TAMPA, Fla., Feb. 21, 2017 (GLOBE NEWSWIRE) — HCI Group, Inc. (NYSE:HCI), a holding company primarily engaged in homeowners insurance, with additional operations in reinsurance, real estate and information technology, reported results for the three and twelve months ended December 31, 2016.

Fourth Quarter 2016 – Financial Results
Net income totaled $4.6 million or 47 cents diluted earnings per share compared with $11.1 million or $1.05 diluted earnings per share in the fourth quarter of 2015.

Gross premiums earned totaled $92.4 million compared with $101.9 million in the same period in 2015. The decrease was attributable to expected policy attrition as well as a previously announced rate decrease that went into effect January 1, 2016.

Premiums ceded decreased to $29.1 million or 31.4% of gross premiums earned from $40.3 million or 39.6% of gross premiums earned in the fourth quarter of 2015. The decrease was attributable to the lower cost of the 2016/17 reinsurance program which began June 1, 2016, as compared with the 2015/16 program, which began June 1, 2015.

Net premiums earned (defined as gross premiums earned less premiums ceded to reinsurance companies) were $63.4 million compared with $61.6 million in the same period in 2015.

Investment related income increased to $4.8 million compared with $1.2 million in the same period in 2015. The increase in 2016 was primarily due to $1.2 million of income from limited partnership investments in 2016 versus losses of $0.4 million in 2015 as well as net realized gains from investment sales of $1.7 million in 2016 as compared with $45,000 of net realized investment losses for the quarter ended December 31, 2015.  Additionally, the company recognized net non-cash charges of $1 million in the fourth quarter of 2016 and $0.8 million in the fourth quarter of 2015 due to declines in the fair value of securities determined to be other than temporary.

A remeasurement gain of $4 million resulted from the company’s real estate division, Greenleaf Capital, acquiring full ownership of a shopping center property in which it had previously held a 90% non-controlling interest. Subsequent to the acquisition, the company incurred an impairment loss of approximately $0.4 million due to the unexpected closure of one tenant’s business.

Losses and loss adjustment expenses were $45.4 million compared with $21.4 million in the same period in 2015.  The increase was due primarily to the impact of Hurricanes Hermine and Matthew, the latter accounting for approximately $21 million in losses and loss adjustment expenses. In addition, we continued to strengthen reserves in response to trends involving assignment of insurance benefits and related litigation.

Policy acquisition and other underwriting expenses were $10.1 million compared with $11.1 million in the comparable period in 2015.

Salaries and wages were $2 million compared with $5 million in the same period in 2015. The reduction was primarily attributable to a decrease in discretionary incentive pay in 2016. The level of discretionary incentive pay in 2016 was influenced in large part by the company’s financial results for the year, which were negatively impacted by Hurricane Matthew in the fourth quarter. 

During the fourth quarter of 2016 the company repurchased 68,852 common shares through a share repurchase plan approved by the Board of Directors in December 2015. The shares were repurchased at an average price, inclusive of fees and commissions, of $29.09 per share.

Fourth Quarter 2016 – Financial Ratios
The loss ratio (defined as losses and loss adjustment expenses related to net premiums earned) was 71.7% compared with 34.8% in 2015. The increase is primarily due to losses from Hurricane Matthew and reserve strengthening.

The expense ratio (defined as underwriting expenses, salaries and wages and other operating expenses, impairment losses, and interest expense related to net premiums earned) was 33.2% compared with 39.5% in the same prior year period. The decrease during the quarter was primarily due to the decrease in compensation expense described above.

Expressed as a total of all expense, including losses and loss adjustment expenses, related to net premiums earned, the combined loss and expense ratio was 104.9% compared with 74.3% in the same prior year period. The combined ratio was negatively impacted by losses and loss adjustment expenses related primarily to Hurricane Matthew.

Due to the impact reinsurance costs have on net premiums earned from period to period, the company believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned was 71.9% compared with 44.9% for the fourth quarter of 2015. The increase during the quarter was primarily due to losses and loss adjustment expenses related to Hurricane Matthew.

Full Year 2016 – Financial Results
Net income totaled $29 million or $2.92 diluted earnings per common share compared with $65.9 million or $5.90 diluted earnings per common share for 2015.

Gross premiums earned totaled $378.7 million compared with $423.1 million in 2015. The decrease was primarily attributable to expected policy attrition as well as a rate decrease effective on new and renewal policies beginning in January 2016.

