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.
39
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.
40
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
41
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
42
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
43
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
44
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)
45
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 )
Loss on extinguishment of debt — — 177
Debt conversion expense 1,125 — —
Gain on sale of real estate investments (440 ) — (8,811 )
Foreign currency remeasurement loss 172 133 60
Changes in operating assets and liabilities:
Reinsurance recovered in advance on unpaid losses — — (19,863 )
(continued)
52
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows – (Continued)
(In thousands)
Years Ended December 31,
Cash flows from investing activities:
Investments in limited partnerships — (1,233 ) (1,483 )
Distributions received from unconsolidated joint venture — — 18
Purchase of property and equipment (3,633 ) (4,052 ) (6,502 )
Purchase of intangible assets — — (1,786 )
Purchase of other investments (5,000 ) — —
Purchase of short-term and other investments — — (81 )
Proceeds from sales of property and equipment — 14 —
Proceeds from sales of real estate investments 2,013 — 21,746
Cash flows from financing activities:
(Repayment) borrowing under revolving credit facility, net (8,000 ) 44,000 —
Proceeds from issuance of common stock, net of issuance costs — — 84,572
Payment of other noncontrolling interests issuance costs (1,069 ) — —
Dividends paid to redeemable noncontrolling interests — (2,923 ) (6,763 )
Proceeds from issuance of long-term debt 17,000 — 12,000
Subscriber surplus contributions, net 6,672 2,949 —
Repayment of long-term debt (646 ) (519 ) (562 )
Redemption of long-term debt — (466 ) (6,895 )
Debt conversion costs paid (1,125 ) — —
Payment of net share settlements and other (1,524 ) (1,037 ) (784 )
Redemption of redeemable noncontrolling interests — (100,000 ) —
Debt issuance costs paid (538 ) (99 ) (378 )
Effect of exchange rate changes on cash (229 ) (112 ) (42 )
(continued)
53
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows – (Continued)
(In thousands)
Years Ended December 31,
Supplemental disclosure of cash flow information:
Non-cash investing and financing activities:
Payable on purchases of equity securities $ 187 $ — $ 379
Conversion of 4.25% Convertible Senior Notes $ — $ 23,450 $ —
Conversion of 4.75% Convertible Senior Notes $ 172,500 $ — $ —
Purchase of real estate investments and intangible assets:
Assumed liability $ — $ — $ 4
See accompanying Notes to Consolidated Financial Statements.
54
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Note 1 -- Nature of Operations
HCI Group, Inc., together with its subsidiaries (“HCI” or the “Company”), is primarily engaged in the property and casualty insurance business through two insurance companies, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”) and TypTap Insurance Company (“TTIC”). The Company provides various homeowners’ property and casualty insurance products for properties located in the State of Florida, which is the Company's primary market, as well as in other states in the northeast and southeast regions of the United States (“U.S.”). A third insurance subsidiary, perRisk Insurance Company (“perRisk”), is domiciled in Arizona and has not yet commenced its surplus lines insurance business.
The Company's insurance operations are supported by other insurance-related subsidiaries within the consolidated group. Exzeo Group, Inc. (formerly known as TypTap Insurance Group, Inc.) (“Exzeo”), a majority-owned subsidiary, 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. The Company utilizes 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.
The Company also provides attorney-in-fact (“AIF”) services for Condo Owners Reciprocal Exchange (“CORE”) and Tailrow Insurance Exchange (“Tailrow”), both of which represent reciprocal insurance exchanges owned by their policyholders. Although the Company does not have any equity interest in CORE and Tailrow, the Company is required to consolidate them as their primary beneficiary. Refer to Note 14 “Variable Interest Entities” for additional information. In addition, the Company's commercial real estate subsidiary is primarily engaged in the business of developing and operating commercial properties for investment purposes or for internal use.
HCI Group, Inc. was incorporated in the State of Florida in 2006 and its common stock is currently listed on the New York Stock Exchange “NYSE” under the symbol “HCI.”
Note 2 -- Summary of Significant Accounting Policies
Basis of Presentation. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principles of Consolidation. The accompanying consolidated financial statements include the accounts of HCI Group, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In addition, the Company evaluates its relationships or investments for consolidation pursuant to authoritative accounting guidance related to the consolidation of variable interest entities (“VIE”) under the Variable Interest Model prescribed by the Financial Accounting Standards Board (“FASB”). A VIE is consolidated when the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. The Company'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 Company's estimates specific to losses and loss adjustment expenses, reinsurance recoverable, income taxes, stock-based compensation expense, and limited partnership investments involve the most significant judgments and estimates related to the consolidated financial statements.
Cash and Cash Equivalents. The Company considers all highly liquid investments with original maturities of less than three months from the time of purchase to be cash and cash equivalents.
Restricted Cash. Restricted cash represents funds in the Company’s sole ownership held by certain states in which the Company’s insurance subsidiaries conduct business to meet the states' regulatory requirements, and are not available for immediate business use. Funds withheld in an account for which the Company is a co-owner but not the named beneficiary are not considered restricted cash and are included in funds withheld for assumed business on the consolidated balance sheets.
55
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Available-for-Sale Fixed-Maturity Securities. Fixed-maturity securities that are available-for-sale primarily relate to debt securities. The Company’s available-for-sale fixed-maturity securities are carried at fair value. Changes in the fair value of available-for-sale fixed-maturity securities representing unrealized gains or losses, other than credit losses, are excluded from the consolidated statements of income and are reported in the consolidated balance sheets as a component of accumulated other comprehensive income (loss), net of deferred income taxes. Realized investment gains and losses from sales are reported in the consolidated statements of income as net realized investment gains or losses and are recorded on the trade date and are determined using the first-in first-out (“FIFO”) method. Investment income is recognized as earned and discounts or premiums arising from the purchase of debt securities are recognized in net investment income using the interest method over the estimated remaining term of the security. Gains and losses from call redemptions and repayments are recorded to net investment income.
The Company reviews available-for-sale fixed-maturity securities for impairment on a quarterly basis. When reviewing impaired securities, the Company considers its ability and intent to hold these securities and whether it is probable that the Company will be required to sell these securities prior to their anticipated recovery or maturity. For the available-for-sale fixed-maturity securities that the Company intends to sell or it is probable that the Company will have to sell before recovery or maturity, the unrealized losses are recognized as impairment losses in income.
Impaired securities where the Company has the ability and intent to hold until recovery and believes it is not probable that the Company will be required to sell these securities prior to their anticipated recovery or maturity, are evaluated for the existence of credit-related losses. When determining impairment due to a credit-related loss, the Company carefully considers factors such as the issuer’s financial ratios and condition, the security’s current ratings and maturity date, the failure of the issuer to make a scheduled payment, and overall market conditions in estimating the cash flows expected to be collected. The expected cash flows discounted at the effective interest rate of the security implicit at the date of acquisition are then compared with the security’s amortized cost at the measurement date. A credit loss is incurred when the present value of the expected cash flows is less than the security’s amortized cost. If such credit-related losses exist, an allowance for credit losses is established with a charge in the consolidated statements of income. Subsequent changes in the allowance, whether favorable or unfavorable, are recorded on the consolidated statements of income. Any remaining impairment loss related to other non-credit factors such as changes in interest rates or market conditions is reflected as a component of accumulated other comprehensive income (loss).
Allowance for Credit Losses. Allowance for credit losses represents an estimation of potential losses that the Company may experience due to credit risk. The allowance for credit losses account is a contra account of a financial asset to reflect the net amount expected to be collected. Any increase or decrease in the allowance for credit losses related to investments is recognized and reflected as credit losses on investments in the Company’s consolidated statements of income. For all other financial assets, credit loss expense is included in other operating expenses. When the risk of credit loss becomes certain, the allowance for credit losses account will be written off against the financial asset. Under the Current Expected Credit Loss (“CECL”) model, the Company measures all expected credit losses related to relevant financial assets based on historical experience, current conditions, and reasonable and supportable forecasts which incorporate forward-looking information. The Company primarily uses a discounted cash flow method and a rating-based method in estimating credit losses at a reporting date for financial assets under the scope of the CECL model. The discounted cash flow method is a valuation method used to estimate the value of a financial asset based on its future cash flows. The Company uses this method to determine the expected credit losses for available-for-sale fixed-maturity securities. In addition, the Company elected not to measure an allowance for credit losses for accrued interest receivable as any uncollectible amount is adjusted to interest income on a monthly basis. The exposure to credit losses for certain financial assets related to non-insurance business is considered immaterial to the Company’s financial position.
For certain financial assets related to insurance business such as reinsurance recoverable and reinsurance receivable for premium refund, the Company uses a rating-based method, which is a modified version of the probability of default method. It requires two key inputs: a) the liquidation rate and b) the amount of loss exposure. The liquidation rate, which is published annually, is the ratio of impaired insurance companies that were eventually liquidated to the group of insurance companies considered by A.M. Best in its study. The amount of loss exposure represents the future billing balance, net of any collateral, spread over the projected periods that are based on the Company’s historical claim payment pattern. The rating-based method measures credit losses by multiplying the future billings grouped by insurance rating over the projected periods by their corresponding liquidation rates by insurance rating.
For paid reinsurance recoverable which is due within 90 days after billing, the Company will rely heavily on each reinsurer’s credit rating, recent financial condition, and historical collection problems, if any, in determining the expected credit loss. For risk attributable to disagreements between an insurer and reinsurer regarding a difference in interpretation of provisions in a reinsurance agreement (“dispute risk”), the Company will continue to use an incurred loss method to estimate losses. As of December 31, 2025 and 2024, there were no dispute risks associated with the reinsurance recoverable balance.
56
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Equity Securities. Equity securities represent ownership interests held by the Company in entities for investment purposes. Unrealized holding gains and losses related to equity securities are reported in the consolidated statements of income as net unrealized investment gains and losses. Realized investment gains and losses from sales are reported in the consolidated statements of income as net realized investment gains or losses and are recorded on the trade date and are determined using the FIFO method.
Limited Partnership Investments. The Company has interests in limited partnerships that are not registered under the United States Securities Act of 1933, as amended, 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. The Company has no influence over partnership operating and financial policies. The Company uses 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, the Company uses the net asset value method to estimate the fair value of these investments. The Company generally recognizes its share of the limited partnerships’ earnings or losses on a three-month lag. Due to the lag, the Company may record an adjustment to the Company’s most recent share of net asset value when the amount can be reasonably estimated and a significant adverse impact on the net asset value is expected as a result of a major economic event.
Net investment income or loss from limited partnerships represents a net aggregate amount of operating results allocated to the Company based on the percentage of ownership interest in each limited partnership. 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.
Distributions from limited partnership investments that represent a return on investment are classified as operating cash flows in the consolidated statements of cash flows while distributions from limited partnership investments that represent a return of capital are classified as investing cash flows in the consolidated statements of cash flows.
Real Estate Investments. Real estate investments include real estate and the related assets purchased for investment purposes. Real estate and the related depreciable assets are stated at historical cost less accumulated depreciation. Depreciation expense for real estate investments is included in net investment income in the consolidated statements of income and is calculated on a straight-line basis over the estimated useful lives. Real estate investments are evaluated for impairment when events or circumstances indicate the carrying value of the real estate may not be recoverable.
Deferred Policy Acquisition Costs. Deferred policy acquisition costs (“DAC”) represent direct costs to acquire insurance contracts and consist of premium taxes, inspection fees, and commissions paid to outside agents at the time of collection of the policy premium. DAC may also include expenses associated with the transition of policies from other insurers for replacement policies and the issuance of renewal policies under the Company’s own rates and terms. DAC is amortized over the life of the related policy in relation to the amount of gross premiums earned. Ceding commission and related costs paid associated with assumed business are also deferred and amortized over the life of the reinsurance agreement. The amortization of DAC is included in policy acquisition and other underwriting expenses in the consolidated statements of income.
DAC is reviewed to determine if it is recoverable based on future premium income, investment income, unpaid losses and loss adjustment expenses, and certain other costs expected to be incurred as premiums are earned. If DAC is determined to be unrecoverable, it is expensed at the time of determination. The amount of DAC considered recoverable could be reduced in the near term if the estimates of total gross premium earned are reduced or permanently impaired as a result of the disposition of a line of business. The amount of amortization of DAC could be revised in the near term if any of the gross premium earned estimates discussed above are revised.
57
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Property and Equipment. Property and equipment is stated at historical cost less accumulated depreciation. Depreciation expense is included in other operating expenses in the consolidated statements of income and is calculated on a straight-line basis over the estimated useful lives as follows:
Asset Category Estimated Useful Life
Land improvements 5 - 15 years
Buildings 39 years
Building improvements 3 - 10 years
Computer hardware and purchased software 3 years
Internally developed software 7 years
Office furniture and equipment 3 - 7 years
Tenant and leasehold improvements Shorter of lease term or useful life
Expenditures for improvements are capitalized to the property accounts. Replacements and maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. The Company capitalizes both internal and external costs for internally developed software during the application development stage. During the preliminary project and post-implementation stage, internal-use software development costs are expensed as incurred. Capitalized software costs are depreciated on a straight-line basis over the estimated useful life of seven years.
Impairment of Long-Lived Assets. Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company groups assets at the lowest level for which cash flows are separately identified. The Company assesses the recoverability of an asset group by determining whether the assets can be recovered from undiscounted future cash flows. If the expected undiscounted future cash flows of an asset group are less than its carrying amount, an impairment loss is recognized based on the amount by which the carrying amount exceeds the fair value less costs to sell. The calculation of the fair value less costs to sell of an asset group is based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. There were no material impairments of long-lived assets during the periods presented.
Leases.The Company leases office equipment, storage units, and office space from non-affiliates. In assessing whether a contract is or contains a lease, the Company first determines whether there is an identified asset in the contract. The Company then determines whether the contract conveys the right to obtain substantially all of the economic benefits from use of the identified asset or the right to direct the use of the identified asset. The Company elects not to record any lease with a term of 12 months or less on the consolidated balance sheet. For such short-term leases, the Company recognizes the lease payments in expense on a straight-line basis over the lease term.
If the contract is or contains a lease and the Company has the right to control the use of the identified asset, the right-of-use (“ROU”) asset and the lease liability is measured from the lease component of the contract and recognized on the consolidated balance sheet. In measuring the lease liability, the Company uses its incremental borrowing rate for a loan secured by a similar asset that has a term similar to the lease term to discount the lease payments. The contract is further evaluated to determine the classification of the lease as to whether it is finance or operating. If the lease is a finance lease, the ROU asset is depreciated to depreciation expense over the shorter of the useful life of the asset or the lease term. Interest expense is recorded in connection with the lease liability using the effective interest method. If the lease is an operating lease, the ROU asset is amortized to lease expense on a straight-line basis over the lease term. For the presentation of finance leases on the Company’s consolidated balance sheets, ROU assets and corresponding lease liabilities are included with property and equipment, net, and long-term debt, respectively. For the presentation of operating leases on the Company’s consolidated balance sheets, ROU assets and corresponding lease liabilities are included in other assets and accrued expenses and other liabilities, respectively. The Company does not have any material operating or financing lease arrangements in which it is the lessee.
The Company as a lessor leases its commercial and retail properties, boat slips, and docks to non-affiliates at various terms. If the contract gives the Company’s customer the right to control the use of the identified asset, revenue is recognized on a straight-line basis over the lease term. Initial direct costs incurred by the Company are deferred and amortized on a straight-line basis over the lease term. The Company also records an unbilled receivable, which is the amount by which straight-line revenue exceeds the amount billed in accordance with the lease. The underlying assets are presented as real estate investments in the consolidated balance sheets.
Intangible Assets. Intangible assets related to real estate investments consist of the value attributable to the acquired in-place leases and the anchor tenant relationships. The value attributable to the anchor tenant relationship represents the economic benefits of having a
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HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
nationally recognized retailer as the lead tenant, which draws consumer traffic and other tenants to the retail center. These intangibles are amortized on a straight-line basis over the related lease term. Amortization of the intangible assets related to real estate investments is reflected in net investment income in the consolidated statements of income.
Intangible assets also include the fair value of consideration the Company paid and is estimated to pay in exchange for the renewal rights and non-compete intangible assets acquired from the seller. In the renewal rights transactions, the Company purchased the right, but not the obligation, to offer homeowners insurance coverage to all policyholders of the seller in certain states on the agreed-upon policy replacement date. The renewal rights agreements also contain a non-compete clause whereby the seller agrees not to offer homeowners insurance policies in these states through a specified date. These intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization of the renewal rights and non-compete intangible assets is reflected in other operating expenses in the consolidated statements of income.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In the event the Company determines the carrying value is not recoverable, an impairment loss is recorded in the Company’s consolidated statements of income. There were no material impairments of intangible assets during the periods presented.
Funds Withheld for Assumed Business. Pursuant to the Company’s quota share reinsurance agreements with United Property & Casualty Insurance Company (“United”), trust accounts were established for the benefit of United as beneficiary. The trust balances represent the net amount owed to the Company under the reinsurance agreements. The trusts consist of a) funds deposited to establish the accounts and b) premiums, including any subsequent premium adjustment, and are reduced by commissions and paid losses and loss adjustment expenses. The assets within the trust accounts consist primarily of cash. Funds remaining at the completion of the quota share agreements are to be distributed according to the trust agreements. Prior to United being placed into receivership by the State of Florida on February 27, 2023, United had the exclusive and unconditional right to withdraw funds from the trust accounts on demand with written notice in compliance with the quota share reinsurance agreements. The funds are now under the control of the receiver.
Lease Acquisition Costs. Lease acquisition costs represent capitalized costs of finding and acquiring tenants such as leasing commissions, legal, and marketing expenses. The costs are included in other assets on the consolidated balance sheets. The Company amortizes these costs in other operating expenses on a straight-line basis over the term of a lease.
Long-Term Debt. Long-term debt includes debt instruments and finance lease liabilities. A debt instrument is generally classified as a liability and carried at amortized cost, net of any issuance costs. Debt issuance costs are capitalized and amortized to interest expense over the expected life of the debt instrument using the effective interest method. At issuance, a debt instrument with embedded features such as conversion and redemption options is evaluated to determine whether bifurcation and derivative accounting is applicable. Any embedded feature other than the conversion option is evaluated at issuance to determine if it is probable that such embedded feature will be exercised. If the Company concludes that the exercisability of that embedded feature is not probable, the embedded feature is considered to be non-substantive and would not impact the initial measurement and expected life of the debt instrument.
Redeemable Noncontrolling Interests. A redeemable noncontrolling interest relates to the portion of the economic interest of a subsidiary or consolidated VIE that is not owned by the Company and for which the redemption of the interest is outside the control of the Company. Redeemable noncontrolling interests are presented in temporary equity (mezzanine) section of the consolidated balance sheets.
CORE and Tailrow are each considered to be a consolidated VIE. The redeemable noncontrolling interests in CORE and Tailrow represent a refundable portion of subscriber surplus contributions. In general, a reciprocal insurance exchange collects surplus contributions in addition to policy premiums from its policyholders referred to as subscribers. The purpose of the surplus contribution is to support the reciprocal insurance exchange's financial strength and lower their cost of capital. The surplus contribution made during a policy term may be returned on a pro-rata basis to a subscriber in the event of policy cancellation. As the term of an insurance policy progresses, a portion of the surplus contribution is reclassified from redeemable noncontrolling interest to the noncontrolling interest as the surplus contributions become non-refundable.
59
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Prior to redemption in the first quarter of 2024, Exzeo issued Series A preferred stock to an investor (“Exzeo Series A Preferred Stock”), which contained rights in dividends, voting, conversion, participation, liquidation preference and redemption. The Exzeo Series A Preferred Stock was classified as temporary equity (mezzanine) on the consolidated balance sheets as the redemption features were not solely within the Company's control. At issuance, the Series A Preferred Stock was recorded at fair value, net of issuance costs, applying a residual fair value method. Subsequent to issuance, the carrying amount was adjusted each reporting period for (i) accrued dividends (ii) dividend payments, and (iii) accretion required to reflect the increasing contractual dividend rate over the life of the instrument. Dividends were contractually payable in cash or in kind and were accrued monthly based on the assumption of cash settlement. In periods when redemption became probable or determinable, the carrying amount was adjusted to the greater of (i) the contractual redemption amount or (ii) fair value at the reporting date. Such adjustments were treated as deemed dividends when calculating net income attributable to common stockholders. The effect of dividends and increasing dividend rates were recorded to net income or loss attributable to redeemable noncontrolling interests in the consolidated statements of income.
Noncontrolling Interests. A noncontrolling interest relates to the portion of the economic interest of a subsidiary or consolidated VIE that is not owned by the Company. Accordingly, the Company has noncontrolling interests attributable to Exzeo, CORE, and Tailrow. Noncontrolling interests are adjusted for the net income or loss of the subsidiary or consolidated VIE that is not owned by the Company, which is reflected as income or loss attributable to noncontrolling interests in the consolidated statements of income, as well as any associated changes in accumulated other comprehensive income or loss. Additionally, noncontrolling interests are periodically adjusted for transactions which change the Company's economic interest of a subsidiary or consolidated VIE. The Company includes stock-compensation associated with stock-based awards granted by a subsidiary or consolidated VIE in noncontrolling interests.
Losses and Loss Adjustment Expenses. The Company accrues for losses and loss adjustment expenses (“LAE”) in the period in which the underlying loss event occurred. 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. Reserves for losses and LAE are determined by establishing liabilities in amounts estimated to cover incurred losses and LAE. Such reserves are determined based on the assessment of claims reported and the development of pending claims. These reserves are based on individual case estimates for the reported losses and LAE and estimates of such amounts that are incurred but not reported.
The estimates of unpaid losses and LAE are subject to trends in claim severity and frequency and are continually reviewed. As part of the process, the Company reviews historical data and considers various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and LAE. Adjustments are reflected in the results of operations in the period in which they are made and the liabilities may deviate substantially from prior estimates. Losses and LAE ceded to or recovered from reinsurers are recorded as a reduction to losses and LAE on the consolidated statements of income. Accordingly, losses and LAE in the consolidated statements of income are net of reinsurance.
Advance Premiums. Premium payments received prior to the policy effective date are recorded as advance premiums. Once the policy is in force, the premiums are recorded as described under “Premium Revenue” below.
Premiums Receivable. Premiums receivable represent the amount of premiums due from policyholders for insurance coverage. Premiums are recorded as receivable in the Company’s general ledger on the effective date of the policy. Premiums are billed to the policyholder 45-60 days in advance of the effective date. The policyholder is given a 30-day grace period after the effective date to pay the premium before the insurance coverage is cancelled. If the policyholder does not pay the premium, the Company can cancel the policy and has no obligation to provide insurance coverage. Unpaid renewal policies are cancelled at midnight on the last day of the period for which the policyholder has paid. The unearned premium liability for the cancelled policy is reversed along with the premium receivable balance. Therefore, there is no unpaid earned premium and credit loss associated with the cancelled policy.
However, when the 30-day grace period falls between two reporting periods, the premium receivable balance at the end of the first reporting period may potentially be overstated for not considering the policy that is subsequently cancelled during the following reporting period. To mitigate the overstatement issue, the Company estimates the monetary impact from the subsequent policy cancellation by multiplying the historical cancellation rate to the premiums receivable balance at the reporting date. An allowance for uncollectible premiums, which offsets the balance of premiums receivable, is established by reducing the unearned premiums liability and earned revenues.
As of December 31, 2025 and 2024, allowances for uncollectible premiums were $4,469 and $5,891 respectively.
60
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Reinsurance Ceded. In the normal course of business, the Company seeks 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. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1st of each year. The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions. Amounts recoverable from reinsurers are estimated in a manner consistent with the applicable reinsurance contract or contracts. Premiums ceded to other companies have been reported as a reduction of gross premiums earned to arrive at net premiums earned. Prepaid reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers.
From time to time, the Company may elect to pay a reinstatement premium to a reinsurer in order to restore an amount of reinsurance coverage limit exhausted by a loss event. When that occurs, the unamortized portion of the existing prepaid reinsurance premium associated with the first coverage limit will be immediately expensed. The reinstatement premium will be recognized as prepaid reinsurance premium which will be amortized to premiums ceded over the remaining coverage period of a contract.
One of the Company’s reinsurance contracts contained retrospective provisions including terms and conditions that adjust premiums based on the loss experience under the contract. 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 in premiums ceded are reflected in the Company’s current operations and recorded in other assets until received upon the expiration of the contract.
The Company may receive ceding commissions from ceding gross written premiums to a third-party reinsurer under a reinsurance contract. The ceding commissions represent the reimbursement of the Company’s policy acquisition, underwriting and other operating expenses. Ceding commissions received cover a portion of premium taxes and agent commissions deferred by the Company and a portion of non-deferred acquisition costs and other underwriting expenses. Ceding commissions are recognized as income on a pro-rata basis over the terms of the policies reinsured, the amount of which is included in policy acquisition and other underwriting expenses in the consolidated statements of income. The unearned portion of ceding commissions that represents recovery of DAC is classified as a reduction of DAC whereas the remaining unearned balance is classified as deferred revenue in accrued expenses and other liabilities.
Reinsurance Assumed. From time to time, the Company agrees to assume risk from another insurance company. Reinsurance premiums, commission, cost allowance, and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums assumed from other insurance companies are included in gross premiums earned. Ceding commissions on assumed gross written premiums and related costs paid are reflected as DAC which is amortized as expense on a pro-rata basis over the life of the reinsurance agreement. This amortized expense is included in policy acquisition and other underwriting expenses in the consolidated statements of income.
Premium Revenue. Premium revenue includes premium from the direct issuance of policies to insureds or the renewal or replacement of insureds’ policies and assumed premium for providing coverage under reinsurance agreements. Premium revenue is earned on a daily pro-rata basis over the term of the policies and is included in gross premiums earned. Unearned premiums represent the portion of the premiums attributable to the unexpired policy term. The Company reviews its policy detail and establishes an allowance for any amount outstanding for more than 90 days.
Policy Fees. Policy fees represent nonrefundable fees for insurance coverage, which are intended to reimburse a portion of the costs incurred to underwrite the policy. Policy fees are recognized ratably over the policy coverage period.
Insurance Guaranty Association Assessments. The Company’s insurance subsidiaries may be assessed by state associations such as the Florida Insurance Guaranty Association (“FIGA”). The assessments are intended to be used for the payment of covered claims of insolvent insurance entities. The assessments are generally based on a percentage of premiums written during or following the year of insolvency. Liabilities are recognized when the assessments are probable to be imposed on the premiums on which they are expected to be based and the amounts can be reasonably estimated and are included in accrued expenses and other liabilities on the consolidated balance sheets. An insurer is generally permitted to recover the entire amount of assessments from in-force and future policyholders through policy surcharges. U.S. GAAP provides that the Company should record an asset based on the amount of written or obligated-to-write premiums and limited to the amounts recoverable over the life of the in-force policies.
Foreign Currency. The functional currency of the Company’s Indian subsidiary is the U.S. dollar. As such, the monetary assets and liabilities of this subsidiary are remeasured into U.S. dollars at the exchange rate in effect on the balance sheet date. Non-monetary
61
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
assets and liabilities are remeasured using historical rates. Expenses recorded in the local currency are remeasured at the prevailing exchange rate. Exchange gains and losses resulting from these remeasurements are included in other operating expenses.
Income Taxes.The Company files consolidated federal and state income tax returns and allocate taxes among its subsidiaries in accordance with a written tax-allocation agreement.
The Company accounts 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.
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 the Company's ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, which include its past operating results, the existence of cumulative losses in the most recent years, and its forecast of future taxable income. In estimating future taxable income, the Company develops 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 the Company uses to manage its underlying businesses.
The Company recognizes 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. The Company records liabilities for positions that have been taken but do not meet the more-likely-than-not recognition threshold. The Company includes 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. The Company issues 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 the Company's 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.
The Company's 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. The Company recognizes forfeitures as they occur and does not estimate forfeiture rates at grant date. Previously recognized compensation expense is reversed in the period an award is forfeited. Tax windfalls or tax shortfalls related to stock-based awards are recognized in the consolidated statements of income in the period the awards vest or are exercised.
62
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Basic and Diluted Earnings Per Share.The Company applies the two-class method for computing and presenting earnings per share since the Company’s unvested restricted stock awards represent participating securities due to the right to share in dividends, if declared, equally with common stockholders. The two-class method allocates current period net income to common stock and participating securities based on (i) dividends declared and (ii) participation rights in the remaining undistributed income. For a majority-owned subsidiary, the Company’s proportionate share in that majority-owned subsidiary’s earnings per share is added to the computation of earnings per share on a consolidated basis.
Basic earnings per share is computed by dividing income attributable to common stockholders using the two-class method by the weighted-average number of shares of common stock outstanding during the period.
Diluted earnings per share gives effect to all securities having a dilutive effect on income attributable to common stockholders, weighted-average shares of common stock outstanding, or both. The effect from potential dilutive securities included, but was not limited to: (i) incremental shares of common stock calculated using the if-converted method for convertible debt instruments; (ii) incremental shares of common stock calculated using the treasury stock method for warrants and share-based compensation awards; (iii) adjustments to a majority-owned subsidiary's earnings per share due to its potentially dilutive securities; and (iv) the corresponding impact to income attributable to common stockholders associated with the preceding considerations. Net losses are not allocated to participating securities as the participating securities do not have a contractual obligation to share in losses.
Statutory Accounting Practices. The Company’s U.S. insurance subsidiaries comply with statutory accounting practices prescribed by the National Association of Insurance Commissioners (“NAIC”) and as adopted or permitted by the Florida Department of Financial Services, Office of Insurance Regulation (“FLOIR”). There are no state prescribed or permitted practices that have been adopted by the Company’s U.S. subsidiaries. In addition, Claddaugh Casualty Insurance Company, Ltd. (“Claddaugh”), the Company’s wholly-owned Bermuda domiciled captive reinsurance subsidiary, prepares and files financial statements in accordance with the prescribed regulatory accounting practices of the Bermuda Monetary Authority.
Reclassification. Certain reclassifications of prior year amounts have been made to conform to the current year presentation.
Note 3 -- Recent Accounting Pronouncements
Adopted
Accounting Standards Update No. 2023-09. In December 2023, the FASB issued Accounting Standards Update No. 2023-09 (“ASU 2023-09”) Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update enhances income tax disclosures by requiring public entities to report income tax expense disaggregated by federal, state, and foreign taxes, with further detail on specific jurisdictions over a quantitative threshold. In addition, public entities must also separately disclose reconciling items equal to or greater than five percent of pretax income from operations by the applicable federal statutory rate. ASU 2023-09 is effective for public entities for annual periods beginning after December 15, 2024. The adoption of this update resulted in additional income tax disclosures.
Accounting Standards Update No. 2024-04. In November 2024, the FASB issued Accounting Standards Update No. 2024-04 (“ASU 2024-04”) Debt–Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This update clarifies whether entities should apply extinguishment accounting or induced conversion accounting when recording the settlement of convertible debt instruments due to an induced conversion. ASU 2024-04 is effective for all entities for fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company elected to early adopt this update effective January 1, 2025. The adoption of this update had no impact on the Company’s financial position or results of operation upon adoption as the new guidance applies prospectively from January 1, 2025.
Pending Adoption
Accounting Standards Update No. 2025-01 and 2024-03. In January 2025, the FASB issued Accounting Standards Update No. 2025-01 (“ASU 2025-01”) Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. This update clarifies the effective date of Accounting Standards Update No. 2024-03 (“ASU 2024-03”) Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which was issued by the FASB in November 2024. For public business entities, ASU 2024-03 enhances disclosures by requiring the disaggregation of certain expense captions presented within the income statement, such as employee
63
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
compensation and intangible asset amortization. In addition, the total relevant expense caption on the income statement must be reconciled to the aggregate of the separately disclosed expense categories with the difference represented by an “other items” amount which is qualitatively described. ASU 2024-03 is effective for all public business entities for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating its impact.
Accounting Standards Update No. 2025-05. In July 2025, the FASB issued Accounting Standards Update No. 2025-05 (“ASU 2025-05”) Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This update simplifies the estimation of current expected credit losses on current accounts receivable and current contract assets related to revenue from contracts with customers by allowing all entities to assume that current conditions as of the balance sheet date will not change for the remaining life of the current accounts receivable and current contract assets. ASU 2025-05 is effective for all entities for fiscal years and interim periods beginning after December 15, 2025. Early adoption is permitted. The Company is evaluating its impact.
Accounting Standards Update No. 2025-06. In September 2025, the FASB issued Accounting Standards Update No. 2025-06 (“ASU 2025-06”) Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This update enhances guidance on the capitalization of software development costs by eliminating project phase based criteria and clarifying the conditions signifying significant development uncertainty used by entities to evaluate when the probable-to-complete recognition threshold is met. ASU 2025-06 is effective for all entities for fiscal years and interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating its impact.
Note 4 -- Cash and Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Company’s consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
December 31,
Cash and cash equivalents and restricted cash $ 1,213,874 $ 536,185
The majority of the Company’s cash and cash equivalents are held at major financial institutions. Certain account balances exceed the Federal Deposit Insurance Corporation insurance limits of $250 per account. As a result, there is a concentration of credit risk related to amounts in excess of the insurance limits. The Company regularly monitors the financial stability of these financial institutions and believes that there is no exposure to any significant credit risk in cash and cash equivalents.
64
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Note 5 -- Investments
Available-for-Sale Fixed-Maturity Securities
The Company holds investments in fixed-maturity securities that are classified as available-for-sale. As of December 31, 2025 and 2024, the cost or amortized cost, allowance for credit loss, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale fixed-maturity securities by security type were as follows:
Cost orAmortized Allowance for GrossUnrealized GrossUnrealized EstimatedFair
Cost Credit Loss Gain Loss Value
Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of available-for-sale fixed-maturity securities as of December 31, 2025 and 2024 are as follows, with securities not due at a single maturity date shown separately:
December 31,
Cost or Estimated Cost or Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
Commercial mortgage-backed securities 21,256 21,055 — —
Securities on Deposit
The fair value of available-for-sale fixed-maturity securities on deposit with various regulatory authorities as of December 31, 2025 and 2024 was $1,807 and $1,794, respectively.
65
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Sales of Available-for-Sale Fixed-Maturity Securities
Proceeds received, and the gross realized gains and losses from sales of available-for-sale fixed-maturity securities, during 2025, 2024, and 2023 were as follows:
Gross Gross
Realized Realized
Proceeds Gains Losses
Gross Unrealized Losses for Available-for-Sale Fixed-Maturity Securities
Available-for-sale fixed maturity securities with gross unrealized loss positions as of December 31, 2025 and 2024, aggregated by investment category and length of time the individual securities have been in a continuous loss position, were as follows:
Less Than Twelve Months Twelve Months or Longer Total
Less Than Twelve Months Twelve Months or Longer Total
As of December 31, 2025 and 2024, there were 47 and 56 available-for-sale fixed-maturity securities, respectively, in an unrealized loss position.
Allowance for Credit Losses of Available-for-Sale Fixed-Maturity Securities
The Company regularly reviews its individual available-for-sale fixed-maturity securities for credit impairment. The Company considers various factors in determining whether a credit loss exists for each individual security, including:
•
the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;
•
the extent to which the market value of the security has been below its cost or amortized cost;
•
general market conditions and industry or sector specific factors and other qualitative factors;
•
nonpayment by the issuer of its contractually obligated interest and principal payments; and
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HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
•
the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.
There was no balance or activity in the allowance for credit losses of available-for-sale fixed maturity securities during 2025, 2024, and 2023.
Equity Securities
The Company holds investments in equity securities measured at fair values which are readily determinable. As of December 31, 2025 and 2024, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:
GrossUnrealized GrossUnrealized EstimatedFair
Cost Gain Loss Value
The table below presents the portion of unrealized gains and losses in the Company’s consolidated statements of income related to equity securities still held:
Years Ended December 31,
Sales of Equity Securities
Proceeds received, and the gross realized gains and losses from sales of equity securities, during 2025, 2024, and 2023 were as follows:
GrossRealized GrossRealized
Proceeds Gains Losses
67
HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Limited Partnership Investments
The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships. The following table provides information related to the Company’s investments in limited partnerships:
Carrying Unfunded Carrying Unfunded
Investment Strategy Value Balance (%) (a) Value Balance (%) (a)
(a)
Represents the Company’s percentage investment in the fund at each balance sheet date.
(b)
Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.
(c)
The term is expected to be two years following the maturity of the fund’s outstanding leverage. Although the capital commitment period has expired, follow-on investments and pending commitments may require additional fundings.
(d)
Effective July 1, 2023, this investment is in the process of winding down. Although the capital commitment period has ended, the general partner could still request an additional funding under certain circumstances.
(e)
At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods.
(f)
Expected to have a ten-year term. The capital commitment period has expired but the general partner may request additional funding for follow-on investment.
(g)
With the consent of a supermajority of partners, the term of the fund may be extended for up to three additional one-year periods.
(h)
Expected to have an eight-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners.
(i)
The capital commitment period has ended but an additional funding may be requested.
(j)
The term is expected to end November 27, 2027. The term may be extended for up to four additional one-year periods at the general partner’s discretion, and up to two additional one-year periods with the consent of the advisory committee.
(k)
Expected to have an eight-year term after the final admission date. The term may be extended for an additional one-year period at the general partner’s discretion, and up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners.
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HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
The following is the summary of aggregated unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Company’s respective balance sheet dates. The financial statements of these limited partnerships are audited annually.
Years Ended December 31,
Operating results:
* Includes net change in unrealized gains or losses on investments.
December 31,
Balance sheet:
During 2025, the Company recognized net investment loss of $820. During 2024 and 2023, the Company recognized net investment income of $597 and $661, respectively.
During 2025, 2024, and 2023, distributions of return on investment from limited partnership investments totaled $1, $1,020, and $1,148, respectively, and distributions of return of capital from limited partnership investments totaled $2,291, $3,591, and $3,115, respectively.
As of December 31, 2025 and 2024, the Company’s net cumulative contributed capital to the limited partnership investments totaled $18,697 and $20,987, respectively, and the Company’s maximum exposure to loss aggregated $17,690 and $20,801, respectively.
Real Estate Investments
Real estate investments consist of the following as of December 31, 2025 and 2024:
December 31,
Tenant and leasehold improvements 2,265 2,265
Less: accumulated depreciation (9,440 ) (7,511 )
During 2025, the Company purchased commercial property in St. Petersburg, Florida for approximately $19,000. There were no newly acquired properties during 2024. During 2023, the Company purchased vacant land, which was developed into a retail shopping center and placed into service during 2025 in Haines City, Florida for $3,393, of which $1,582 was recognized as real estate investments and $1,811 was recognized as intangible assets, as well as commercial real estate in Tampa, Florida for $17,270, of which $4,446 was related to below market rent that was primarily recognized in net investment income during 2024.
During 2025, proceeds from sales of real estate investments were $2,013 and resulted in gains of $440 related to the sale of land. There were no sales of real estate investments during 2024. During 2023, proceeds from sales of real estate investments were $21,746 and resulted in gains of $8,811 as well as the derecognition of long-term debt due to assumption of $8,979 and the derecognition of intangible assets of $2,200 related to the sales of the retail shopping centers in Melbourne, Florida and Sorrento, Florida.
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HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts, unless otherwise stated)
Depreciation expense related to real estate investments was $2,032, $1,113, and $1,147 during 2025, 2024, and 2023, respectively.
Net Investment Income
Net investment income, by source, is summarized as follows:
Years Ended December 31,
Limited partnership investments (820 ) 597 661
Note 6 -- Fair Value Measurements
The Company records and discloses certain financial assets at their estimated fair values. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 – Unadjusted quoted prices in active markets for identical assets.
Level 2 – Other inputs that are observable for the asset, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset.
Level 3 – Inputs that are unobservable.
Valuation Methodology