Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
HCI > SEC Filings for HCI > Form 10-Q on 7-Aug-2013All Recent SEC Filings

Show all filings for HCI GROUP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for HCI GROUP, INC.


7-Aug-2013

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our consolidated financial statements and related notes and information included under this Item 2 and elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 14, 2013. Unless the context requires otherwise, as used in this Form 10-Q, the terms "HCI," "we," "us," "our," "the Company," "our company," and similar references refer to HCI Group, Inc. and its subsidiaries. All dollar amounts, except per share amounts stated in this Management's Discussion and Analysis of Financial Condition and Results of Operations are in thousands unless specified otherwise.

Forward-Looking Statements

In addition to historical information, this quarterly report contains forward-looking statements as defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effect of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, availability of or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; and other risks and uncertainties detailed herein and from time to time in our SEC reports.

OVERVIEW

General

HCI Group, Inc. is a Florida-based company established in 2006. We changed our name in May 2013 from Homeowners Choice, Inc. to HCI Group, Inc. Our property and casualty insurance operations began in 2007. Over the past few years, we have broadened and diversified our business portfolio through acquisitions to include information technologies and, also, real estate operations under which we operate one restaurant and two marina facilities. Based on the organizational structure, revenue sources, and evaluation of financial and operating performances by management, we have the following operating segments:

a) Insurance Operations

Property and casualty insurance

Reinsurance

b) Other Operations

Real estate

Information technology


Table of Contents

For the three months ended June 30, 2013 and 2012, revenues from property and casualty insurance operations represented 94.9% and 88.1%, respectively, of total revenues of all operating segments. For the six months ended June 30, 2013 and 2012, revenues from property and casualty insurance operations represented 94.8% and 94.2%, respectively, of total revenues of all operating segments. As a result, we have determined the property and casualty insurance operations to be our only reportable operating segment.

Insurance Operations

Property and Casualty Insurance

Through certain subsidiaries, primarily Homeowners Choice Property & Casualty Insurance Company, Inc. ("HCPCI"), we provide property and casualty insurance to homeowners, condominium owners, and tenants in the state of Florida. Under our Homeowners Choice brand, HCPCI offers insurance products at competitive rates, while pursuing profitability using selective underwriting criteria.

HCPCI began operations in 2007 by participating in a "take-out program," which is a legislatively mandated program designed to encourage private insurance companies to assume policies from Citizens Property Insurance Corporation ("Citizens"), a Florida state-supported insurer. Our growth since inception has resulted primarily from a series of policy assumptions from Citizens and one from HomeWise Insurance Company ("HomeWise"). This growth track has been beneficial to us in terms of reduced policy acquisition costs and periods of lower reinsurance costs. Even though expanding our policyholder base through opportunistic assumptions continues to be important to our growth plan, we plan to seek other opportunities to expand and to provide new or additional product offerings.

As part of our plan to increase overall geographic diversification, our subsidiary, Homeowners Choice Assurance Company, Inc., has applied for licensure and is awaiting approval from the Alabama Department of Insurance to write property and casualty insurance policies in Alabama.

Reinsurance

We have a Bermuda-based reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd., which participates in HCPCI's reinsurance program under our Claddaugh brand.

Other Operations

Real Estate

Operating under our Greenleaf Capital brand, real estate operations consist of several properties we own including our headquarters building in Tampa, Florida and a secondary site in Ocala, Florida, which will be used by our insurance operations. In addition, the Ocala location will be used by our home office operations in the event we experience any disruption from a catastrophic event. We also own properties in Treasure Island, Florida and Tierra Verde, Florida with a combined 20 acres of waterfront property.


Table of Contents

With the exception of the Ocala location, we lease office or retail space at each location to non-affiliates on various terms. In addition, we own and operate one full-service restaurant and two marinas that we acquired in connection with our purchase of the waterfront properties. The combined marina facilities provide services to include: a) one dry stack boat storage building with capacity for approximately 180 boats; b) approximately 70 wet slips; c) two fuel facilities; and d) open areas for parking and storage. Dry stack boat storage space is generally rented on a monthly or annual basis while the wet slips are rented on a daily or monthly basis.

Information Technology

Our information technology segment includes a team of experienced programmers with extensive experience in developing web-based products and applications for mobile devices. The operations, which are primarily in India, are focused on developing innovative products or services that can be marketed to the public and also on providing affiliates with back-office technology support services that can facilitate and improve ongoing operations.

The technologies originally developed in-house for our own insurance operations were recently launched for use by third parties under our Exzeo brand. Exzeo is a free, web-based application available at Exzeo.com that enables seamless integration between organizations, co-workers and business partners. Exzeo allows users to manage projects through communication and collaboration with other participants in a real-time work environment.