Premiums ceded were $135.1 million or 35.7% of gross premiums earned compared with $140.6 million or 33.2% of gross premiums earned during 2015. The decrease was primarily attributable to the lower costs of the 2016/17 reinsurance program which began June 1, 2016, as compared with the costs of the 2015/16 program, which began June 1, 2015.

Net premiums earned decreased to $243.6 million from $282.5 million in 2015.

Investment related income increased to $11.7 million compared with $3.4 million in 2015. The increase in 2016 was primarily due to $1.2 million of income from limited partnership investments in 2016 versus losses of $3.2 million in 2015 as well as net realized gains from investment sales of $2.6 million in 2016 as compared with $0.6 million of net realized investment losses for the year ended December 31, 2015.  Additionally, the company recognized net non-cash charges of $2.5 million in 2016 and $4.7 million in 2015 due to declines in the fair value of securities determined to be other than temporary.

Losses and loss adjustment expenses for 2016 and 2015 were $124.7 million and $87.2 million, respectively. The increase was due to the impact of weather-related events and continued reserve strengthening in response to trends involving assignment of insurance benefits and related litigation.

Policy acquisition and other underwriting expenses were $42.6 million compared with $42 million for 2015.

Salaries and wages were $19 million compared with $20.1 million in 2015. The reduction was primarily attributable to a decrease in incentive pay as described above offset by an increase in headcount at the Tampa headquarters location.  

Full Year 2016 – Financial Ratios
The loss ratio was 51.2% compared with 30.9% in 2015. The increase is primarily due to losses and loss adjustment expenses in 2016 from Hurricane Matthew and other weather-related events, and reserve strengthening throughout 2016.

The expense ratio was 38.1% compared with 32.8% in 2015. The increase was primarily attributable to the reduction in net premiums earned during 2016.

Expressed as a total of all expenses, including losses and loss adjustment expense, related to net premiums earned, the combined loss and expense ratio to net premiums earned was 89.3% compared with 63.6% in 2015. The combined ratio was negatively impacted by increased losses and loss adjustment expenses and the reduction in net premiums earned during 2016.

The combined ratio to gross premiums earned was 57.5% compared with 42.5% in 2015. The increase in 2016 was due to the factors described above.

Management Commentary
“Despite approximately $21 million of losses and expenses related to Hurricane Matthew, we produced profitable results for the fourth quarter of 2016 – our 37th consecutive profitable quarter,” said Paresh Patel, the company’s chairman and chief executive officer. “A multitude of factors contributed to our fourth quarter profit, including continued strong operating performance by our core insurance business, lower reinsurance costs, one real estate related gain and improved investment income, all of which resulted from our long-term strategic plans to manage our risks, manage our costs and expenses, diversify our business operations, develop and deploy new technologies, maintain a strong balance sheet and pursue accretive growth opportunities as they arise.  We continue to focus on the bottom line rather than the top line.

Conference Call
HCI Group will hold a conference call later today (February 21, 2017) to discuss these financial results. Chairman and Chief Executive Officer Paresh Patel and Chief Financial Officer Richard Allen will host the call starting at 4:45 p.m. Eastern time. A question and answer session will follow management’s presentation.

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

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

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

A replay of the call will be available by telephone after 8:00 p.m. Eastern time on the same day as the call and via the Investor Information section of the HCI Group website at www.hcigroup.com through March 21, 2017.

Toll-free replay number: (877) 481-4010
International replay number: (919) 882-2331
Replay ID: 10211

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

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

Forward-Looking Statements
This news release may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “estimate,” “expect,” “intend,” “plan,” “confident,” “prospects” and “project” and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company’s filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company’s business, financial condition and results of operations. HCI Group, Inc. disclaims all obligations to update any forward-looking statements.

 
HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)
             
             
      At December 31, 2016     At December 31, 2015
             
Assets            
Fixed-maturity securities, available for sale, at fair value            
(amortized cost: $167,231 and $128,614, respectively)   $ 166,248   $ 125,009  
Equity securities, available for sale, at fair value            
(cost: $ 47,750 and $47,548, respectively)     53,035     48,237  
Limited partnership investments, at equity     29,263     23,930  
Investment in unconsolidated joint venture, at equity     2,102     4,787  
Real estate investments (inclusive of $3,404 and $2,906 of consolidated variable            
interest entities, respectively)     48,086     30,954  
Total investments     298,734     232,917  
Cash and cash equivalents (inclusive of $65 and $57 of consolidated            
variable interest entities, respectively)     280,531     267,738  
Accrued interest and dividends receivable     1,654     1,390  
Income taxes receivable     2,811     1,858  
Premiums receivable     17,276     19,631  
Prepaid reinsurance premiums     24,554     40,747  
Deferred policy acquisition costs     16,639     18,602  
Property and equipment, net     11,374     11,786  
Intangible assets, net     4,899      
Deferred income taxes, net     250     3,189  
Other assets     11,342     39,128  
             
