What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-08 · 426 added, 218 removed, 827 unchanged (44% of the section changed)

14 unchanged sentences

Investment in unconsolidated joint venture, at equity

Assets held for sale

Real estate investments

31 unchanged sentences

Stockholders' equity:

7% Series A cumulative convertible preferred stock (no par value,

1,500,000 shares authorized, no shares issued or outstanding)

Series B junior participating preferred stock (no par value, 400,000 shares

authorized, no shares issued or outstanding)

Preferred stock (no par value, 18,100,000 shares authorized, no shares

issued or outstanding)

7% Series A cumulative convertible preferred stock ( no par value, none and

1,500,000 shares authorized at June 30, 2020 and December 31, 2019, respectively,

no shares issued or outstanding)

Series B junior participating preferred stock ( no par value, none and

400,000 shares authorized at June 30, 2020 and December 31, 2019, respectively,

no shares issued or outstanding)

Preferred stock ( no par value, 20,000,000 and 18,100,000 shares authorized

at June 30, 2020 and December 31, 2019, respectively, no shares issued

or outstanding)

Common stock ( no par value, 40,000,000 shares authorized, 7,794,048 and

7,764,564 shares issued and outstanding at March 31, 2020 and

7,764,564 shares issued and outstanding at June 30, 2020 and

December 31, 2019, respectively)

10 unchanged sentences

Three Months Ended

Six Months Ended

Gross premiums earned

1 unchanged sentence

Net premiums earned

Net investment (loss) income

Net realized investment losses

Net unrealized investment (losses) gains

Net investment income

Net realized investment gains (losses)

Net unrealized investment gains (losses)

Credit losses on investments

5 unchanged sentences

Interest expense

Loss on repurchases of convertible senior notes

Other operating expenses

10 unchanged sentences

Three Months Ended

Other comprehensive (loss) income:

Change in unrealized (loss) gain on investments:

Net unrealized (loss) gain arising during the period

Six Months Ended

Other comprehensive income (loss):

Change in unrealized gain (loss) on investments:

Net unrealized gains (losses) arising during the period

Credit losses charged to income

Call and repayment gains charged to investment income

Reclassification adjustment for net realized loss (gain)

Net change in unrealized (loss) gain

Call and repayment (gains) losses charged to investment income

Reclassification adjustment for net realized gains

Net change in unrealized gains (losses)

Deferred income taxes on above change

Total other comprehensive (loss) income, net of income taxes

Comprehensive (loss) income

Total other comprehensive income (loss), net of income taxes

Comprehensive income

See accompanying Notes to Consolidated Financial Statements.

2 unchanged sentences

Consolidated Statement of Stockholders' Equity

For the Three Months Ended March 31, 2020

For the Three Months Ended June 30, 2020

(Dollar amounts in thousands, except per share amount)

1 unchanged sentence

Stockholders’

Balance at December 31, 2019

Total other comprehensive loss, net of

Cumulative effect on adoption of credit loss standard

Exercise of common stock options

Balance at March 31, 2020

Total other comprehensive income, net of

Issuance of restricted stock

7 unchanged sentences

to retained income

Balance at June 30, 2020

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC.

AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended June 30, 2019

(Dollar amounts in thousands, except per share amount)

Comprehensive

Stockholders’

Balance at March 31, 2019

Total other comprehensive income, net of

Exercise of common stock options

Issuance of restricted stock

Forfeiture of restricted stock

Repurchase and retirement of common stock

Repurchase and retirement of common stock under

share repurchase plan

Common stock dividends ($ 0.40 per share)

Stock-based compensation

Additional paid-in capital shortfall allocated

to retained income

Balance at June 30, 2019

See accompanying Notes to Consolidated Financial Statements.

2 unchanged sentences

Consolidated Statement of Stockholders' Equity

For the Three Months Ended March 31, 2019

For the Six Months Ended June 30, 2020

(Dollar amounts in thousands, except per share amount)

4 unchanged sentences

Total other comprehensive loss, net of

Cumulative effect on adoption of credit loss standard

Exercise of common stock options

Issuance of restricted stock

5 unchanged sentences

Stock-based compensation

Balance at March 31, 2019

Additional paid-in capital shortfall allocated

to retained income

Balance at June 30, 2020

See accompanying Notes to Consolidated Financial Statements.

1 unchanged sentence

AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

For the Six Months Ended June 30, 2019

(Dollar amounts in thousands, except per share amount)

Comprehensive

(Loss) Income,

Stockholders’

Balance at December 31, 2018

Total other comprehensive income, net of income

Exercise of common stock options

Issuance of restricted stock

Forfeiture of restricted stock

Repurchase and retirement of common stock

under share repurchase plan

Common stock dividends ($ 0.80 per share)

Stock-based compensation

Additional paid-in capital shortfall allocated

to retained income

Balance at June 30, 2019

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

1 unchanged sentence

Stock-based compensation

Net (accretion of discounts) amortization of premiums on investments in fixed-maturity securities

Net (accretion of discounts) amortization of premiums on investments

in fixed-maturity securities

Depreciation and amortization

Deferred income tax (benefit) expense

Deferred income tax expense

Net realized investment losses

2 unchanged sentences

Loss from unconsolidated joint venture

Net loss from limited partnership interests

Net loss (income) from limited partnership interests

Distributions received from limited partnership interests

Foreign currency remeasurement loss

Loss on repurchases of convertible senior notes

Foreign currency remeasurement loss (gain)

Other non-cash items

15 unchanged sentences

(Amounts in thousands)

Three Months Ended

Six Months Ended

Cash flows from investing activities:

18 unchanged sentences

Repayment of long-term debt

Repurchases of convertible senior notes

Repurchases of common stock

1 unchanged sentence

Debt issuance costs

Net cash provided by (used in) financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

10 unchanged sentences

Payable on purchases of equity securities

Payable on purchases of fixed-maturity securities

See accompanying Notes to Consolidated Financial Statements.

14 unchanged sentences

In addition, Greenleaf Capital, LLC, the Company’s real estate subsidiary, is primarily engaged in the businesses of owning and leasing real estate and operating marina facilities and one restaurant.

On February 5, 2020, HCPCI entered into a policy replacement agreement with Anchor Property & Casualty Insurance Company (“Anchor”).