Recent Developments

On July 16, 2013, our Board of Directors declared a quarterly dividend of $0.225 per common share. The dividends are payable on September 20, 2013 to stockholders of record on August 16, 2013.


Table of Contents

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three and six
months ended June 30, 2013 and 2012 (amounts in thousands, except per share
amounts):



                                              Three Months Ended                   Six Months Ended
                                                   June 30,                            June 30,
                                            2013              2012              2013              2012
Operating Revenue
Gross premiums earned                     $  81,952            53,772           164,499           108,470
Premiums ceded                              (24,617 )         (16,702 )         (46,613 )         (30,969 )

Net premiums earned                          57,335            37,070           117,886            77,501
Net investment income                           295               302               434               824
Policy fee income                             1,426             1,028             2,198             1,543
Net realized investment (losses)
gains                                            (8 )               9                12                30
Gain on bargain purchase                         -                179                -                179
Other income                                    285               267               614               430

Total operating revenue                      59,333            38,855           121,144            80,507

Operating Expenses
Losses and loss adjustment expenses          17,414            16,197            33,286            35,365
Policy acquisition and other
underwriting expenses                         7,308             6,243            13,276            13,079
Interest expense                                846                -              1,532                -
Other operating expenses                      7,358             4,406            13,473             8,673

Total operating expenses                     32,926            26,846            61,567            57,117

Income before income taxes                   26,407            12,009            59,577            23,390
Income taxes                                 10,172             4,747            22,955             9,160

Net income                                $  16,235             7,262            36,622            14,230
Preferred stock dividends                       (32 )             (63 )             (66 )            (244 )

Income available to common
stockholders                              $  16,203             7,199            36,556            13,986

Ratios to Net Premiums Earned:
Loss Ratio                                    30.37 %           43.69 %           28.24 %           45.63 %
Expense Ratio                                 27.06 %           28.73 %           23.99 %           28.07 %

Combined Ratio                                57.43 %           72.42 %           52.23 %           73.70 %

Ratios to Gross Premiums Earned:
Loss Ratio                                    21.25 %           30.12 %           20.23 %           32.60 %
Expense Ratio                                 18.93 %           19.81 %           17.20 %           20.06 %

Combined Ratio                                40.18 %           49.93 %           37.43 %           52.66 %

Per Share Data:
Basic earnings per common share           $    1.44         $    0.85         $    3.31         $    1.89

Diluted earnings per common share         $    1.40         $    0.74         $    3.20         $    1.60


Table of Contents

Comparison of the Three Months ended June 30, 2013 to the Three Months ended June 30, 2012

Our results of operations for the three months ended June 30, 2013 reflect income available to common stockholders of $16,203, or $1.40 earnings per diluted common share, compared to income available to common stockholders of $7,199, or $0.74 earnings per diluted common share, for the three months ended June 30, 2012.

Revenue

Gross Premiums Earned for the three months ended June 30, 2013 and 2012 were $81,952 and $53,772, respectively, and primarily reflect the revenue from policies acquired from HomeWise and Citizens and subsequent renewals. The $28,180 increase over the corresponding period in 2012 was primarily attributable to $32,599 of revenue from the Citizens assumption we completed in November 2012 offset by a reduction in premium earned due to policy attrition.

Premiums Ceded for the three months ended June 30, 2013 and 2012 were approximately $24,617 and $16,702, respectively. Our premiums ceded represent amounts paid to reinsurers to cover losses from catastrophes that exceed the thresholds defined by our catastrophe excess of loss reinsurance treaties. For the three months ended June 30, 2013, premiums ceded include a benefit of $1,301 related to the provisions under certain reinsurance contracts. See "Economic Impact of Reinsurance Contracts with Retrospective Provisions" under "Critical Accounting Policies and Estimates" below. Our reinsurance rates are based primarily on policy exposures reflected in gross premiums earned. Premiums ceded were 30.0% and 31.1% of gross premiums earned during the three months ended June 30, 2013 and 2012, respectively.

Net Premiums Earned for the three months ended June 30, 2013 and 2012 were $57,335 and $37,070, respectively, and reflect the gross premiums earned less the appropriate reinsurance costs as described above.

Net Premiums Written during the three months ended June 30, 2013 and 2012 totaled $107,830 and $66,625, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended June 30, 2013 and 2012 (dollars in thousands):

                                                 Three Months Ended
                                                      June 30,
                                                2013           2012
              Net Premiums Written            $ 107,830         66,625
              Increase in Unearned Premiums     (50,495 )      (29,555 )

              Net Premiums Earned             $  57,335         37,070

Policy Fee Income for the three months ended June 30, 2013 and 2012 was $1,426 and $1,028, respectively. The increase in 2013 from the corresponding period is primarily attributable to an increase in policy renewals.


