ITEM 1A –Risk Factors
Our business is subject to a number of risks, including those described below, which could have a material effect on our results of operations, financial condition or liquidity and could cause our operating results to vary significantly from period to period.
Business and operational risks
Our historical revenue growth was derived primarily through policy assumptions and acquisitions. We cannot guarantee that future policy assumptions and acquisitions will be available to the extent they have in the past.
A substantial portion of our historical revenue has been generated from policies assumed from Citizens and other insurance companies, our acquisition of policies from several Florida insurance companies, and subsequent renewals of these policies. Our ability to grow our premium base may depend upon the availability of future policy assumptions and acquisitions upon acceptable terms. We cannot provide assurance that such opportunities will arise in the future.
Although we have begun providing insurance services in other states, our insurance business is primarily in Florida. Thus, any catastrophic event or other condition affecting losses in Florida could adversely affect our financial condition and results of operations.
Any catastrophic event, a destructive weather pattern, a general economic trend, regulatory developments or other conditions specifically affecting the state of Florida could have a disproportionately adverse impact on our business, financial condition, and results of operations. While we actively manage our exposure to catastrophic events through our underwriting process and the purchase of reinsurance, the fact that our business is concentrated in the state of Florida subjects it to increased exposure to certain catastrophic events and destructive weather patterns such as hurricanes, tropical storms, and tornadoes. Changes in the prevailing regulatory, legal, economic, political, demographic and competitive environment, and other conditions in the state of Florida could also make it less attractive for us to do business in Florida and would have a more pronounced effect on our business than it would on other insurance companies that are more geographically diversified. Since our business is concentrated in this manner, the occurrence of one or more catastrophic events or other conditions affecting losses in the state of Florida could have an adverse effect on our business, financial condition, and/or results of operations.
Our results may fluctuate based on many factors including cyclical changes in the insurance industry.
The insurance industry historically has been cyclical, characterized by periods of intense price competition due to excessive underwriting capacity, as well as periods when shortages of capacity permitted an increase in pricing and, thus, more favorable underwriting profits. As premium levels increase, there may be new entrants to the market, which could subsequently lead to a decrease in premium levels. Any of these factors could lead to a significant reduction in premium rates in future periods, less favorable policy terms and fewer opportunities to underwrite insurance risks, which could have a material, adverse effect on our results of operations and cash flows. In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance business significantly.
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We cannot predict whether market conditions will improve, remain constant or deteriorate. Negative market conditions may impair our ability to write insurance at rates that we consider appropriate relative to the risk assumed. If we cannot write insurance at appropriate rates, our business would be materially and adversely affected.
We rely on highly skilled and experienced personnel and if we are unable to attract, retain or motivate key personnel or hire qualified personnel, our business may be seriously harmed. In addition, the loss of our Chief Executive Officer or other key senior management personnel could harm our business and future prospects.
Our performance largely depends on the talents and efforts of highly-skilled and experienced individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled and experienced personnel and, if we are unable to hire and train a sufficient number of qualified employees for any reason, we may not be able to maintain or implement our current initiatives or grow, or our business may contract and we may lose market share. Moreover, certain of our competitors or other insurance or technology businesses may seek to hire our employees. We cannot assure you that we will provide adequate incentives to attract, retain and motivate employees in the future. If we do not succeed in attracting, retaining and motivating highly qualified personnel, our business may be seriously harmed.
Our operations are highly dependent on the efforts of our senior executive officers, particularly our Chief Executive Officer, Paresh Patel, as well as our Chief Operating Officer, Karin Coleman, our Chief Financial Officer, Mark Harmsworth, and the president of our real estate division, Anthony Saravanos. The loss of their leadership, industry knowledge and experience could negatively impact our operations. However, we have management succession plans to lessen any such negative impact. We maintain key-man life insurance on Mr. Patel although such policy may be insufficient to cover the damage resulting from the loss of Mr. Patel’s services.
Our information technology systems may fail or be disrupted, which could adversely affect our business.
Our insurance business is highly dependent upon the successful and uninterrupted functioning of our computer and data processing systems. We rely on these systems to perform underwriting and other modeling functions necessary for writing business, as well as to handle our policy administration process (i.e., the printing and mailing of our policies, endorsements, renewal notices, etc.). The failure or disruption of these systems could interrupt our operations and result in a material, adverse effect on our business.
The growth of our insurance business is dependent upon the successful development and implementation of advanced computer and data processing systems as well as the development and deployment of new information technologies to streamline our operations, including policy underwriting, production and administration and claim processing. The failure of these systems to function as planned could slow our growth and adversely affect our future business volume and results of operations.Additionally, our computer and data processing systems could become obsolete or could cease to provide a competitive advantage in policy underwriting, production and administration and claim processing which could negatively affect our future results of operations.
We conduct our business primarily from offices located in Tampa, Florida where tropical storms could damage our facilities or interrupt our power supply. We currently provide a hybrid work from home strategy for a majority of our workforce. This availability is provided through our highly available redundant cloud infrastructure. The loss or significant impairment of functionality in these facilities for any reason could have a material, adverse effect on our business. We believe this hybrid work strategy and redundant cloud infrastructure provides sufficient redundancies to replace our facilities if functionality is impaired. We contract with a third-party vendor to maintain complete daily backups of our systems, which are stored at the vendor’s facility in Atlanta, Georgia. We additionally use industry leading internet cloud infrastructure providers to host some of our data processing systems. These cloud providers ensure redundancy across geographic regions with additional daily system backups. Access to these databases and hosted environments is strictly controlled and limited to authorized personnel. In the event of a disaster causing a complete loss of functionality at our Tampa locations, we plan to use our alternative office in Ocala, Florida temporarily to continue our operations.
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Increased competition, competitive pressures, industry developments, and market conditions could affect the growth of our business and adversely impact our financial results.
The property and casualty insurance industry is cyclical and highly competitive. We compete not only with other stock companies but also with mutual companies, other underwriting organizations and alternative risk-sharing mechanisms. Our principal lines of business are written by numerous other insurance companies. Competition for any one account may come from very large, well-established national companies, smaller regional companies, other specialty insurers in our field, and new entrants to the market. Many of these competitors have greater financial resources, larger agency networks and greater name recognition than our company. Additionally, our competitors may merge or acquire one another and further increase their combined financial resources and agency networks. We compete for business not only on the basis of price, but also on the basis of financial strength, types of coverage offered, availability of coverage desired by customers, commission structure, and quality of service. We may have difficulty continuing to compete successfully on any of these bases in the future. Competitive pressures coupled with market conditions may affect our rate of premium growth and financial results.
HCPCI and TTIC have each obtained a Demotech rating of “A Exceptional,” which is accepted by major mortgage companies operating in the state of Florida and many other states. Mortgage companies may require homeowners to obtain property insurance from an insurance company with an acceptable A.M. Best rating, which none of our insurance subsidiaries currently have. Such a requirement could prevent us from expanding our business unless we obtain such rating, which may in turn limit our ability to compete with large, national insurance companies and certain regional insurance companies. A downgrade or loss of our Demotech rating could result in a substantial loss of business in the event insureds move their business to insurers with a sufficient financial strength rating. A credit rating downgrade could also result in a significant reduction in the number of policies that our agency networks can sell.
There are inherent limitations and risks related to our projections and our estimates of claims and loss reserves. If our actual losses exceed our loss reserves, our financial results, our ability to expand our business, and our ability to compete in the property and casualty insurance industry may be negatively affected. In addition, industry developments could further increase competition in our industry. These developments could include:
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an influx of new capital in the marketplace as existing companies attempt to expand their businesses and new companies attempt to enter the insurance business because of better pricing and/or terms;
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new programs or changes to existing programs in which federally or state-sponsored entities provide property insurance in catastrophe-prone areas or other alternative markets;
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changes in Florida’s or any other states’ regulatory climate; and
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the enactment of federal proposals for an optional federal charter that would allow some competing insurers to operate under regulations different or less stringent than those applicable to our insurance subsidiaries.
These developments and others could make the property and casualty insurance marketplace more competitive by increasing the supply of insurance available.
If competition limits our ability to write new business at adequate rates, our future results of operations would be adversely affected.
Our interests may conflict with the interests of Exzeo and the interests of Exzeo’s other stockholders. Certain conflicts of interest between Exzeo and us could be resolved in a manner unfavorable to us.
Various conflicts of interest between us and Exzeo could arise. Our interests as Exzeo’s controlling stockholder may differ from Exzeo’s interests or those of its other stockholders. Additionally, ownership interests of our CEO and chairman of our board of directors, Paresh Patel, in our common stock and in the stock of Exzeo, or his service as a director and officer of both companies, could create or appear to create potential conflicts of interest when he is faced with decisions relating to us or business. These decisions could include:
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corporate opportunities;
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the impact that operating decisions for our business may have on Exzeo’s Consolidated Financial Statements;
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differences in tax positions between Exzeo and us;
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future, potential commercial arrangements between Exzeo and us (or our affiliates) or between Exzeo and third parties;
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business combinations involving Exzeo;
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our dividend policy;
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management stock ownership; and
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the intercompany agreements between Exzeo and us (or our affiliates).
Furthermore, disputes may arise between Exzeo and us (or our affiliates) relating to our past, ongoing or future relationships and commercial arrangements and these potential conflicts of interest may make it more difficult for us to favorably resolve such disputes, including those related to:
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the nature, quality, and pricing of services Exzeo agrees to provide to us (and/or our affiliates);
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the nature, quality, and pricing of services we agree to provide to Exzeo;
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sales or other disposals by us of all or a portion of our ownership interest in Exzeo; and
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business combinations involving Exzeo.
We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.
We may not achieve some or all of the anticipated benefits of Exzeo being a standalone public company, which could negatively impact our business, financial condition and results of operation.