Under the agreement, Anchor cancelled all its policies as of April 1, 2020 and HCPCI offered short-term replacement policies to those policyholders, who are under no obligation to accept them.

The replacement policies had substantially the same terms and rates as the cancelled polices and would expire on the same dates the cancelled policies would have expired had they not been cancelled.

Upon expiration of the replacement policies, HCPCI will offer, but is not obligated to offer, renewals to those policyholders at its own rates and terms.

Total replacement policies issued by the Company on April 1, 2020 approximated 40,000 .

Risks and Uncertainties Caused by Novel Coronavirus (“COVID-19”)

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.

On March 11, 2020, the World Health Organization (“WHO”) declared the outbreak of COVID-19 a pandemic.

COVID-19 is a respiratory illness caused by a virus that can spread from person to person.

To contain the spread of COVID-19, measures are being undertaken in the United States of America and elsewhere around the world.

To contain the spread of COVID-19, measures have been undertaken in the United States of America and elsewhere around the world.

These measures include, but are not limited to, domestic and international travel restrictions, temporary closure of nonessential businesses, cessation of public activity, and work-from-home orders, which has led to significantly reduced economic activity.

In Florida where the Company’s headquarters is located, a statewide stay-at-home order was issued.

In response to the pandemic, the Company temporarily closed its offices in Florida and asked employees to work from home until further notice.

The Company also closed temporarily its restaurant and both of its marinas.

To prevent the U.S.

economy from further deterioration, several state and local governments have relaxed or lifted some of these measures even though infection rates remain above five percent, the level at which the WHO recommends rates fall below for at least 14 days before reopening.

In Florida where the Company’s headquarters is located, a statewide stay-at-home order was issued and later lifted in May 2020.

In response to the pandemic, the Company temporarily closed its offices in Florida and asked employees to work from home.

The Company also closed temporarily its restaurant.

Since then, some employees who have gone through the Company’s health safety training are allowed to alternate their work location between home and office.

The Company quickly adjusted its technologies and infrastructure to support a remote workforce and maintain business continuity.

2 unchanged sentences

The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property.

The Company qualifies as a small business under the CARES Act but did not apply for any of the government loan programs.

At present, the Company’s insurance subsidiaries do not foresee a direct material impact from the outbreak of COVID-19 in terms of increased claims and losses.

However, the resulting economic uncertainty is adversely affecting the results of the Company’s investment portfolios (See Note 5 -- Investments).

The Company generally holds or invests premiums collected from policyholders in the financial markets in order to earn income before claims need to be paid.

Since the economic outlook started to deteriorate, the Company’s investments in limited partnerships, equity and fixed-maturity securities have decreased in value significantly.

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The Company qualifies as a small business under the CARES Act but d id not apply for any of the government loan programs .

At present, the Company’s insurance subsidiaries do not foresee a direct material impact from the outbreak of COVID-19 in terms of increased claims and losses.

However, the resulting economic uncertainty is adversely affecting the results of the Company’s investment portfolios (See Note 5 -- Investments).

The Company generally holds or invests premiums collected from policyholders in the financial markets in order to earn income before claims need to be paid.

Since the economic outlook started to deteriorate, the Company’s investments in limited partnerships, equity and fixed-maturity securities have decreased in value.

In addition, the Company’s insurance subsidiaries may experience difficulties collecting premiums from some policyholders.

Policyholders with financial difficulties may decide not to renew insurance policies with the Company.

R einsurance companies with which the Company has contracted may also face liquidity issues and may not timely settle reinsurance balances that become due.

Reinsurance costs could also increase as reinsurers pay COVID-19 related claims wo rldwide and face the possibility of increases in the cost of capital needed to fund their operations.

Reinsurance companies with which the Company has contracted may also face liquidity issues and may not timely settle reinsurance balances that become due.

Reinsurance costs have increased as reinsurers pay COVID-19 related claims worldwide and face the possibility of increases in the cost of capital needed to fund their operations.

Furthermore, due to the impact of the COVID-19 outbreak on retail business activities, rent payments due from the Company’s lessees may be delayed or not received.

Some lessees, with the exception of all anchor tenants, have already sought rent concessions in order to stay in business.

Some lessees, with the exception of all anchor tenants, have sought rent concessions in order to stay in business.

In the near term, the Company determined there is no impairment to its real estate investments or intangible assets as the real estate market is inherently slower moving than equity and debt security markets.

For other auxiliary operations such as restaurant and marina business, the temporary closure of these operations has no material impact on the Company’s results of operations.

It is too early to gauge the effectiveness of the CARES Act in assisting targeted individuals and businesses and preventing economic downturn.

It is too early to gauge the effectiveness of the CARES Act and any upcoming stimulus package in assisting targeted individuals and businesses and preventing further economic downturn.

As of the date of issuance of these interim unaudited consolidated financial statements, the extent to which the COVID-19 pandemic may materially affect the Company's financial condition, liquidity, or results of operations in the medium and long-term future remains uncertain and unquantifiable.

6 unchanged sentences

GAAP have been omitted pursuant to such rules and regulations.

However, in the opinion of management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2020 and the results of operations and cash flows for the periods presented.

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 June 30, 2020 and the results of operations and cash flows for the 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, 2020.

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, 2019 included in the Company’s Form 10-K, which was filed with the SEC on March 6, 2020.

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.

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

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 re insurance with retrospective provisions, reinsurance recoverable, deferred income taxes, and stock-based compensation expense involve significant judgments and estimates material to the Company’s consolidated financial statements.

In addition, accounting policies specific to reinsurance with retrospective provisions, reinsurance recoverable, deferred income taxes, 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.

9 unchanged sentences

Any subsequent changes to the expected credit losses will be recognized in the Company’s consolidated statement of income.

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

9 unchanged sentences

In addition, the Company elects not to measure an allowance for credit losses for accrued interest receivable as any uncollectible amount is adjusted to interest income on a monthly basis.

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

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.

1 unchanged sentence

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 compan ies considered by A.M.

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.

9 unchanged sentences

The Company generally recognizes its share of the limited partnership’s earnings or losses on a three-month lag.

Due to the lag, the Company may record an adjustment to the Company’s most recent share of net asset value when the amount can be reasonably estimated.

Due to the lag, the Company may record an adjustment to the Company’s most recent share of net asset value when the amount can be reasonably estimated and a significant adverse impact on the net asset value is expected as a result of a major economic event.

