HCI Group, Inc. 10-Q

Item 1 – Financial Statements HCI GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollar amounts in thousands) June 30, December 31, 2021 2020 (Unaudited) Assets Fixed-maturity securities, available for sale, at fair value (amortized cost: $ 45,031 and $ 70,265 , respectively and allowance for credit losses: $ 0 and $ 588 , respectively) $ 46,414 $ 71,722 Equity securities, at fair value (cost: $ 39,603 and $ 47,029 , respectively) 44,924 51,130 Limited partnership investments 26,305 27,691 Investment in unconsolidated joint venture, at equity 655 705 Real estate investments 73,812 74,472 Total investments 192,110 225,720 Cash and cash equivalents 626,286 431,341 Restricted cash 2,400 2,400 Accrued interest and dividends receivable 330 588 Income taxes receivable — 4,554 Premiums receivable, net (allowance: $ 2,237 and $ 2,053 , respectively) 69,121 68,382 Prepaid reinsurance premiums 762 36,376 Reinsurance recoverable, net of allowance for credit losses: Paid losses and loss adjustment expenses (allowance: $ 0 and $ 0 , respectively) 13,166 14,127 Unpaid losses and loss adjustment expenses (allowance: $ 57 and $ 85 , respectively) 48,827 71,019 Deferred policy acquisition costs 44,427 43,858 Property and equipment, net 13,317 12,767 Right-of-use assets - operating leases 2,946 4,002 Intangible assets, net 10,933 3,568 Other assets 55,585 22,611 Total assets $ 1,080,210 $ 941,313 (continued) 1 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets – (Continued) (Dollar amounts in thousands) June 30, December 31, 2021 2020 (Unaudited) Liabilities and Equity Losses and loss adjustment expenses $ 203,785 $ 212,169 Unearned premiums 309,842 269,399 Advance premiums 21,225 11,370 Assumed reinsurance balances payable 87 87 Reinsurance payable on paid losses and loss adjustment expenses 7,398 — Accrued expenses 11,776 10,181 Income tax payable 2,552 — Deferred income taxes, net 7,050 11,925 Revolving credit facility — 23,750 Long-term debt 160,569 156,511 Lease liabilities - operating leases 2,950 4,014 Other liabilities 46,856 40,771 Total liabilities 774,090 740,177 Commitments and contingencies (Note 21) Redeemable noncontrolling interest (Note 18) 88,071 — Equity: Common stock ( no par value, 40,000,000 shares authorized, 8,265,640 and 7,785,617 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively) — — Additional paid-in capital — — Retained income 215,612 199,592 Accumulated other comprehensive income, net of taxes 1,054 1,544 Total stockholders’ equity 216,666 201,136 Noncontrolling interests 1,383 — Total equity 218,049 201,136 Total liabilities, redeemable noncontrolling interest and equity $ 1,080,210 $ 941,313 See accompanying Notes to Consolidated Financial Statements (unaudited). 2 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) (Dollar amounts in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Revenue Gross premiums earned $ 139,440 $ 107,803 $ 270,382 $ 200,168 Premiums ceded ( 46,436 ) ( 34,354 ) ( 89,535 ) ( 65,073 ) Net premiums earned 93,004 73,449 180,847 135,095 Net investment income 2,635 1,604 7,229 1,412 Net realized investment gains (losses) 2,607 1,435 3,720 ( 809 ) Net unrealized investment gains (losses) 1,489 2,884 1,220 ( 1,921 ) Credit losses on investments — ( 87 ) — ( 526 ) Policy fee income 992 847 1,962 1,676 Other 777 585 1,400 1,170 Total revenue 101,504 80,717 196,378 136,097 Expenses Losses and loss adjustment expenses 55,917 39,843 101,668 67,921 Policy acquisition and other underwriting expenses 23,169 12,991 46,234 24,817 General and administrative personnel expenses 10,546 9,731 20,196 18,098 Interest expense 2,000 3,020 4,079 5,990 Loss on repurchases of convertible senior notes — 150 — 150 Other operating expenses 4,775 3,159 9,002 6,641 Total expenses 96,407 68,894 181,179 123,617 Income before income taxes 5,097 11,823 15,199 12,480 Income tax expense 1,267 2,887 4,524 2,997 Net income 3,830 8,936 10,675 9,483 Net income attributable to redeemable noncontrolling interest (Note 18) ( 2,179 ) — ( 2,973 ) — Net loss attributable to noncontrolling interests 266 — 363 — Net income after noncontrolling interests $ 1,917 $ 8,936 $ 8,065 $ 9,483 Basic earnings per share $ 0.25 $ 1.16 $ 1.02 $ 1.23 Diluted earnings per share $ 0.24 $ 1.08 $ 0.98 $ 1.23 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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 Net income $ 3,830 $ 8,936 $ 10,675 $ 9,483 Other comprehensive (loss) income: Change in unrealized (loss) gain on investments: Net unrealized gains (losses) arising during the period 99 3,280 ( 83 ) ( 191 ) Credit losses charged to income — 87 — 526 Call and repayment gains charged to investment income — ( 150 ) ( 2 ) ( 216 ) Reclassification adjustment for net realized gains ( 576 ) ( 1,427 ) ( 577 ) ( 1,154 ) Net change in unrealized (losses) gains ( 477 ) 1,790 ( 662 ) ( 1,035 ) Deferred income taxes on above change 117 ( 440 ) 162 253 Total other comprehensive (loss) income, net of income taxes ( 360 ) 1,350 ( 500 ) ( 782 ) Comprehensive income 3,470 10,286 10,175 8,701 Comprehensive loss attributable to noncontrolling interests 275 — 373 — Comprehensive income after noncontrolling interests $ 3,745 $ 10,286 $ 10,548 $ 8,701 See accompanying Notes to Consolidated Financial Statements (unaudited). 4 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Equity For the Three Months Ended June 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 March 31, 2021 8,289,682 $ — $ — $ 216,086 $ 1,405 $ 217,491 $ 117 $ 217,608 Net income (loss) — — — 4,096 — 4,096 ( 266 ) 3,830 Net income attributable to redeemable noncontrolling interest — — — ( 2,179 ) — ( 2,179 ) — ( 2,179 ) Total other comprehensive loss, net of income taxes — — — — ( 351 ) ( 351 ) ( 9 ) ( 360 ) Issuance of restricted stock 3,000 — — — — — — — Forfeiture of restricted stock ( 9,060 ) — — — — — — — Cancellation of restricted stock ( 1,160 ) — — — — — — — Repurchase and retirement of common stock ( 16,822 ) — ( 1,288 ) — — ( 1,288 ) — ( 1,288 ) Dilution from subsidiary stock-based compensation — — — — — — 1,541 1,541 Common stock dividends ($ 0.40 per share) — — — ( 3,659 ) — ( 3,659 ) — ( 3,659 ) Stock-based compensation — — 2,556 — — 2,556 — 2,556 Additional paid-in capital shortfall adjustment allocated to retained income — — ( 1,268 ) 1,268 — — — — Balance at June 30, 2021 8,265,640 $ — $ — $ 215,612 $ 1,054 $ 216,666 $ 1,383 $ 218,049 See accompanying Notes to Consolidated Financial Statements (unaudited). 5 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Stockholders’ Equity For the Three Months Ended June 30, 2020 (Unaudited) (Dollar amounts in thousands, except per share amount) Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Income, Total Stockholders’ Shares Amount Capital Income Net of Tax Equity Balance at March 31, 2020 7,735,204 $ — $ — $ 179,210 $ 46 $ 179,256 Net income — — — 8,936 — 8,936 Total other comprehensive income, net of income taxes — — — — 1,350 1,350 Issuance of restricted stock 145,000 — — — — — Forfeiture of restricted stock ( 5,220 ) — — — — — Repurchase and retirement of common stock ( 29,102 ) — ( 1,309 ) — — ( 1,309 ) Repurchase and retirement of common stock under share repurchase plan ( 51,834 ) — ( 2,100 ) — — ( 2,100 ) Common stock dividends ($ 0.40 per share) — — — ( 3,067 ) — ( 3,067 ) Stock-based compensation — — 2,019 — — 2,019 Additional paid-in capital shortfall allocated to retained income — — 1,390 ( 1,390 ) — — Balance at June 30, 2020 7,794,048 $ — $ — $ 183,689 $ 1,396 $ 185,085 See accompanying Notes to Consolidated Financial Statements (unaudited). 6 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Equity For the Six Months Ended June 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) — — — 11,038 — 11,038 ( 363 ) 10,675 Net income attributable to redeemable noncontrolling interest — — — ( 2,973 ) — ( 2,973 ) — ( 2,973 ) Cumulative effect of change in accounting principle — — — ( 3,018 ) — ( 3,018 ) — ( 3,018 ) Total other comprehensive loss, net of income taxes — — — — ( 490 ) ( 490 ) ( 10 ) ( 500 ) Issuance of restricted stock 551,086 — — — — — — — Forfeiture of restricted stock ( 11,110 ) — — — — — — — 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 Dilution from subsidiary stock-based compensation — — — — — — 1,756 1,756 Issuance of warrants, net of issuance costs (Note 18) — — 8,640 — — 8,640 — 8,640 Common stock dividends ($ 0.80 per share) — — — ( 6,452 ) — ( 6,452 ) — ( 6,452 ) Stock-based compensation — — 4,683 — — 4,683 — 4,683 Additional paid-in capital shortfall adjustment allocated to retained income — — ( 17,425 ) 17,425 — — — — Balance at June 30, 2021 8,265,640 $ — $ — $ 215,612 $ 1,054 $ 216,666 $ 1,383 $ 218,049 See accompanying Notes to Consolidated Financial Statements (unaudited). 7 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Stockholders’ Equity For the Six Months Ended June 30, 2020 (Unaudited) (Dollar amounts in thousands, except per share amount) Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Income, Total Stockholders’ Shares Amount Capital Income Net of Tax Equity Balance at December 31, 2019 7,764,564 $ — $ — $ 183,365 $ 2,178 $ 185,543 Net income — — — 9,483 — 9,483 Total other comprehensive loss, net of income taxes — — — — ( 782 ) ( 782 ) Cumulative effect on adoption of credit loss standard — — — ( 453 ) ( 453 ) Exercise of common stock options 10,000 — 63 — — 63 Issuance of restricted stock 190,000 — — — — — Forfeiture of restricted stock ( 12,358 ) — — — — — Repurchase and retirement of common stock ( 29,473 ) — ( 1,326 ) — — ( 1,326 ) Repurchase and retirement of common stock under share purchase plan ( 128,685 ) — ( 5,141 ) — — ( 5,141 ) Common stock dividends ($ 0.80 per share) — — — ( 6,162 ) — ( 6,162 ) Stock-based compensation — — 3,860 — — 3,860 Additional paid-in capital shortfall allocated to retained income — — 2,544 ( 2,544 ) — — Balance at June 30, 2020 7,794,048 $ — $ — $ 183,689 $ 1,396 $ 185,085 See accompanying Notes to Consolidated Financial Statements (unaudited). 