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We may not be able to achieve all of the anticipated strategic and financial benefits expected as a result of Exzeo being a standalone public company, or such benefits may be delayed or not occur at all. These anticipated benefits include the following:
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allowing investors to evaluate the distinct merits, performance and future prospects of the Exzeo business, independent of our other businesses;
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enhancing Exzeo’s ability to focus on its own operating priorities, strategies and specific market dynamics;
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improving Exzeo’s strategic and operational flexibility, allowing Exzeo to better target innovation and respond more effectively to different customer needs and the competitive environment for its business;
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allowing Exzeo to adopt a capital structure better suited to its financial profile and business needs, without competing for capital with our other businesses;
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creating an independent equity structure that will facilitate Exzeo’s ability to effect future acquisitions utilizing its capital stock;
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articulating a clear investment proposition and capital allocation policy to attract a long-term investor base aligned with Exzeo’s strategic goals; and
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enhancing employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives of Exzeo.
We may not be able to achieve some or all of the anticipated benefits of Exzeo being a standalone public company in the time we expect, if at all, for a variety of reasons, including management distractions and potential operational disruptions during the transition; increased exposure to market volatility, and any such failure to achieve the anticipated benefits could adversely affect our future financial condition, results of operations and cash flows.
The consummation of the Exzeo initial public offering in November 2025 also resulted in a dilution of our economic interest in Exzeo, and as a result we will only benefit from a portion of any profits and growth of that business, and from any dividends and other distributions from that business, if any. We currently do not expect Exzeo to declare or pay any cash dividends, other than tax distributions and certain cash distributions related to the impact of taxes pursuant to our tax allocation agreement among us and our subsidiaries, including Exzeo. If Exzeo discontinues the payment of, or is unable to pay, such distributions to us, this will reduce our available liquidity. Furthermore, the terms of any indebtedness incurred by Exzeo may limit the ability of Exzeo to pay dividends or make other distributions to us, or to amend the agreements between Exzeo and us and our other subsidiaries.
If our actual losses from claims exceed our loss reserves, our financial results would be adversely affected.
Our objective is to establish loss reserves that are adequate and represent management’s best estimate of the ultimate cost to investigate and settle each specific claim. However, the process of establishing adequate reserves is complex and inherently uncertain, and the ultimate cost of a claim may vary materially from the amounts reserved. We regularly monitor and evaluate loss and loss adjustment expense reserve development to determine reserve adequacy.
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Due to these uncertainties, the ultimate losses may vary materially from current loss reserves which could have a material, adverse effect on our future financial condition, results of operations and cash flows.
Our failure to pay claims accurately could adversely affect our insurance business, financial results and capital requirements.
We rely on our claims personnel to accurately evaluate and pay the claims made under our policies. Many factors could affect our ability to accurately evaluate and pay claims, including the accuracy of our independent adjusters as they make their assessments and submit their estimates of damages; the training, background, and experience of our claims representatives; the ability of our claims personnel to ensure consistent claims processing given the input by our independent adjusters; the ability of our claims department to translate the information provided by our independent adjusters into acceptable claims settlements; and the ability of our claims personnel to maintain and update our claims processing procedures and systems as they evolve over time based on claims and geographical trends in claims reporting. Any failure to pay claims accurately could lead to material litigation, undermine our reputation in the marketplace, impair our corporate image and negatively affect our financial results.
The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued and renewed, and our financial position and results of operations may be adversely affected as a result of any such unforeseen changes.
Failure to maintain our risk-based capital at the required levels could adversely affect our ability to maintain regulatory authority to conduct our business.
Our insurance subsidiaries are required to have sufficient capital and surplus in order to comply with insurance regulatory requirements, support our business operations and minimize our risk of insolvency. Failure to maintain adequate risk-based capital at the required levels could result in increasingly onerous reporting and examination requirements and could adversely affect our ability to maintain regulatory authority to conduct our business.
If we are unable to expand our business because our capital must be used to pay greater than anticipated claims, our financial results may suffer.
Our future growth will depend on our ability to expand the number of insurance policies we write, to expand the kinds of insurance products we offer, and to expand the geographic markets in which we do business, all balanced by the insurance risks we choose to write and cede. Our existing sources of funds include operations, investment holdings, and a bank credit facility. Unexpected catastrophic events in our market areas, such as hurricanes, may result in greater claims losses than anticipated, which could require us to limit or halt our growth while we redeploy our capital to pay these unanticipated claims unless we can raise additional capital.
Reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all and we risk non-collectability of reinsurance amounts due us from reinsurers with which we have contracted.
Reinsurance is a method of transferring part of an insurance company’s liability under an insurance policy to another insurance company, or reinsurer. We use reinsurance arrangements to limit and manage the amount of risk we retain, to stabilize our underwriting results and to increase our underwriting capacity. The cost of such reinsurance is subject to prevailing market conditions beyond our control, such as the amount of capital in the reinsurance market and the occurrence of natural and man-made catastrophes. We cannot be assured that reinsurance will remain continuously available to us in the amounts we consider sufficient and at prices acceptable to us. As a result, we may determine to increase the amount of risk we retain or look for other alternatives to reinsurance, which could in turn have a material, adverse effect on our financial position, results of operations and cash flows.
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With respect to the reinsurance contracts we currently have in effect, our ability to recover amounts due from reinsurers is subject to such reinsurers’ ability and willingness to pay and to meet their obligations to us. We attempt to select financially strong reinsurers with an A.M. Best rating of “A-” or better or we require the reinsurer to fully collateralize its exposure. While we monitor from time to time the financial condition of our reinsurers, we rely principally on A.M. Best, our reinsurance broker, and other rating agencies in determining their ability to meet their obligations to us. Any failure on the part of any one reinsurance company to meet its obligations to us could have a material, adverse effect on our financial condition or results of operations.
The failure of the risk mitigation strategies we utilize could have a material, adverse effect on our financial condition or results of operations.
We utilize a number of strategies to mitigate risk exposure within our insurance business, which include:
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engaging in vigorous underwriting;
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carefully evaluating terms and conditions of our policies;
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focusing on our risk aggregations by geographic zones and other bases; and
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ceding insurance risk to reinsurance companies.
However, there are inherent limitations in these strategies. We cannot provide assurance that an unanticipated event or series of events will not result in loss levels which could have a material, adverse effect on our financial condition or results of operations.
The failure of any of the loss limitation methods we employ could have a material, adverse effect on our financial condition or our results of operations.
Our insurance underwriting process is generally designed to limit our exposure to known and manageable risks. Various provisions of our policies, such as limitations or exclusions from coverage, which have been negotiated to limit our risks, may not be enforceable in the manner we intend.
In addition, the policies we issue contain conditions requiring the prompt reporting of claims to us and our right to decline coverage in the event of a violation of that condition. While our insurance product exclusions and limitations reduce the loss exposure to us and help eliminate known exposures to certain risks, it is possible that a court or regulatory authority could nullify or void an exclusion or legislation could be enacted modifying or barring the use of such endorsements and limitations in a way that would adversely affect our loss experience, which changes could have a material, adverse effect on our financial condition or results of operations.
If our customers were to claim that the policies they purchased failed to provide adequate or appropriate coverage, we could face claims that could harm our business, results of operations and financial condition.
Although we aim to provide adequate and appropriate coverage under each of our policies, customers could purchase policies that prove to be inadequate or inappropriate. If such customers were to bring a claim or claims alleging that we failed in our responsibilities to provide them with the type or amount of coverage that they sought to purchase, we could be found liable for amounts significantly in excess of the policy limit, resulting in an adverse effect on our business, results of operations and financial condition. While we maintain errors and omissions insurance coverage to protect us against such liability, such coverage may be insufficient or inadequate.
Now and in the future, we may rely on independent agents to write our insurance policies, and if we are not able to contract with and retain independent agents, our revenues would be negatively affected.
We must compete with other insurers for independent agents’ business. Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage, or higher commissions to their agents. If our products, pricing and commissions do not remain competitive, we may find it more difficult to attract business from independent agents to sell our products. A material reduction in the amount of our products that independent agents sell could negatively affect our revenues.
Our success depends on our ability to accurately price the risks we underwrite.
The results of our operations and our financial condition depend on our ability to underwrite and set premium rates accurately for a wide variety of risks and other new product offerings. Rate adequacy is necessary to generate sufficient premiums to pay losses, loss adjustment expenses, and underwriting expenses and to earn a profit. To price our products accurately, we must collect and properly analyze a substantial amount of data; develop, test and apply appropriate rating formulas; closely monitor and timely recognize changes in trends; and project both severity and frequency of losses with reasonable accuracy. Our ability to undertake these efforts successfully, and thus, price our products accurately, is subject to several risks and uncertainties, some of which are outside of our control, including:
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the availability of sufficient reliable data;
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the uncertainties that inherently characterize estimates and assumptions;
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our selection and application of appropriate rating and pricing techniques;
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changes in legal standards, claim settlement practices, and restoration costs; and
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legislatively imposed consumer initiatives.
In addition, we could underprice risks, which would negatively affect our profit margins. We could also overprice risks, which could reduce our retention, sales volume and competitiveness. The foregoing factors could materially and adversely affect our profitability.
Our foreign operations expose us to additional risks, which could negatively impact our business, operating results, and financial condition.
Our foreign operations, in countries such as India and Bermuda, expose us to additional risks including income tax risks, currency exchange rate fluctuations and risks related to other challenges caused by distance, language, and compliance with foreign labor laws and other complex foreign and U.S. laws and regulations that apply to our foreign operations. These numerous and sometimes conflicting laws and regulations include anti-corruption laws, such as the Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials, among others. Violations of these laws and regulations could result in fines and penalties, or criminal sanctions against us, our officers, or our employees. Although policies and procedures are designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies.
Our acquired renewal rights intangible assets can be subject to impairment charges which can adversely affect our financial results.
We evaluate our renewal rights intangible assets when impairment indicators are present to determine if there has been any impairment in their carrying value. If we determine an impairment has occurred, we are required to record an impairment charge equal to the excess of the asset’s carrying value over its estimated fair value. The assumptions underlying our fair value estimates are subject to uncertainties including, but not limited to, policy attrition rates, changes in premium rates, marketplace competition, policyholder behavior, and regulatory changes. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the future cash flows estimated in our impairment analysis may materially differ from our actual results.
The insolvency and receivership of United Property & Casualty Insurance Company could adversely affect our financial results.
