the Company recognized ceded losses of $ 1,830 and $ 2,424 , respectively, as reductions in losses and loss adjustment expenses. At September 30, 2022 and December 31, 2021 , there were 45 and 55 reinsurers, respectively, participating in the Company’s reinsurance program. Total net amounts recoverable and receivable from reinsurers at September 30, 2022 and December 31, 2021 were $ 952,996 and $ 76,650 , respectively. Approximatel y 74.7 % of the reinsurance recoverable balance at September 30, 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 increases in credit loss expense of $ 389 and $ 361 for the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2021 , the Company derecognized credit loss expenses of $ 13 and $ 41 , respectively. Allowances for credit losses related to the reinsurance recoverable balance were $ 451 and $ 90 at September 30, 2022 and December 31, 2021, respectively. One of the existing reinsurance contracts includes retrospective provisions that adjust premiums in the event losses are minimal or zero. Prior to June 1, 2022, there were two reinsurance contracts with retrospective provisions. As a result of Hurricane Ian, the balance of previously accrued benefits under the multi-year reinsurance contract with retrospective provisions was decreased by $ 12,600 during the third quarter of 2022. For the three and nine months ended September 30, 2022 , the Company recognized reductions in premiums ceded of $ 3,843 and $ 11,717 , respectively, related to these adjustments in the consolidated statements of income. For the 31 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) three and nine months ended September 30, 2021 , the Company recognized reductions in premiums ceded of $ 1,364 and $ 9,619 , respectively. See Note 20 -- “Commitments and Contingencies” for additional information. Amounts receivable pursuant to retrospective provisions are reflected in other assets. At September 30, 2022 and December 31, 2021 , other assets included $ 14,781 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 reinsurers with good credit ratings and the Company monitors the creditworthiness of these reinsurers based on available information about each reinsurer’s financial condition. See Note 21 -- “Subsequent Events” for information on collection. Reinsurance provided to other insurance companies For the three months ended September 30, 2022, assumed premiums written related to the Northeast Region’s insurance policies were $ 0 , whereas for the nine months ended September 30, 2022, $ 27,488 of assumed premiums written related to the Northeast Region’s insurance policies were 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 Massachusetts and New Jersey. For the three and nine months ended September 30, 2021 , assumed premiums written were $ 30,840 and $ 88,311 , respectively. At September 30, 2022 , the Company had a net balance of $ 1,301 due to United related to the Northeast Region, consisting of ceding commission payable of $ 865 and payable on paid losses and loss adjustment expenses of $ 436 . 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 through May 31, 2022. Effective June 1, 2022, the Company entered into a new agreement to provide 100% quota share reinsurance on United’s personal lines insurance policies in the Southeast Region. For the three and nine months ended September 30, 2022 , assumed premiums written related to the Southeast Region’s insurance policies were $ 9,142 and $ 40,303 , respectively. At September 30, 2022 , the Company had a net balance of $ 8,038 receivable from United, consisting of premiums receivable of $ 12,676 , offset by payable on paid losses and loss adjustment expenses of $ 2,610 and ceding commission payable of $ 2,028 . 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 September 30, 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 $ 67,313 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 32 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) 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. Activity in the liability for losses and LAE is summarized as follows: Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net balance, beginning of period* $ 196,414 $ 154,901 $ 172,410 $ 141,065 Incurred, net of reinsurance, related to: Current period 126,486 53,834 275,010 147,064 Prior period 13,308 8,830 24,318 17,268 Total incurred, net of reinsurance 139,794 62,664 299,328 164,332 Paid, net of reinsurance, related to: Current period ( 45,732 ) ( 31,663 ) ( 102,155 ) ( 59,265 ) Prior period ( 27,489 ) ( 22,237 ) ( 106,596 ) ( 82,467 ) Total paid, net of reinsurance ( 73,221 ) ( 53,900 ) ( 208,751 ) ( 141,732 ) Net balance, end of period 262,987 163,665 262,987 163,665 Add: reinsurance recoverable before allowance for credit losses 938,855 39,512 938,855 39,512 Gross balance, end of period $ 1,201,842 $ 203,177 $ 1,201,842 $ 203,177 * 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 and nine months ended September 30, 2022 , the Company recognized losses related to prior periods of $ 13,308 and $ 24,318 , respectively, primarily to increase the reserve resulting fro m increased litigation. The Company incurred a net estimated loss of approximately $ 65,000 resulting from Hurricane Ian during the third quarter of 2022. L oss and LAE expenses for the three and nine months ended September 30, 2022 included net estimated losses of approximately $ 18,715 and $ 42,114 , respectively, related to policies assumed from United. 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 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 September 30, 2022 and 2021, revenues from the HCPCI insurance operations segment before intracompany elimination represente d 60.5 % and 73.9 %, respectively, and revenues from the TypTap Group segment represented 29.9 % and 24.0 %, respectively, of total revenues of all operating segments. For the nine months ended September 30, 2022 and 2021, revenues from the HCPCI insurance operations segment before intracompany elimination represente d 66.6 % and 76.4 %, respectively, and revenues from the TypTap Group segment represented 28.7 % and 20.7 %, respectively, of total revenues of all operating segments. At September 30, 2022 and December 31, 2021, HCPCI insurance operations’ total assets represente d 55.9 % and 58.7 %, respectively, and TypTap Group’s total assets represented 36.7 % a nd 29.3 %, respectively, of the combined assets of all operating segments. 34 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 September 30, 2022 Operations Group Estate (a) Other (b) Elimination Consolidated Revenue: Gross premiums earned (c) $ 104,671 $ 82,728 $ — $ — $ ( 5,686 ) $ 181,713 Premiums ceded ( 46,157 ) ( 33,236 ) — — 4,652 ( 74,741 ) Net premiums earned 58,514 49,492 — — ( 1,034 ) 106,972 Net income from investment portfolio 1,143 1,144 — 1,338 13,674 17,299 Policy fee income 613 458 — — — 1,071 Gain on involuntary conversion — — 13,402 — ( 13,402 ) — Other 1,246 512 2,785 717 ( 3,948 ) 1,312 Total revenue 61,516 51,606 16,187 2,055 ( 4,710 ) 126,654 Expenses: Losses and loss adjustment expenses 73,228 62,153 — — 4,413 139,794 Amortization of deferred policy acquisition costs 11,333 12,176 — — — 23,509 Other policy acquisition expenses 748 450 — — ( 29 ) 1,169 Stock-based compensation expense 1,049 869 — 2,212 — 4,130 Interest expense — 222 221 2,591 ( 221 ) 2,813 Depreciation and amortization 166 865 651 186 ( 596 ) 1,272 Personnel and other operating expenses 14,240 8,497 1,583 1,526 ( 8,277 ) 17,569 Total expenses 100,764 85,232 2,455 6,515 ( 4,710 ) 190,256 (Loss) income before income taxes $ ( 39,248 ) $ ( 33,626 ) $ 13,732 $ ( 4,460 ) $ — $ ( 63,602 ) Total revenue from non-affiliates (d) $ 55,801 $ 55,803 $ 15,848 $ 1,440 Gross premiums written $ 119,400 $ 71,781 (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 under HCPCI Insurance Operations consist of $ 98,985 from HCPCI and $ 5,686 from a reinsurance company. (d) Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation. 