Table of Contents

Expenses

Our Losses and Loss Adjustment Expenses amounted to $17,414 and $16,197, respectively, during the three months ended June 30, 2013 and 2012. The increase in 2013 is primarily due to the increase in policy count and exposures. In addition, our losses for the six months ended June 30, 2012 included approximately $2,000 related to claims from Tropical Storm Debby, which occurred in June 2012. See "Reserves for Losses and Loss Adjustment Expenses" under "Critical Accounting Policies and Estimates" below.

Policy Acquisition and Other Underwriting Expenses for the three months ended June 30, 2013 and 2012 of $7,308 and $6,243, respectively, primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for production and renewal of policies, premium taxes, marketing costs, and policy fees. The $1,065 increase from the corresponding period in 2012 is primarily attributable to an increase in commissions and premium taxes related to the increase in policy renewals in 2013.

Other Operating Expenses for the three months ended June 30, 2013 and 2012 were $7,358 and $4,406, respectively. The $2,952 increase is primarily attributable to a $2,301 increase in compensation and related expenses and a $651 increase in our other administrative costs, which include a variety of professional service fees, license fees, corporate insurance, lease expense, information system expense, and other general expenses. As of June 30, 2013, we had 161 employees located at our headquarters in Tampa, Florida compared to 121 employees as of June 30, 2012. We also have 64 employees located in Noida, India at June 30, 2013 versus 63 at June 30, 2012.

Income Taxes for the three months ended June 30, 2013 and 2012 were $10,172 and $4,747, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 38.5% for 2013 and 39.5% for 2012.

Ratios:

The loss ratio applicable to the three months ended June 30, 2013 (losses and loss adjustment expenses incurred related to net premiums earned) was 30.4% compared to 43.7% for the three months ended June 30, 2012. Our loss ratio was positively impacted by a significant increase in our gross premiums earned during 2013 (See Gross Premiums Earned above) and, also, by continued favorable trends in 2013 related to our losses and loss adjustment expenses.

The expense ratio applicable to the three months ended June 30, 2013 (defined as underwriting expenses, interest and other operating expenses related to net premiums earned) was 27.0% compared to 28.7% for the three months ended June 30, 2012. The decrease in our expense ratio is primarily attributable to the significant increase in 2013 in our gross premiums earned.

The combined loss and expense ratio (total of all expenses related to net premiums earned) is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio that is less than 100% generally reflects favorable underwriting results. A combined ratio over 100% generally reflects unprofitable underwriting results. Our combined ratio for the three months ended June 30, 2013 was 57.4% compared to 72.4% for the three months ended June 30, 2012. Our combined ratio was positively impacted by a significant increase in our gross premiums earned during 2013 (see Gross Premiums Earned above) and, also, by continued favorable trends in 2013 related to our losses and loss adjustment expenses.


Table of Contents

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined loss and expense ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined loss and expense ratio to gross premiums earned for the three months ended June 30, 2013 was 40.2% compared to 49.9% for the three months ended June 30, 2012.

Comparison of the Six Months ended June 30, 2013 to the Six Months ended June 30, 2012

Our results of operations for the six months ended June 30, 2013 reflect income available to common stockholders of $36,556, or $3.20 earnings per diluted common share, compared to income available to common stockholders of $13,986, or $1.60 earnings per diluted common share, for the six months ended June 30, 2012.

Revenue

Gross Premiums Earned for the six months ended June 30, 2013 and 2012 were $164,499 and $108,470, respectively, and primarily reflect the revenue from policies acquired from HomeWise and Citizens and subsequent renewals. The $56,029 increase over the corresponding period in 2012 was primarily attributable to $65,432 of revenue from the Citizens assumption we completed in November 2012 offset by a reduction in premium earned due to policy attrition.

Premiums Ceded for the six months ended June 30, 2013 and 2012 were approximately $46,613 and $30,969, respectively. Our premiums ceded represent amounts paid to reinsurers to cover losses from catastrophes that exceed the thresholds defined by our catastrophe excess of loss reinsurance treaties. For the six months ended June 30, 2013, premiums ceded include a benefit of $1,301 related to the provisions under certain reinsurance contracts. See "Economic Impact of Reinsurance Contracts with Retrospective Provisions" under "Critical Accounting Policies and Estimates" below. Our reinsurance rates are based primarily on policy exposures reflected in gross premiums earned. Premiums ceded were 28.3% and 28.6% of gross premiums earned during the six months ended June 30, 2013 and 2012, respectively.

Net Premiums Earned for the six months ended June 30, 2013 and 2012 were $117,886 and $77,501, respectively, and reflect the gross premiums earned less the appropriate reinsurance costs as described above.

Net Premiums Written during the six months ended June 30, 2013 and 2012 totaled $155,083 and $89,253, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs.