In 2023, United Property & Casualty Insurance Company (“United”), an insurer for which we provided reinsurance, was placed into receivership by the State of Florida due to its financial insolvency. As a result, our agreements with United were terminated. Although there have been withdrawals from funds held in trust in settlement for claims and claims processing services, we cannot predict the actions a receiver might take with regards to restrictions on, or use of, funds held in trust. Any such actions could have a material adverse effect on our financial position and results of operations.
Any lack of business or financial success by a reciprocal insurance exchange we manage could diminish our expected management fee revenue and damage our business reputation.
The reciprocal insurance exchanges, which we manage, may enter into the business of providing certain insurance coverage, a product and market which is new to us and for which we have limited experience. In managing this business, we could encounter unexpected challenges, including, for example, challenges in accurately assessing risk, determining appropriate pricing, and establishing adequate reserves. Although our risk of loss in connection with the reciprocal insurance exchanges is currently limited to the surplus notes, any lack of business or financial success could not only diminish the management fee revenue we expect to generate from that enterprise, but also damage our insurance management reputation and consequently diminish opportunities to generate management fee revenue from future similar enterprises as well as diminish the value of the overall HCI enterprise.
Financial risks
HCI Group, Inc. depends on the ability of its subsidiaries to generate and transfer funds to meet its debt obligations.
HCI Group, Inc. does not have significant revenue-generating operations of its own. Our ability to make scheduled payments on our debt obligations depends on the financial condition and operating performance of our subsidiaries. If the funds we receive from our subsidiaries, some of which are subject to regulatory restrictions on the payment of distributions, are insufficient to meet our debt obligations, we may be required to raise funds through the issuance of additional debt or equity securities, reduce or suspend dividend payments, or sell assets.
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We may require additional capital in the future which may not be available or may only be available on unfavorable terms.
Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. To the extent that our present capital is insufficient to meet future operating requirements or to cover losses, we may need to raise additional funds through financings or curtail our growth. Based on our current operating plan, we believe current capital together with our anticipated retained income will support our operations. However, we cannot provide any assurance in that regard, since many factors will affect our capital needs and their amount and timing, including our growth and profitability, and the availability of reinsurance, as well as possible acquisition opportunities, market disruptions and other unforeseeable developments. If we require additional capital, it is possible that equity or debt financing may not be available at all or may be available only on terms unfavorable to us. Equity financings could result in dilution to our shareholders, and in any case such securities may have rights, preferences and privileges that are senior to those of existing shareholders. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition or results of operations could be materially affected.
Our credit agreement contains restrictions that can limit our flexibility in operating our business.
The agreement governing our revolving credit facility contains various covenants that limit our ability to engage in certain transactions. These covenants limit our and our subsidiaries’ ability to, among other things:
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incur additional indebtedness;
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declare or make any restricted payments;
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create liens on any of our assets now owned or hereafter acquired;
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consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets now owned or hereafter acquired; and
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enter into certain transactions with our affiliates.
An increase in interest rates may negatively impact our operating results and financial condition.
Borrowings under our revolving credit facility have a variable rate of interest. An increase in interest rate would have a negative impact on our results of operations attributable to increased interest expense.
Investment risks
There may be limited markets for and restrictions on certain holdings in our investment portfolio.
Certain holdings in our investment portfolio include limited partnership interests and commercial real estate. We may increase our holdings in these types of investments as we pursue further diversification. These investments may be illiquid in the near term as they are privately placed and are subject to certain restrictions or conditions that may limit our ability to immediately dispose of the investments. If it becomes necessary to sell any of these investments at a time when the fair market value is below our carrying value, we may incur significant losses which could have a material adverse effect on our net income and financial position.
Our financial results may be negatively affected by the fact that a portion of our income is generated by the investment of our available cash.
A portion of our income is, and likely will continue to be, generated by the investment of our available cash. The amount of income so generated is a function of our investment policy, available investment opportunities, and the amount of available cash invested. Fluctuating interest rates and other economic factors make it difficult to estimate accurately the amount of investment income that will be realized. In fact, we have realized and may in the future realize losses on sales of our investments as well as credit losses on our investment holdings. Any unfavorable change to the fair value of our equity securities will also impact our financial results.
Our revenue from real estate investments may be affected by the success and economic viability of our anchor retail tenants. Our reliance on a single or significant tenant at certain properties may impact our ability to lease vacated space and adversely affect returns on the specific property.
At certain retail centers, we may have tenants, commonly referred to as anchor tenants, occupying all or a large portion of the gross leasable space. In the event an anchor tenant becomes insolvent, suffers a downturn in business, ceases its operations at the retail center, or otherwise determines not to renew its lease, any reduction or cessation of rental payments to us could adversely affect the returns on our real estate investments. A lease termination or cessation of operations by an anchor tenant could also lead to the loss of other tenants at the specific retail location. We may then incur additional expenses to make improvements and prepare the vacated space to be leased to one or more new tenants.
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Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases.
Our retail and other real estate properties may be subject to impairment charges which can adversely affect our financial results.
We periodically evaluate our long-lived assets and related intangible assets to determine if there has been any impairment in their carrying values. If we determine an impairment has occurred, we are required to record an impairment charge equal to the excess of the asset’s carrying value over its estimated fair value. As our real estate operations grow, there is an increased potential that the impairment of an asset could have a material adverse effect on our financial results. In addition, our fair value estimates are based on several assumptions that are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the future cash flows estimated in our impairment analysis may not be achieved.
Our ongoing investments in real estate and information technology businesses have inherent risks and could burden our financial and human resources.
We have invested and expect to continue to invest in real estate and information technology. Despite our due diligence, these investments may still involve significant risks and uncertainties, including distraction of management and employees from current operations, insufficient revenues to offset liabilities assumed and incurred expenses, inadequate return of capital, and failure to realize the anticipated benefits. There can be no assurance that such investments will be successful and will not adversely affect our financial condition and operating results.
Legal and regulatory risks
Industry trends, such as litigation against the insurance industry and individual insurers, the willingness of courts to expand covered causes of loss, rising jury awards, and the escalation of loss severity may contribute to increased costs and to the deterioration of the reserves of our insurance subsidiaries.
Loss severity in the property and casualty insurance industry may increase and may be driven by larger court judgments. In the event legal actions and proceedings are brought on behalf of classes of complainants, this may increase the size of judgments. The propensity of policyholders and third party claimants to litigate and the willingness of courts to expand causes of loss and the size of awards may render our loss reserves inadequate for current and future losses.
As an insurance holding company, we are currently subject to state regulation and in the future may become subject to federal regulation.
All states regulate insurance holding company systems. State statutes and administrative rules generally require each insurance company in the holding company group to register with the department of insurance in its state of domicile and to furnish information concerning the operations of the companies within the holding company system that may materially affect the operations, management or financial condition of the insurers within the group. As part of its registration, each insurance company must identify material agreements, relationships and transactions with affiliates, including without limitation, loans, investments, asset transfers, transactions outside of the ordinary course of business, certain management, service, and cost sharing agreements, reinsurance transactions, dividends, and consolidated tax allocation agreements.
Insurance holding company regulations generally provide that transactions between an insurance company and its affiliates must be fair and equitable, allocated between the parties in accordance with customary accounting practices, and fully disclosed in the records of the respective parties. Many types of transactions between an insurance company and its affiliates, such as transfers of assets among such affiliated companies, certain dividend payments from insurance subsidiaries and certain material transactions between companies within the system may be subject to prior approval by, or prior notice to, state regulatory authorities. If we are unable to obtain the requisite prior approval for a specific transaction, we would be precluded from taking the action, which could adversely affect our operations. In addition, state insurance regulations also frequently impose notice or approval requirements for the acquisition of specified levels of ownership in the insurance company or insurance holding company.
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Regulations may vary from state to state, and states occasionally may have conflicting regulations. Currently, the federal government’s role in regulating or dictating the policies of insurance companies is limited. However, Congress, from time to time, considers proposals that would increase the role of the federal government in insurance regulation, either in addition to or in lieu of state regulation. The impact of any future federal insurance regulation on our insurance operations is unclear and may adversely impact our business or competitive position.
Our insurance subsidiaries are subject to extensive regulation, which may reduce our profitability or limit our growth. Moreover, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.
The insurance industry is highly regulated and supervised. Our insurance subsidiaries are subject to the supervision and regulation of the states in which they are domiciled and the states in which they transact insurance business. Such supervision and regulation is primarily designed to protect our policyholders rather than our shareholders. These regulations are generally administered by a department of insurance in each state and relate to, among other things:
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the content and timing of required notices and other policyholder information;
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the amount of premiums the insurer may write in relation to its surplus;
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the amount and nature of reinsurance a company is required to purchase;
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participation in guaranty funds and other statutorily created markets or organizations;
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business operations and claims practices;
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approval of policy forms and premium rates;
•
standards of solvency, including risk-based capital measurements;
•
licensing of insurers and their products;
•
restrictions on the nature, quality and concentration of investments;
•
restrictions on the ability of insurance company subsidiaries to pay dividends to their holding companies;
•
restrictions on transactions between insurance companies and their affiliates;
•
restrictions on the size of risks insurable under a single policy;
•
requiring deposits for the benefit of policyholders;
•
requiring certain methods of accounting;
•
periodic examinations of our operations and finances;
•
the form and content of records of financial condition required to be filed; and
•
the level of reserves.
The FLOIR and regulators in other jurisdictions where we may become licensed and offer insurance products conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding company issues and other matters. These regulatory requirements may adversely affect or inhibit our ability to achieve some or all of our business objectives. These regulatory authorities also conduct periodic examinations into insurers’ business practices. These reviews may reveal deficiencies in our insurance operations or non-compliance with regulatory requirements.
In certain states, including Florida, insurance companies are subject to assessments levied by the states where they conduct their business. While we can recover these assessments from Florida policyholders through policy surcharges, our payment of the assessments and our recoveries may not offset each other in the same reporting period in our consolidated financial statements and may cause a material, adverse effect on our cash flows and results of operations in a particular reporting period.
In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us. This could adversely affect our ability to operate our business.
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Finally, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could adversely affect our ability to operate our business, reduce our profitability and limit our growth.