8 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (Amounts in thousands) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net income after noncontrolling interests $ 8,065 $ 9,483 Net income attributable to noncontrolling interests 2,610 — Net income 10,675 9,483 Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation 6,497 3,860 Net amortization of premiums (accretion of discounts) on investments in fixed-maturity securities 144 ( 60 ) Depreciation and amortization 2,928 4,359 Deferred income tax (benefit) expense ( 3,732 ) 1,527 Net realized investment (gains) losses ( 3,720 ) 809 Net unrealized investment (gains) losses ( 1,220 ) 1,921 Credit loss expense - investments — 526 Credit loss expense - reinsurance recoverable ( 28 ) ( 349 ) Loss from unconsolidated joint venture 50 28 Net (income) loss from limited partnership interests ( 2,359 ) 2,747 Distributions received from limited partnership interests 1,792 578 Loss on repurchases of convertible senior notes — 150 Foreign currency remeasurement loss 75 84 Other non-cash items 21 31 Changes in operating assets and liabilities: Accrued interest and dividends receivable 258 703 Income taxes 7,106 ( 2,110 ) Premiums receivable, net ( 739 ) ( 7,670 ) Prepaid reinsurance premiums 35,614 ( 9,167 ) Reinsurance recoverable 23,181 32,248 Deferred policy acquisition costs ( 569 ) ( 7,527 ) Other assets ( 33,622 ) 5,235 Losses and loss adjustment expenses ( 8,384 ) ( 3,535 ) Unearned premiums 40,443 48,071 Advance premiums 9,855 13,619 Assumed reinsurance balances payable — 3 Reinsurance payable on paid losses and loss adjustment expenses 7,398 — Accrued expenses and other liabilities 3,983 14,424 Net cash provided by operating activities 95,647 109,988 (continued) 9 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows – (Continued) (Unaudited) (Amounts in thousands) Six Months Ended June 30, 2021 2020 Cash flows from investing activities: Investments in limited partnership interests ( 700 ) ( 1,470 ) Distributions received from limited partnership interests 2,653 314 Purchase of property and equipment ( 1,275 ) ( 5,349 ) Purchase of real estate investments ( 331 ) ( 2,522 ) Purchase of fixed-maturity securities ( 6,338 ) ( 28,281 ) Purchase of equity securities ( 45,040 ) ( 20,392 ) Purchase of short-term and other investments ( 1,058 ) — Proceeds from sales of fixed-maturity securities 14,680 78,186 Proceeds from calls, repayments and maturities of fixed-maturity securities 16,677 52,594 Proceeds from sales of equity securities 56,511 12,455 Proceeds from sales, redemptions and maturities of short-term and other investments 2,026 460 Net cash provided by investing activities 37,805 85,995 Cash flows from financing activities: Cash dividends paid ( 6,605 ) ( 6,315 ) Cash dividends received under share repurchase forward contract 153 153 Net (repayment) borrowing under revolving credit facility ( 23,750 ) 14,000 Proceeds from exercise of common stock options — 63 Proceeds from issuance of redeemable noncontrolling interest and warrants 100,000 — Issuance costs - redeemable noncontrolling interest ( 6,262 ) — Proceeds from issuance of long-term debt — 10,000 Repayment of long-term debt ( 480 ) ( 9,496 ) Repurchases of convertible senior notes — ( 4,459 ) Repurchases of common stock ( 1,308 ) ( 1,326 ) Repurchases of common stock under share repurchase plan — ( 5,141 ) Purchase of noncontrolling interests ( 58 ) — Debt issuance costs ( 152 ) ( 165 ) Net cash provided by (used in) financing activities 61,538 ( 2,686 ) Effect of exchange rate changes on cash ( 45 ) ( 51 ) Net increase in cash, cash equivalents, and restricted cash 194,945 193,246 Cash, cash equivalents, and restricted cash at beginning of period 433,741 229,918 Cash, cash equivalents, and restricted cash at end of period $ 628,686 $ 423,164 (continued) 10 HCI GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows – (Continued) (Unaudited) (Amounts in thousands) Six Months Ended June 30, 2021 2020 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 1,150 $ 3,902 Cash paid for interest $ 3,492 $ 3,737 Non-cash investing and financing activities: Unrealized loss on investments in available-for-sale securities, net of tax $ ( 500 ) $ ( 782 ) Receivable from sales of equity securities $ 3,455 $ 232 Payable on purchases of equity securities $ 32 $ 203 Warrants issued in Centerbridge transaction $ 9,217 $ — Acquisition of intangibles: Common stock issued $ 5,410 $ — Contingent consideration payable $ 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 -- Nature 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 several 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 the first quarter of 2021, the Company reorganized its operations to focus on specific business segments, resulting in the creation of TypTap Insurance Group, Inc. (“TTIG”) with a separate workforce, board of directors and financial reporting structure. In February 2021, TTIG received a capital investment from a third party representing a minority interest as described in Note 18 -- “Redeemable Noncontrolling Interest.” 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’s reportable segments now include HCPCI insurance operations, TypTap Group, real estate operations, and corporate and other. Real estate operations are conducted by Greenleaf Capital, LLC, the Company’s real estate subsidiary, which is primarily engaged in the businesses of owning and leasing real estate and operating marina facilities. Assumed Business Effective December 31, 2020, United Property & Casualty Insurance Company, an insurance subsidiary of United Insurance Holdings Corporation (“United”), ceded a portion of its personal lines insurance business in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island to HCPCI. Under the reinsurance agreement, HCPCI provides 69.5 % quota share reinsurance on all of United’s in-force, new and renewal policies in those states from December 31, 2020 through May 31, 2021. In exchange, HCPCI paid United an allowance of $ 4,400 towards already purchased catastrophe reinsurance and a provisional ceding commission of 25 % of premium. That percentage could increase up to 31.5 % depending on the direct loss ratio results from the reinsured business. On January 18, 2021, the Company entered into a renewal rights agreement with United in connection with the assumed business. Under the agreement, the Company acquired all rights to renew and/or replace United’s homeowners insurance policies at the end of their respective policy periods in the states of Connecticut, Massachusetts, New Jersey and Rhode Island. The policy replacement date is June 1, 2021 or such other date as mutually agreed by both parties. The agreement also contains a non-compete clause that does not permit United to engage in marketing, selling, writing, renewing, or servicing any homeowners insurance contracts in these states until July 1, 2024. In return, United received 100,000 shares of HCI’s common stock and will receive a 6 % commission on any replacement premium in excess of $ 80,000 . The total commission will not exceed $ 3,100 . The Company and United agreed to postpone the policy replacement date under the renewal rights agreement to a later date and the Company, through HCPCI and TypTap, entered into a new quota share reinsurance agreement in June 2021 to provide 100 % reinsurance on all of United’s in-force, new and renewal policies in those states from June 1, 2021 through May 31, 2022. Under the new agreement, each insurance subsidiary assumes 50 % of the business and pays United a ceding commission of 24 % of premium. 12 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 June 30, 2021 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, 2021. 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, 2020 included in the Company’s Form 10-K, which was filed with the SEC on March 12, 2021. In preparing the interim unaudited consolidated financial statements, management was required to make certain judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term are related to the Company’s losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. The Company uses various assumptions and actuarial data it believes to be reasonable under the circumstances to make these estimates. In addition, accounting policies specific to reinsurance with retrospective provisions, reinsurance recoverable, deferred income taxes, limited partnership investments, warrants, redeemable noncontrolling interest, intangible assets acquired from United, and stock-based compensation expense involve significant judgments and estimates material to the Company’s consolidated financial statements. All significant intercompany balances and transactions have been eliminated. Adoption of New Accounting Standards Accounting Standards Update No. 2020-06. In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06 (“ASU 2020-06”) Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 removes certain bifurcation models for convertible debt instruments and convertible preferred stock. Therefore, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. The amendments also remove three settlement conditions that are required for equity contracts to qualify for the derivative scope exception and amend the derivative scope exception guidance for contracts in an entity’s own equity. In addition, the amendments expand disclosure requirements for convertible instruments and simplify areas of the guidance for diluted earnings-per-share calculations that are impacted by the amendments. 