35 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 September 30, 2021 Operations Group Estate (a) Other (b) Elimination Consolidated Revenue: Gross premiums earned $ 98,256 $ 51,553 $ — $ — $ — $ 149,809 Premiums ceded ( 36,955 ) ( 20,135 ) — — 1,513 ( 55,577 ) Net premiums earned 61,301 31,418 — — 1,513 94,232 Net income from investment portfolio 831 102 — 172 778 1,883 Policy fee income 693 307 — — — 1,000 Other 2,087 480 2,336 489 ( 3,290 ) 2,102 Total revenue 64,912 32,307 2,336 661 ( 999 ) 99,217 Expenses: Losses and loss adjustment expenses 36,928 24,224 — — 1,512 62,664 Amortization of deferred policy acquisition costs 12,402 9,250 — — — 21,652 Other policy acquisition expenses 633 1,110 — — ( 55 ) 1,688 Stock-based compensation expense 662 471 — 1,599 — 2,732 Interest expense — 1 231 1,432 — 1,664 Depreciation and amortization 18 342 576 171 ( 603 ) 504 Debt conversion expense — — — 1,273 — 1,273 Personnel and other operating expenses 5,234 7,214 814 2,135 ( 1,853 ) 13,544 Total expenses 55,877 42,612 1,621 6,610 ( 999 ) 105,721 Income (loss) before income taxes $ 9,035 $ ( 10,305 ) $ 715 $ ( 5,949 ) $ — $ ( 6,504 ) Total revenue from non-affiliates (c) $ 65,629 $ 32,701 $ 1,997 $ 402 Gross premiums written $ 118,280 $ 55,987 (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) Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation. 36 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 Nine Months Ended September 30, 2022 Operations Group Estate (a) Other (b) Elimination Consolidated Revenue: Gross premiums earned (c) $ 339,612 $ 210,793 $ — $ — $ ( 8,643 ) $ 541,762 Premiums ceded ( 120,089 ) ( 70,798 ) — — 6,779 ( 184,108 ) Net premiums earned 219,523 139,995 — — ( 1,864 ) 357,654 Net (loss) income from investment portfolio ( 1,760 ) 1,411 — 426 15,644 15,721 Policy fee income 1,895 1,285 — — — 3,180 Gain on involuntary conversion — — 13,402 — ( 13,402 ) — Other 2,907 1,513 7,953 3,025 ( 12,333 ) 3,065 Total revenue 222,565 144,204 21,355 3,451 ( 11,955 ) 379,620 Expenses: Losses and loss adjustment expenses 165,915 129,833 — — 3,580 299,328 Amortization of deferred policy acquisition costs 46,339 31,403 — — — 77,742 Other policy acquisition expenses 2,090 1,230 — — ( 113 ) 3,207 Stock-based compensation expense 3,380 2,651 — 6,678 — 12,709 Interest expense — 633 672 4,256 ( 632 ) 4,929 Depreciation and amortization 433 2,200 1,862 660 ( 1,819 ) 3,336 Personnel and other operating expenses 29,296 24,516 3,516 5,173 ( 12,971 ) 49,530 Total expenses 247,453 192,466 6,050 16,767 ( 11,955 ) 450,781 (Loss) income before income taxes $ ( 24,888 ) $ ( 48,262 ) $ 15,305 $ ( 13,316 ) $ — $ ( 71,161 ) Total revenue from non-affiliates (d) $ 213,810 $ 149,635 $ 20,339 $ 1,530 Gross premiums written $ 323,680 $ 230,947 (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 under HCPCI Insurance Operations consist of $ 330,969 from HCPCI and $ 8,643 from a reinsurance company. (d) Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation. 37 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 Nine Months Ended September 30, 2021 Operations Group Estate (a) Other (b) Elimination Consolidated Revenue: Gross premiums earned $ 300,827 $ 119,364 $ — $ — $ — $ 420,191 Premiums ceded ( 104,236 ) ( 42,229 ) — — 1,353 ( 145,112 ) Net premiums earned 196,591 77,135 — — 1,353 275,079 Net income from investment portfolio 5,261 933 — 4,059 3,799 14,052 Policy fee income 2,106 856 — — — 2,962 Other 3,420 1,130 9,849 1,316 ( 12,213 ) 3,502 Total revenue 207,378 80,054 9,849 5,375 ( 7,061 ) 295,595 Expenses: Losses and loss adjustment expenses 110,008 52,976 — — 1,348 164,332 Amortization of deferred policy acquisition costs 43,906 20,541 — — — 64,447 Other policy acquisition expenses 2,170 3,071 — — ( 114 ) 5,127 Stock-based compensation expense 2,360 2,438 — 4,431 — 9,229 Interest expense — 91 972 4,950 ( 270 ) 5,743 Depreciation and amortization 56 942 1,737 711 ( 1,841 ) 1,605 Debt conversion expense — — — 1,273 — 1,273 Personnel and other operating expenses 14,957 18,569 3,332 4,470 ( 6,184 ) 35,144 Total expenses 173,457 98,628 6,041 15,835 ( 7,061 ) 286,900 Income (loss) before income taxes $ 33,921 $ ( 18,574 ) $ 3,808 $ ( 10,460 ) $ — $ 8,695 Total revenue from non-affiliates (c) $ 206,743 $ 80,893 $ 8,833 $ 4,641 Gross premiums written $ 323,490 $ 161,602 (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) 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: September 30, December 31, 2022 2021 Segments: HCPCI Insurance Operations $ 1,141,660 $ 676,509 TypTap Group 813,543 369,600 Real Estate Operations 125,992 127,651 Corporate and Other 159,569 65,349 Consolidation and Elimination ( 96,021 ) ( 62,252 ) Total assets $ 2,144,743 $ 1,176,857 38 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: September 30, December 31, 2022 2021 Operating leases: ROU assets $ 1,597 $ 2,204 Liabilities $ 1,539 $ 2,203 Finance leases: ROU assets $ 80 $ 86 Liabilities $ 17 $ 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 September 30, 2022, maturities of lease liabilities were as follows: Leases Operating Finance Due in 12 months following September 30, 2022 $ 917 $ 15 2023 92 2 2024 96 — 2025 101 — 2026 106 — Thereafter 393 — Total lease payments 1,705 17 Less: interest 166 — Total lease obligations $ 1,539 $ 17 39 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 Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Lease costs: Finance lease costs: Amortization – ROU assets* $ 4 $ 4 $ 14 $ 13 Interest expense — — — 1 Operating lease costs* 281 386 937 1,231 Short-term lease costs* 105 100 306 250 Total lease costs $ 390 $ 490 $ 1,257 $ 1,495 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows – finance leases $ — $ 1 Operating cash flows – operating leases $ 924 $ 1,237 Financing cash flows – finance leases $ 14 $ 14 September 30, 2022 Weighted-average remaining lease term: Finance leases (in years) 1.3 Operating leases (in years) 4.3 Weighted-average discount rate: Finance leases (%) 3.4 % Operating leases (%) 4.0 % * 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 September 30, 2022 and 2021, the Company recorded approximately $ 12,099 and $ 1,636 , respectively, of income tax benefits, which resulted in effective tax rates of 19.0 % and 25.2 %, respectively. The decrease in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to a valuation allowance established during the third quarter of 2022 and an increase in non-deductible compensation expense related to restricted stock granted to certain executives, offset by the increased Florida corporate tax rate effective January 1, 2022. A valuation allowance must be established for deferred tax assets when it is more likely than not that the deferred tax assets will not be realized based on available evidence both positive and negative, including recent operating results, available tax planning strategies, 40 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) and projected future taxable income. Management concluded that the negative evidence outweighed the positive evidence and therefore recorded a valuation allowance on the Company’s deferred tax assets as of September 30, 2022. During the nine months ended September 30, 2022, the Company recorded approximately $ 13,907 of income tax benefit, which resulted in an effective tax rate of 19.5 %. During the nine months ended September 30, 2021, the Company recorded approximately $ 2,888 of income tax expense, which resulted in an effective tax rate of 33.2 %. The decrease in the effective tax rate in 2022 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 and May of 2022 and the valuation allowance as described above. T he 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. Note 16 -- Earnings Per Share U.S. GAAP requires the Company to use the two-class method in computing basic earnings (loss) 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 (loss) per share during periods of net income or loss. For a majority-owned subsidiary, its basic and diluted earnings (loss) 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 (loss) 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 September 30, 2022 September 30, 2021 Loss Shares (a) Per Share Loss Shares (a) Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Net loss $ ( 51,503 ) $ ( 4,868 ) Less: Net income attributable to redeemable noncontrolling interest ( 2,285 ) ( 2,202 ) Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities 2,829 774 Net loss attributable to HCI ( 50,959 ) ( 6,296 ) Less: Loss attributable to participating securities 3,289 537 Basic Loss Per Share: Loss allocated to common stockholders ( 47,670 ) 8,427 $ ( 5.66 ) ( 5,759 ) 8,023 $ ( 0.72 ) Effect of Dilutive Securities: * Stock options — — — — Convertible senior notes — — — — Warrants — — — — Diluted Loss Per Share: Loss available to