A regulatory environment that requires approval of rate increases and that can dictate underwriting practices and mandate participation in loss sharing arrangements may adversely affect our results of operations and financial condition.
From time to time, political events and positions affect the insurance market, including efforts to suppress rates to a level that may not allow us to reach targeted levels of profitability. For example, if our loss ratio compares favorably to that of the industry, state regulatory authorities may impose rate rollbacks, require us to pay premium refunds to policyholders, or challenge or otherwise delay our efforts to raise rates even if the homeowners industry generally is not experiencing regulatory challenges to rate increases.
In addition, certain states have enacted laws that require an insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities and joint underwriting associations. Certain states also require insurers to offer coverage to all consumers, often restricting an insurer’s ability to charge the price it might otherwise charge. In these markets, we may be compelled to underwrite significant amounts of business at lower-than-desired rates, possibly leading to an unacceptable return on equity. Our results of operations and financial condition could be adversely affected by any of these factors.
Our real estate operations are subject to regulation under various federal, state, and local laws concerning the environment.
Our real estate operations own various properties including marina facilities, and commercial buildings. As a result, we are subject to regulation under various federal, state, and local laws concerning the environment, including laws addressing the discharge of pollutants into the air and water and the management and disposal of hazardous substances and waste and the cleanup of contaminated sites. We could incur substantial costs, including remediation costs, fines and civil or criminal sanctions and third-party damage or personal injury claims, if in the future we were to violate or become liable under environmental laws relating to our real estate operations.
Security and fraud risks
An unauthorized disclosure or loss of policyholder or employee information or other sensitive or confidential information, including by cyber-attack or other security breach, could cause a loss of data, give rise to remediation or other expenses, expose us to liability under federal and state laws, and subject us to litigation and investigations, which could have an adverse effect on our business, cash flows, financial condition and results of operations.
As part of our normal operations, we collect, process and retain certain sensitive and confidential information. We are subject to various federal and state privacy laws and rules regarding the use and disclosure of certain sensitive or confidential information. Despite the security measures we have implemented to help ensure data security and compliance with applicable laws and rules, which include firewalls, regular penetration testing and other measures, our facilities and systems, and those of our third-party service providers and vendors, may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, theft of data, misplaced or lost data, programming and human errors, physical break-ins, or other disruptions. In addition, we cannot ensure that we will be able to identify, prevent or contain the effects of possible cyber-attacks or other cybersecurity risks in the future that may bypass our security measures or disrupt our information technology systems or business.
Noncompliance with any privacy or security laws and regulations, or any security breach, cyber-attack or cybersecurity breach, and any incident involving the misappropriation, loss or other unauthorized disclosure or use of, or access to, sensitive or confidential member information, could require us to expend significant capital and other resources to continue to modify or enhance our protective measures and to remediate any damage caused by such breaches. In addition, this could result in interruptions to our operations and damage to our reputation, and misappropriation of confidential information could also result in regulatory enforcement actions, material fines and penalties, litigation or other liability or actions which could have a material adverse effect on our business, cash flows, financial condition and results of operations. As the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs.
We rely on service providers and vendors to provide certain technology, systems and services that we use in connection with various functions of our business, including PCI DSS (Payment Card Industry Data Security Standard) compliant credit card processing, and we may entrust them with confidential information. The information systems of our third-party service providers and vendors are also vulnerable to an increasing threat of continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to these systems or our information through fraud or other means of deceiving our associates, third-party service providers or vendors. Hardware, software or applications we obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are also constantly changing and evolving and may be difficult to anticipate or detect for long periods of time. Ever-evolving threats mean our third-party service providers and vendors must continually evaluate and adapt their own respective systems and
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processes, and there is no assurance that they will be adequate to safeguard against all data security breaches or misuses of data. Any future significant compromise or breach of our data security via a third-party service provider or vendor could result in additional significant costs, lost revenues, fines, lawsuits, and damage to our reputation. We have acquired a cybersecurity insurance policy to help mitigate any financial impact that may incur with a breach along with the assistance for legal and/or media requirements during that time.
General risks
An overall decline in economic activity could have a material adverse effect on the financial condition and results of operations of our business.
The demand for homeowners insurance generally rises as the overall level of household income increases and generally falls as household income decreases, affecting premiums, commissions and fees generated by our business. Some new policies may be sourced by referral sources tied to home closing transactions, and major slowdowns in the various housing markets we serve could impact our ability to generate new business. The economic activity that impacts homeowners insurance is most closely correlated with employment levels, corporate revenue and asset values.
Changing climate conditions could have an adverse impact on our business, results of operations or financial condition.
There is constant emerging science on climate change. Climate change may affect the frequency and severity of storms, and other weather events, and negatively affect our business, results of operations, and/or financial condition.
We have exposure to unpredictable catastrophes, which can materially and adversely affect our financial results.
We write insurance policies that cover homeowners, condominium owners, and tenants for losses that result from, among other things, catastrophes. We are therefore subject to losses, including claims under policies we have written, arising out of catastrophes that may have a significant effect on our business, results of operations, and financial condition. A significant catastrophe could also have an adverse effect on our reinsurers. Catastrophes can be caused by various events, including hurricanes, tropical storms, tornadoes, windstorms, earthquakes, hailstorms, explosions, power outages, fires, winter storms and man-made events. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Our policyholders are currently concentrated in Florida and the northeast and southeast regions, which are subject to adverse weather conditions such as hurricanes, tropical storms and winter storms. Therefore, although we attempt to manage our exposure to catastrophes through our underwriting process and the purchase of reinsurance protection, an especially severe catastrophe or series of catastrophes could exceed our reinsurance protection and may have a material, adverse impact on our results of operations and financial condition.
ITEM 1B –Unresolved Staff Comments
Not applicable.
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ITEM 1C – Cybersecurity
We rely on digital technology to conduct our businesses and interact with customers, policyholders, agents, and vendors. With this reliance on technology comes the associated security risks from the use of communication technology and networks.
Risk Management and Strategy
The goal of our cybersecurity risk management strategy is to protect the privacy, integrity, and availability of our critical systems and information. Our processes are designed to identify, assess, and manage material risks from cybersecurity threats as part of our entity-wide risk management efforts. To safeguard our data and the data of our customers, management utilizes a multi-layered approach including the use of an external security operations center that specializes in the detection and containment of cyber-attacks. For protection of endpoint devices connected to our network, we use third-party managed detection and response security software. Perimeter defense technology is used to filter e-mail for threats from malware, viruses, phishing attempts, and network firewalls are used to monitor incoming and outgoing network traffic.
Tools utilized to prevent threats include multifactor authentication, e-mail security services, mobile e-mail security policies, virtual private networks, third-party security experts, and timely applications of software patches, among others. We conduct annual penetration testing, disaster recovery testing, internal and external audits of our cybersecurity controls, as well as simulated cyberattack scenarios to evaluate our preparedness for these situations. Employees are required to complete mandatory semiannual cybersecurity training and participate in periodic phishing simulations. We also maintain cyber insurance coverage, which includes access to a cyber incident response team in the event of a cybersecurity incident.
Management of cybersecurity risks also extends to third-party service providers engaged for specialized functions. Oversight of these providers is maintained through a third-party risk management process which includes obtaining and reviewing independent service organization audit reports on Service Organization Controls (“SOC”) to evaluate the design and operating effectiveness of relevant controls. Certain third-party providers are monitored and reviewed through oversight procedures performed by external service providers to assess controls related to data protection, system security, and access management.
We respond to cybersecurity events in accordance with our Cyber Security Incident Response Plan (“CSIRP”), which follows the guidance of the National Institute of Standards and Technology Cybersecurity Framework and provides for assessment, mitigation, and if necessary, remediation of any effects of a system breach. We also conduct annual breach simulations with internal information technology teams to test each step of our CSIRP.
There have been no cybersecurity events in the past that have materially affected or are reasonably likely to materially affect the Company’s business strategy, results of operations, or financial condition. Although we believe our defenses against cyber-intrusions are sufficient, we continue to update our prevention programs to respond to sophisticated and rapidly evolving attempts to overcome our security measures. Such continuing threats could have a variety of adverse business impacts. See Item 1A – “Risk Factors” under the heading “Security and fraud risks” above for additional information on risks to our business from cybersecurity incidents and related matters.
Governance
Cybersecurity is a critical component of our overall risk management process. Our Board of Directors oversees our cybersecurity risk management, including oversight of policies, processes, and material risks related to cyber security.
Responsibility for the assessment and management of cybersecurity risks resides with senior management. The members of management responsible for managing cybersecurity threats are HCI Group’s Vice President of Information Technology and the Chief Technology Officer of Exzeo. Both the Vice President of Information Technology and the Chief Technology Officer have extensive experience in information technology, operations, network security, and cybersecurity risk management, including the implementation and monitoring of security controls, coordination with third-party security service providers, and defense of computer networks against cyber intrusions. In addition, HCI Group's Director of Cybersecurity is dedicated to overseeing our multi-layered cybersecurity defenses and leads monthly security meetings attended by information technology managers.
Day to day cybersecurity operations are supported by internal information technology personnel with experience in system security, threat monitoring, incident detection, and response, who are responsible for implementing cyber security controls, monitoring threats and coordinating response activities.
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Our Board receives periodic updates from management regarding cybersecurity risks, controls, and any material cybersecurity incidents. At least one member of the Board has information technology and cybersecurity-related experience, which supports the Board's oversight of cybersecurity risk management.
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ITEM 2 – Properties
Real Estate Owned and Used in Operations
Tampa, Florida. Coconut Palm. The real estate consists of 10.4 acres of land and a two-story office building with gross area of approximately 64,850 square feet and currently serves as HCI Group, Inc.’s corporate headquarters.
Tampa, Florida. Century Park. The real estate consists of 6.2 acres of land and a four-story office building with gross area of approximately 68,908 square feet and currently serves as Exzeo’s corporate headquarters. As of December 31, 2025, this property serves as collateral to a 4.55% promissory note of $4.1 million which matures in August 2036.
Ocala, Florida. Silver Springs. The real estate consists of 1.5 acres of land and a two-story office building with gross area of approximately 12,896 square feet. The facility is 100% designated as an auxiliary office for Exzeo.
Real Estate Investments
Tierra Verde, Florida. Tierra Verde. The real estate consists of 7.1 acres of waterfront property, a dry rack storage building with gross area of 57,500 square feet, and two buildings with retail space having an aggregate gross area of approximately 23,912 square feet. This marina facility is owned and operated by us. Approximately 6% of the available retail space is occupied as our marina office and 33% of the retail space is leased to non-affiliates. We are currently assessing redevelopment opportunities for this property.
Treasure Island, Florida. Treasure Island. The real estate consists of approximately 9.1 acres of waterfront property, a restaurant, and a marina facility. The marina facility is currently owned and operated by us. The restaurant facility is leased to an unrelated party that operates several restaurants in the area.
Riverview, Florida. Riverview Station. The real estate consists of 2.3 acres of land with a gas station and a retail shopping center with 12,945 of rentable space. The entirety of this property is leased to non-affiliates.
Clearwater, Florida. Clearwater Market. The real estate consists of 6.1 acres of land and a retail shopping center with 58,692 square feet of rentable space. The shopping center is anchored by an ALDI supermarket. Approximately 94% of the rentable space is leased to non-affiliates and the remaining space is available for lease. As of December 31, 2025, this property serves as collateral to a 5.50% promissory note of $11.4 million which matures in July 2033.
Tampa, Florida. Westview. We own approximately 8.6 acres of undeveloped land that we acquired in February 2019.
Haines City, Florida.Shops at the Grove. The real estate consists of approximately 15.5 acres of land and a retail shopping center with 60,748 square feet of rentable space. The shopping center is anchored by a Publix supermarket. Approximately 94% of the rentable space is leased to non-affiliates and the remaining space is available for lease. As of December 31, 2025, this property serves as collateral to a 5.65% promissory note of $16.9 million which matures in August 2035.
Tampa, Florida.Corporate Oaks. The real estate consists of 10.4 acres of land and three three-story office buildings with gross area of approximately 189,147 square feet. The entirety of this property is leased to the Government Employee Insurance Company (“GEICO”).
St. Petersburg, Florida. Carillon Park. The real estate consists of 12.4 acres of land and two two-story office buildings with gross area of approximately 179,723 square feet. The rentable space is unoccupied and is currently being marketed for lease to non-affiliated tenants.
Leased Property
Noida, India. We lease 15,000 square feet of office space for our information technology operations for Exzeo. The lease is scheduled to expire on January 31, 2031.
Plantation, Florida. We lease approximately 5,700 square feet of office space for our claims related administration. The lease is scheduled to expire on May 31, 2028.
We believe all of our properties are adequate and suitable for our business and are adequately maintained.
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ITEM 3 –Legal Proceedings
We are a party to litigation and other legal matters arising in the ordinary course of our business. From time to time, we are also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. Although we cannot predict with certainty the ultimate resolution of the litigation and other legal matters we are a party to, we do not believe that any known or potential litigation and other legal matters will have a material, adverse effect on our consolidated financial position, results of operations, or cash flows. See Note 21 “Commitments and Contingencies” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K for additional information.
ITEM 4 –Mine Safety Disclosures
Not applicable.
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PART II
ITEM 5 –Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock trades on the NYSE under the symbol “HCI.”
Holders
As of February 20, 2026, there were 253 holders of record of our common stock, which does not include the number of stockholders who hold our common stock through banks, brokers, and other financial institutions.
Dividends
The declaration and payment of dividends is at the discretion of our Board. Our ability to pay dividends depends on many factors, including the Company’s operating results, financial condition, capital requirements, the availability of cash from our subsidiaries and legal and regulatory constraints and requirements on the payment of dividends and other factors that our Board deems relevant.
Our insurance subsidiaries are subject to restrictions on the dividends they may pay. Those restrictions could impact our ability to pay dividends in the future.
Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholders except out of that part of its available and accumulated capital and surplus funds which is derived from realized net operating profits on its business and net realized capital gains. Additionally, a Florida domestic insurer may not make dividend payments or distributions to its stockholders without prior approval of the FLOIR if the dividend or distribution would exceed the larger of (1) the lesser of (a) 10.0% of its capital surplus or (b) net income, not including realized capital gains, plus a two year carry forward, (2) 10.0% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (3) the lesser of (a) 10.0% of capital surplus or (b) net investment income plus a three year carry forward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.
Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the FLOIR if (1) the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards to policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, (2) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (3) the insurer files a notice of the dividend or distribution with the FLOIR at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the FLOIR or (2) 30 days after the FLOIR has received notice of such dividend or distribution and has not disapproved it within such time.
During 2025, our insurance subsidiaries paid dividends of $14.0 million to HCI.
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Performance Graph
The following graph compares the 5-year cumulative total dollar return to shareholders on our common stock relative to the cumulative total returns of the Russell 2000 Index and the NASDAQ Insurance Index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on December 31, 2020 and its relative performance is tracked through December 31, 2025. The returns shown are based on historical results and are not intended to suggest future performance.
Recent Sales of Unregistered Securities
None.
Use of Proceeds from Registered Equity Securities
None.
Issuer Purchase of Equity Securities
The number of common shares surrendered by employees to satisfy payroll tax liabilities associated with the vesting of restricted stock awards issued under our stock-based compensation plan is summarized below:
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ITEM 6 –Reserved
Not applicable.
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ITEM 7 –Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This section is intended to (i) provide material information relevant to the assessment of our results of operations and cash flows; (ii) enhance the understanding of our financial condition, changes in financial condition, and results of operations; and (iii) discuss material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future performance or of future financial condition.
Included below are year-over-year comparisons between 2025 and 2024. For information on year-over-year comparisons between 2024 and 2023, refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2024 Annual Report on Form 10-K, which was filed with the SEC on February 28, 2025.
The following discussion and analysis contains forward-looking statements about our business, operations, and financial performance based on current plans and estimates involving risks, uncertainties, and assumptions, which could differ materially from actual results. Factors that could cause such differences are discussed in the sections of this Annual Report titled Item 1A “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
BUSINESS AND BASIS OF PRESENTATION
We are primarily engaged in the property and casualty insurance business. We provide various homeowners’ property and casualty insurance products for properties located in the State of Florida, which is our primary market, as well as in other states in the northeast and southeast regions of the U.S.
Our insurance operations are supported by other insurance-related subsidiaries within the consolidated group. Exzeo provides turn-key insurance technology and operations solutions based on a proprietary platform of purpose-built software and data analytics applications that are specifically designed for the property and casualty insurance ecosystem. We utilize Exzeo's internally developed software technologies to identify profitable underwriting opportunities, drive efficiency in claim processing and settlements, and streamline operations across our insurance operations and other insurance-related businesses.
We also provide AIF services for reciprocal insurance exchanges owned by their policyholders. Although we do not have any equity interest in the reciprocal insurance exchanges, we are required to consolidate them as their primary beneficiary. In addition, we have a commercial real estate group that is primarily engaged in the business of developing and operating commercial properties for investment purposes or for our own use.
We identify our segments based on the manner in which our Chief Executive Officer, who is the chief operating decision maker, evaluates performance and makes decisions regarding the allocation of resources. We have five reportable segments: Insurance Operations, Exzeo, Reciprocal Exchange Operations, Real Estate, and Corporate and Other. Due to their economic characteristics, our property and casualty insurance division and reinsurance operations, excluding the insurance operations under Reciprocal Exchange Operations, are grouped together into one reportable segment under Insurance Operations. The Exzeo segment includes insurance technology and operations solutions for property and casualty insurance carriers. The Reciprocal Exchange Operations segment represents the insurance operations of consolidated reciprocal insurance exchanges that are owned by their policyholders. The Real Estate segment relates to our commercial real estate group that is primarily engaged in the business of developing and operating commercial properties for investment purposes or for our own use. The Corporate and Other segment represents the activities of the holding companies and any other operations 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, revenue, and results of operations. Refer to Note 15 “Segment Information” to the consolidated financial statements included in this Annual Report on Form 10-K for additional information.
All financial information presented in this section has been prepared in U.S. dollars in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and includes the accounts of HCI Group, Inc. and its subsidiaries and consolidated VIEs. All intercompany transactions have been eliminated.
FACTORS AFFECTING OPERATING RESULTS
Our general operating and growth strategies are to continually optimize our existing book of insurance business, organically expand our insurance business, manage our costs and expenses, diversify our business operations, develop and deploy new technologies to streamline operational processes, and maintain a strong balance sheet so we can quickly pursue accretive opportunities when they arise. Our growth strategies also include policy assumption from third-party insurance companies with the intention of renewing and/or replacing them with our policies.
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Our insurance business has grown both organically and through strategic policy assumptions, which have been a key driver of our expansion. We have participated in legislatively mandated take-out programs, designed to reduce the state’s risk exposure by transitioning policies from Citizens, a Florida state supported insurer, to private insurers. We selectively pursue additional assumption opportunities with Citizens when they align with our risk appetite and growth strategy. We also assume policies from other insurance companies in Florida and/or any other state in which we operate.
The nature of our business is to cover losses that may arise from, among other things, hurricanes and other catastrophic events such as tornadoes, floods and winter storms. The occurrence of any such catastrophes could have a significant adverse effect on our business, results of operations, and financial condition. To mitigate the risk associated with catastrophic events, we purchase reinsurance from other large insurance companies. Even without catastrophic events, we may incur losses and loss adjustment expenses that deviate substantially from our estimates and that may exceed our reserves, in which case our net income and capital would decrease. Our operating and growth strategies may also be impacted by regulation of our business by the State of Florida and other states in which we operate. For example, insurance regulators must approve our policy forms and premium rates as well as monitor our compliance with financial and regulatory requirements.
Recent Events
The table below shows the number of policies and annualized gross premiums assumed from Citizens during the periods presented:
Years Ended December 31, Policies Assumed Annualized Gross Premiums ('000)
During 2025, approximately 33,000 policies with annualized premiums of $115.9 million assumed relate to Tailrow, which commenced operations during 2025. During 2024, approximately 700 policies with annualized premiums of $81.7 million assumed relate to CORE, which commenced operations during 2024. Both CORE and Tailrow represent consolidated reciprocal insurance exchanges that are ultimately owned by their policyholders. Accordingly, all of the net income associated with CORE and Tailrow is included in net income attributable to noncontrolling interests.
On November 6, 2025, Exzeo closed its initial public offering, issuing 8,000,000 shares of common stock at a price of $21.00 per share for gross proceeds of $168.0 million. Underwriting and offering costs totaled $13.2 million and were recorded as a reduction of the proceeds received. The net proceeds were allocated as $129.2 million to additional paid-in capital and $25.5 million to noncontrolling interest on the consolidated balance sheet with no recognition of a gain or loss on the consolidated statements of income. As of December 31, 2025, we owned approximately 82.5% of Exzeo's outstanding shares of common stock, inclusive of unvested restricted stock. Accordingly, Exzeo remains a consolidated, majority-owned, subsidiary of HCI Group, Inc. As the initial public offering diluted HCI's ownership of Exzeo, the amount of Exzeo's net income included in net income attributable to noncontrolling interests will increase in subsequent periods.
On January 22, 2024, Exzeo entered into a Stock Redemption Agreement with Centerbridge which allowed Exzeo to redeem all of the Exzeo Series A Preferred Stock held by Centerbridge. The redemption occurred prior to an optional February 26, 2025 redemption right held by Centerbridge. The redemption totaled $100.0 million plus accrued and unpaid dividends of approximately $2.9 million. At redemption, the difference between the consideration transferred of $102.9 million and the redemption date carrying value of $96.7 million was recorded as a deemed dividend and included in net income attributable to redeemable noncontrolling interests. Subsequent to the redemption, there are no other transactions impacting net income attributable to redeemable noncontrolling interests.
KEY PERFORMANCE INDICATORS
We make strategic decisions, measure our performance, evaluate our business, and identify trends in our business using certain key performance indicators, including the operating metrics gross loss ratio, net expense ratio, and net combined ratio. Computations of our key performance indicators may not be comparable to other similarly titled measures reported by other companies. Additionally, we compute and disclose other ratios for informational purposes only.
Gross Loss Ratio
Gross loss ratio is defined as losses and loss adjustment expenses in relation to gross premiums earned. The gross loss ratio represents the percentage of our premiums used to cover our losses. We use the gross loss ratio as a metric to measure and monitor our underwriting and pricing practices.
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Gross Expense Ratio
Gross expense ratio is defined as total expenses excluding losses and loss adjustment expenses and interest expense in relation to gross premiums earned. The gross expense ratio represents the percentage of our gross premiums used on operating expenses. We use the gross expense ratio as a metric to measure and monitor the efficiency of our operating and overhead costs.
Net Combined Ratio
Net combined ratio is defined as total expenses excluding interest expense in relation to net premiums earned. The net combined ratio represents the combination of the net loss ratio and net expense ratio. We use the net combined ratio as a metric to measure and monitor our overall profitability.
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RESULTS OF OPERATIONS
The following table summarizes our results of operations for the years ended December 31, 2025, 2024 and 2023 (in thousands, except per share amounts or as otherwise indicated):
Revenue
Expenses
Ratios to Net Premiums Earned:
Expense Ratio (excluding interest expense) 26.9 % 27.8 % 33.7 % (0.9 )% (5.9 )%
Ratios to Gross Premiums Earned:
Expense Ratio (excluding interest expense) 17.8 % 17.4 % 21.9 % 0.4 % (4.5 )%
Earnings Per Share:
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Comparison of the Year Ended December 31, 2025 with the Year Ended December 31, 2024
Revenue
Gross Premiums Earned increased primarily due to a higher volume of policies in force as a result of the addition of policies assumed from Citizens during the fourth quarter of 2024, the first quarter of 2025, and the fourth quarter of 2025. During 2025, gross premiums earned were $1,145.8 million from Insurance Operations and $95.6 million from Reciprocal Exchange Operations. During 2024, gross premiums earned were $1,036.1 million from Insurance Operations and $51.2 million from Reciprocal Exchange Operations.
Premiums Ceded increased primarily due to growth in the volume of policies in force and total insured value, partially offset by a $62.9 million non-recurring amount included in 2024 as a result of unfavorable adjustments related to retrospective provisions due to the effects of Hurricane Milton and Hurricane Helene. Premiums ceded represented 33.5% and 37.5% of gross premiums earned during 2025 and 2024, respectively.
Our premiums ceded represent costs of reinsurance (i) to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts, (ii) to provide additional loss coverage on a high-value individual risk basis through facultative reinsurance, or (iii) to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. Under contracts in effect prior to June 1, 2025, reinsurance costs could be adjusted by retrospective provisions under reinsurance contracts. There were no adjustments to premiums ceded related to retrospective provisions during 2025 as opposed to an increase of $44.3 million during 2024.
Net Premiums Earned represent gross premiums earned less premiums ceded.
Net Premiums Written represent premiums charged on policies issued during the period less any applicable reinsurance costs.
The following is a reconciliation of our Net Premiums Written to Net Premiums Earned for 2025 and 2024 (in thousands):
Years Ended December 31,
The increase in net premiums written is primarily due to a higher volume of policies in force as described above. We had approximately 313,400 policies in force as of December 31, 2025 compared to approximately 271,300 policies in force as of December 31, 2024.
Expenses
Losses and Loss Adjustment Expenses decreased as 2025 did not have any losses from catastrophic events while 2024 included net losses of $78.2 million from Hurricane Milton, $43.0 million from Hurricane Helene, and $6.5 million from Hurricane Debby. In addition, while we have a higher volume of policies in force, we have experienced a reduction in claim and litigation frequency over the comparative periods during 2025. The gross loss ratio for 2025 was 19.6% compared to 34.6% for 2024. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”
Policy Acquisition and Other Underwriting Expenses primarily reflect the amortization of deferred acquisition costs such as commissions payable to agents for production and renewal of policies and premium taxes. The overall increase was primarily due to a higher volume of premiums in force in the comparative periods.
General and Administrative Personnel Expenses include salaries, wages, payroll taxes, stock-based and other incentive compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to projects to develop software for internal use and the payroll costs associated with the processing and settlement of certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The year-over-year increase was primarily attributable to an increase in stock-based and other incentive compensation as well as an increase in salaries and wages.
Interest Expense decreased primarily as a result of the conversion of $172.5 million of 4.75% convertible senior notes during 2025, which also resulted in a $1.1 million debt conversion expense included in other operating expenses.
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Income Tax Expense increased primarily as a result of an increase in income before taxes. The effective tax rate for 2025 and 2024 was 25.4% and 26.4%, respectively. Incorporated within each rate is the federal statutory tax rate of 21.0%, state taxes (net of federal benefits), and unfavorable non-deductible compensation expenses.
Ratios
The gross loss ratio decreased due to the decrease in losses and loss adjustment expenses and the increase in gross premiums earned.
The net expense ratio decreased primarily due to the increase in net premiums earned, partially offset by the increase in policy acquisition and other underwriting expenses and the increase in general and administrative personnel expenses.
Our net combined ratio decreased due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Throughout our history, our liquidity requirements have been met through issuances of our common and preferred stock, debt offerings, and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by our insurance subsidiaries from premiums written and investment income. We may consider raising additional capital through debt and/or equity offerings to support our growth and future investment opportunities.
Our insurance subsidiaries require liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. In addition, we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets. In the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and losses and loss adjustment expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. With the exception of litigated claims, substantially all of our losses and loss adjustment expenses are fully settled and paid within approximately 100 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.
As of December 31, 2025, we have $1.2 billion of cash and cash equivalents. We believe that we maintain sufficient liquidity to pay claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position.
In the future, we anticipate our primary use of funds will be to pay claims, reinsurance premiums, interest and principal on our debt, dividends, and to fund operating expenses and real estate acquisitions.
Revolving Credit Facility
As of December 31, 2025, we are party to a senior secured revolving credit facility with Fifth Third Bank (“Revolving Credit Facility”). The Revolving Credit Facility currently provides borrowing capacity of up to $150.0 million and expires on November 5, 2030. Borrowings under the Revolving Credit Facility bear interest at an annual rate equal to the one or three month SOFR plus a ten basis points adjustment plus a margin based on the debt-to-capital ratio, with interest payments due in arrears on January 1, April 1, July 1, and October 1.
As of December 31, 2025, we had an outstanding balance of $36.0 million and had an available borrowing capacity of $114.0 million under the Revolving Credit Facility. As of December 31, 2025, we were in compliance with all required covenants. Refer to Note 10 “Revolving Credit Facility” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.
Long-Term Debt
The following table summarizes the principal and interest payment obligations for our long-term debt as of December 31, 2025 (principal in thousands):
December 31,
Debt Description Issued Maturity Interest Rate Payment Date 2025
Total principal amount $ 32,443
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Refer to Note 11 “Long-Term Debt” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.
At-The-Market Facility
On January 22, 2024, we implemented an “at-the-market” facility (the “ATM Facility”) which gives us the ability to raise up to $75.0 million through the issuance of new shares of common stock through a sales agent (the “Sales Agent”). We have no obligation to sell, and the Sales Agent has no obligation to buy or sell, any shares of common stock under the ATM Facility. As of December 31, 2025, the remaining availability under the ATM Facility was $75.0 million.
Investments
The main objective of our investment policy is to maximize our after-tax investment income with a reasonable level of risk given the current financial market. Our excess cash is invested primarily in money market accounts, certificates of deposit, and available-for-sale fixed-maturity and equity securities.
As of December 31, 2025, we had $663.2 million of available-for-sale fixed-maturity and equity investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new available-for-sale fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing available-for-sale fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new available-for-sale fixed-maturity investments but increases the market value of existing available-for-sale fixed-maturity investments, creating the opportunity for realized investment gains on disposition.
In the future, we may alter our investment policy with regard to investments in federal, state and municipal obligations, preferred and common equity securities and real estate mortgages, as permitted by applicable law, including insurance regulations.
Limited Partnership Investments
Our limited partnership investments consist of six private equity funds managed by their general partners. Withdrawals from limited partnership investments are generally not permitted and distributions occur when the underlying investments of the limited partnership investments are liquidated. Additionally, two of these funds have unexpired capital commitments which are callable at the discretion of the fund’s general partner for funding new investments or expenses of the fund. Although capital commitments for the four remaining funds have expired, the general partners may request additional funds under certain circumstances. As of December 31, 2025, there were unexpired capital commitments of $3.7 million. Refer to Note 5 “Investments” of our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.
Real Estate Investments
Real estate investments have long been a significant component of our overall investment portfolio. It diversifies our portfolio and helps offset the volatility of other higher-risk assets. Thus, we may consider expanding our real estate investments portfolio should an opportunity arise.
Dividends
On January 14, 2026, our Board declared a quarterly dividend of $0.40 per common share. The dividends will be paid on March 20, 2026 to stockholders of record on February 20, 2026.
Sources and Uses of Cash
The following table is a summary of our cash flow activity for the periods presented (in thousands):
Effect of exchange rate changes on cash (229 ) (112 ) (42 ) (117 ) (70 )
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Cash Flows for the Year Ended December 31, 2025
Net cash provided by operating activities during 2025 was approximately $444.4 million, which consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $146.1 million less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of $87.3 million was primarily due to the proceeds from calls, repayments and maturities of available-for-sale fixed-maturity securities of $627.6 million, the proceeds from sales of available-for-sale fixed-maturity and equity securities of $42.7 million, distributions of return of capital from limited partnership investments of $2.3 million, and proceeds from sales of real estate investments of $2.0 million, offset by purchases of available-for-sale fixed-maturity, equity securities, and other investments of $555.3 million, purchases of real estate investments of $28.4 million, and purchases of property and equipment of $3.6 million. Net cash provided by financing activities totaled $146.2 million, which was primarily due to proceeds from the issuance of noncontrolling interests of $156.2 million, proceeds from the issuance of long-term debt of $17.0 million, and net surplus contribution from subscribers of $6.7 million, offset by $19.3 million of cash dividend payments, net repayment of the line of credit agreement of $8.0 million, net share settlements of $1.5 million, and net share settlements of noncontrolling interests of $1.5 million.
Cash Flows for the Year Ended December 31, 2024
Net cash provided by operating activities during 2024 was approximately $331.8 million, which consisted primarily of cash received from net premiums written, and reinsurance recoveries of approximately $131.6 million less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $260.1 million was primarily due to the purchases of available-for-sale fixed-maturity and equity securities of $836.6 million, the purchases of real estate investments of $16.1 million, the purchases of property and equipment of $4.1 million, and additional investments in limited partnership interests of $1.2 million, offset by the proceeds from calls, repayments and maturities of available-for-sale fixed-maturity securities of $457.1 million, the proceeds from sales of available-for-sale fixed-maturity and equity securities of $137.2 million, and distributions received from limited partnership investments of $3.6 million. Net cash used in financing activities totaled $75.2 million, which was primarily due to the redemption of redeemable noncontrolling interests of $100.0 million, $16.6 million of cash dividend payments, cash dividends paid to redeemable noncontrolling interests of $2.9 million, $1.0 million of net share settlements, and repayments of long-term debt of $0.5 million, offset by net borrowing under the line of credit agreement of $44.0 million and net surplus contribution from noncontrolling interests of $2.9 million.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2025, we had unexpired capital commitments for limited partnerships investments of $3.7 million as described above. We do not have any other arrangements giving rise to material obligations that are not reported in our consolidated balance sheets as described in Item 303 of SEC Regulation S-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accompanying consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to select accounting policies and make estimates that affect amounts reported in the consolidated financial statements and the accompanying notes. Management’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
The following discussion includes estimates prepared in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations, and are based on, among other things, estimates, assumptions, and judgments made by management that include inherent risks and uncertainties. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
We believe our accounting policies and estimates specific to losses and loss adjustment expenses, reinsurance recoverable, income taxes, stock-based compensation expense, and limited partnership investments involve our most significant judgments and estimates material to our consolidated financial statements.
Refer to the notes to the consolidated financial statements included in this Annual Report on Form 10-K for further discussion of our significant accounting policies and the effect on our consolidated financial statements.
Reserves for Losses and Loss Adjustment Expenses. We establish reserves for the estimated total unpaid costs of losses including loss adjustment expenses (LAE). LAE are costs associated with the investigation, evaluation, adjustment, and settlement of insurance claims and can be either allocated, costs directly attributable to a specific claim, or unallocated, costs that cannot be directly attributed to a specific claim. Loss and LAE reserves reflect management’s best estimate of the total cost of (i) claims that have been reported, but not yet paid in full, and (ii) claims that have been incurred but not yet reported to us (“IBNR”). Reserves established by us represent an estimate of the outcome of future events and, as such, cannot be considered an exact calculation of our liability. Rather, loss and LAE reserves represent management’s best estimate of our company’s liability based on the application of actuarial techniques and other
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projection methodologies and taking into consideration other facts and circumstances known at the balance sheet date. The process of establishing loss and LAE reserves is complex and inherently imprecise, as it involves the estimation of the outcome of future uncertain events. The impact of both internal and external variables on ultimate losses and LAE costs is difficult to estimate. In determining loss and LAE reserves, we give careful consideration to all available data and actuarial analyses.
Currently, our estimated ultimate liability is calculated using the principles and procedures described in Note 13 “Losses and Loss Adjustment Expenses” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K, which are applied to the lines of business written. However, because the establishment of loss and LAE reserves is an inherently uncertain process, we cannot be certain that ultimate losses will not exceed the established loss and LAE reserves and have a material, adverse effect on our results of operations and financial condition. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.
Our reported results, financial position and liquidity would be affected by likely changes in key assumptions that determine our net loss reserves. Management does not believe that any reasonably likely changes in the frequency of claims would affect our loss and LAE reserves. However, management believes that a reasonably likely increase or decrease in the severity of claims could impact our net loss and LAE reserves. The table below summarizes the effect on net loss and LAE reserves and equity in the event of reasonably likely changes in the severity of claims considered in establishing loss and LAE reserves. The range of reasonably likely changes in the severity of our claims was established based on a review of changes in loss year development and applied to loss and LAE reserves as a whole. The selected range of changes does not indicate what could be the potential best or worst case or likely scenarios:
Change in Reserves Reserves PercentageChange inEquity,Net of Tax
Reinsurance Recoverable. In the normal course of business, we seek to reduce the loss that may arise from catastrophes or other events by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Our reinsurance recoverable balance represents an estimate of the amount of paid and unpaid losses and loss adjustment expenses that is recoverable from reinsurers. This estimate is determined in a manner consistent with the terms of the applicable reinsurance contracts and based on the ultimate losses and loss adjustment expenses we expect to incur. Given the uncertainty of the ultimate amounts of losses and loss adjustment expenses, the estimate may vary significantly from the eventual outcome.
From time to time, our reinsurance contracts may include retrospective provisions that adjust premiums based on the loss experience under the contract. In accordance with U.S. GAAP, we will recognize an asset in the period in which the absence of loss experience obligates the reinsurer to pay cash or other consideration under the contract. In the event that a loss arises, we will derecognize such asset in the period in which a loss arises. In such cases, a with-and-without method is used to estimate the asset or liability amount to be recognized at each reporting date. The amount of the estimate is the difference between the net contract costs before and after the loss experience under the contract. Estimates related to premium adjustments are recognized in ceded premiums earned. These estimates are reviewed monthly based on the loss experience to date and as adjustments become necessary. Such adjustments to the asset or liability, which accrue throughout the contract term, will negatively impact our operating results when a catastrophic loss event occurs during the contract term.
Income Taxes. We file consolidated federal and state income tax returns and allocate taxes among our subsidiaries in accordance with a written tax-allocation agreement.
We account for income taxes using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are recognized for the temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The effect on deferred income tax assets and liabilities of a change in tax laws is recognized in the results of operations in the period the new laws are enacted. A valuation allowance is recorded to reduce the carrying amount of deferred income tax assets to the estimated realization amount.
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The valuation allowance for deferred income tax assets relates to the uncertainty of the utilization of U.S. federal, state and foreign deferred income tax assets. In evaluating our ability to recover our deferred income tax assets, we consider all available positive and negative evidence, which include our past operating results, the existence of cumulative losses in the most recent years, and our forecast of future taxable income. In estimating future taxable income, we develop assumptions related to the amount of future pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage our underlying businesses.
We recognize positions taken or expected to be taken in a tax return in the consolidated financial statements when it is more-likely-than-not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit with greater than 50% likelihood of being realized upon ultimate settlement. We record liabilities for positions that have been taken but do not meet the more-likely-than-not recognition threshold. We include interest and penalties associated with unrecognized tax benefits as income tax expense and as a component of the recorded balance of unrecognized tax benefits.
Stock-Based Compensation. We issue stock-based compensation awards to employees and non-employee directors on a periodic basis in the form of stock options and restricted stock awards. The fair value of a stock-based award is determined on the date of grant and recognized over a period of time, depending on the type and conditions underlying the award.
For stock-based awards that contain only a service-based vesting condition, the grant date fair value of the award is recognized as compensation expense on a straight-line basis over the requisite service period. The fair value of a stock option is determined using the Black-Scholes option-pricing model, which uses the following significant inputs and assumptions: (i) the price per share of common stock, (ii) the exercise price, (iii) the risk-free interest rate, (iv) the dividend yield, (v) the contractual term, and (vi) the estimated volatility. These inputs are developed based on historical data and market information. The fair value of a restricted stock award is determined by the market price of the stock on the date of grant.
For restricted stock awards that contain a market-based vesting condition, fair value is determined using a Monte Carlo simulation model with the assistance of a third-party valuation specialist. Additionally, the grant date fair value of the award is recognized as compensation expense on a straight-line basis over the derived service period, which is also determined using a Monte Carlo simulation. The recognition of expense may be accelerated if the market conditions are met sooner than estimated.
For stock-based awards granted by a non-public subsidiary, an independent valuation specialist will assist in determining the fair value of the underlying stock price of the subsidiary using different valuation methods such as a Monte Carlo simulation model and a binomial distribution model. Inputs such as an estimated stock price of our private subsidiary and expected price volatility used in these valuation methods are derived mathematically from a data analysis of many public peer companies with similar characteristics.
Our stock-based compensation awards are equity-classified with the associated compensation expense included in general and administrative personnel expenses in the consolidated statements of income. Stock-based compensation for awards granted under a subsidiary's stock-based compensation plan are included in noncontrolling interests in the consolidated balance sheets. Forfeitures are accounted for as they occur.
Limited Partnership Investments. We have interests in limited partnerships that are not registered under the U.S., the securities laws of any state or the securities laws of any other jurisdictions. The partnership interests cannot be resold in the public market and any withdrawal is subject to the terms and conditions of the partnership agreements. We have no influence over partnership operating and financial policies. We use the equity method to account for the investments with ownership interest greater than five percent. For the investments with ownership interest at five percent or less, we use the net asset value method to estimate the fair value of these investments. We generally recognize our share of the limited partnerships’ earnings or losses on a three-month lag. Due to the lag, we may record an adjustment to our most recent share of net asset value when the amount can be reasonably estimated and a significant adverse impact on the net asset value is expected as a result of a major economic event.
Net investment income or loss from limited partnerships represents a net aggregate amount of operating results allocated to us based on the percentage of ownership interest in each limited partnership. These limited partnerships measure their investments at fair value and reflect the related unrealized gains and losses in their statements of income. Accordingly, the application of the equity method and the net asset value method result in the carrying value of limited partnership investments to approximate their estimated fair value as of each reporting date.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 3 “Recent Accounting Pronouncements” to the consolidated financial statements included in this Annual Report on Form
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10-K for further information about recent accounting pronouncements and adoptions.
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ITEM 7A – Quantitative and Qualitative Disclosures About Market Risk
Our investment portfolio as of December 31, 2025 included available-for-sale fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by an investment committee appointed by our Board of Directors. From time to time, our investment committee may decide to invest in low-risk assets such as U.S. government bonds.
Our investment portfolio is exposed to interest rate risk, credit risk, and equity price risk. Fiscal and economic uncertainties caused by any government action or inaction may exacerbate these risks and potentially have adverse impacts on the value of our investment portfolio.
We classify our fixed-maturity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity. As such, any material temporary changes in their fair value can adversely impact our stockholders’ equity. In addition, we recognize any unrealized gains or losses related to our equity securities in our statement of income. As a result, our results of operations can be materially affected by the volatility in the equity market.
Interest Rate Risk
Our available-for-sale fixed-maturity securities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movement in interest rates and considering our future capital needs.
The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our available-for-sale fixed-maturity securities as of December 31, 2025 (dollar amounts in thousands):
Credit Risk
Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuers of our available-for-sale fixed-maturity securities. We mitigate the risk by investing in available-for-sale fixed-maturity securities that are generally investment grade, by diversifying our investment portfolio to avoid concentrations in any single issuer or business sector, and by continually monitoring each individual security for declines in credit quality. While we emphasize credit quality in our investment selection process, significant downturns in the markets or general economy may impact the credit quality of our portfolio.
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The following table presents the composition of our available-for-sale fixed-maturity securities, by rating, as of December 31, 2025 (dollar amounts in thousands):
Equity Price Risk
Our equity investment portfolio as of December 31, 2025 included common stocks, perpetual preferred stocks, mutual funds, and exchange-traded funds. We may incur potential losses due to adverse changes in equity security prices. We manage the risk primarily through industry and issuer diversification and asset mix.
The following table illustrates the composition of our equity securities as of December 31, 2025 (dollar amounts in thousands):
EstimatedFair Value % of TotalEstimatedFair Value
Stocks by sector:
Mutual funds and exchange-traded funds by type:
(1) Represents an aggregate of less than 5% sectors.
Foreign Currency Exchange Risk
As of December 31, 2025, we did not have any material exposure to foreign currency related risk.
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ITEM 8 – Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID 686) 42-44
Notes to Consolidated Financial Statements 55-112
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of HCI Group, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of HCI Group, Inc. and Subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2026 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Reserves for Losses and Loss Adjustment Expenses
As described in Note 2 “Summary of Significant Accounting Policies” and Note 13 “Losses and Loss Adjustment Expenses” to the financial statements, the Company’s reserves for losses and loss adjustment expenses (“LAE”) reported in the consolidated balance sheet were $576.5 million as of December 31, 2025. Reserves for losses and LAE reflect management’s best estimate regarding the Company’s ultimate losses, resulting in a liability for claims that have been reported, but not yet paid, and claims that have been incurred but not yet reported. The reserves are based on the application of actuarial techniques and other projection methodologies, taking into consideration other facts and circumstances known at the balance sheet date. The methods used by management in determining the reserves for losses and LAE are complex and subjective with various key inputs and assumptions. Judgement is required to determine the inputs and assumptions used and these can significantly impact the reserves recognized. The most significant judgments include the choice of the appropriate standard actuarial reserving methods, the selection of loss development factors that place reliance on actual historical loss experience, current claim trends, and the prevailing social, economic and legal environments, and reserves derived specific to catastrophe events.
The principal considerations for our determination of the reserves for losses and LAE as a critical audit matter are the complexity and subjectivity of the judgments, estimates and assumptions that management utilized in determining their ultimate loss estimates. This
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required a high degree of effort and judgment in selecting the audit procedures to evaluate management’s estimates and assumptions as it relates to the reserves for losses and LAE, including the use of an auditor’s specialist.
The primary procedures we performed to address this critical audit matter included:
•
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls related to management’s determination of the reserves for losses and LAE, including controls over the actuarial methods and assumptions utilized to support the reserve calculations, and controls over the completeness and accuracy of historical loss data utilized in the reserves calculations.
•
We tested the completeness and accuracy of the historical loss data used in the development of the reserves.
•
We performed analytical procedures over the Company’s recorded reserves in relation to the Company’s appointed actuary’s range of reserve estimates.
•
We engaged an actuary as an auditor’s specialist to independently assess the Company’s appointed actuary’s selection of actuarial methods and assumptions and the resulting reserve ranges and point estimates.
/s/ Forvis Mazars, LLP
We have served as the Company’s auditor since 2013.
Charlotte, North Carolina
February 26, 2026
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Report of Independent Registered Public Accounting Firm on Internal Control
To the Stockholders and Board of Directors of HCI Group, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited HCI Group, Inc. and Subsidiaries' (the “Company”) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company for each of the three years in the period ended December 31, 2025, and our report dated February 26, 2026, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Forvis Mazars, LLP
Charlotte, North Carolina
February 26, 2026
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HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31,
Assets
Other investments 5,000 —
Income taxes receivable (a) 1,332 463
Deferred income tax assets, net (a) 2,237 72
Reinsurance recoverable, net of allowance for credit losses (a):
Deferred policy acquisition costs (a) 59,722 54,303
Funds withheld for assumed business 5,254 11,690
(a)
See Note 14 for details of balances associated with variable interest entities.
(continued)
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HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets – (Continued)
(In thousands, except share amounts)
December 31,
Liabilities, Redeemable Noncontrolling Interests and Equity
Reinsurance payable on paid losses and loss adjustment expenses — 2,496
Ceded reinsurance premiums payable (a) 27,591 18,313
Deferred income tax liabilities, net (a) 3,814 2,830
Accrued expenses and other liabilities (a) 61,351 51,182
Commitments and contingencies (Note 21)
Redeemable noncontrolling interests (Note 18) 3,359 1,691
Equity:
Accumulated other comprehensive income (loss) 1,459 (749 )
(a)
See Note 14 for details of balances associated with variable interest entities.
See accompanying Notes to Consolidated Financial Statements.
46
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
Years Ended December 31,
Revenue
Expenses
Net income attributable to noncontrolling interests (21,390 ) (7,479 ) (853 )
See accompanying Notes to Consolidated Financial Statements.
47
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
Years Ended December 31,
Other comprehensive income, net of income taxes:
Available-for-sale fixed-maturity securities 2,208 2,586 6,961
Other comprehensive income, net of income taxes 2,208 2,586 6,961
See accompanying Notes to Consolidated Financial Statements.
48
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
For the Year Ended December 31, 2025
(In thousands, except per share amount)
Shares Amount Capital Earnings (Loss) Income Equity Interests Equity
Other comprehensive income, net of income taxes — — — — 2,208 2,208 — 2,208
Issuance of restricted stock 51,330 — — — — — — —
Forfeiture of restricted stock (3,785 ) — — — — — — —
See accompanying Notes to Consolidated Financial Statements.
49
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Equity – (Continued)
For the Year Ended December 31, 2024
(In thousands, except per share amount)
Shares Amount Capital Earnings Loss Equity Interests Equity
Other comprehensive income, net of income taxes — — — — 2,414 2,414 172 2,586
Cashless exercise of common stock warrants 386,267 — — — — — — —
Issuance of restricted stock 269,200 — — — — — — —
Forfeiture of restricted stock (5,175 ) — — — — — — —
Dilution from subsidiary stock-based compensation — — — — — — (481 ) (481 )
Deemed dividend on warrant modification — — 3,386 — — 3,386 — 3,386
See accompanying Notes to Consolidated Financial Statements.
50
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Equity – (Continued)
For the Year Ended December 31, 2023
(In thousands, except per share amount)
Shares Amount Capital Earnings Loss Equity Interests Equity
Other comprehensive income, net of income taxes — — — — 6,723 6,723 238 6,961
Issuance of restricted stock 13,000 — — — — — — —
Forfeiture of restricted stock (9,001 ) — — — — — — —
Dilution from subsidiary stock-based compensation — — — — — — (354 ) (354 )
See accompanying Notes to Consolidated Financial Statements.
51
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
Cash flows from operating activities:
Deferred income tax (benefit) expense (1,918 ) 2,406 (1,102 )
Net realized investment (gains) losses (2,753 ) (3,384 ) 1,996
Net unrealized investment gains (123 ) (2,644 ) (3,215 )
Net loss (income) from limited partnership investments 820 (597 ) (661 )