HCI Group Reports Third Quarter And Nine-Month 2016 Results

TAMPA, Fla., Nov. 03, 2016 (GLOBE NEWSWIRE) -- HCI Group, Inc. (NYSE:HCI), a holding company primarily engaged in homeowners' insurance, with additional operations in reinsurance, real estate and information technology, reported results for the three and nine months ended September 30, 2016. The company also updated its Hurricane Matthew loss estimates.

Third Quarter 2016 - Financial ResultsNet income totaled $11.3 million or $1.10 diluted earnings per share compared with $7.4 million or $0.71 diluted earnings per share in the third quarter of 2015.

Gross premiums earned totaled $92.5 million compared with $103.8 million in the same period in 2015. The decrease was attributable to expected policy attrition as well as a previously announced rate decrease that went into effect January 1, 2016.

Premiums ceded decreased to $29.2 million or 31.6% of gross premiums earned from $41.1 million or 39.6% of gross premiums earned in the third quarter of 2015. The decrease is attributable to the lower cost of the 2016/17 reinsurance program which began June 1, 2016, as compared with the 2015/16 program.

Net premiums earned (defined as gross premiums earned less premiums ceded to reinsurance companies) were $63.3 million compared with $62.8 million in the same period in 2015.

Investment related income was $3.3 million compared with investment related losses of $0.8 million in the same period in 2015. Additionally, the company recognized net non-cash charges of $0.2 million in the third quarter of 2016 and $1.9 million in the third quarter of 2015 due to declines in the fair value of securities determined to be other than temporary.

Results for the third quarter 2016 included a one-time bargain purchase gain of $2.1 million related to the company's August 2016 acquisition of a newly built retail shopping center located in Sorrento, Florida.

Losses and loss adjustment expenses were $25.9 million compared with $26.2 million in the same period in 2015. Included in losses and loss adjustment expenses for the three months ended September 30, 2016 were initial losses from Hurricane Hermine of approximately $2.5 million. Losses and loss adjustment expenses during the comparable period in 2015 were also affected by significant rain and weather-related events.

Policy acquisition and other underwriting expenses were $10.5 million compared with $10.7 million in the comparable period in 2015.

Salaries and wages were $5.9 million compared with $5.0 million in the same period in 2015. The increase was attributable to an increase in employee headcount as well as merit increases during 2016 and 2015.

During the third quarter of 2016 the company repurchased 198,055 common shares through the share repurchase plan approved by the board of directors in December 2015. These shares were repurchased at an average price, inclusive of fees and commissions, of $30.33 per share.

Third Quarter 2016 - Financial RatiosThe company's loss ratio (defined as losses and loss adjustment expenses related to net premiums earned) was 40.9% compared with 41.7% for the third quarter of 2015.

The expense ratio (defined as underwriting expenses, salaries and wages, interest and other operating expenses related to net premiums earned) was 37.7% compared with 36.9% for the same prior year period.

Expressed as a total of all expenses related to net premiums earned, the combined loss and expense ratio was 78.6% for the third quarter of 2016 as well as the third quarter of 2015.

Due to the impact reinsurance costs have on net premiums earned from period to period, the company believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned was 53.8% compared with 47.5% for the third quarter of 2015.

Nine Months Ended September 30, 2016 - Financial ResultsNet income totaled $24.4 million or $2.41 diluted earnings per common share compared with $54.8 million or $4.84 diluted earnings per common share for the nine months ended September 30, 2015.

Gross premiums earned totaled $286.3 million compared with $321.2 million in the same year-ago period.

Premiums ceded were $106.0 million or 37.0% of gross premiums earned compared with $100.3 million or 31.2% of gross premiums earned during the same period in 2015. 

Net premiums earned decreased to $180.3 million from $220.9 million in the same period in 2015.

Investment related income was $6.9 million compared with $2.1 million in the same period in 2015. Additionally, the company recognized net non-cash charges of $1.4 million in the nine months ended September 30, 2016 and $3.9 million in the nine months ended September 30, 2015 due to declines in the fair value of securities determined to be other than temporary.

Losses and loss adjustment expenses for the nine months ended September 30, 2016 and 2015 were $79.3 million and $65.8 million, respectively. The increase is attributable to weather-related events and continued reserve strengthening due to trends involving assignment of benefits and related litigation.