common stockholders and assumed conversions $ ( 47,670 ) 8,427 $ ( 5.66 ) $ ( 5,759 ) 8,023 $ ( 0.72 ) (a) Shares in thousands. * For the three months ended September 30, 2022 and 2021, respectively, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect. 41 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Nine Months Ended Nine Months Ended September 30, 2022 September 30, 2021 Loss Shares (a) Per Share Income Shares (a) Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Net (loss) income $ ( 57,254 ) $ 5,807 Less: Net income attributable to redeemable noncontrolling interest ( 6,801 ) ( 5,175 ) Less: TypTap Group’s net loss attributable to non-HCI common stockholders and TypTap Group’s participating securities 4,018 1,191 Net (loss) income attributable to HCI ( 60,037 ) 1,823 Less: Loss (income) attributable to participating securities 3,855 ( 37 ) Basic (Loss) Earnings Per Share: (Loss) income allocated to common stockholders ( 56,182 ) 8,972 $ ( 6.26 ) 1,786 7,676 $ 0.23 Effect of Dilutive Securities: * Stock options — — — 182 Convertible senior notes — — — — Warrants — — — 234 Diluted (Loss) Earnings Per Share: (Loss) income available to common stockholders and assumed conversions $ ( 56,182 ) 8,972 $ ( 6.26 ) $ 1,786 8,092 $ 0.22 (a) Shares in thousands. * For the nine months ended September 30, 2022, convertible senior notes, stock options, and warrants were excluded due to anti-dilutive effect. For the nine months ended September 30, 2021, convertible senior notes were excluded due to anti-dilutive effect. Note 17 -- Redeemable Noncontrolling Interest The following table summarizes the activity of redeemable noncontrolling interest during the nine months ended September 30, 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 Increase (decrease): Accrued cash dividends 1,500 1,250 Accretion - increasing dividend rates 768 929 Balance at June 30 $ 91,963 $ 88,071 Increase (decrease): Accrued cash dividends 1,499 1,250 Accretion - increasing dividend rates 786 952 Dividends paid ( 3,000 ) ( 2,542 ) Balance at September 30 $ 91,248 $ 87,731 42 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) *Net decrease related to warrants of $ 8,640 . For the three months ended September 30, 2022 and 2021 , net income attributable to redeemable noncontrolling interest was $ 2,285 and $ 2,202 , respectively, consisting of accrued cash dividends of $ 1,499 and $ 1,250 , respectively, and accretion related to increasing dividend rates of $ 786 and $ 952 , respectively. For the nine months ended September 30, 2022 and 2021 , net income attributable to redeemable noncontrolling interest was $ 6,801 and $ 5,175 , respectively, consisting of accrued cash dividends of $ 4,341 and $ 2,958 , respectively, and accretion related to increasing dividend rates of $ 2,460 and $ 2,217 , 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 September 30, 2022, the Company repurchased and retired a total of 119,462 shares at a weighted average price per share of $ 51.69 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended September 30, 2022 was $ 6,179 or $ 51.72 per share. During the nine months ended September 30, 2022, the Company repurchased and retired a total of 148,927 shares at a weighted average price per share of $ 54.11 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the nine months ended September 30, 2022 was $ 8,063 or $ 54.14 per share. On July 14, 2022 , the Company’s Board of Directors declared a quarterly dividend of $ 0.40 per common share. The dividends were paid on September 16, 2022 to stockholders of record on August 19, 2022 . Warrants At September 30, 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 . Share Repurchase Agreement In conjunction with the issuance of the 4.75 % Convertible Senior Notes as described in Note 10 -- “Long-Term Debt” under 4.75% Convertible Senior Notes , the Company used $ 66,853 of the net proceeds to repurchase 43 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) and retire an aggregate of 1,037,600 shares of its common stock at a price of $ 64.43 per share from institutional investors. 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 September 30, 2022 , there were 81,139,221 shares of TTIG’s common stock outstanding, of which 6,139,221 shares were not owned by HCI. During the three and nine months ended September 30, 2022, TTIG repurchased and retired a total of 2,893 and 69,876 shares, respectively, 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 during the three and nine months ended September 30, 2022 w as $ 17 and $ 406 , respectively. 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 September 30, 2022 , there were 1,110,605 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 . 44 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) A summary of the stock option activity for the three and nine months ended September 30, 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 Outstanding at June 30, 2022 440,000 $ 45.25 6.1 years $ 9,354 Outstanding at September 30, 2022 440,000 $ 45.25 5.8 years $ 117 Exercisable at September 30, 2022 357,500 $ 44.23 5.5 years $ 117 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 Outstanding at June 30, 2021 440,000 $ 45.25 7.1 years $ 23,883 Outstanding at September 30, 2021 440,000 $ 45.25 6.8 years $ 29,238 Exercisable at September 30, 2021 275,000 $ 43.40 6.3 years $ 18,782 There wer e no o ptions exercised during the three and nine months ended September 30, 2022 and 2021. For the three months ended September 30, 2022 and 2021 , the Company recognized $ 162 and $ 221 , respectively, of compensation expense which was included in general and administrative personnel expenses. For the nine months ended September 30, 2022 and 2021 , the Company recognized $ 507 and $ 663 , respectively, of compensation expense. Deferred tax benefits related to stock options were $ 0 and $ 3 for the three months ended September 30, 2022 and 2021 , respectively, and $ 0 and $ 4 for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and December 31, 2021 , there was $ 498 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 1.1 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. 45 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 the activity of unvested restricted stock awards during the three and nine months ended September 30, 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 Granted 3,000 $ 67.30 Vested ( 51,125 ) $ 45.04 Forfeited ( 700 ) $ 45.61 Nonvested at June 30, 2022 581,240 $ 38.61 Forfeited ( 1,665 ) $ 45.56 Nonvested at September 30, 2022 579,575 $ 38.59 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 Granted 3,000 $ 76.00 Vested ( 68,541 ) $ 43.80 Cancelled ( 1,160 ) $ 45.96 Forfeited ( 9,060 ) $ 46.44 Nonvested at June 30, 2021 711,212 $ 38.71 Granted 2,340 $ 96.60 Forfeited ( 38,855 ) $ 38.05 Nonvested at September 30, 2021 674,697 $ 38.95 The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $ 3,099 and $ 2,039 for the three months ended September 30, 2022 and 2021 , respectively, and $ 9,551 and $ 6,280 for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022 and December 31, 2021 , there was approximately $ 9,670 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 and nine months ended September 30, 2022 and 2021. Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Deferred tax benefits recognized $ 230 $ 420 $ 1,521 $ 879 Tax benefits realized for restricted stock and paid dividends $ 56 $ 70 $ 1,360 $ 1,482 Fair value of vested restricted stock $ — $ — $ 4,871 $ 4,742 46 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) 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 September 30, 2022 and 2021 , TypTap Group recognized compensation expense related to its stock-based awards of $ 869 and $ 472 , respectively. For the nine months ended September 30, 2022 and 2021 , TypTap Group recognized compensation expense related to its stock-based awards of $ 2,651 and $ 2,286 , respectively. At September 30, 2022 and December 31, 2021 , there was $ 8,780 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 September 30, 2022, the Company has a contractual obligation related to one multi-year reinsurance contract. The contract was entered into effective June 1, 2022 and the Company’s previous two multi-year reinsurance contracts were commuted effective May 31, 2022. The contract may be cancelled only with the other party’s consent or when its respective experience account is positive at the end of each contract year. The table below represents the future minimum aggregate premium amounts payable to the reinsurer. Due in 12 months following September 30, 2022 $ 91,350 2023 91,350 Total $ 182,700 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 September 30, 2022 , there was an aggregate unfunded balance of $ 6,262 . 