13 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 elected to early adopt this update on January 1, 2021 using the modified retrospective method. The adoption of this update increased long-term debt by $ 3,999 and simultaneously decreased beginning retained income and deferred income tax liabilities by $ 3,018 and $ 981 , respectively. The if-converted method will be the only permissible method for computing the dilutive effect of a convertible debt instrument. Interest expense no longer includes amortization of debt discount. Redeemable Noncontrolling Interest Redeemable noncontrolling interest represents an economic interest in TTIG and is presented in the temporary equity (mezzanine) section of the consolidated balance sheet. The interest contains rights in dividends, voting, conversion, participation, liquidation preference and redemption. The redemption feature is not solely within the control of TTIG (See Note 18 -- “Redeemable Noncontrolling Interest”). The redeemable noncontrolling interest is initially recorded at fair value and is decreased by related issuance costs. The fair value is estimated using a residual fair value approach. The effect of increasing dividend rates is accreted to the redeemable noncontrolling interest with a corresponding debit to retained income. The effective interest method is used for accretion over the period of the increasing dividend rates. The carrying value of the interest is also subsequently adjusted for accrued dividends and dividend payments. The Company has an option to pay the dividends in cash or make a payment in kind. The dividends are accrued monthly assuming that they will be settled in cash. When the redemption is probable, the Company elects to recognize changes in the redemption value immediately as it occurs and adjust the carrying value of the interest to the maximum redemption value which is the higher of the redemption price or fair market value at the reporting date. Such changes in the redemption value are treated as dividends when calculating income available to common stockholders. Noncontrolling Interests The Company has noncontrolling interests attributable to TTIG. A noncontrolling interest arises when the Company has less than 100 % of the voting rights and economic interests in a subsidiary. The noncontrolling interest is periodically adjusted for the expensing of TTIG’s restricted stock awards granted to its employees, the interest’s share of TTIG’s net income or loss to common stockholders and change in other comprehensive income or loss. Stock-Based Compensation The Company accounts for stock-based compensation under the fair value recognition provisions of U.S. GAAP which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors based on estimated fair values. In accordance with U.S. GAAP, the fair value of stock-based awards is generally recognized as compensation expense over the requisite service period, which is defined as the period during which a recipient is required to provide service in exchange for an award. Forfeitures of the Company’s stock-based awards are accounted for as they occur. The Company uses a straight-line attribution method for all grants that include only a service condition. Restricted stock grants with market conditions are expensed over the derived service period. Expensing market-based awards may be expedited if the conditions are met sooner than anticipated. The Company’s outstanding stock-based awards include stock options and restricted stock awards with service and market conditions. Compensation expense related to all awards is included in general and administrative personnel expenses. The Company receives a windfall tax benefit for certain stock option exercises and for restricted stock awards if these awards vest at a higher value than the value used to recognize compensation expense. In the event the restricted stock awards vest at a lower value than the value used to recognize compensation expense, the Company experiences a tax shortfall. The Company recognizes tax windfalls and shortfalls in the consolidated statements of income. 14 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Reclassification In response to the new reporting segment described in Note 1 -- “Nature of Operations,” the prior period segment information has been reclassified to conform with the current period presentation. TypTap and TypTap Management Company were removed from the segment previously referred to as Insurance Operations to form the new TypTap Group segment. The information technology companies which had previously been presented in the Corporate and Other segment were also added to the TypTap Group segment. Note 3 -- Recent Accounting Pronouncements Accounting Standards Update No. 2021-01. In January 2021, the FASB issued Accounting Standards Update No. 2021-01 (“ASU 2021-01”) Reference Rate Reform (Topic 848). This update refines the scope of ASC 848 and clarifies some of its guidance as part of the Board’s monitoring of global reference rate reform activities. ASU 2021-01 permits entities to apply certain optional expedients to modifications of interest rate indexes used for margining, discounting or contract price alignment of certain derivatives in connection with reference rate reform activities under way in global financial markets. It also extends optional expedients to account for a derivative contract modified as a continuation of the existing contract and to continue hedge accounting when certain critical terms of a hedging relationship change to modifications made as part of the discounting transition. ASU 2021-01 is effective immediately and does not have any material impact on the Company’s consolidated financial statements. Accounting Standards Update No. 2021-04. In May 2021, the FASB issued Accounting Standards Update No. 2021-04 (“ASU 2021-04”) Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). This update clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance clarifies whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. ASU 2021-04 is effective for the Company beginning with the first quarter of 2022 and will be applied prospectively. Early adoption is permitted. This guidance will not have a material impact on the Company’s consolidated financial statements. Note 4 -- 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 statements of cash flows. June 30, December 31, 2021 2020 Cash and cash equivalents $ 626,286 $ 431,341 Restricted cash 2,400 2,400 Total $ 628,686 $ 433,741 Restricted cash primarily represents funds held by certain states in which the Company’s insurance subsidiaries conduct business to meet regulatory requirements. 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 5 -- Investments a) Available-for-Sale Fixed-Maturity Securities The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At June 30, 2021 and December 31, 2020, 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 Gross Unrealized Gross Unrealized Estimated Fair Cost Credit Loss Gain Loss Value As of June 30, 2021 U.S. Treasury and U.S. government agencies $ 13,866 $ — $ 133 $ ( 17 ) $ 13,982 Corporate bonds 26,187 — 979 ( 27 ) 27,139 States, municipalities, and political subdivisions 1,756 — 69 — 1,825 Exchange-traded debt 3,106 — 244 — 3,350 Redeemable preferred stock 116 — 2 — 118 Total $ 45,031 $ — $ 1,427 $ ( 44 ) $ 46,414 As of December 31, 2020 U.S. Treasury and U.S. government agencies $ 13,759 $ — $ 210 $ ( 1 ) $ 13,968 Corporate bonds 49,957 ( 579 ) 1,570 ( 17 ) 50,931 States, municipalities, and political subdivisions 3,023 — 60 ( 2 ) 3,081 Exchange-traded debt 3,491 ( 9 ) 230 ( 5 ) 3,707 Redeemable preferred stock 35 — — — 35 Total $ 70,265 $ ( 588 ) $ 2,070 $ ( 25 ) $ 71,722 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 June 30, 2021 and December 31, 2020 are as follows: June 30, 2021 December 31, 2020 Cost or Estimated Cost or Estimated Amortized Cost Fair Value Amortized Cost Fair Value Available-for-sale Due in one year or less $ 10,160 $ 10,235 $ 21,122 $ 21,258 Due after one year through five years 27,250 28,064 43,561 44,339 Due after five years through ten years 5,121 5,381 2,731 3,060 Due after ten years 2,500 2,734 2,851 3,065 $ 45,031 $ 46,414 $ 70,265 $ 71,722 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 securities, for the three and six months ended June 30, 2021 and 2020 were as follows: Gross Realized Gross Realized Proceeds Gains Losses Three months ended June 30, 2021 $ 14,644 $ 576 $ — Three months ended June 30, 2020 $ 74,137 $ 1,653 $ ( 226 ) Six months ended June 30, 2021 $ 14,680 $ 577 $ — Six months ended June 30, 2020 $ 78,186 $ 1,730 $ ( 576 ) Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities Securities with gross unrealized loss positions at June 30, 2021 and December 31, 2020, 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 June 30, 2021 Loss Value Loss Value Loss Value U.S. Treasury and U.S. government agencies $ ( 17 ) $ 3,055 $ — $ — $ ( 17 ) $ 3,055 Corporate bonds ( 27 ) 2,520 — — ( 27 ) 2,520 Exchange-traded debt — 39 — — — 39 Total available-for-sale securities $ ( 44 ) $ 5,614 $ — $ — $ ( 44 ) $ 5,614 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, 2020 Loss Value Loss Value Loss Value U.S. Treasury and U.S. government agencies $ ( 1 ) $ 1,337 $ — $ — $ ( 1 ) $ 1,337 Corporate bonds ( 17 ) 3,085 — — ( 17 ) 3,085 States, municipalities, and political subdivisions ( 2 ) 1,268 — — ( 2 ) 1,268 Exchange-traded debt ( 5 ) 336 — — ( 5 ) 336 Total available-for-sale securities $ ( 25 ) $ 6,026 $ — $ — $ ( 25 ) $ 6,026 At June 30, 2021 and December 31, 2020, there were 21 and 12 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 six months ended June 30, 2021 and 2020: 2021 2020 Balance at January 1 $ 588 $ — Credit loss expense — 439 Reductions for securities sold ( 9 ) — Balance at March 31 $ 579 $ 439 Credit loss expense — 87 Reductions for securities exchanged ( 579 ) — Balance at June 30 $ — $ 526 b) Equity Securities The Company holds investments in equity securities measured at fair values which are readily determinable. At June 30, 2021 and December 31, 2020, 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 June 30, 2021 $ 39,603 $ 5,520 $ ( 199 ) $ 44,924 December 31, 2020 $ 47,029 $ 4,649 $ ( 548 ) $ 51,130 18 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The table below presents the portion of unrealized gains and losses in the Company’s consolidated statements of income for the periods related to equity securities still held. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Net gains (losses) recognized $ 3,069 $ 2,892 $ 3,536 $ ( 3,884 ) Exclude: Net realized gains (losses) recognized for securities sold 1,580 8 2,316 ( 1,963 ) Net unrealized gains (losses) recognized $ 1,489 $ 2,884 $ 1,220 $ ( 1,921 ) Sales of Equity Securities Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and six months ended June 30, 2021 and 2020 were as follows: Gross Realized Gross Realized Proceeds Gains Losses Three months ended June 30, 2021 $ 22,133 $ 1,983 $ ( 403 ) Three months ended June 30, 2020 $ 3,448 $ 184 $ ( 176 ) Six months ended June 30, 2021 $ 56,511 $ 3,125 $ ( 809 ) Six months ended June 30, 2020 $ 12,455 $ 969 $ ( 2,932 ) 19 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) c ) Limited Partnership Investments The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships . The following table provides information related to the Company’s investments in limited partnerships: June 30, 2021 December 31, 2020 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) $ 6,408 $ 2,085 15.37 $ 8,131 $ 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) 4,569 — 1.76 5,512 — 1.76 High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(f)(g) 6,657 1,401 0.18 6,513 1,401 0.18 Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(h)(i) 4,389 — 0.47 4,262 — 0.47 Value-oriented investments in mature real estate private equity funds and portfolio globally. (b)(j) 4,282 5,816 2.24 3,273 6,818 2.24 Total $ 26,305 $ 9,302 $ 27,691 $ 10,304 (a) Represents the Company’s percentage investment in the fund at each balance sheet date. (b) Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated. (c) Expected to have a ten-year term. Although the capital commitment period has expired, there are still follow-on investments and pending commitments that require additional fundings. (d) Expected to have a three-year term from June 30, 2018. Although the capital commitment period has ended, the general partner could still request an additional funding of approximately $ 843 under certain circumstances. (e) At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods. (f) Expected to have a ten-year term. The capital commitment period has expired but the general partner may request additional funding for follow-on investment. (g) With the consent of a supermajority of partners, the term of the fund may be extended for up to three additional one-year periods. (h) Expected to have a six-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners. (i) The capital commitment period has ended but an additional funding may be requested. (j) Expected to have an eight-year term from November 27, 2019. 20 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 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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 Operating results: Total income $ 384,629 $ ( 1,230,124 ) $ 373,681 $ ( 1,681,016 ) Total expenses ( 25,208 ) ( 25,708 ) ( 80,720 ) ( 80,520 ) Net income (loss) $ 359,421 $ ( 1,255,832 ) $ 292,961 $ ( 1,761,536 ) June 30, December 31, 2021 2020 Balance sheet: Total assets $ 5,733,215 $ 5,529,199 Total liabilities $ 546,867 $ 612,048 For the three and six months ended June 30, 2021, the Company recognized net investment income of $ 1,572 and $ 2,359 , respectively. During the three and six months ended June 30, 2021, the Company received total cash distributions of $ 2,421 and $ 4,445 , respectively, including returns on investment of $ 1,314 and $ 1,792 , 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. At June 30, 2021 and December 31, 2020, the Company’s net cumulative contributed capital to the partnerships at each respective balance sheet date totaled $ 27,319 and $ 29,272 , respectively, and the Company’s maximum exposure to loss aggregated $ 26,305 and $ 27,691 , 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 June 30, 2021 and December 31, 2020, the Company’s maximum exposure to loss relating to the variable interest entity was $ 655 and $ 705 , respectively, representing the carrying value of the investment. There were no cash distributions during the six months ended June 30, 2021 and 2020. At June 30, 2021 and December 31, 2020, 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 June 30, June 30, 2021 2020 2021 2020 Operating results: Total revenues $ — $ — $ — $ — Total expenses ( 28 ) ( 13 ) ( 56 ) ( 32 ) Net loss $ ( 28 ) $ ( 13 ) $ ( 56 ) $ ( 32 ) The Company’s share of net loss* $ ( 25 ) $ ( 12 ) $ ( 50 ) $ ( 28 ) * Included in net investment income in the Company’s consolidated statements of income. 21 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) June 30, December 31, 2021 2020 Balance sheet: Property and equipment, net $ 686 $ 705 Cash 42 70 Other 17 13 Total assets $ 745 $ 788 Other liabilities $ 17 $ 5 Members’ capital 728 783 Total liabilities and members’ capital $ 745 $ 788 Investment in unconsolidated joint venture, at equity** $ 655 $ 705 * * Includes the 90 % share of FMKT Mel JV’s operating results. e) Real Estate Investments Real estate investments consist of the following as of June 30, 2021 and December 31, 2020: June 30, December 31, 2021 2020 Land $ 39,069 $ 39,069 Land improvements 11,917 11,917 Buildings 29,097 29,115 Tenant and leasehold improvements 1,413 1,487 Other 1,286 1,465 Total, at cost 82,782 83,053 Less: accumulated depreciation and amortization ( 8,970 ) ( 8,581 ) Real estate investments $ 73,812 $ 74,472 For the six months ended June 30, 2021, the Company incurred a $ 21 loss on disposal of assets related to a closure of a restaurant. Depreciation and amortization expense related to real estate investments was $ 479 and $ 432 for the three months ended June 30, 2021 and 2020, respectively, and $ 970 and $ 887 for the six months ended June 30, 2021 and 2020, respectively. 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 ) Net Investment Income (Loss) Net investment income (loss), by source, is summarized as follows: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Available-for-sale fixed-maturity securities $ 384 $ 1,243 $ 825 $ 2,758 Equity securities 340 299 691 634 Investment expense ( 129 ) ( 124 ) ( 254 ) ( 242 ) Limited partnership investments 1,572 188 2,359 ( 2,747 ) Real estate investments 344 ( 346 ) 3,341 ( 265 ) Loss from unconsolidated joint venture ( 25 ) ( 12 ) ( 50 ) ( 28 ) Cash and cash equivalents 149 362 317 1,301 Short-term investments — ( 6 ) — 1 Net investment income $ 2,635 $ 1,604 $ 7,229 $ 1,412 For the six months ended June 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. h) Other Investments From time to time, the Company may invest in financial assets other than stocks, mutual funds and bonds. For the three and six months ended June 30, 2021, net realized gains related to other investments were $ 452 and $ 827 , respectively. There were no net realized gains or losses related to other investments for the three and six months ended June 30, 2020. Note 6 -- 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 in the allowance for 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 June 30, 2021 June 30, 2020 Before Income Tax Net of Before Income Tax Net of Tax Effect Tax Tax Effect Tax Net unrealized gains $ 99 $ 25 $ 74 $ 3,280 $ 805 $ 2,475 Credit losses on investments — — — 87 21 66 Call and repayment gains charged to investment income — ( 1 ) 1 ( 150 ) ( 37 ) ( 113 ) Reclassification adjustment for realized gains ( 576 ) ( 141 ) ( 435 ) ( 1,427 ) ( 349 ) ( 1,078 ) Total other comprehensive (losses) gains $ ( 477 ) $ ( 117 ) $ ( 360 ) $ 1,790 $ 440 $ 1,350 23 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Six Months Ended Six Months Ended June 30, 2021 June 30, 2020 Before Income Tax Net of Before Income Tax Net of Tax Effect Tax Tax Effect Tax Net unrealized losses $ ( 83 ) $ ( 20 ) $ ( 63 ) $ ( 191 ) $ ( 46 ) $ ( 145 ) Credit losses on investments — — — 526 129 397 Call and repayment gains charged to investment income ( 2 ) ( 1 ) ( 1 ) ( 216 ) ( 53 ) ( 163 ) Reclassification adjustment for realized gains ( 577 ) ( 141 ) ( 436 ) ( 1,154 ) ( 283 ) ( 871 ) Total other comprehensive losses $ ( 662 ) $ ( 162 ) $ ( 500 ) $ ( 1,035 ) $ ( 253 ) $ ( 782 ) Note 7 -- 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. 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. 24 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, which are level 2 inputs. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values. Revolving Credit Facility The Company’s revolving credit facility is a variable-rate loan. The interest rate is periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, its carrying value approximates fair value. Long-Term Debt The following table summarizes components of the Company’s long-term debt and methods used in estimating their fair values: Maturity Date Valuation Methodology 4.25 % Convertible senior notes 2037 Quoted price 3.90 % Promissory note 2032 Discounted cash flow method/Level 3 inputs 3.75 % Callable promissory note 2036 Discounted cash flow method/Level 3 inputs 4.55 % Promissory note 2036 Discounted cash flow method/Level 3 inputs Assets Measured at Estimated Fair Value on a Recurring Basis 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 June 30, 2021 and December 31, 2020: Fair Value Measurements Using (Level 1) (Level 2) (Level 3) Total As of June 30, 2021 Financial Assets: Cash and cash equivalents $ 626,286 $ — $ — $ 626,286 Restricted cash $ 2,400 $ — $ — $ 2,400 Fixed-maturity securities: U.S. Treasury and U.S. government agencies $ 11,276 $ 2,706 $ — $ 13,982 Corporate bonds 27,139 — — 27,139 State, municipalities, and political subdivisions — 1,825 — 1,825 Exchange-traded debt 3,350 — — 3,350 Redeemable preferred stock 118 — — 118 Total available-for-sale securities $ 41,883 $ 4,531 $ — $ 46,414 Equity securities $ 44,924 $ — $ — $ 44,924 25 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 (Level 1) (Level 2) (Level 3) Total As of December 31, 2020 Financial Assets: Cash and cash equivalents $ 431,341 $ — $ — $ 431,341 Restricted cash $ 2,400 $ — $ — $ 2,400 Fixed-maturity securities: U.S. Treasury and U.S. government agencies $ 11,236 $ 2,732 $ — $ 13,968 Corporate bonds 50,931 — — 50,931 State, municipalities, and political subdivisions — 3,081 — 3,081 Exchange-traded debt 3,707 — — 3,707 Redeemable preferred stock 35 — — 35 Total available-for-sale securities $ 65,909 $ 5,813 $ — $ 71,722 Equity securities $ 51,130 $ — $ — $ 51,130 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 consolidated balance sheets at amounts other than fair value as of June 30, 2021 and December 31, 2020: Carrying Fair Value Measurements Using Estimated Value (Level 1) (Level 2) (Level 3) Fair Value As of June 30, 2021 Financial Liabilities: Long-term debt: 4.25 % Convertible senior notes $ 138,484 $ — $ 229,141 $ — $ 229,141 3.90 % Promissory note 9,454 — — 10,700 10,700 3.75 % Callable promissory note 7,329 — — 8,099 8,099 4.55 % Promissory note 5,268 — — 6,255 6,255 Total long-term debt $ 160,535 $ — $ 229,141 $ 25,054 $ 254,195 Carrying Fair Value Measurements Using Estimated Value (Level 1) (Level 2) (Level 3) Fair Value As of December 31, 2020 Financial Liabilities: Revolving credit facility $ 23,750 $ — $ 23,750 $ — $ 23,750 Long-term debt: 4.25 % Convertible senior notes $ 133,964 $ — $ 147,236 $ — $ 147,236 3.90 % Promissory note 9,617 — — 10,044 10,044 3.75 % Callable promissory note 7,502 — — 7,747 7,747 4.55 % Promissory note 5,385 — — 5,809 5,809 Total long-term debt $ 156,468 $ — $ 147,236 $ 23,600 $ 170,836 26 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 8 -- Intangible Assets, Net The Company’s intangible assets, net consist of the following: June 30, December 31, 2021 2020 Anchor tenant relationships* $ 1,761 $ 1,761 In-place leases 4,215 4,215 Policy renewal rights - United 7,634 — Non-compete agreement - United 195 — Total, at cost 13,805 5,976 Less: accumulated amortization ( 2,872 ) ( 2,408 ) Intangible assets, net $ 10,933 $ 3,568 The remaining weighted-average amortization periods for the intangible assets at June 30, 2021 are summarized in the table below: Anchor tenant relationships (a) 12.8 years In-place leases 10.0 years Policy renewal rights - United (c) (a) An anchor tenant is a tenant that attracted more customers than other tenants. (b) The entire amount was fully amortized in June 2021 due to its immateriality. (c) Will be amortized over four years after the policy replacement date. The Company recorded intangible assets of $ 7,829 representing the renewal rights and non-compete agreement described in Note 1 -- “Nature of Operations” in exchange for 100,000 shares of HCI’s common stock and contingent consideration which is a 6 % commission on any replacement premium in excess of $ 80,000 . The contingent consideration was estimated at $ 2,419 which was included in other liabilities on the consolidated balance sheet. Due to the postponement of the renewal and/or replacement of United’s policies as described in Note 1 -- "Nature of Operations,” amortization of the policy renewal rights intangible asset has yet to begin. 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. Total consideration paid consisted of $ 5,410 worth of HCI’s common stock plus a contingent liability of $ 2,419 . 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 9 -- Other Assets The following table summarizes the Company’s other assets: June 30, December 31, 2021 2020 Funds held in a trust account* $ 43,395 $ — Benefits receivable related to retrospective reinsurance contracts 455 10,920 Prepaid expenses 2,714 2,365 Deposits 499 445 Lease acquisition costs, net 475 453 Other 8,047 8,428 Total other assets $ 55,585 $ 22,611 * Represents a balance of unearned written premium, net of provisional commission and catastrophe cost allowance under the 69.5 % reinsurance contract between HCPCI and United. Note 10 -- Revolving Credit Facility In March 2021, the Company repaid the entire credit facility balance of $ 23,750 . For the three months ended June 30, 2021 and 2020, interest expense was $ 25 and $ 162 , respectively, including $ 24 and $ 40 of amortization of issuance costs, respectively. For the six months ended June 30, 2021 and 2020, interest expense was $ 129 and $ 315 , respectively, including $ 49 and $ 79 of amortization of issuance costs, respectively. At June 30, 2021, the Company was in compliance with all required covenants with no borrowings outstanding. The borrowing capacity of the facility is now $ 65,000 . Note 11 -- Long-Term Debt The following table summarizes the Company’s long-term debt: June 30, December 31, 2021 2020 4.25 % Convertible senior notes, due March 1, 2037 $ 139,200 $ 139,200 3.90 % Promissory note, due through April 1, 2032 9,606 9,777 3.75 % Callable promissory note, due through September 1, 2036 7,428 7,607 4.55 % Promissory note, due through August 1, 2036 5,349 5,470 Finance lease liabilities, due through August 15, 2023 34 43 Total principal amount 161,617 162,097 Less: unamortized discount and issuance costs* ( 1,048 ) ( 5,586 ) Total long-term debt $ 160,569 $ 156,511 * Effective January 1, 2021, the balance includes only unamortized issuance costs. See Adoption of New Accounting Standards in Note 2 -- “Summary of Significant Accounting Policies.” 28 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The following table summarizes future maturities of long-term debt as of June 30, 2021, 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, 2021 $ 140,189 2022 1,024 2023 1,056 2024 1,095 2025 1,140 Thereafter 17,113 Total $ 161,617 Information with respect to interest expense related to long-term debt is as follows: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Interest Expense: Contractual interest $ 1,704 $ 1,832 $ 3,411 $ 3,638 Non-cash expense (a) 271 1,068 539 2,120 Capitalized interest (b) — ( 42 ) — ( 83 ) $ 1,975 $ 2,858 $ 3,950 $ 5,675 (a) Includes amortization of debt discount and issuance costs. Amortization of debt discount discontinued effective January 1, 2021. See Adoption of New Accounting Standards in Note 2 -- “Summary of Significant Accounting Policies” for additional information. (b) Interest was capitalized for a construction project. Convertible Senior Notes 4.25% Convertible Notes . 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 June 30, 2021, the conversion rate of the Company’s 4.25 % Convertible Notes was 16.4594 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $ 60.76 per share. During the second quarter of 2021, the Company’s common shares traded above 130 % of the conversion price for at least 20 trading days during the final 30 trading days of the quarter. As a result, the 4.25 % Convertible Notes are convertible by all holders beginning July 1 through September 30, 2021 in accordance with the terms specified in the indenture. As of June 30, 2021, the remaining amortization period of the debt issuance costs for the 4.25% Convertible Notes was expected to be 8 months. Note 12 -- Reinsurance The Company cedes a portion of its homeowners’ insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and 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. 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. 29 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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 Premiums Written: Direct $ 143,224 $ 171,906 $ 253,355 $ 248,478 Assumed 41,754 ( 25 ) 57,471 ( 79 ) Gross written 184,978 171,881 310,826 248,399 Ceded ( 46,436 ) ( 34,354 ) ( 89,535 ) ( 65,073 ) Net premiums written $ 138,542 $ 137,527 $ 221,291 $ 183,326 Premiums Earned: Direct $ 115,733 $ 106,852 $ 226,025 $ 197,619 Assumed 23,707 951 44,357 2,549 Gross earned 139,440 107,803 270,382 200,168 Ceded ( 46,436 ) ( 34,354 ) ( 89,535 ) ( 65,073 ) Net premiums earned $ 93,004 $ 73,449 $ 180,847 $ 135,095 During the three and six months ended June 30, 2021, the Company recognized ceded losses of $ 487 and $ 594 , respectively, as a reduction in losses and loss adjustment expenses. During the three and six months ended June 30, 2020, the Company recognized ceded losses of $ 11 and $ 349 , respectively, as a reduction in losses and loss adjustment expenses. At June 30, 2021 and December 31, 2020, there were 54 and 38 reinsurers, respectively, participating in the Company’s reinsurance program. Total net amounts recoverable and receivable from reinsurers at June 30, 2021 and December 31, 2020 were $ 61,993 and $ 85,146 , respectively. Approximately 66.8 % of the gross reinsurance recoverable balance at June 30, 2021 was receivable from three reinsurers, including the Florida Hurricane Catastrophe Fund, a state trust fund. Based on all available information considered in the rating-based method, the Company recognized decreases in credit loss expense of $ 16 and $ 28 for the three and six months ended June 30, 2021, respectively. For the three and six months ended June 30, 2020, the Company derecognized credit loss expenses of $ 325 and $ 349 , respectively. Allowances for credit losses related to the reinsurance recoverable balance were $ 57 and $ 85 at June 30, 2021 and December 31, 2020, respectively. The Company has reinsurance contracts that include retrospective provisions that adjust premiums in the event losses are minimal or zero. For the three and six months ended June 30, 2021, the Company recognized reductions in premiums ceded of $ 3,575 and $ 8,255 , respectively, related to these adjustments in the consolidated statements of income. For the three and six months ended June 30, 2020, the Company recognized reductions in premiums ceded of $ 3,240 and $ 5,760 , respectively. 