Net investment income or loss from limited partnerships represents a net aggregate amount of operating results allocated to the Company based on the percentage of ownership interest in each limited partnership.

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Pursuant to U.S.

10 unchanged sentences

Therefore, there is no unpaid earned premium and credit loss associated with the cancelled policy.

However, when the 30-day grace period falls between two reporting periods, the premium receivable balance at the end of the first reporting period may potentially be overstated for not considering the policy that is subsequently cancelled during the following reporting period.

To mitigate the overstatement issue, the Company estimates the monetary impact from the subsequent policy cancellation by multiplying the historical cancellation rate to the premium receivable balance at the reporting date.

The premium receivable balance, together with the unearned premium liability is then reduced by the computed amount.

At June 30, 2020 and December 31, 2019, allowances for uncollectible premiums were $ 1,034 and $ 528 , respectively.

Deferred Policy Acquisition Costs

Deferred policy acquisition costs (“DAC”) represent direct costs to acquire insurance contracts and consist of premium taxes and commissions paid to outside agents at the time of collection of the policy premium.

DAC also includes a cash bonus and other related expenses in association with the successful transition of policies from Anchor for the replacement policies and issuance of renewal policies under the Company’s own rates and terms.

DAC is amortized over the life of the related policy in relation to the amount of gross premiums earned.

The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value, which gives effect to the gross premium earned, related investment income, unpaid losses and loss adjustment expenses and certain other costs expected to be incurred as the premium is earned.

DAC is reviewed to determine if it is recoverable from future premium income, including investment income.

If such costs are determined to be unrecoverable, they are expensed at the time of determination.

The amount of DAC considered recoverable could be reduced in the near term if the estimates of total revenues discussed above are reduced or permanently impaired as a result of the disposition of a line of business.

The amount of amortization of DAC could be revised in the near term if any of the estimates discussed above are revised.

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

However, when the 30-day grace period falls between two reporting periods, t he premium receivable balance at the end of the first reporting period may potentially be overstated for not considering the policy that is subsequently cancelled during the following reporting period.

To mitigate the overstatement issue, the Company estim ates the monetary impact from the subsequent policy cancellation by multiplying the historical cancellation rate to the premium receivable balance at the reporting date.

The premium receivable balance, together with the unearned premium liability is then r educed by the computed amount.

At March 31, 2020 and December 31, 2019, allowances for uncollectible premiums were $1,217 and $528, respectively.

Note 3 -- Recent Accounting Pronouncements

18 unchanged sentences

The Company holds investments in fixed-maturity securities that are classified as available-for-sale.

At March 31, 2020 and December 31, 2019, 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:

As of March 31, 2020

At June 30, 2020 and December 31, 2019, 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:

Allowance for Credit

As of June 30, 2020

Treasury and U.S.

12 unchanged sentences

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

The scheduled contractual maturities of fixed-maturity securities as of March 31, 2020 and December 31, 2019 are as follows:

As of March 31, 2020

The scheduled contractual maturities of fixed-maturity securities as of June 30, 2020 and December 31, 2019 are as follows:

As of June 30, 2020

Due in one year or less

12 unchanged sentences

Sales of Available-for-Sale Fixed-Maturity Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three months ended March 31, 2020 and 2019 were as follows:

Three months ended March 31, 2020

Three months ended March 31, 2019

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and six months ended June 30, 2020 and 2019 were as follows:

Three months ended June 30, 2020

Three months ended June 30, 2019

Six months ended June 30, 2020

Six months ended June 30, 2019

Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities

Securities with gross unrealized loss positions at March 31, 2020 and December 31, 2019, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:

Securities with gross unrealized loss positions at June 30, 2020 and December 31, 2019, 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

As of March 31, 2020

As of June 30, 2020

Corporate bonds

2 unchanged sentences

Redeemable preferred stock

At March 31, 2020, there were 48 securities in an unrealized loss position.

At June 30, 2020, there were 25 securities in an unrealized loss position.

Of these securities, none had been in an unrealized loss position for 12 months or longer.

20 unchanged sentences

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 summarized the activity in the allowance for credit losses of available-for-sale securities for the three months ended on March 31, 2020:

Three Months Ended

March 31, 2020

Beginning allowance for credit losses

The table below summarized the activity in the allowance for credit losses of available-for-sale securities for the three and six months ended on June 30, 2020:

Balance at January 1

Credit loss expense

Ending allowance for credit losses

Balance at March 31

Credit loss expense

Balance at June 30

b) Equity Securities

The Company holds investments in equity securities measured at fair values which are readily determinable.

At March 31, 2020 and December 31, 2019, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:

March 31, 2020

At June 30, 2020 and December 31, 2019, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:

June 30, 2020

December 31, 2019

1 unchanged sentence

Three Months Ended

Net (losses) gains recognized

Net realized losses recognized for

Six Months Ended

Net gains (losses) recognized

Net realized gains (losses) recognized for

securities sold

Net unrealized (losses) gains recognized

Net unrealized gains (losses) recognized

HCI GROUP, INC.

3 unchanged sentences

Sales of Equity Securities

Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three months ended March 31, 2020 and 2019 were as follows:

Three months ended March 31, 2020

Three months ended March 31, 2019

Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and six months ended June 30, 2020 and 2019 were as follows:

Three months ended June 30, 2020

Three months ended June 30, 2019

Six months ended June 30, 2020

Six months ended June 30, 2019

c) Limited Partnership Investments

3 unchanged sentences

The following table provides information related to the Company’s investments in limited partnerships:

March 31, 2020

June 30, 2020

December 31, 2019

20 unchanged sentences

Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.

Expected to have a ten-year term.

Although the capital commitment period has expired, there are still follow-on investments and pending commitments that require additional fundings.

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Expected to have a ten-year term .

A lthough the capital commitment period has expired, there are still follow-on in vest ments and pending commitments that require additional fundings.

Expected to have a three-year term from June 30, 2018.

1 unchanged sentence

At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods.

Expected to have a ten-year term and the capital commitment is expected to expire on June 30, 2020.

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.

With the consent of a supermajority of partners, the term of the fund may be extended for up to three additional one-year periods.

5 unchanged sentences

Three Months Ended

Six Months Ended

Operating results:

Total expenses

Net (loss) income

Balance Sheet:

Total liabilities

For the three months ended March 31, 2020 and 2019, the Company recognized net investment loss of $2,935 and $211, respectively.