Policy acquisition and other underwriting expenses were $32.5 million compared with $30.9 million for the nine months ended September 30, 2015.

Salaries and wages were $17.0 million compared with $15.2 million in the same period in 2015.

Nine Months Ended September 30, 2016 - Financial RatiosThe loss ratio was 44.0% compared with 29.8% in the nine months ended September 30, 2015.

The expense ratio was 39.8% compared with 30.9% in the same period in 2015.

Expressed as a total of all expenses related to net premiums earned, the combined loss and expense ratio to net premiums earned was 83.8% compared with 60.7% in the same period in 2015.

The combined ratio to gross premiums earned was 52.8% compared with 41.7% for the nine months ended September 30, 2015.

Subsequent DevelopmentsThe company also updated previously disclosed estimates for its pretax losses related to Hurricane Matthew and now estimates that range to be between $20 million to $25 million.

Management Commentary"Fortunately, Hurricane Hermine, which was the first hurricane to make landfall in Florida in over 11 years, appears to have been a minor loss event for us during the third quarter of 2016," said Paresh Patel, HCI Group's chairman and chief executive officer. "Additionally, the third quarter was highlighted by the implementation of our 2016/17 reinsurance program which provides more comprehensive coverage for less premium when compared with the 2015/2016 program. Our current loss estimates for Hurricane Matthew appear to be far less than originally anticipated based on loss development to date."

Conference CallHCI Group will hold a conference call later today, November 3, 2016, to discuss these financial results. Chairman and chief executive officer, Paresh Patel, and chief financial officer, Richard Allen, will host the call starting at 4:45 p.m. Eastern time. A question and answer session will follow management's presentation.

Interested parties can listen to the live presentation by dialing the listen-only number below or by clicking the webcast link available on the Investor Information section of the company's website at www.hcigroup.com.

Listen-only toll-free number: (877) 407-8033Listen-only international number: (201) 689-8033Conference ID: 13647008

Please call the conference telephone number 10 minutes before the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios at (949) 574-3860.

A replay of the call will be available by telephone after 8:00 p.m. Eastern time on the same day as the call and via the Investor Information section of the HCI Group website at www.hcigroup.com through December 3, 2016.

Toll-free replay number: (877) 660-6853 International replay number: (201) 612-7415 Conference ID: 13647008

About HCI Group, Inc.HCI Group, Inc. owns subsidiaries engaged in diverse, yet complementary business activities, including homeowners' insurance, reinsurance, real estate and information technology. The company's largest subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., is a leading provider of property and casualty insurance in the state of Florida.

The company's common shares trade on the New York Stock Exchange under the ticker symbol "HCI" and are included in the Russell 2000 and S&P SmallCap 600 Index. Its 8% Senior Notes trade on the New York Stock Exchange under the ticker symbol "HCJ." For more information about HCI Group, visit www.hcigroup.com.

Forward-Looking StatementsThis news release may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "estimate," "expect," "intend," "plan," "confident," "prospects" and "project" and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties. There can be no assurance, for example, that actual losses from Hurricane Hermine and Hurricane Matthew will not exceed the estimated losses as a result of late reported claims, reopened claims, litigated claims and other unknown circumstances. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial condition and results of operations. HCI Group, Inc. disclaims all obligations to update any forward-looking statements.

- Tables to follow -
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)
           
      At September 30, 2016   At December 31, 2015
      (Unaudited)    
Assets          
Fixed-maturity securities, available for sale, at fair value          
(amortized cost: $167,223 and $128,614, respectively)   $   170,016 $     125,009  
Equity securities, available for sale, at fair value          
(cost: $46,323 and $47,548, respectively)       51,460       48,237  
Limited partnership investments, at equity       28,226       23,930  
Investment in unconsolidated joint venture, at equity       4,940       4,787  
Real estate investments (inclusive of $2,965 and $2,906 of consolidated variable          
interest entities, respectively)       33,808       30,954  
Total investments     288,450     232,917  
Cash and cash equivalents (inclusive of $65 and $57 of consolidated          
variable interest entities, respectively)       291,880       267,738  
Accrued interest and dividends receivable       1,695       1,390  
Income taxes receivable       -       1,858  
Premiums receivable       26,126       19,631  
Prepaid reinsurance premiums       29,699       40,747  
Deferred policy acquisition costs       21,221       18,602  
Property and equipment, net       11,332       11,786  
Intangible assets, net       2,559      
Deferred income taxes, net       3,972       3,189  
Other assets       7,358       39,128  
           