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 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 47 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) 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. In August 2022, the Florida Office of Insurance Regulation approved a 2023 assessment for FIGA which is necessary to secure funds for the payment of covered claims relating to the liquidation of two insurance companies. The 2023 FIGA assessment is levied at 0.70 % 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 January 1, 2023 through December 31, 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 September 30, 2022 , the FIGA assessments payable by the Company were $ 2,858 . Note 21 -- Subsequent Events In connection with the Company’s quota share reinsurance agreement to provide 100 % reinsurance on all of United’s in-force, new and renewal policies in the Southeast Region from June 1, 2022 through May 31, 2023, the Company began renewing and/or replacing United’s policies in Georgia on October 1, 2022. On October 5, 2022, 231,516 shares of restricted stock issued to employees vested one year subsequent to satisfaction of a market-based vesting condition on October 5, 2021. The restricted shares were granted in February 2021 with a grant date fair value of $ 36.57 per share. The Company repurchased and retired a total of 80,339 shares surrendered to satisfy payroll tax liabilities associated with the vesting of these restricted shares. On October 7, 2022, the Company received the entirety of the $ 5,457 amount receivable pursuant to retrospective provisions under the Company’s previous two multi-year reinsurance contracts which were commuted effective May 31, 2022. On October 13, 2022 , the Company’s Board of Directors declared a quarterly dividend of $ 0.40 per common share. The dividends are payable on December 16, 2022 to stockholders of record on November 18, 2022 . On November 7, 2022, the Company executed an amendment to the revolving credit facility with Fifth Third Bank. Under the terms of the amendment, the maximum debt-to-capital ratio as defined in the credit agreement is set at 67.5 % and the borrowing capacity of the line of credit is set at $ 50,000 . This summary of the amendment is qualified in its entirety by reference to the Fourth Amendment to Credit Agreement, which is filed as Exhibit 10.61 to this Quarterly Report on Form 10-Q. 48 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 a 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 September 30, 2022 and 2021, revenues from HCPCI insurance operations before intracompany elimination represented 60.5% and 73.9%, respectively, and revenues from TypTap Group represented 29.9% and 24.0%, respectively, of total revenues of all operating segments. For the nine months ended September 30, 2022 and 2021, revenues from HCPCI insurance operations before intracompany 49 elimination represented 66.6% and 76.4%, respectively, and revenues from TypTap Group represented 28.7% and 20.7%, respectively, of total revenues of all operating segments. At September 30, 2022 and December 31, 2021, HCPCI insurance operations’ total assets represented 55.9% and 58.7%, respectively, and TypTap Group’s total assets represented 36.7% 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, a third state in January 2022, and the fourth state in April 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. In September 2022, HCPCI began renewing United’s policies in South Carolina. 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, however Claddaugh did not enter into any retrocession contracts for the 2022-2023 treaty year. Currently, Claddaugh does not provide reinsurance to non-affiliates. Other auxiliary operations also include claim adjusting and processing services. 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 internally 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 85,781 at September 30, 2022. TypTap has been successful in using internally developed proprietary technology to underwrite, select and write policies efficiently. As of November 2, 2022, TypTap has been approved to offer 50 homeowners coverage in 19 states outside of Florida. TypTap is currently operating in 12 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. 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, a third state in January 2022, and the fourth state in April 2022. In June 2022, TypTap entered into a new reinsurance agreement with United where TypTap provides 100% quota share reinsurance on all of United’s personal lines insurance business in the Southeast Region from June 1, 2022 through May 31, 2023. In exchange, TypTap pays United a ceding commission of 16% of premium. Simultaneously, TypTap began renewing United’s policies in South Carolina. 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. In July 2022, we closed on our agreement to sell 1.5 acres of land in Tampa, Florida to the FDOT in connection with an eminent domain proceeding for a planned road improvement project. See Real Estate 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. 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. 51 Impact of Hurricane Ian On September 28, 2022, Hurricane Ian made landfall in southwestern Florida as a dangerous, high-end Category 4 storm. After crossing the Florida peninsula, it made a second landfall on September 30, 2022 in coastal South Carolina. On a pre-tax consolidated basis, estimated gross losses related to Hurricane Ian totaled $970,000,000. After anticipated reinsurance recoveries, we incurred a net estimated loss of approximately $65,000,000. Gross loss estimates, including loss adjustment expenses, for HCPCI and TypTap were $550,518,000 and $419,482,000, respectively. As a result of Hurricane Ian, the balance of previously accrued benefits under one multi-year reinsurance contract with retrospective provisions was decreased by $12,600,000 during the third quarter of 2022. Assuming the lack of more storm events, benefits remain available in future periods but at reduced amounts. In addition, we recognized an allowance for credit losses of approximately $399,000 related to Hurricane Ian’s unpaid ceded reinsurance recoverable. On September 28, 2022, the Florida Office of Insurance Regulation issued an emergency order in response to Hurricane Ian preventing insurers regulated under the Florida Insurance Code from cancelling or non-renewing a policy as well as issuing a notice of cancellation or nonrenewal of a policy between September 28, 2022 and November 28, 2022, except at the written request of the policyholder. This rule does not apply to new policies effective on or after September 28, 2022. Recent Events In connection with our quota share reinsurance agreement to provide 100% reinsurance on all of United’s in-force, new and renewal policies in the Southeast Region from June 1, 2022 through May 31, 2023, we began renewing and/or replacing United’s policies in Georgia on October 1, 2022. On October 5, 2022, 231,516 shares of restricted stock issued to employees vested one year subsequent to satisfaction of a market-based vesting condition on October 5, 2021. The restricted shares were granted in February 2021 with a grant date fair value of $36.57 per share. We repurchased and retired a total of 80,339 shares surrendered to satisfy payroll tax liabilities associated with the vesting of these restricted shares. On October 7, 2022, we received the entirety of the $5,457,000 amount receivable pursuant to retrospective provisions under our previous two multi-year reinsurance contracts which were commuted effective May 31, 2022. On October 13, 2022, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on December 16, 2022 to stockholders of record on November 18, 2022. On November 7, 2022, we executed an amendment to our revolving credit facility with Fifth Third Bank. Under the terms of the amendment, the maximum debt-to-capital ratio as defined in the credit agreement is set at 67.5% and the borrowing capacity of the line of