Included in the net investment loss for the three months ended March 31, 2020 was $2,968 of an estimated unfavorable change in net asset value due to the impact of COVID-19 to the world economy.

During the three months ended March 31, 2020 and 2019, the Company received total cash distributions of $696 and $1,013, respectively, including returns on investment of $382 and $1,013, respectively.

At March 31, 2020 and December 31, 2019, the Company’s cumulative contributed capital to the partnerships at each respective balance sheet date totaled $30,447 and $29,528, respectively, and the Company’s maximum exposure to loss aggregated $25,634 and $28,346, respectively.

For the three and six months ended June 30, 2020, the Company recognized net investment income of $ 188 and net investment loss of $ 2,747 , respectively.

During the three and six months ended June 30, 2020, the Company received total cash distributions of $ 196 and $ 892 , respectively, including returns on investment of $ 196 and $ 578 , respectively.

For the three and six months ended June 30, 2019, the Company recognized net investment income of $ 1,043 and $ 832 , respectively, for these investments.

During the three and six months ended June 30, 2019, the Company received total cash distributions of $ 3,073 and $ 4,086 , respectively.

Cash distributions representing return on investment were $ 2,603 and $ 3,616 for the three and six months ended June 30, 2019, respectively.

At June 30, 2020 and December 31, 2019, the Company’s cumulative contributed capital to the partnerships at each respective balance sheet date totaled $ 30,998 and $ 29,528 , respectively, and the Company’s maximum exposure to loss aggregated $ 26,177 and $ 28,346 , respectively.

HCI GROUP, INC.

4 unchanged sentences

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.

At March 31, 2020 and December 31, 2019, the Company’s maximum exposure to loss relating to the variable interest entity was $746 and $762, respectively, representing the carrying value of the investment.

There were no cash distributions during the three months ended March 31, 2020 and 2019.

At March 31, 2020 and December 31, 2019, there was no undistributed income from this equity method investment.

At June 30, 2020 and December 31, 2019, the Company’s maximum exposure to loss relating to the variable interest entity was $ 734 and $ 762 , respectively, representing the carrying value of the investment.

There were no cash distributions during the six months ended June 30, 2020 and 2019.

At June 30, 2020 and December 31, 2019, there was 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

Six Months Ended

Operating results:

10 unchanged sentences

Includes the 90 % share of FMKT Mel JV’s operating results.

e) Real Estate Investments

Real estate investments consist of the following as of March 31, 2020 and December 31, 2019.

e) Assets Held for Sale

On April 9, 2020, Greenleaf Capital, LLC decided to offer for sale its investment property in Riverview, Florida.

The proceeds from the sale are expected to exceed the property’s carrying value of $ 4,519 and, accordingly, no impairment loss was recognized on the classification of this property as held for sale.

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

f ) Real Estate Investments

Real estate investments consist of the following as of June 30, 2020 and December 31, 2019.

Land improvements

3 unchanged sentences

Real estate investments

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Depreciation and amortization expense related to real estate investments was $455 and $332 for the three months ended March 31, 2020 and 2019, respectively.

During the first quarter of 2020, the Company incurred additional construction costs of $2,338 related to an ongoing redevelopment project in Clearwater, Florida.

f) Net Investment (Loss) Income

Depreciation and amortization expense related to real estate investments was $ 432 and $ 422 for the three months ended June 30, 2020 and 2019, respectively, and $ 887 and $ 754 for the six months ended June 30, 2020 and 2019, respectively.

During the second quarter of 2020, the Company classified the investment property as described earlier to assets held for sale.

g) Net Investment (Loss) Income

Net investment (loss) income, by source, is summarized as follows:

Three Months Ended

Six Months Ended

Available-for-sale fixed-maturity securities

6 unchanged sentences

Short-term investments

Net investment (loss) income

Net investment income

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 6 -- Comprehensive Income (Loss)

4 unchanged sentences

Three Months Ended

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

Unrealized gains arising during the period

Change in allowance for credit losses

Call and repayment (gains) losses charged to

investment income

Reclassification adjustment for realized

Total other comprehensive gains

Six Months Ended

June 30, 2020

June 30, 2019

Unrealized (losses) gains arising during the period

2 unchanged sentences

investment income

Reclassification adjustment for realized losses (gains)

Reclassification adjustment for

realized gains

Total other comprehensive (losses) gains

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 7 -- Fair Value Measurements

4 unchanged sentences

Inputs that are unobservable.

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

16 unchanged sentences

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.

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Revolving Credit Facility

2 unchanged sentences

As a result, its carrying value approximates fair value.

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

12 unchanged sentences

The following table presents information about the Company’s financial assets measured at estimated fair value on a recurring basis.

The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of March 31, 2020 and December 31, 2019:

The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of June 30, 2020 and December 31, 2019:

Fair Value Measurements Using

As of March 31, 2020

As of June 30, 2020

Financial Assets:

1 unchanged sentence

Restricted cash

Short-term investments

Fixed-maturity securities:

7 unchanged sentences

Equity securities

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Fair Value Measurements Using

13 unchanged sentences

Equity securities

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Assets and Liabilities Carried at Other Than Estimated Fair Value

The following tables present fair value information for assets and liabilities that are carried on the balance sheet at amounts other than fair value as of March 31, 2020 and December 31, 2019:

The following tables present fair value information for assets and liabilities that are carried on the balance sheet at amounts other than fair value as of June 30, 2020 and December 31, 2019:

Fair Value Measurements Using

As of March 31, 2020

As of June 30, 2020

Financial Liabilities:

18 unchanged sentences

Total long-term debt

Note 8 -- Deferred Policy Acquisition Costs

In connection with the transition of insurance policies from Anchor described in Note 1 -- “Nature of Operations,” the Company incurred $ 3,023 of direct costs, consisting of a bonus to Anchor of $ 2,898 and other related expenses of $ 125 .

The Company agreed to pay Anchor a cash bonus of $ 50 per $1,000 of premium for all policies in forces at June 1, 2020 that were in compliance with the conditions stated in the agreement.

At June 30, 2020, other liabilities included $ 1,653 representing the remaining bonus payable to Anchor.