30 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Amounts receivable pursuant to retrospective provisions are reflected in other assets. At June 30, 2021 and December 31, 2020, other assets included $ 455 and $ 10,920 , respectively. In June 2021, the Company received $ 18,720 of premium refund under the retrospective reinsurance contract that ended May 31, 2021. Management believes the credit risk associated with the collectability of 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. Effective January 2021, the Company began providing quota share reinsurance on all in-force, new and renewal policies issued by United. The policies were issued in the states of Connecticut, New Jersey, Massachusetts and Rhode Island. For the three and six months ended June 30, 2021, assumed premiums written related to United were $ 41,754 and $ 57,471 , respectively. At June 30, 2021, the Company had a net balance of $ 24,712 due from United, consisting of premiums receivable of $ 41,754 offset by ceding commission payable of $ 9,764 and payable on paid losses and loss adjustment expenses of $ 7,278 . Note 13 -- 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 the states which could be exposed to hurricanes or other natural catastrophes. The occurrence of a major catastrophe could have a significant effect on the Company’s quarterly results and cause a temporary disruption of the normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter. Activity in the liability for losses and LAE is summarized as follows: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Net balance, beginning of period* $ 144,630 $ 105,876 $ 141,065 $ 98,174 Incurred, net of reinsurance, related to: Current period 51,310 40,493 93,230 66,296 Prior period 4,607 ( 650 ) 8,438 1,625 Total incurred, net of reinsurance 55,917 39,843 101,668 67,921 Paid, net of reinsurance, related to: Current period ( 20,006 ) ( 11,329 ) ( 27,602 ) ( 15,813 ) Prior period ( 25,640 ) ( 11,261 ) ( 60,230 ) ( 27,153 ) Total paid, net of reinsurance ( 45,646 ) ( 22,590 ) ( 87,832 ) ( 42,966 ) Net balance, end of period 154,901 123,129 154,901 123,129 Add: reinsurance recoverable before allowance for credit losses 48,884 88,033 48,884 88,033 Gross balance, end of period $ 203,785 $ 211,162 $ 203,785 $ 211,162 * Net balance represents beginning-of-period liability for unpaid losses and LAE less beginning-of-period reinsurance recoverable for unpaid losses and LAE. 31 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) The 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 six months ended June 30, 2021, the Company recognized losses related to prior periods of $ 4,607 and $ 8,438 , respectively, primarily to increase the reserve for the 2020 loss year resulting from increased litigation. Losses and LAE for the six months ended June 30, 2021 included estimated losses, net of reinsurance, of approximately $ 23,500 related to policies assumed from United, approximately $ 2,600 of which pertained to TypTap. Note 14 -- 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 now 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 June 30, 2021 and 2020, revenues from the HCPCI insurance operations segment before intracompany elimination represented 77.6 % and 86.6 %, respectively, and revenues from the TypTap Group segment represented 20.3 % and 11.1 %, respectively, of total revenues of all operating segments. For the six months ended June 30, 2021 and 2020, revenues from the HCPCI insurance operations segment before intracompany elimination represented 77.8 % and 83.8 %, respectively, and revenues from the TypTap Group segment represented 18.9 % and 12.8 %, respectively, of total revenues of all operating segments. At June 30, 2021 and December 31, 2020, HCPCI insurance operations’ total assets represented 61.4 % and 68.9 %, respectively, and TypTap Group’s total assets represented 25.4 % and 16.7 %, respectively, of the combined assets of all operating segments. 32 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 June 30, 2021 Operations Group Estate(a) Others(b) Elimination Consolidated Revenue: Gross premiums earned (c) $ 102,850 $ 39,000 $ — $ — $ ( 2,410 ) $ 139,440 Premiums ceded ( 36,101 ) ( 12,585 ) — — 2,250 ( 46,436 ) Net premiums earned 66,749 26,415 — — ( 160 ) 93,004 Net income from investment portfolio 3,550 495 — 2,392 294 6,731 Policy fee income 701 291 — — — 992 Other 812 475 2,379 267 ( 3,156 ) 777 Total revenue 71,812 27,676 2,379 2,659 ( 3,022 ) 101,504 Expenses: Losses and loss adjustment expenses 39,641 16,440 — — ( 164 ) 55,917 Amortization of deferred policy acquisition costs 20,540 5,553 — — — 26,093 Other policy acquisition expenses ( 5,070 ) 2,021 — — 125 ( 2,924 ) Interest expense — — 259 1,766 ( 25 ) 2,000 Depreciation and amortization 18 312 574 364 ( 605 ) 663 Personnel and other operating expenses 5,602 7,833 1,317 2,259 ( 2,353 ) 14,658 Total expenses 60,731 32,159 2,150 4,389 ( 3,022 ) 96,407 Income (loss) before income taxes $ 11,081 $ ( 4,483 ) $ 229 $ ( 1,730 ) $ — $ 5,097 Total revenue from non-affiliates (d) $ 70,914 $ 27,813 $ 2,041 $ 2,715 Gross premiums written $ 124,222 $ 60,725 (a) Other revenue under real estate primarily consisted of rental income from investment properties. (b) Other revenue under corporate and other primarily consisted of revenue from marina business. (c) Gross premiums earned consist of $ 100,440 from HCPCI and $ 2,410 from a reinsurance company. ( d ) Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation. 33 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 June 30, 2020 Operations Group Estate(a) Others(b) Elimination Consolidated Revenue: Gross premiums earned (c) $ 90,220 $ 18,380 $ — $ — $ ( 797 ) $ 107,803 Premiums ceded ( 30,037 ) ( 5,114 ) — — 797 ( 34,354 ) Net premiums earned 60,183 13,266 — — — 73,449 Net income (loss) from investment portfolio 5,462 490 2 460 ( 578 ) 5,836 Policy fee income 653 194 — — — 847 Other 441 19 2,419 50 ( 2,344 ) 585 Total revenue 66,739 13,969 2,421 510 ( 2,922 ) 80,717 Expenses: Losses and loss adjustment expenses 31,445 8,398 — — — 39,843 Amortization of deferred policy acquisition costs 9,014 3,497 — — — 12,511 Other policy acquisition expenses 922 ( 414 ) — — ( 28 ) 480 Interest expense — 1 498 2,742 ( 221 ) 3,020 Depreciation and amortization 19 275 639 143 ( 596 ) 480 Loss on repurchases of convertible senior notes — — — 150 — 150 Personnel and other operating expenses 5,250 4,252 1,406 3,579 ( 2,077 ) 12,410 Total expenses 46,650 16,009 2,543 6,614 ( 2,922 ) 68,894 Income (loss) before income taxes $ 20,089 $ ( 2,040 ) $ ( 122 ) $ ( 6,104 ) $ — $ 11,823 Total revenue from non-affiliates (d) $ 66,480 $ 14,088 $ 1,954 $ 436 Gross premiums written $ 154,918 $ 16,964 (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 restaurant and marina businesses. (c) Gross premiums earned consist of $ 89,423 from HCPCI and $ 797 from a reinsurance company. ( d ) Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation. 34 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 Six Months Ended June 30, 2021 Operations Group Estate(a) Others(b) Elimination Consolidated Revenue: Gross premiums earned (c) $ 207,371 $ 67,811 $ — $ — $ ( 4,800 ) $ 270,382 Premiums ceded ( 72,081 ) ( 22,094 ) — — 4,640 ( 89,535 ) Net premiums earned 135,290 45,717 — — ( 160 ) 180,847 Net income from investment portfolio 4,430 831 — 3,887 3,021 12,169 Policy fee income 1,413 549 — — — 1,962 Other 1,333 650 7,513 827 ( 8,923 ) 1,400 Total revenue 142,466 47,747 7,513 4,714 ( 6,062 ) 196,378 Expenses: Losses and loss adjustment expenses 73,080 28,752 — — ( 164 ) 101,668 Amortization of deferred policy acquisition costs 33,287 10,190 — — — 43,477 Other policy acquisition expenses ( 246 ) 3,062 — — ( 59 ) 2,757 Interest expense — 90 741 3,518 ( 270 ) 4,079 Depreciation and amortization 38 600 1,161 540 ( 1,238 ) 1,101 Personnel and other operating expenses 11,421 13,322 2,518 5,167 ( 4,331 ) 28,097 Total expenses 117,580 56,016 4,420 9,225 ( 6,062 ) 181,179 Income (loss) before income taxes $ 24,886 $ ( 8,269 ) $ 3,093 $ ( 4,511 ) $ — $ 15,199 Total revenue from non-affiliates (d) $ 141,114 $ 48,192 $ 6,836 $ 4,239 Gross premiums written $ 205,210 $ 105,615 (a) Other revenue under real estate primarily consisted of rental income from investment properties. (b) Other revenue under corporate and other primarily consisted of revenue from marina business. (c) Gross premiums earned consist of $ 202,571 from HCPCI and $ 4,800 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 Six Months Ended June 30, 2020 Operations