credit is set at $50,000,000. This summary of the amendment is qualified in its entirety by reference to the Fourth Amendment to Credit Agreement, which is filed as Exhibit 10.61 to this Quarterly Report on Form 10-Q. 52 RESULTS OF OPERATIONS The following table summarizes our results of operations for the three and nine months ended September 30, 2022 and 2021 (dollar amounts in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenue Gross premiums earned $ 181,713 $ 149,809 $ 541,762 $ 420,191 Premiums ceded (74,741 ) (55,577 ) (184,108 ) (145,112 ) Net premiums earned 106,972 94,232 357,654 275,079 Net investment income 18,530 2,520 25,082 9,749 Net realized investment (losses) gains (884 ) 1,232 (1,204 ) 4,952 Net unrealized investment losses (347 ) (1,869 ) (8,157 ) (649 ) Policy fee income 1,071 1,000 3,180 2,962 Other income 1,312 2,102 3,065 3,502 Total revenue 126,654 99,217 379,620 295,595 Expenses Losses and loss adjustment expenses 139,794 62,664 299,328 164,332 Policy acquisition and other underwriting expenses 24,678 23,340 80,949 69,574 General and administrative personnel expenses 15,848 11,537 45,183 31,733 Interest expense 2,813 1,664 4,929 5,743 Debt conversion expense — 1,273 — 1,273 Other operating expenses 7,123 5,243 20,392 14,245 Total expenses 190,256 105,721 450,781 286,900 (Loss) income before income taxes (63,602 ) (6,504 ) (71,161 ) 8,695 Income tax (benefit) expense (12,099 ) (1,636 ) (13,907 ) 2,888 Net (loss) income (51,503 ) (4,868 ) (57,254 ) 5,807 Net loss (income) attributable to noncontrolling interests 544 (1,369 ) (2,783 ) (3,979 ) Net (loss) income after noncontrolling interests $ (50,959 ) $ (6,237 ) $ (60,037 ) $ 1,828 Ratios to Net Premiums Earned: Loss Ratio 130.68 % 66.50 % 83.69 % 59.74 % Expense Ratio 47.18 % 45.69 % 42.35 % 44.56 % Combined Ratio 177.86 % 112.19 % 126.04 % 104.30 % Ratios to Gross Premiums Earned: Loss Ratio 76.93 % 41.83 % 55.25 % 39.11 % Expense Ratio 27.77 % 28.74 % 27.96 % 29.17 % Combined Ratio 104.70 % 70.57 % 83.21 % 68.28 % (Loss) Earnings Per Share Data: Basic $ (5.66 ) $ (0.72 ) $ (6.26 ) $ 0.23 Diluted $ (5.66 ) $ (0.72 ) $ (6.26 ) $ 0.22 Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021 Our results of operations for the three months ended September 30, 2022 reflect net loss of approximately $51,503,000 or $5.66 loss per share, compared with approximately $4,868,000 or $0.72 loss per share, for the three months ended September 30, 2021. The quarter-over-quarter decrease was primarily due to a $77,130,000 increase in losses and loss adjustment expenses, a $4,311,000 increase in general and administrative personnel expenses, and a $1,880,000 increase in other operating expenses, offset by a $15,416,000 net increase in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains or losses) and a $12,740,000 increase in net premiums earned. 53 Revenue Gross Premiums Earned on a consolidated basis for the three months ended September 30, 2022 and 2021 were approximately $181,713,000 and $149,809,000, respectively. HCPCI gross premiums earned were $98,985,000 for the three months ended September 30, 2022 compared to $98,256,000 for the three months ended September 30, 2021. Gross premiums earned from the United insurance policies assumed were $15,597,000 for the three months ended September 30, 2022 compared to $29,046,000 for the three months ended September 30, 2021. TypTap’s gross premiums earned were $82,728,000 versus $51,553,000 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, 2022. Premiums Ceded for the three months ended September 30, 2022 and 2021 were approximately $74,741,000 and $55,577,000, respectively, representing 41.1% and 37.1%, respectively, of gross premiums earned. The $19,164,000 increase was primarily attributable to higher reinsurance costs for the 2022 contract year due to an increased overall reinsurance coverage amount as a result of premium growth and expansion. In addition, ceded premiums were increased by a reversal of $12,600,000 of previously accrued benefits attributable to retrospective provisions under multi-year reinsurance contracts due to the effects of Hurricane Ian. 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 September 30, 2022, premiums ceded included a decrease of $3,843,000 related to retrospective provisions compared with a decrease of $1,364,000 for the three months ended September 30, 2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.” Net Premiums Written for the three months ended September 30, 2022 and 2021 totaled approximately $116,440,000 and $118,689,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The decrease in 2022 resulted from an increase in premiums ceded to reinsurers as described above. We had approximately 214,000 policies in force at September 30, 2022 (excluding policies assumed from United) as compared with approximately 156,000 policies in force at September 30, 2021. Net Premiums Earned for the three months ended September 30, 2022 and 2021 were approximately $106,972,000 and $94,232,000, 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 September 30, 2022 and 2021 (amounts in thousands): Three Months Ended September 30, 2022 2021 Net Premiums Written $ 116,440 $ 118,689 Increase in Unearned Premiums (9,468 ) (24,457 ) Net Premiums Earned $ 106,972 $ 94,232 54 Net Investment Income for the three months ended September 30, 2022 and 2021 was approximately $18,530,000 and $2,520,000, respectively. The $16,010,000 increase was primarily attributable to a $13,592,000 increase in income from real estate investments, a $1,859,000 increase in income from available-for-sale fixed-maturity securities and a $916,000 increase in interest income from cash and cash equivalents. 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. Net Realized Investment Losses for the three months ended September 30, 2022 were approximately $884,000 versus $1,232,000 of net realized investment gains for the three months ended September 30, 2021. The $2,116,000 decrease was primarily attributable to net realized losses of approximately $932,000 from selling equity securities during the three months ended September 30, 2022 as opposed to net realized gains of approximately $953,000 from selling equity securities during the corresponding period in 2021. Net Unrealized Investment Losses for the three months ended September 30, 2022 and 2021 were approximately $347,000 and $1,869,000, respectively. The decrease was primarily attributable to an overall improvement in the equity market compared with the three months ended September 30, 2021. Expenses Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $139,794,000 and $62,664,000 for the three months ended September 30, 2022 and 2021, respectively. HCPCI losses and loss adjustment expenses were $73,228,000 for the three months ended September 30, 2022 compared to $36,928,000 for the three months ended September 30, 2021. The increase was primarily attributable to $42,346,000 of losses attributable to Hurricane Ian which struck the Southeastern United States in late September. Losses and loss adjustment expenses for TypTap were $62,153,000 versus $24,224,000 for the same comparative period. The increase was attributable to $22,251,000 of losses attributable to Hurricane Ian, $6,750,000 of losses due to the greater number of TypTap policies in force, $2,064,000 of additional losses from policies assumed from United or any subsequent renewal or replacement of United policies, and $6,818,000 of prior period loss development. 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 September 30, 2022 and 2021 were approximately $24,678,000 and $23,340,000 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 $12,081,000 for the three months ended September 30, 2022 compared to $13,035,000 for the three months ended September 30, 2021. The decrease was due to amortization of decreased costs associated with the policies assumed from United or any subsequent renewal or replacement of United policies. An increase in policy acquisition costs primarily results from premium growth. TypTap Group policy acquisition expenses were $12,626,000 versus $10,360,000 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. 