Note 9 -- Property and Equipment, Net

On April 2, 2020, Greenleaf Capital, LLC entered into a purchase and sale agreement with Tampa-Coconut Palms Office Building Exchange, LLC to acquire an office building in Tampa, Florida for a purchase price of $ 4,000 in cash.

The building will be used as the Company’s secondary site in the Tampa Bay area.

The transaction was completed on May 18, 2020 and accounted for as an asset acquisition.

HCI GROUP, INC.

11 unchanged sentences

During the first quarter of 2020, the Company borrowed an additional amount of $ 14,000 for general business purposes.

For the three months ended March 31, 2020 and 2019, interest expense was $153 and $69, respectively, including $39 of amortization of issuance costs in each of the periods.

At March 31, 2020, the Company was in compliance with all required covenants, and there were $23,750 of borrowings outstanding.

For the three months ended June 30, 2020 and 2019, interest expense was $ 162 and $ 127 , respectively, including $ 40 of amortization of issuance costs in each of the periods.

For the six months ended June 30, 2020 and 2019, interest expense was $ 315 and $ 196 , respectively, including $ 79 of amortization of issuance costs in each of the periods.

At June 30, 2020, the Company was in compliance with all required covenants, and there were $ 23,750 of borrowings outstanding.

Note 12 -- Long-Term Debt

3 unchanged sentences

4 % Promissory note, due through February 1, 2031

3.75% Callable promissory note, due through

September 1, 2036

3.75 % Callable promissory note, due through September 1, 2036

4.55 % Promissory note, due through August 1, 2036

8 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The following table summarizes future maturities of long-term debt as of March 31 , 20 20 , which takes into consideration the assumption that the 4.25% Convertible Senior Notes are repurchased at the earliest call date.

Due in 12 months following March 31,

The following table summarizes future maturities of long-term debt as of June 30, 2020, which takes into consideration the assumption that the 4.25 % Convertible Senior Notes are repurchased at the earliest call date.

Due in 12 months following June 30,

Information with respect to interest expense related to long-term debt is as follows:

Three Months Ended

Six Months Ended

Interest Expense:

7 unchanged sentences

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 Notes.

Accordingly, as of March 31, 2020, the conversion rate of the Company’s 4.25% Convertible Notes was 16.3843 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $61.03 per share.

As of March 31, 2020, the remaining amortization period of the debt discount for 4.25% Convertible Notes was expected to be 1.9 years.

Accordingly, as of June 30, 2020, the conversion rate of the Company’s 4.25 % Convertible Notes was 16.4039 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $ 60.96 per share.

In June 2020, the Company repurchased an aggregate of $ 4,550 in principal of the 4.25% Convertible Notes and recognized a $ 150 loss from the repurchases.

As of June 30, 2020, the remaining amortization period of the debt discount for 4.25% Convertible Notes was expected to be 1.7 years.

3.95% Promissory Note

In February 2020, the Company repaid its 3.95 % Promissory Note .

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

3.90% Promissory Note

4 unchanged sentences

The proceeds were primarily used to repay the 3.95% Promissory Note due in February 2020.

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

On Ma rch 19, 2020, the loan agreement was modified to re vise the due dates for the first and last installments to May 1, 2020 and April 1, 2032, respectively, while other terms and conditions remain intact.

On March 19, 2020, the loan agreement was modified to revise the due dates for the first and last installments to May 1, 2020 and April 1, 2032 , respectively, while other terms and conditions remain intact.

Note 13 -- Reinsurance

2 unchanged sentences

Under the terms of the quota share reinsurance agreement, the Company is entitled to a 30 % ceding commission on ceded premiums written.

The reinsurance premiums under one multi-year flood catastrophe excess of loss reinsurance contract are generally determined on a quarterly basis based on the premiums associated with the applicable flood total insured value in force on the last day of the preceding quarter.

The reinsurance premiums under one flood catastrophe excess of loss reinsurance contract are generally determined on a quarterly basis based on the premiums associated with the applicable flood total insured value in force on the last day of the preceding quarter.

The Company remains liable for claims payments in the event that any reinsurer is unable to meet its obligations under the reinsurance agreements.

3 unchanged sentences

The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions.

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The impact of the reinsurance contracts on premiums written and earned is as follows:

Three Months Ended

Six Months Ended

Premiums Written:

3 unchanged sentences

Net premiums earned

During the three months ended March 31, 2020 and 2019, ceded losses of $338 and $0, respectively, were recognized as a reduction in losses and loss adjustment expenses.

At March 31, 2020 and December 31, 2019, there were 31 reinsurers participating in the Company’s reinsurance program.

Total gross amounts recoverable and receivable from reinsurers at March 31, 2020 and December 31, 2019 were $118,132 and $132,678, respectively.

Approximately 61.1% of the reinsurance recoverable balance at March 31, 2020 was receivable from the Florida Hurricane Catastrophe Fund, a state trust fund.

Based on all available information considered in the rating-based method described in Note 2 -- “Summary of Significant Accounting Policies,” the Company recognized a decrease in credit loss expense of $24 for the three months ended March 31, 2020 as opposed to $0 for the same period in 2019.

Allowances for credit losses related to the reinsurance recoverable balance were $429 and $0 at March 31, 2020 and December 31, 2019.

During the three and six months ended June 30, 2020, ceded losses of $ 11 and $ 349 , respectively, were recognized as a reduction in losses and loss adjustment expenses.

There were no ceded losses recognized during the three and six months ended June 30, 2019.

At June 30, 2020 and December 31, 2019, there were 40 and 31 reinsurers, respectively, participating in the Company’s reinsurance program.

Total gross amounts recoverable and receivable from reinsurers at June 30, 2020 and December 31, 2019 were $ 100,430 and $ 132,678 , respectively.

Approximately 47.3 % of the reinsurance recoverable balance at June 30, 2020 was receivable from the Florida Hurricane Catastrophe Fund, a state trust fund.

Based on all available information considered in the rating-based method described in Note 2 -- “Summary of Significant Accounting Policies,” the Company recognized a decrease in credit loss expense of $ 325 and $ 349 for the three and six months ended June 30, 2020, respectively.

Allowances for credit losses related to the reinsurance recoverable balance were $ 104 and $ 0 at June 30, 2020 and December 31, 2019, respectively.

One of the reinsurance contracts includes retrospective provisions that adjust premiums in the event losses are minimal or zero.