Table of Contents

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the six months ended June 30, 2013 and 2012 (dollars in thousands):

                                                  Six Months Ended
                                                      June 30,
                                                2013           2012
              Net Premiums Written            $ 155,083         89,253
              Increase in Unearned Premiums     (37,197 )      (11,752 )

              Net Premiums Earned             $ 117,886         77,501

Net Investment Income for the six months ended June 30, 2013 and 2012 was $434 and $824, respectively. The decline in 2013 is primarily due to operating losses of the business activities associated with the real estate we acquired in April 2012. There were no other-than-temporary impairments recorded during the six months ended June 30, 2013 and 2012.

Policy Fee Income for the six months ended June 30, 2013 and 2012 was $2,198 and $1,543, respectively. The increase in 2013 from the corresponding period is primarily due to an increase in policy renewals.

Expenses

Our Losses and Loss Adjustment Expenses amounted to $33,286 and $35,365, respectively, during the six months ended June 30, 2013 and 2012. During the six months ended June 30, 2013, we experienced favorable development of $2,076 with respect to our net unpaid losses and loss adjustment expenses established as of December 31, 2012, which contributed to the overall favorable variance of $2,079 with respect to the total losses and loss adjustment expenses incurred during the six months ended June 30, 2013 as compared to the corresponding period in 2012. In addition, our losses for the six months ended June 30, 2012 included approximately $2,000 related to claims from Tropical Storm Debby, which occurred in June 2012. See "Reserves for Losses and Loss Adjustment Expenses" under "Critical Accounting Policies and Estimates" below.

Policy Acquisition and Other Underwriting Expenses for the six months ended June 30, 2013 and 2012 of $13,276 and $13,079, respectively, primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for production and renewal of policies, premium taxes, marketing costs, and policy fees. The $197 increase from the corresponding period in 2012 is primarily attributable to an increase in commissions and premium taxes related to the increase in policy renewals in 2013, the effect of which is offset by a one-time charge of $1,200 in 2012 resulting from a U.S. GAAP change in accounting for deferred acquisition costs.

Other Operating Expenses for the six months ended June 30, 2013 and 2012 were $13,473 and $8,673, respectively. The $4,800 increase is primarily attributable to a $3,629 increase in compensation and related expenses and a $1,171 increase in our other administrative costs, which include a variety of professional service fees, license fees, corporate insurance, lease expense, information system expense, and other general expenses. As of June 30, 2013, we had 161 employees located at our headquarters in Tampa, Florida compared to 121 employees as of June 30, 2012. We also have 64 employees located in Noida, India at June 30, 2013 versus 63 at June 30, 2012.


Table of Contents

Income Taxes for the six months ended June 30, 2013 and 2012 were $22,512 and $9,160, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 38.5% for 2013 and 39.2% for 2012.

Ratios:

The loss ratio applicable to the six months ended June 30, 2013 (losses and loss adjustment expenses incurred related to net premiums earned) was 28.2% compared to 45.6% for the six months ended June 30, 2012. Our loss ratio was positively impacted by a significant increase in our gross premiums earned during 2013 (See Gross Premiums Earned and Losses and Loss Adjustment Expenses above) and, also, by continued favorable trends in 2013 related to our losses and loss adjustment expenses.

The expense ratio applicable to the six months ended June 30, 2013 (defined as underwriting expenses, interest and other operating expenses related to net premiums earned) was 24.0% compared to 28.1% for the six months ended June 30, 2012. The decrease in our expense ratio is primarily attributable to the significant increase in 2013 in our gross premiums earned.

The combined loss and expense ratio (total of all expenses related to net premiums earned) is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio that is less than 100% generally reflects favorable underwriting results. A combined ratio over 100% generally reflects unprofitable underwriting results. Our combined ratio for the six months ended June 30, 2013 was 52.2% compared to 73.7% for the six months ended June 30, 2012. Our combined ratio was positively impacted by a significant increase in our gross premiums earned during 2013 (see Gross Premiums Earned above) and, also, by continued favorable trends in 2013 related to our losses and loss adjustment expenses.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined loss and expense ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined loss and expense ratio to gross premiums earned for the six months ended June 30, 2013 was 37.4% compared to 52.7% for the six months ended June 30, 2012.

Seasonality of Our Business

Our insurance business is seasonal as hurricanes and tropical storms typically occur during the period from June 1 through November 30 each year. With our reinsurance treaty year effective June 1 each year, any variation in the cost of our reinsurance, whether due to changes in reinsurance rates or changes in the total insured value of our policy base, will occur and be reflected in our financial results beginning June 1 each year.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, our liquidity requirements have been met through issuance of our common and preferred stock, our recent debt offering and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by HCPCI from premiums written and investment income. In addition, we may consider raising capital through future debt and equity offerings.


. . .
  Add HCI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for HCI - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.