55 General and Administrative Personnel Expenses for the three months ended September 30, 2022 and 2021 were approximately $15,848,000 and $11,537,000, 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 $4,311,000 was primarily attributable to an increase in the headcount of temporary and full-time employees, merit increases for non-executive employees effective in late February 2022, and higher stock-based compensation expense. Interest Expense for the three months ended September 30, 2022 and 2021 was approximately $2,813,000 and $1,664,000, respectively. The increase primarily resulted from interest expense related to our 4.75% convertible senior notes issued in May 2022, offset by conversions of our 4.25% convertible senior notes during the second half of 2021. Income Tax Benefits for the three months ended September 30, 2022 and 2021 were approximately $12,099,000 and $1,636,000, respectively, for state, federal, and foreign income taxes resulting in effective tax rates of 19.0% and 25.2%, respectively. The decrease in the effective tax rate was primarily attributable to a valuation allowance established during the third quarter of 2022 and an increase in non-deductible compensation expense related to certain executive compensation, offset by the increased Florida corporate tax rate effective January 1, 2022. Ratios: The loss ratio applicable to the three months ended September 30, 2022 (losses and loss adjustment expenses incurred related to net premiums earned) was 130.7% compared with 66.5% for the three months ended September 30, 2021. The increase was primarily due to the increase in losses and loss adjustment expenses due to Hurricane Ian, offset in part by the increase in net premiums earned. The expense ratio applicable to the three months ended September 30, 2022 (defined as total expenses excluding losses and loss adjustment expenses related to net premiums earned) was 47.2% compared with 45.7% for the three months ended September 30, 2021. The increase in our expense ratio was primarily attributable to the increase in general and administrative personnel and other operating expenses, offset in part by the decrease in debt conversion expense. 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 September 30, 2022 was 177.9% compared with 112.2% for the three months ended September 30, 2021. The 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 September 30, 2022 was 104.7% compared with 70.6% for the three months ended September 30, 2021. The increase in 2022 was primarily attributable to the increase in losses and loss adjustment expenses due to Hurricane Ian, offset by the increase in gross premiums earned. 56 Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021 Our results of operations for the nine months ended September 30, 2022 reflect net loss of approximately $57,254,000 or $6.26 loss per share, compared with net income of approximately $5,807,000 or $0.22 diluted earnings per share, for the nine months ended September 30, 2021. The period-over-period decrease was primarily due to a $134,996,000 increase in losses and loss adjustment expenses, a $13,450,000 increase in general and administrative personnel expenses, and an $11,375,000 increase in policy acquisition and other underwriting expenses, offset by an increase in net premiums earned of $82,575,000, a $1,669,000 net increase in income from our investment portfolio (consisting of net investment income and net realized and unrealized gains/losses), and an $814,000 decrease in interest expense. Revenue Gross Premiums Earned on a consolidated basis for the nine months ended September 30, 2022 and 2021 were approximately $541,762,000 and $420,191,000, respectively. HCPCI gross premiums earned were $330,969,000 for the nine months ended September 30, 2022 compared to $300,827,000 for the nine months ended September 30, 2021. Gross premiums earned from the United insurance policies assumed were $61,913,000 for the nine months ended September 30, 2022 compared to $73,403,000 for the nine months ended September 30, 2021. TypTap’s gross premiums earned were $210,793,000 versus $119,364,000 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, 2022. Premiums Ceded for the nine months ended September 30, 2022 and 2021 were approximately $184,108,000 and $145,112,000, respectively, representing 34.0% and 34.5%, respectively, of gross premiums earned. The $38,996,000 increase was primarily attributable to higher reinsurance costs for the 2022 contract year due to an increased overall reinsurance coverage amount as a result of premium growth and expansion. In addition, ceded premiums were increased by a reversal of $12,600,000 of previously accrued benefits attributable to retrospective provisions under multi-year reinsurance contracts due to the effects of Hurricane Ian. For the nine months ended September 30, 2022, premiums ceded included a decrease of $11,717,000 related to retrospective provisions compared with a net reduction of $9,619,000 for the nine months ended September 30, 2021. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.” Net Premiums Written for the nine months ended September 30, 2022 and 2021 totaled approximately $370,519,000 and $339,980,000, respectively. The $30,539,000 increase in 2022 resulted primarily from the factors described earlier. Net Premiums Earned for the nine months ended September 30, 2022 and 2021 were approximately $357,654,000 and $275,079,000, 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 nine months ended September 30, 2022 and 2021 (amounts in thousands): Nine Months Ended September 30, 2022 2021 Net Premiums Written $ 370,519 $ 339,980 Increase in Unearned Premiums (12,865 ) (64,901 ) Net Premiums Earned $ 357,654 $ 275,079 57 Net Investment Income for the nine months ended September 30, 2022 and 2021 was approximately $25,082,000 and $9,749,000, respectively. The $15,333,000 increase was primarily attributable to a $12,136,000 increase in income from real estate investments, a $2,619,000 increase in income from available-for-sale fixed-maturity securities and a $1,050,000 increase in interest income from cash and cash equivalents. 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. Net Unrealized Investment Losses for the nine months ended September 30, 2022 and 2021 were approximately $8,157,000 and $649,000, respectively. The increase was primarily attributable to an overall deterioration in the equity market compared with the nine months ended September 30, 2021. Expenses Our consolidated Losses and Loss Adjustment Expenses amounted to approximately $299,328,000 and $164,332,000 for the nine months ended September 30, 2022 and 2021, respectively. HCPCI losses and loss adjustment expenses were $165,915,000 for the nine months ended September 30, 2022 compared to $110,008,000 for the nine months ended September 30, 2021. The increase was primarily attributable to $42,346,000 of losses from Hurricane Ian, and a $14,928,000 net increase in losses attributable to the United policies due to an increase in the number of policies assumed from United or any subsequent renewal or replacement of United policies. Losses and loss adjustment expenses for TypTap were $129,833,000 versus $52,976,000 for the same comparative period. The increase was attributable to $22,251,000 of losses attributable to Hurricane Ian, $36,500,000 of losses due to the greater number of TypTap policies in force, $7,015,000 of additional losses from policies assumed from United or any subsequent renewal or replacement of United policies, and $10,990,000 of prior period losses. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.” Policy Acquisition and Other Underwriting Expenses for the nine months ended September 30, 2022 and 2021 were approximately $80,949,000 and $69,574,000 on a consolidated basis, respectively. Policy acquisition expenses for HCPCI insurance operations were $48,429,000 for the nine months ended September 30, 2022 compared to $46,076,000 for the nine months ended September 30, 2021. The increase was due to amortization of increased costs associated with the policies assumed from United or any subsequent renewal or replacement of United policies. TypTap Group policy acquisition expenses were $32,633,000 versus $23,612,000 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 or any subsequent renewal or replacement of United policies. General and Administrative Personnel Expenses for the nine months ended September 30, 2022 and 2021 were approximately $45,183,000 and $31,733,000, respectively. The period-over-period increase of $13,450,000 was primarily attributable to an increase in the headcount of temporary and full-time employees, merit increases for non-executive employees effective in late February 2022, and higher stock-based compensation expense. Interest Expense for the nine months ended September 30, 2022 and 2021 was approximately $4,929,000 and $5,743,000, respectively. The decrease primarily resulted from conversions of our 4.25% convertible senior notes during the second half of 2021, offset by interest expense related to our 4.75% convertible senior notes issued in May 2022. Income Tax Benefit for the nine months ended September 30, 2022 was approximately $13,907,000 for state, federal, and foreign income taxes resulting in an effective tax rate of 19.5% for 2022. This compared with approximately $2,888,000 of income tax expense for the nine months ended September 30, 2021, resulting in an effective tax rate of 33.2% for 2021. The decrease in the effective tax rate was primarily attributable to a valuation 58 allowance established during the third quarter of 2022 and the recognition of tax benefits attributable to restricted stock that vested in February and May of 2022. Ratios: The loss ratio applicable to the nine months ended September 30, 2022 (losses and loss adjustment expenses incurred related to net premiums earned) was 83.7% compared with 59.7% for the nine months ended September 30, 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 nine months ended September 30, 2022 was 42.3% compared with 44.6% for the nine months ended September 30, 2021. The decrease in our expense ratio was primarily attributable to the increase in net premiums earned and the decrease in debt conversion expense, offset in part by the increase in policy acquisition, underwriting and personnel expenses. The combined ratio is the measure of overall underwriting profitability before other income. Our combined ratio for the nine months ended September 30, 2022 was 126.0% compared with 104.3% for the nine months ended September 30, 2021. The 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 nine months ended September 30, 2022 was 83.2% compared with 68.3% for the nine months ended September 30, 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 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. 59 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 September 30, 2022: Maturity Date Payment Due Date 4.75% Convertible Senior Notes* June 2042 June 1 and December 1** 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 * At the option of the noteholders, we may be required to repurchase for cash all or any portion of the notes on June 1, 2027, June 1, 2032 or June 1, 2037. ** The cash interest is payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2022. 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. At September 30, 2022, there was approximately $11,941,000 available under the plan. 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. Two 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 four of the remaining funds have expired, the general partners may request additional funds under certain circumstances. At September 30, 2022, there was an aggregate unfunded capital balance of $6,262,000. 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. 60 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. In June 2022, FMKT Mel JV sold its last outparcel and recognized a net gain of $572,000. FMKT Mel JV distributed its earnings during the third quarter of 2022 and is expected to be liquidated by December 31, 2022. Sources and Uses of Cash Cash Flows for the Nine Months Ended September 30, 2022 Net cash used in operating activities for the nine months ended September 30, 2022 was approximately $18,261,000, which consisted primarily of cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments less cash received from net premiums written and reinsurance recoveries (of approximately $34,222,000). Net cash used in investing activities of $311,352,000 was primarily due to the purchases of fixed-maturity and equity securities of $414,066,000, the purchases of property and equipment of $5,431,000, and the purchase of intangible assets from United of $3,800,000, offset by the proceeds from calls, repayments and maturities of fixed-maturity securities of $52,023,000, the proceeds from sales of fixed-maturity and equity securities of $41,010,000, $14,500,000 of compensation received for the property relinquished through eminent domain, and distributions received from limited partnership investments of $4,732,000. Net cash provided by financing activities totaled $56,955,000, which was primarily due to the proceeds from issuance of 4.75% Convertible Senior Notes of $172,500,000, offset by $76,166,000 of share repurchases, net repayment of our revolving credit facility of $15,000,000, $11,697,000 of net cash dividend payments, debt issuance costs paid of $6,014,000, cash dividends paid to redeemable noncontrolling interest of $5,508,000, and repayments of long-term debt of $754,000. Cash Flows for the Nine Months Ended September 30, 2021 Net cash provided by operating activities for the nine months ended September 30, 2021 was approximately $48,671,000, which consisted primarily of cash received from net premiums written, reinsurance recoveries (of approximately $38,484,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of $35,087,000 was primarily due to the proceeds from sales of fixed-maturity and equity securities of $100,130,000, the proceeds from calls, repayments and maturities of fixed-maturity securities of $16,734,000, and distributions received from limited partnership investments of $3,635,000, offset by the purchases of fixed-maturity and equity securities of $83,211,000, and the purchases of property and equipment of $2,583,000. Net cash provided by financing activities totaled $54,077,000, which consisted of net proceeds of $93,738,000 from Centerbridge for investment in TTIG, offset by $9,713,000 of net cash dividend payments, net repayment of our revolving credit facility of $23,750,000, and $1,308,000 used in share repurchases. 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. 61 At September 30, 2022, we had $394,585,000 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 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 September 30, 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 September 30, 2022, $1,109,823,000 of the total $1,201,842,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $92,019,000 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 September 30, 2022, $39,773,000 of the $92,019,000 in reserves for known cases relates to claims incurred during prior years. 62 Our Reserves increased from $237,165,000 at December 31, 2021 to $1,201,842,000 at September 30, 2022. The $964,677,000 increase is comprised of $1,078,310,000 in reserves established for the 2022 loss year, offset by reductions in our Reserves of $30,787,000 specific to Hurricane Irma, Hurricane Michael, Hurricane Sally and Tropical Storm Eta, and reductions in our non-catastrophe Reserves of $59,085,000 for 2021 and $23,761,000 for 2020 and prior loss years. 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 September 30, 2022. The decrease of $82,846,000 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 September 30, 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 From time to time, our reinsurance contracts may 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. Due to Hurricane Ian, the balance of previously accrued benefits under one multi-year reinsurance contract with retrospective provisions was decreased by $12,600,000 during the third quarter of 2022. For the three months ended September 30, 2022 and 2021, we accrued benefits of $3,843,000 and $1,364,000, respectively. For the nine months ended September 30, 2022 and 2021, we accrued benefits of $11,717,000 and $9,619,000, respectively. The accrual of benefits was recognized as a reduction in ceded premiums. As of September 30, 2022, we had $14,781,000 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 each reinsurer’s financial position and each reinsurer’s demonstrated ability to comply with contract terms. In October 2022, we received $5,457,000 in connection with the previous two multi-year reinsurance contracts which were commuted in May 2022. 