For the three and six months ended June 30, 2020, the Company recognized reductions in premiums ceded of $ 3,240 and $ 5,760 , respectively, related to these adjustments in the consolidated statement of income.

For the three and six months ended June 30, 2019, the Company recognized net reductions in premiums ceded of $ 1,226 and $ 1,738 , respectively, related to these adjustments.

Amounts receivable pursuant to retrospective provisions are reflected in other assets.

At June 30, 2020 and December 31, 2019, other assets included $ 1,560 and $ 9,480 related to these adjustments, respectively.

In June 2020, the Company received $ 13,680 of premium refund under the retrospective reinsurance contract that ended May 31, 2020.

Management believes the credit risk associated with the collectability of these accrued benefits is minimal as the amount receivable is concentrated with one reinsurer and the Company monitors the creditworthiness of this reinsurer based on available information about the reinsurer’s financial condition.

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

One of the reinsurance contracts includes retrospective provisions that adjust premiums in the event losses are minimal or zero.

For the three months ended March 31, 2020 and 2019, the Company recognized a reduction in premiums ceded of $2,520 and a net reduction in ceded premiums of $512, respectively, related to these adjustments in the consolidated statement of income.

Amounts receivable pursuant to retrospective provisions are reflected in other assets.

At March 31, 2020 and December 31, 2019, other assets included $12,000 and $9,480 related to these adjustments, respectively.

Note 14 -- Losses and Loss Adjustment Expenses

6 unchanged sentences

Three Months Ended

Six Months Ended

Net balance, beginning of period*

6 unchanged sentences

Net balance, end of period

reinsurance recoverable before allowance for credit losses

reinsurance recoverable before allowance for

credit losses

Gross balance, end of period

1 unchanged sentence

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as these estimates are subject to the outcome of future events.

Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such estimates are adjusted.

During the three months ended March 31, 2020, the Company recognized losses related to prior periods of $2,275 for unfavorable development resulting from litigation for prior years as well as a hail related weather event in 2019.

Changes in estimates, or during which such estimates are adjusted.

During the three months ended June 30, 2020, the Company derecognized losses related to prior periods of $ 650 primarily to decrease the reserve for 2019 loss year.

For the six months ended June 30, 2020, the Company recognized losses related to prior periods of $ 1,625 for unfavorable development for 2019 resulting from litigation.

HCI GROUP, INC.

11 unchanged sentences

The Company’s chief executive officer, who serves as the Company’s chief operating decision maker, evaluates each division’s financial and operating performance based on revenue and operating income.

For the three months ended March 31, 2020 and 2019, revenues from the Company’s insurance operations before intracompany elimination represented 94.2% and 94.5%, respectively, of total revenues of all operating segments.

At March 31, 2020 and December 31, 2019, insurance operations’ total assets represented 85.4% and 85.5%, respectively, of the combined assets of all operating segments.

For the three months ended June 30, 2020 and 2019, revenues from the Company’s insurance operations before intracompany elimination represented 96.2 % and 95.2 %, respectively, of total revenues of all operating segments.

For the six months ended June 30, 2020 and 2019, revenues from the Company’s insurance operations before intracompany elimination represented 96.0 % and 94.9 %, respectively, of total revenues of all operating segments.

At June 30, 2020 and December 31, 2019, insurance operations’ total assets represented 85.9 % and 85.5 %, respectively, of the combined assets of all operating segments.

The following tables present segment information reconciled to the Company’s consolidated statements of income.

2 unchanged sentences

Reclassification/

For Three Months Ended March 31, 2020

For Three Months Ended June 30, 2020

Net premiums earned

Net investment income (loss)

Net realized investment gains (losses)

Net unrealized investment gains

Credit losses on investments

Policy fee income

Total revenue

Losses and loss adjustment expenses

Amortization of deferred policy acquisition costs

Interest expense

Depreciation and amortization

Total expenses

Income (loss) before income taxes

Total revenue from non-affiliates(c)

Other revenue under real estate primarily consisted of rental income from investment properties.

Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.

Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Reclassification/

For Three Months Ended June 30, 2019

Net premiums earned

Net investment income (loss)

Net realized investment losses

Net unrealized investment gains

Policy fee income

Total revenue

Losses and loss adjustment expenses

Amortization of deferred policy acquisition costs

Interest expense

Depreciation and amortization

Total expenses

Income (loss) before income taxes

Total revenue from non-affiliates(c)

Other revenue under real estate primarily consisted of rental income from investment properties.

Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.

Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation.

Reclassification/

For Six Months Ended June 30, 2020

Net premiums earned

Net investment income (loss)

Net realized investment losses

Net unrealized investment losses

17 unchanged sentences

Reclassification/

For Three Months Ended March 31, 2019

For Six Months Ended June 30, 2019

Net premiums earned

Net investment income

Net realized investment gains

Net unrealized investment (losses) gains

Net investment income (loss)

Net realized investment gains (losses)

Net unrealized investment gains

Policy fee income

29 unchanged sentences

1 to 63 months

Storage units

Storage units (e)

3 to 10 years

6 unchanged sentences

There is a bargain purchase option.

As of March 31, 2020, maturities of lease liabilities were as follows:

Due in 12 months following March 31,

The initial lease term has expired in May 2020 .

The lease was renewed for one year .

As of June 30, 2020, maturities of lease liabilities were as follows:

Due in 12 months following June 30,

Total lease payments

7 unchanged sentences

Three Months Ended

Six Months Ended

Finance lease costs:

9 unchanged sentences

Financing cash flows – finance leases

March 31, 2020

June 30, 2020

Weighted-average remaining lease term:

14 unchanged sentences

Note 17 -- Income Taxes

During the three months ended March 31, 2020 and 2019, the Company recorded approximately $110 and $2,545 respectively, of income taxes, which resulted in effective tax rates of 16.7% and 27.4%, respectively.

The decrease in the effective tax rate in 2020 as compared with the corresponding period in the prior year was primarily attributable to the recognition of windfall tax benefits related to share-based awards in the first quarter of 2020.

The Company’s estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items.

In addition, the Company determined there were no significant tax implications as a result of the CARES Act.

During the three months ended June 30, 2020 and 2019, the Company recorded approximately $ 2,887 and $ 2,762 respectively, of income taxes, which resulted in effective tax rates of 24.4 % and 26.8 %, respectively.