Total assets   $ 684,292 $   636,986  
           
Liabilities and Stockholders' Equity          
Losses and loss adjustment expenses   $   57,195 $     51,690  
Unearned premiums       209,322       187,290  
Advance premiums       9,877       4,983  
Assumed reinsurance balances payable           1,084  
Accrued expenses (inclusive of $56 and $21 of consolidated variable interest              
entities, respectively)     13,607       6,316  
Income taxes payable     891      
Long-term debt     138,172       129,429  
Other liabilities (inclusive of $26 and $0 of consolidated variable interest              
entities, respectively)     10,716       18,472  
               
Total liabilities     439,780     399,264  
               
Stockholders' equity:              
7% Series A cumulative convertible preferred stock (no par value,              
1,500,000 shares authorized, no shares issued and outstanding)          
Series B junior participating preferred stock (no par value, 400,000              
shares authorized, no shares issued or outstanding)          
Preferred stock (no par value, 18,100,000 shares authorized,              
no shares issued or outstanding)          
Common stock, (no par value, 40,000,000 shares authorized,          
9,633,124 and 10,292,256 shares issued and outstanding in              
2016 and 2015, respectively)          
Additional paid-in capital     8,401     23,879  
Retained income     231,240     215,634  
Accumulated other comprehensive income (loss), net of taxes       4,871       (1,791 )
           
Total stockholders' equity     244,512     237,722  
           
Total liabilities and stockholders' equity   $ 684,292 $   636,986  

HCI GROUP, INC. AND SUBSIDIARIES  
Consolidated Statements of Income  
(Unaudited)  
(Dollar amounts in thousands, except per share amounts)  
                           
    Three Months Ended       Nine Months Ended  
    September 30,       September 30,  
    2016     2015         2016     2015    
                   
Revenue          
                           
Gross premiums earned    $     92,542        103,842          $     286,273         321,174    
Premiums ceded        (29,242 )       (41,077 )            (105,998 )      (100,294 )  
                           
Net premiums earned         63,300         62,765               180,275         220,880    
                           
Net investment income         2,785         (519 )             6,000         2,685    
Net realized investment gains (losses)         583         (296 )             899         (563 )  
Net other-than-temporary impairment losses recognized in income:                          
Total other-than-temporary impairment losses         (575 )       (2,482 )             (1,211 )       (4,465 )  
Portion of loss recognized in other comprehensive income,                          
 before taxes         351         596               (230 )       596    
Net other-than-temporary impairment losses         (224 )       (1,886 )             (1,441 )       (3,869 )  
Policy fee income         972         994               2,967         2,477    
Gain on repurchases of convertible senior notes         -         -               153         -    
Gain on bargain purchase         2,071         -               2,071         -    
Other         321         204               1,151         930    
                           
Total revenue         69,808         61,262               192,075         222,540    
                           
Expenses                          
           
Losses and loss adjustment expenses         25,909         26,200               79,261         65,804    
Policy acquisition and other underwriting expenses         10,536         10,675               32,525         30,917    
Salaries and wages         5,945         5,040               17,009         15,174    
Interest expense         2,672         2,698               8,112         8,038    
Other operating expenses         4,717         4,711               14,213         14,040    
                           
Total operating expenses         49,779         49,324               151,120         133,973    
                           
Income before income taxes         20,029         11,938               40,955         88,567    
           
Income tax expense         8,696         4,567               16,542         33,796    
                           
Net income    $     11,333         7,371          $     24,413         54,771    
                           
Basic earnings per share    $     1.17         0.72          $     2.48         5.38    
                           
Diluted earnings per share    $     1.10         0.71          $     2.41         4.84    
                           
Dividends per share    $     0.30         0.30          $     0.90         0.90    
                           

Company Contact:Kevin Mitchell, Vice President of Investor RelationsHCI Group, Inc.Tel (813) 405-3603kmitchell@hcigroup.comInvestor Relations Contact:Michael KoehlerLiolios Group, Inc.Tel (949) 574-3860hci@liolios.com

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