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 nine months ended September 30, 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 nine months ended September 30, 2022, as compared to those described in our Annual Report on Form 63 10-K for the fiscal year ended December 31, 2021, that are of significance, or potential significance, to the Company . 64 ITEM 3 – QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK Our investment portfolios at September 30, 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 September 30, 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 $ 344,606 $ (16,033 ) -4.45 % 200 basis point increase 349,950 (10,689 ) -2.96 % 100 basis point increase 355,294 (5,345 ) -1.48 % 100 basis point decrease 365,983 5,344 1.48 % 200 basis point decrease 371,323 10,684 2.96 % 300 basis point decrease 376,653 16,014 4.44 % 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. 65 The following table presents the composition of our fixed-maturity securities, by rating, at September 30, 2022 (amounts in thousands): % of Total % of Total Amortized Amortized Estimated Estimated Comparable Rating Cost Cost Fair Value Fair Value AAA $ 97,275 26 $ 97,154 27 AA+, AA, AA- 245,206 66 235,391 65 A+, A, A- 13,041 3 12,388 3 BBB+, BBB, BBB- 14,542 4 13,913 4 CCC+, CC and Not rated 1,813 1 1,793 1 Total $ 371,877 100 $ 360,639 100 Equity Price Risk Our equity investment portfolio at September 30, 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 September 30, 2022 (amounts in thousands): % of Total Estimated Estimated Fair Value Fair Value Stocks by sector: Consumer $ 6,294 18 Financial 4,984 15 Technology 1,664 5 Other (1) 2,481 7 15,423 45 Mutual funds and exchange-traded funds by type: Debt 15,468 46 Equity 2,319 7 Alternative 736 2 18,523 55 Total $ 33,946 100 (1) Represents an aggregate of less than 5% sectors. Foreign Currency Exchange Risk At September 30, 2022, we did not have any material exposure to foreign currency related risk . 66 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 September 30, 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. 67 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 in 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 All information related to sales of unregistered securities have been reported in Current Report on Form 8-K filings. (b) Repurchases of Securities The table below summarizes the number of common shares repurchased under the 2022 repurchase plan approved by our Board of Directors (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 (a) or Programs (b) July 31, 2022 2,668 $ 65.74 2,668 $ 17,941 August 31, 2022 55,201 $ 54.35 55,201 $ 14,941 September 30, 2022 61,593 $ 48.71 61,593 $ 11,941 119,462 $ 51.69 119,462 (a) In March 2022, our Board of Directors authorized a plan announced March 14, 2022 to repurchase up to $20,000 of the Company’s common shares before commissions and fees during 2022. (b) 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. 68 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 nine months ended September 30, 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. 69 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. 4.3 Indenture, dated May 23, 2022, by and between HCI Group, Inc. and The Bank of New York Mellon Trust Company, N.A. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 9, 2022. 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. 70 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. 10.5** HCI Group, Inc. 2012 Omnibus Incentive Plan as revised April 26, 2022. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed May 6, 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. 10.8 Multi-Year Working Layer Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.131 to our Form 10-Q filed August 9, 2022. 10.9 Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.132 to our Form 10-Q filed August 9, 2022. 10.10 Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.133 to our Form 10-Q filed August 9, 2022. 10.11 Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.134 to our Form 10-Q filed August 9, 2022. 10.12 Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.135 to our Form 10-Q filed August 9, 2022. 10.13 Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.136 to our Form 10-Q filed August 9, 2022. 10.14 Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 issued to TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.137 to our Form 10-Q filed August 9, 2022. 10.15 Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 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 Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.138 to our Form 10-Q filed August 9, 2022. 71 10.16 Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 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 Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.139 to our Form 10-Q filed August 9, 2022. 10.17 Sixth Layer Non-Florida Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 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 Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.140 to our Form 10-Q filed August 9, 2022. 10.18 Non-Florida Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 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 Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.141 to our Form 10-Q filed August 9, 2022. 10.19 Non-Florida Reinstatement Premium Protection Reinsurance Contract effective June 1, 2022 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 Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.142 to our Form 10-Q filed August 9, 2022. 10.20 Flood Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 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 Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.143 to our Form 10-Q filed August 9, 2022. 10.21 Property Catastrophe Shared Multi-Region Excess of Loss Reinsurance Contract effective June 1, 2022 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 Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.144 to our Form 10-Q filed August 9, 2022. 10.22 Top Layer Flood/Wind Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2022 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 Regulation S-K Item 601(b)(10)(iv). Incorporated by reference to Exhibit 10.145 to our Form 10-Q filed August 9, 2022. 10.23 Reimbursement Contract effective June 1, 2022 between TypTap Insurance Company and the State Board of Administration of the State of Florida which administers the Florida Hurricane Catastrophe Fund. Incorporated by reference to Exhibit 10.146 to our Form 10-Q filed August 9, 2022. 10.24 Reimbursement Contract effective June 1, 2022 between Homeowners Choice Property & Casualty Insurance Company, Inc. and the State Board of Administration of the State of Florida which administers the Florida Hurricane Catastrophe Fund. Incorporated by reference to Exhibit 10.147 to our Form 10-Q filed August 9, 2022. 72 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. 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. 73 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. 10.53 Purchase Agreement, dated May 18, 2022, by and among HCI Group, Inc., JMP Securities LLC and Truist Securities, Inc., as representatives of the several purchasers named therein. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed May 23, 2022. 10.57** Form of executive restricted stock award contract. Incorporated by reference to the corresponding numbered exhibit 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. 10.61 Fourth Amendment to Credit Agreement and Modification of Note and Other Loan Documents, dated November 7, 2022. 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. 74 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. 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. 75 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. 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. 76 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. 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. 10.129 Property Quota Share Reinsurance Contract effective June 1, 2022 issued to United Property and Casualty Insurance Company by TypTap Insurance Company. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 9, 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 . 77 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. November 9, 2022 By: /s/ Paresh Patel Paresh Patel Chief Executive Officer (Principal Executive Officer) November 9, 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. 78