The decrease in the effective tax rate as compared with the corresponding period in the prior year was primarily attributable to the recognition of a refund from the State of Florida for 2018 income taxes.

Furthermore, the Florida corporate income tax rate was reduced from 5.5 % to 4.458 % in September 2019.

During the six months ended June 30, 2020 and 2019, the Company recorded approximately $ 2,997 and $ 5,307 , respectively, of income taxes, which resulted in effective tax rates of 24.0 % and 27.1 %, respectively.

The decrease in the effective tax rate in 2020 as compared with the corresponding period in the prior year was

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

primarily attributable to the recognition of the tax refund, the recognition of windfall tax benefits related to share-based awards, and the reduction in state corporate income tax rate.

The Company’s estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items.

In addition, the Company determined there w ere no significant tax implications as a result of the CARES Act.

Note 18 -- Earnings Per Share

4 unchanged sentences

Three Months Ended

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

(Denominator)

5 unchanged sentences

Stock options

Convertible senior notes

Diluted Earnings Per Share:

1 unchanged sentence

assumed conversions

* For the three months ended March 31, 2020 and 2019, convertible senior notes were excluded due to anti-dilutive effect.

Note 17 -- Stockholders’ Equity

On December 19, 2019, the Board of Directors decided to extend the term of the 2019 stock repurchase plan to March 15, 2020.

On March 13, 2020, the Board approved a new stock repurchase plan for 2020 to repurchase up to $20,000 of the Company’s common shares before commissions and fees.

During the three months ended March 31, 2020, the Company repurchased and retired a total of 76,851 shares at a weighted average price per share of $39.55 under these authorized repurchase plans.

The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended March 31, 2020 was $3,041 or $39.58 per share.

During the three months ended March 31, 2019, the Company repurchased and retired a total of 31,789 shares at a weighted average price per share of $42.06 under this authorized repurchase plan.

The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended March 31, 2019 was $1,338, or $42.09 per share.

On January 21, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share.

The dividends were paid on March 20, 2020 to stockholders of record on February 21, 2020.

Six Months Ended

June 30, 2020

June 30, 2019

(Denominator)

Income attributable to participating

Basic Earnings Per Share:

Income allocated to common stockholders

Effect of Dilutive Securities:

Stock options

Convertible senior notes*

Diluted Earnings Per Share:

Income available to common stockholders and

assumed conversions

For the six months ended June 30, 2020, convertible senior notes were excluded due to anti-dilutive effect.

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 19 -- Stockholders’ Equity

On December 19, 2019, the Board of Directors decided to extend the term of the 2019 stock repurchase plan to March 15, 2020.

On March 13, 2020, the Board approved a stock repurchase plan for 2020 to repurchase up to $ 20,000 of the Company’s common shares before commissions and fees.

During the three months ended June 30, 2020, the Company repurchased and retired a total of 51,834 shares at a weighted average price per share of $ 40.48 under these authorized repurchase plans.

The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended June 30, 2020 was $ 2,100 or $ 40.51 per share.

During the six months ended June 30, 2020, the Company repurchased and retired a total of 128,685 shares at a weighted average price per share of $ 39.92 under this authorized repurchase plan.

The total cost of shares repurchased, inclusive of fees and commissions, during the six months ended June 30, 2020 was $ 5,141 , or $ 39.95 per share.

In December 2018, the Company’s Board of Directors authorized a plan for 2019 to repurchase up to $ 20,000 of the Company’s common shares before commissions and fees.

During the three months ended June 30, 2019, the Company repurchased and retired a total of 160,787 shares at a weighted average price per share of $ 41.44 under this authorized repurchase plan.

The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended June 30, 2019 was $ 6,668 , or $ 41.47 per share.

During the six months ended June 30, 2019, the Company repurchased and retired a total of 192,576 shares at a weighted average price per share of $ 41.54 under this authorized repurchase plan.

The total cost of shares repurchased, inclusive of fees and commissions, during the six months ended June 30, 2019 was $ 8,006 , or $ 41.57 per share

On April 13, 2020, the Company’s Board of Directors declared a quarterly dividend of $ 0.40 per common share.

The dividends were paid on June 19, 2020 to stockholders of record on May 15, 2020 .

Preferred Stock

On May 15, 2020, the Company amended its Articles of Incorporation, effective on the same date, to cancel the designation of 1,500,000 shares of the Company’s authorized preferred stock as Series A Cumulative Redeemable Preferred Stock, and the designation of 400,000 shares of the Company’s authorized preferred stock as Series B Junior Participating Preferred Stock.

As a result, all 20,000,000 authorized shares of the Company’s preferred stock are undesignated.

Since the designation of these types of preferred stock, none have ever been issued by the Company.

Note 20 -- Stock-Based Compensation

2 unchanged sentences

Only the 2012 Plan is active and available for future grants.

At March 31, 2020, there were 1,613,942 shares available for grant.

At June 30, 2020, there were 1,474,162 shares available for grant.

Stock Options

Stock options granted and outstanding under the incentive plans vest over periods ranging from immediately vested to five years and are exercisable over the contractual term of ten years .

A summary of the stock option activity for the three months ended March 31, 2020 and 2019 is as follows (option amounts not in thousands):

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 six months ended June 30, 2020 and 2019 is as follows (option amounts not in thousands):

Outstanding at January 1, 2020

Outstanding at March 31, 2020

Exercisable at March 31, 2020

Outstanding at June 30, 2020

Exercisable at June 30, 2020

Outstanding at January 1, 2019

Outstanding at March 31, 2019

Exercisable at March 31, 2019

The following table summarizes information about options exercised for the three months ended March 31, 2020 and 2019 (option amounts not in thousands):

Outstanding at June 30, 2019

Exercisable at June 30, 2019

The following table summarizes information about options exercised for the three and six months ended June 30, 2020 and 2019 (option amounts not in thousands):

Three Months Ended

Six Months Ended

Options exercised

1 unchanged sentence

Tax benefits realized

For the three months ended March 31, 2020 and 2019, the Company recognized $283 and $205, respectively, of compensation expense which was included in general and administrative personnel expenses.

Deferred tax benefits related to stock options were $19 for the three months ended March 31, 2020 and 2019.

At March 31, 2020 and December 31, 2019, there was $2,785 and $1,835, respectively, of unrecognized compensation expense related to nonvested stock options.