Total assets   $ 670,064   $ 636,986  
             
Liabilities and Stockholders’ Equity            
Losses and loss adjustment expenses   $ 70,492   $ 51,690  
Unearned premiums     175,803     187,290  
Advance premiums     4,651     4,983  
Assumed reinsurance balances payable     3,294     1,084  
Accrued expenses (inclusive of $68 and $21 of consolidated variable interest            
entities, respectively)     6,513     6,316  
Long-term debt     138,863     129,429  
Other liabilities     26,702     18,472  
             
Total liabilities     426,318     399,264  
             
             
Stockholders’ equity:            
7% Series A cumulative convertible preferred stock (no par value,            
1,500,000 shares authorized, no shares issued and outstanding)          
Series B junior participating preferred stock (no par value, 400,000            
shares authorized, no shares issued or outstanding)          
Preferred stock (no par value 18,100,000 shares authorized,            
no shares issued or outstanding)          
Common stock, (no par value, 40,000,000 shares authorized,            
9,662,761 and 10,292,256 shares issued and outstanding in            
2016 and 2015, respectively)          
Additional paid-in capital     8,139     23,879  
Retained income     232,964     215,634  
Accumulated other comprehensive income (loss), net of taxes     2,643     (1,791 )
             
Total stockholders’ equity     243,746     237,722  
             
Total liabilities and stockholders’ equity   $ 670,064   $ 636,986  
             

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollar amounts in thousands, except per share amounts)
                         
    Three Months Ended       Years Ended
    December 31,       December 31,
    2016     2015         2016     2015  
    (Unaudited)            
Revenue          
                         
Gross premiums earned   $ 92,405     101,946         $ 378,678     423,120  
Premiums ceded     (29,053 )   (40,320 )         (135,051 )   (140,614 )
                         
Net premiums earned     63,352     61,626           243,627     282,506  
                         
Net investment income     3,087     1,293           9,087     3,978  
Net realized investment gains (losses)     1,702     (45 )         2,601     (608 )
Net other-than-temporary impairment losses recognized in income:                        
Total other-than-temporary impairment losses     (1,041 )   (810 )         (2,252 )   (5,275 )
Portion of loss recognized in other comprehensive income,                        
before taxes         (2 )         (230 )   594  
Net other-than-temporary impairment losses     (1,041 )   (812 )         (2,482 )   (4,681 )
Policy fee income     947     1,019           3,914     3,496  
Gain on repurchases of convertible senior notes      –               153      
Gain on bargain purchase      –               2,071      
Gain on remeasurement of previously held interest     4,005               4,005      
Other     319     331           1,470     1,261  
                         
Total revenue     72,371     63,412           264,446     285,952  
                         
Expenses                        
           
Losses and loss adjustment expenses     45,406     21,420           124,667     87,224  
Policy acquisition and other underwriting expenses     10,117     11,067           42,642     41,984  
Salaries and wages     2,028     4,966           19,037     20,140  
Interest expense     2,967     2,716           11,079     10,754  
Impairment loss     388               388      
Other operating expenses     5,564     5,618           19,777     19,658  
                         
Total expenses     66,470     45,787           217,590     179,760  
                         
Income before income taxes     5,901     17,625           46,856     106,192  
           
Income tax expense     1,293     6,535           17,835     40,331  
                         
Net income   $ 4,608     11,090         $ 29,021     65,861  
                         
Basic earnings per common share   $ 0.47     1.12         $ 2.95     6.51  
                         
Diluted earnings per common share   $ 0.47     1.05         $ 2.92     5.90  
                         
Dividends per common share   $ 0.30     0.30         $ 1.20     1.20  
                         
CONTACT: Company Contact:
Kevin Mitchell, Vice President of Investor Relations
HCI Group, Inc.
Tel (813) 405-3603
kmitchell@hcigroup.com
         
Investor Relations Contact:
Michael Koehler
Liolios Group, Inc.
Tel (949) 574-3860
hci@liolios.com
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