Group Estate(a) Others(b) Elimination Consolidated Revenue: Gross premiums earned (c) $ 165,990 $ 34,975 $ — $ — $ ( 797 ) $ 200,168 Premiums ceded ( 56,963 ) ( 8,907 ) — — 797 ( 65,073 ) Net premiums earned 109,027 26,068 — — — 135,095 Net income (loss) from investment portfolio 1,921 20 3 ( 3,054 ) ( 734 ) ( 1,844 ) Policy fee income 1,303 373 — — — 1,676 Other 672 63 4,978 1,405 ( 5,948 ) 1,170 Total revenue 112,923 26,524 4,981 ( 1,649 ) ( 6,682 ) 136,097 Expenses: Losses and loss adjustment expenses 53,283 14,638 — — — 67,921 Amortization of deferred policy acquisition costs 16,670 6,698 — — — 23,368 Other policy acquisition expenses 1,629 ( 124 ) — — ( 56 ) 1,449 Interest expense — 1 971 5,459 ( 441 ) 5,990 Depreciation and amortization 42 541 1,295 287 ( 1,208 ) 957 Loss on repurchases of convertible senior notes — — — 150 — 150 Personnel and other operating expenses 10,265 8,717 2,657 7,120 ( 4,977 ) 23,782 Total expenses 81,889 30,471 4,923 13,016 ( 6,682 ) 123,617 Income (loss) before income taxes $ 31,034 $ ( 3,947 ) $ 58 $ ( 14,665 ) $ — $ 12,480 Total revenue from non-affiliates (d) $ 112,664 $ 26,643 $ 4,048 $ ( 2,204 ) Gross premiums written $ 213,040 $ 35,359 (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 restaurant and marina businesses. (c) Gross premiums earned consist of $ 165,193 from HCPCI and $ 797 from a reinsurance company. ( d ) Represents amounts before reclassification of certain revenue and expenses to conform with an insurance company’s presentation. The following table presents segment assets reconciled to the Company’s total assets in the consolidated balance sheets: June 30, December 31, 2021 2020 Segments: HCPCI Insurance Operations $ 633,201 $ 648,600 TypTap Group 291,152 157,581 Real Estate Operations 128,873 128,383 Corporate and Other 62,226 29,022 Consolidation and Elimination ( 35,242 ) ( 22,273 ) Total assets $ 1,080,210 $ 941,313 36 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Note 15 -- Leases The table below summarizes the Company’s right-of-use (“ROU”) assets and corresponding liabilities for operating and finance leases: June 30, December 31, 2021 2020 Operating leases: ROU Assets $ 2,946 $ 4,002 Liabilities $ 2,950 $ 4,014 Finance leases: ROU Assets $ 79 $ 79 Liabilities $ 34 $ 43 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 63 months Yes (a), (b) Office space 3 to 10 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 June 30, 2021, maturities of lease liabilities were as follows: Leases Operating Finance Due in 12 months following June 30, 2021 $ 1,622 $ 19 2022 1,422 14 2023 117 3 Total lease payments 3,161 36 Less: interest and foreign taxes 211 2 Total lease obligations $ 2,950 $ 34 37 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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 Lease costs: Finance lease costs: Amortization – ROU assets* $ 5 $ 5 $ 9 $ 9 Interest expense — 1 1 1 Operating lease costs* 391 78 845 156 Short-term lease costs* 113 42 150 91 Total lease costs $ 509 $ 126 $ 1,005 $ 257 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows – finance leases $ 1 $ 1 Operating cash flows – operating leases $ 848 $ 159 Financing cash flows – finance leases $ 9 $ 8 June 30, 2021 Weighted-average remaining lease term: Finance leases (in years) 2.5 Operating leases (in years) 2.6 Weighted-average discount rate: Finance leases 3.7 % Operating leases 2.8 % * Included in other operating expenses of 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 16 -- Income Taxes During the three months ended June 30, 2021 and 2020, the Company recorded approximately $ 1,267 and $ 2,887 respectively, of income taxes, which resulted in effective tax rates of 24.9 % and 24.4 %, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded approximately $ 4,524 and $ 2,997 , respectively, of income taxes, which resulted in effective tax rates of 29.8 % and 24.0 %, respectively. The increase in the effective tax rate in 2021 as compared with the corresponding period in the prior year was primarily attributable to an increase in non-deductible compensation expense related to restricted stock granted to certain executives. 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. 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 17 -- Earnings Per Share U.S. GAAP requires the Company to use the two-class method in computing basic earnings per share since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating securities affect the computation of both basic and diluted earnings per share during periods of net income or loss. For a majority-owned subsidiary, its basic and diluted earnings per share are first computed separately. Then, the Company’s proportionate share in that majority-owned subsidiary’s earnings is added to the computation of both basic and diluted earnings per share at a consolidated level. A summary of the numerator and denominator of the basic and diluted earnings per common share is presented below. Three Months Ended Three Months Ended June 30, 2021 June 30, 2020 Income Shares (a) Per Share Income Shares (a) Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Net income $ 3,830 $ 8,936 Less: Net income attributable to redeemable noncontrolling interest ( 2,179 ) — Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities 429 — Net income attributable to HCI 2,080 8,936 Less: Income attributable to participating securities ( 168 ) ( 465 ) Basic Earnings Per Share: Income allocated to common stockholders 1,912 7,526 $ 0.25 8,471 7,324 $ 1.16 Effect of Dilutive Securities: Stock options — 175 — 4 Convertible senior notes* (b) — — 1,948 2,357 Warrants — 247 — — Diluted Earnings Per Share: Income available to common stockholders and assumed conversions $ 1,912 7,948 $ 0.24 $ 10,419 9,685 $ 1.08 (a) Shares in thousands. (b) See Adoption of New Accounting Standards under Note 2 -- “Summary of Significant Accounting Policies” for additional information. * For the three months ended June 30, 2021, convertible senior notes were excluded due to anti-dilutive effect. 39 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Six Months Ended Six Months Ended June 30, 2021 June 30, 2020 Income Shares (a) Per Share Income Shares (a) Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Net income $ 10,675 $ 9,483 Less: Net income attributable to redeemable noncontrolling interest ( 2,973 ) — Less: TypTap Group's net loss attributable to non-HCI common stockholders and TypTap Group's participating securities 501 — Net income attributable to HCI 8,203 9,483 Less: Income attributable to participating securities ( 569 ) ( 472 ) Basic Earnings Per Share: Income allocated to common stockholders 7,634 7,500 $ 1.02 9,011 7,347 $ 1.23 Effect of Dilutive Securities: Stock options — 141 — 6 Convertible senior notes* (b) — — — — Warrants — 161 — — Diluted Earnings Per Share: Income available to common stockholders and assumed conversions $ 7,634 7,802 $ 0.98 $ 9,011 7,353 $ 1.23 (a) Shares in thousands. (b) See Adoption of New Accounting Standards under Note 2 -- “Summary of Significant Accounting Policies” for additional information. * For the six months ended June 30, 2021 and 2020, respectively, convertible senior notes were excluded due to anti-dilutive effect. Note 18 -- Redeemable Noncontrolling Interest On February 26, 2021, TTIG completed a capital investment transaction with a fund associated with Centerbridge Partners, L.P. (collectively, the “Lead Investor”), a private investment management fund. Under the investment agreement, TTIG issued 9,000,000 voting shares of its Series A-1 Preferred Stock and 1,000,000 non-voting shares of its Series A-2 Preferred Stock (together “Series A Preferred Stock”), $ 0.001 par value, at a price of $ 10 per share for total proceeds of $ 100,000 . The proceeds will be used for TypTap’s operations and continued expansion. The Company incurred $ 6,262 of related issuance costs. In connection with the transaction, the Lead Investor was granted by HCI warrants to purchase 750,000 shares of HCI’s common stock with an exercise price of $ 54.40 per share. The warrants valued at $ 9,217 or $ 12.29 per warrant were immediately exercisable and will expire on the fourth anniversary of the date of issuance. Dividends Dividends accrue and accumulate from the date of issuance. Cumulative dividends are payable semi-annually in cash or paid-in-kind at TTIG’s option. Cash dividend rates are $ 0.50 per share in Year 1, $ 0.60 per share in Year 2, $ 0.75 per share in Year 3, and $ 0.95 per share in Year 4 and thereafter. The rates for paid-in-kind dividends are $ 0.60 per share in Year 1 and $ 0.70 per share in Year 2. In addition, the Series A Preferred Stock will be paid dividends on an as-converted basis when and if TTIG declares common stock dividends. 40 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Conversion Rights The holders of TTIG’s Series A Preferred Stock have the right to convert the stock at any time into shares of TTIG’s common stock with an initial conversion rate of 1 to 1 . The conversion rate will be adjusted under certain conditions. Unless converted earlier, all shares of Series A Preferred Stock will be automatically converted into shares of TTIG’s common stock at the then-applicable conversion rate upon (1) a qualified public offering of TTIG’s common stock with gross proceeds of not less than $ 250,000 with a price per share at least equal to 150 % of the original purchase price of the Series A Preferred Stock, or (2) at the election of requisite holders of a majority of TTIG’s Series A Preferred Stock, whichever comes first. Redemption Rights On or after the fourth anniversary of the issuance date, TTIG’s Series A Preferred Stock is redeemable at the option of the holders at a price equal to the greater of (1) $ 10 per share plus any accrued but unpaid dividends and (2) a fair market value per share determined by an independent valuation firm selected by TTIG’s board of directors. Management determined that the redemption was not probable at June 30, 2021. Guaranty by HCI All payment obligations to the holders of TTIG’s Series A Preferred Stock are fully guaranteed by HCI as long as TTIG’s Series A Preferred Stock is outstanding. As the guarantor, HCI is subject to certain financial covenants. Liquidation Preference In the event of any liquidation, the Series A Preferred Stock ranks senior to TTIG’s common stock with respect to distribution rights. Anti-Dilutive Protection The holders of TTIG’s Series A Preferred Stock receive protection in the form of a down-round feature which will be triggered in the event that TTIG issues additional common equivalent shares at an effective price per share less than $ 10 per share. 41 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 summarizes the activity of redeemable noncontrolling interest during the six months ended June 30, 2021: Balance at January 1, 2021 $ — 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 458 Accretion - increasing dividend rates 336 Balance at March 31, 2021 $ 85,892 Increase (decrease): Accrued cash dividends 1,250 Accretion - increasing dividend rates 929 Balance at June 30, 2021 $ 88,071 *Net decrease related to warrants of $ 8,640 . For the three months ended June 30, 2021, net income attributable to redeemable noncontrolling interest was $ 2,179 , consisting of accrued cash dividends of $ 1,250 and accretion related to increasing dividend rates of $ 929 . For the six months ended June 30, 2021, net income attributable to redeemable noncontrolling interest was $ 2,973 , consisting of accrued cash dividends of $ 1,708 and accretion related to increasing dividend rates of $ 1,265 . Note 19 -- Equity Stockholders’ Equity Common Stock The Company’s 2020 stock repurchase plan was considered to be expired and there was no new stock repurchase plan approved by the Board of Directors during 2021. 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 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 this authorized repurchase plan. 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. On April 28, 2021 , the Company’s Board of Directors declared a quarterly dividend of $ 0.40 per common share. The dividends were paid on June 18, 2021 to stockholders of record on May 21, 2021 . 42 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Warrants At June 30, 2021, there were warrants outstanding and exercisable to purchase 750,000 shares of HCI common stock. These warrants were issued by HCI to the Lead Investor described in Note 18 -- “Redeemable Noncontrolling Interest.” Noncontrolling Interests According to its amended Articles of Incorporation, TTIG is authorized to issue 183 million shares of common stock with a par value of $ 0.001 per share, and 37,502,000 shares of preferred stock. In February 2021, TTIG issued 10 million shares of Series A Preferred Stock (see Note 18 -- “Redeemable Noncontrolling Interest”). At June 30, 2021, there were 81,090,585 shares of TTIG’s common stock outstanding, of which 6,090,585 shares were not owned by HCI. In May 2021, TTIG repurchased and retired a total of 52,015 shares of its common stock surrendered by its employees to satisfy payroll tax liabilities associated with the vesting of restricted shares. The total cost of purchasing noncontrolling interests was $ 58 . Note 20 -- 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 June 30, 2021, there were 1,080,760 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 and six months ended June 30, 2021 and 2020 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, 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 Exercisable at June 30, 2021 275,000 $ 43.40 6.6 years $ 15,436 Outstanding at January 1, 2020 340,000 $ 43.21 7.9 years $ 1,657 Granted 110,000 $ 48.00 Exercised ( 10,000 ) $ 6.30 Outstanding at March 31, 2020 440,000 $ 45.25 8.3 years $ — Outstanding at June 30, 2020 440,000 $ 45.25 8.1 years $ 1,184 Exercisable at June 30, 2020 165,000 $ 42.17 7.2 years $ 740 43 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 summarizes information about options exercised for the three and six months ended June 30, 2021 and 2020 (option amounts not in thousands): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Options exercised — — — 10,000 Total intrinsic value of exercised options $ — $ — $ — $ 288 Tax benefits realized $ — $ — $ — $ 71 For the three months ended June 30, 2021 and 2020, the Company recognized $ 219 and $ 297 , respectively, of compensation expense which was included in general and administrative personnel expenses. For the six months ended June 30, 2021 and 2020, the Company recognized $ 442 and $ 580 , respectively, of compensation expense. Deferred tax benefits related to stock options were $ 0 and $ 19 for the three months ended June 30, 2021 and 2020, respectively, and $ 1 and $ 38 for the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021 and December 31, 2020, there was $ 1,447 and $ 1,889 , 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 2.0 years. 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: 2020 Expected dividend yield 3.48 % Expected volatility 38.68 % Risk-free interest rate 1.63 % Expected life (in years) 5 Restricted Stock Awards From time to time, the Company has granted and may grant restricted stock awards to its 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. 44 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 six months ended June 30, 2021 and 2020 is as follows: Number of Weighted Restricted Average Stock Grant Date Awards Fair Value 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 Nonvested at January 1, 2020 396,760 $ 41.71 Granted 45,000 $ 44.97 Vested ( 31,250 ) $ 40.97 Forfeited ( 7,138 ) $ 42.60 Nonvested at March 31, 2020 403,372 $ 42.12 Granted 145,000 $ 45.59 Vested ( 104,926 ) $ 41.16 Forfeited ( 5,220 ) $ 43.75 Nonvested at June 30, 2020 438,226 $ 43.48 The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $ 2,336 and $ 1,722 for the three months ended June 30, 2021 and 2020, respectively, and $ 4,241 and $ 3,280 for the six months ended June 30, 2021 and 2020, respectively. At June 30, 2021 and December 31, 2020, there was approximately $ 24,919 and $ 13,666 , 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 3.2 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 six months ended June 30, 2021 and 2020. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Deferred tax benefits recognized $ 495 $ 319 $ 459 $ 603 Tax benefits realized for restricted stock and paid dividends $ 1,357 $ 1,186 $ 1,412 $ 1,239 Fair value of vested restricted stock $ 3,002 $ 4,319 $ 4,742 $ 5,599 In February 2021, the Company cancelled 141,600 shares of restricted stock for employees who transitioned to TypTap Group (See Note 1 -- “Nature of Operations”). In exchange, these employees received replacement restricted stock issued under TTIG’s equity incentive plan. 45 HCI GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except share and per share amounts, unless otherwise stated) Subsidiary Equity Plan On February 26, 2021, TTIG’s Board of Directors approved the 2021 Equity Incentive Plan (the “2021 Plan”) which is an incentive plan denominated in TTIG’s common shares. The 2021 Plan provides for broad-based equity awards to employees and nonemployee directors of TypTap Group. The maximum number of shares that may be issued under the 2021 Plan is 7,000,000 shares. In February 2021, TTIG issued a total of 5,749,300 shares of restricted stock to the employees who transitioned to TypTap Group. For the three months ended June 30, 2021, TypTap Group recognized compensation expense related to restricted stock of $ 1,599 , and for the six months ended June 30, 2021, TypTap Group recognized compensation expense related to restricted stock of $ 1,814 . At June 30, 2021, there was approximately $ 5,279 of total unrecognized compensation expense related to nonvested restricted stock. Note 21 -- Commitments and Contingencies Obligations under Multi-Year Reinsurance Contracts As of June 30, 2021, the Company has contractual obligations related to two multi-year reinsurance contracts. These contracts may be cancelled only with the other party’s consent or when their respective experience accounts are positive at the end of each contract year. The table below presents the future minimum aggregate premium amounts payable to the reinsurer. Due in 12 months following June 30, 2021 $ 9,095 2022* 9,095 2023* 5,457 Total $ 23,647 *Premiums payable after May 31, 2022 are estimated. Capital Commitments As described in Note 5 -- “Investments” under Limited Partnership Investments , the Company is contractually committed to capital contributions for limited partnership interests. At June 30, 2021, there was an aggregate unfunded balance of $ 9,302 . Note 22 -- Related Party Transactions On February 12, 2021, the Company committed to provide a revolving line of credit with borrowing capacity of up to $ 60,000 to TTIG and the credit line would be available until the earlier of June 30, 2022 and the securing of alternative financing. This commitment has ended on February 26, 2021 after the investment transaction described in Note 18 -- “Redeemable Noncontrolling Interest.” Note 23 -- Subsequent Events On July 7, 2021 , the Company’s Board of Directors declared a quarterly dividend of $ 0.40 per common share. The dividends are payable on September 17, 2021 to stockholders of record on August 20, 2021 . 46