For the three months ended June 30, 2020 and 2019, the Company recognized $ 297 and $ 200 , respectively, of compensation expense which was included in general and administrative personnel expenses.

For the six months ended June 30, 2020 and 2019, the Company recognized $ 580 and $ 425 , respectively, of compensation expense.

Deferred tax benefits related to stock options were $ 19 and $ 20 for the three months ended June 30, 2020 and 2019, respectively, and $ 38 and $ 39 for the six months ended June 30, 2020 and 2019, respectively.

At June 30, 2020 and December 31, 2019, there was $ 2,488 and $ 1,835 , 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 2.7 years.

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 assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the stock options granted during the three months ended March 31 , 20 20 and 201 9 :

The following table provides assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the stock options granted during the six months ended June 30, 2020 and 2019:

Expected dividend yield

2 unchanged sentences

Expected life (in years)

HCI GROUP, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Restricted Stock Awards

2 unchanged sentences

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.

Information with respect to the activity of unvested restricted stock awards during the three months ended March 31, 2020 and 2019 is as follows:

Information with respect to the activity of unvested restricted stock awards during the three and six months ended June 30, 2020 and 2019 is as follows:

Nonvested at January 1, 2020

Nonvested at March 31, 2020

Nonvested at June 30, 2020

Nonvested at January 1, 2019

Nonvested at March 31, 2019

Nonvested at June 30, 2019

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $ 1,558 and $ 1,2 54 for the three months ended March 31 , 20 20 and 201 9 , respectively .

At March 31 , 20 20 and December 31, 201 9 , there was approximately $ 12,822 and $ 1 2 , 66 1 , respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangem ents .

The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $ 1,722 and $ 1,269 for the three months ended June 30, 2020 and 2019, respectively, and $ 3,280 and $ 2,523 for the six months ended June 30, 2020 and 2019, respectively.

At June 30, 2020 and December 31, 2019, there was approximately $ 17,483 and $ 12,661 , 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 2.9 years.

The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to restricted stock a wards and paid dividends, and the fair value of vested restricted stock for the three months ended March 31 , 20 20 and 201 9 .

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 six months ended June 30, 2020 and 2019.

Three Months Ended

Six Months Ended

Deferred tax benefits recognized

Tax benefits realized for restricted stock and paid dividends

Tax benefits realized for restricted stock

and paid dividends

Fair value of vested restricted stock

1 unchanged sentence

The dividend payments associated with these awards were expensed when declared.

As a result, for the three months ended March 31, 2019, the Company recognized dividends of $114 in general and administrative personnel expenses for $85 and in other operating expenses for $29.

As a result, for the three months ended June 30, 2019, the Company recognized dividends of $ 113 related to these awards in general and administrative personnel expenses for $ 85 and in other operating expenses for $ 28 .

For the six months ended June 30, 2019, the Company recognized dividends of $ 227 in general and administrative personnel expenses for $ 170 and in other operating expenses for $ 57 .

Note 21 -- Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contract

As of March 31, 2020, the Company has a contractual obligation related to one multi-year reinsurance contract.

This contract may be cancelled only with the other party’s consent.

The future minimum aggregate premium amounts payable to the reinsurer is $1,034 due in April 2020.

The contract expires on June 30, 2020 unless extended.

Capital Commitment

As described in Note 5 -- “Investments” under Limited Partnership Investments , the Company is contractually committed to capital contributions for limited partnership interests.

At March 31, 2020, there was an aggregate unfunded balance of $14,211.

Note 20 -- Subsequent Events

In connection with a policy replacement agreement between HCPCI and Anchor Property & Casualty Insurance Company (“Anchor”) dated February 12, 2020, HCPCI issued approximately 41,000 short-term replacement policies, effective April 1, 2020, to Anchor policyholders whose policy coverages were cancelled by Anchor effective March 31, 2020.

Under the agreement, HCPCI received $30,000 as of March 31, 2020 which is reflected in advanced premiums in the consolidated balance sheet.

This amount will be adjusted in June 2020 according to the terms specified in the agreement.

At June 30, 2020, there was an aggregate unfunded balance of $ 13,660 .

On April 1, 2020, Gulf to Bay LM, LLC, the Company’s wholly owned real estate subsidiary, sued Kroger Co.

in federal district court to enforce a guaranty of a commercial lease executed between Gulf to Bay LM, LLC and Lucky’s Market Operating Company, LLC.

Lucky’s filed for bankruptcy earlier this year.

HCI GROUP, INC.

2 unchanged sentences

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

On April 1, 2020, Gulf to Bay LM, LLC, the Company’s wholly owned real estate subsidiary, sued Kroger Co.

in federal district court to enforce a guaranty of a commercial lease executed between Gulf to Bay LM, LLC and Lucky’s Market Operating Company, LLC.

Lucky has filed for bankruptcy earlier this year.

The transaction is expected to be finalized in late May 2020.

On April 9, 2020, Greenleaf Capital, LLC decided to offer for sale its investment property in Riverview, Florida.

The proceeds from the sale are expected to exceed the property’s carrying value and, accordingly, no impairment loss was recognized on the classification of this property as held for sale.

On April 13, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share.

The dividends are payable on June 19, 2020 to stockholders of record on May 15, 2020.

Note 22 -- Subsequent Events

On July 2, 2020 , the Company’s Board of Directors declared a quarterly dividend of $ 0.40 per common share.

The dividends are payable on September 18, 2020 to stockholders of record on August 21, 2020 .

On July 24, 2020, the Florida Department of Transportation (“FDOT”) exercised the power of eminent domain under the Florida Constitution in order to acquire for a highway expansion project the property in Tampa, Florida where the Company’s headquarters is located for compensation of $ 47,500 .

Under the terms of the agreement, the FDOT assumed all contracts associated with this property, including the leases with existing tenants.

In addition, the Company agreed to donate a small portion of a separate tract of nearby undeveloped land it owns to the FDOT for the same expansion project.

The Company will have no later than July 24, 2023 to vacate the property.

In connection with this transaction, the Company recognized a net gain from involuntary conversion of approximately $ 37,000 .

On July 29, 2020, the Company made an early repayment of its 4 % Promissory Note totaling $ 7,062 in principal plus accrued interest.

The note was collateralized by the Company’s Tampa, Florida headquarters which was acquired by the FDOT in the eminent domain proceedings .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements