HCI(HCI) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1 Financial Statements This section presents the unaudited consolidated financial statements of HCI Group, Inc. and its subsidiaries, including balance sheets, statements of income, comprehensive income, equity, and cash flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies for the periods ended June 30, 2025 and 2024 Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheets (in millions) | Metric | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Total Assets | $2,353.11 | $2,230.21 | | Total Liabilities | $1,566.02 | $1,761.17 | | Total Stockholders' Equity | $758.58 | $453.33 | | Cash and cash equivalents | $947.17 | $532.47 | | Fixed-maturity securities, available for sale | $592.21 | $718.54 | | Losses and loss adjustment expenses (liability) | $696.89 | $845.90 | | Long-term debt | $15.60 | $185.25 | Consolidated Statements of Income This section details the company's revenues, expenses, and net income over specific reporting periods Three Months Ended June 30 (YoY) (in millions) | Metric | 2025 (in millions) | 2024 (in millions) | Change (YoY) (in millions) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Total Revenue | $221.92 | $206.25 | +$15.68 | | Total Expenses | $127.53 | $130.22 | -$2.69 | | Net Income | $70.28 | $57.10 | +$13.18 | | Basic EPS | $5.57 | $5.18 | +$0.39 | | Diluted EPS | $5.18 | $4.24 | +$0.94 | Six Months Ended June 30 (YoY) (in millions) | Metric | 2025 (in millions) | 2024 (in millions) | Change (YoY) (in millions) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Total Revenue | $438.35 | $412.86 | +$25.49 | | Total Expenses | $243.62 | $259.40 | -$15.78 | | Net Income | $144.51 | $114.06 | +$30.45 | | Basic EPS | $12.00 | $9.95 | +$2.05 | | Diluted EPS | $10.57 | $8.04 | +$2.53 | Consolidated Statements of Comprehensive Income This section presents the company's net income and other comprehensive income components, reflecting total non-owner changes in equity Three Months Ended June 30 (YoY) (in millions) | Metric | 2025 (in millions) | 2024 (in millions) | | :-------------------------------- | :------------------ | :------------------ | | Net income | $70.28 | $57.10 | | Other comprehensive (loss) income, net of income taxes | $(0.18) | $0.54 | | Comprehensive income | $70.10 | $57.64 | Six Months Ended June 30 (YoY) (in millions) | Metric | 2025 (in millions) | 2024 (in millions) | | :-------------------------------- | :------------------ | :------------------ | | Net income | $144.51 | $114.06 | | Other comprehensive income, net of income taxes | $1.91 | $0.60 | | Comprehensive income | $146.42 | $114.65 | Consolidated Statements of Equity This section outlines changes in the company's equity accounts, including net income, dividends, and stock transactions - Total Stockholders' Equity increased from $453.33 million as of December 31, 2024, to $758.58 million as of June 30, 2025[25] - Key changes for the six months ended June 30, 2025, include net income attributable to HCI of $135.84 million and $172.83 million from the conversion of senior notes to common stock, partially offset by $8.92 million in common stock dividends[25] Consolidated Statements of Cash Flows This section reports the cash generated and used by the company's operating, investing, and financing activities Six Months Ended June 30 (YoY) (in millions) | Cash Flow Type | 2025 (in millions) | 2024 (in millions) | | :-------------------------------- | :------------------ | :------------------ | | Net cash provided by operating activities | $307.01 | $152.99 | | Net cash provided by (used in) investing activities | $120.02 | $(179.43) | | Net cash used in financing activities | $(12.27) | $(64.17) | | Net increase (decrease) in cash and cash equivalents and restricted cash | $414.71 | $(90.63) | | Cash and cash equivalents and restricted cash at end of period | $950.90 | $449.13 | - Non-cash investing and financing activities for the six months ended June 30, 2025, included the conversion of $172.50 million of 4.75% Convertible Senior Notes[35] Notes to Consolidated Financial Statements (unaudited) This section provides detailed disclosures and explanations for the figures presented in the consolidated financial statements, covering the company's operations, significant accounting policies, investments, debt, equity, and other financial commitments Note 1 -- Nature of Operations This note describes HCI Group, Inc.'s primary business activities, including insurance, technology, and real estate operations - HCI Group, Inc. primarily operates in property and casualty insurance through Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPCI) and TypTap Insurance Company (TTIC) in Florida and other states[37] - Exzeo Group, Inc. provides turn-key insurance technology and operations solutions, while Greenleaf Capital, LLC manages real estate and marina facilities[37][38] - The Company consolidates reciprocal insurance exchanges (CORE and Tailrow) as Variable Interest Entities (VIEs) for which it provides attorney-in-fact (AIF) services[38] - Approximately 13,900 policies were assumed from Citizens Property Insurance Corporation during the six months ended June 30, 2025, representing $35.80 million in annualized gross written premiums[40] Note 2 -- Summary of Significant Accounting Policies This note outlines the key accounting principles and estimation methods used in preparing the interim financial statements - Interim financial statements are prepared in accordance with U.S. GAAP and SEC rules, with certain disclosures omitted[41] - Material estimates, particularly susceptible to significant change, include losses and loss adjustment expenses (including incurred but not yet reported claims), reinsurance recoverable, income taxes, stock-based compensation, limited partnership investments, and acquired intangible assets[43][44] Note 3 -- Recent Accounting Pronouncements This note details recently adopted and pending accounting standards updates and their impact on the company's financial reporting - ASU 2023-09 (Income Taxes) was adopted prospectively for the fiscal year beginning January 1, 2025, enhancing income tax disclosures[47] - ASU 2024-04 (Convertible Debt) was early adopted effective January 1, 2025, clarifying accounting for induced conversions of convertible debt instruments, with no impact on financial position or results upon adoption[48] - ASU 2025-01 and 2024-03 (Expense Disaggregation) are pending adoption, effective for annual periods beginning after December 15, 2026, and are expected to result in additional disclosures of certain expenses[49] Note 4 -- Cash and Cash Equivalents and Restricted Cash This note provides a breakdown of the company's cash, cash equivalents, and restricted cash balances Cash and Cash Equivalents and Restricted Cash (in millions) | Item | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Cash and cash equivalents | $947.17 | $532.47 | | Restricted cash | $3.73 | $3.71 | | Total | $950.90 | $536.19 | - Restricted cash is primarily held by certain states to meet regulatory requirements and is not available for immediate business use[50] Note 5 -- Investments This note details the company's investment portfolio, including fixed-maturity securities, equity securities, and real estate - The fair value of available-for-sale fixed-maturity securities decreased to $592.21 million as of June 30, 2025, from $718.54 million as of December 31, 2024. Gross unrealized losses decreased significantly from $(3.10) million to $(0.43) million[51] - The fair value of equity securities increased to $58.62 million as of June 30, 2025, from $56.20 million as of December 31, 2024. Net unrealized investment gains (losses) for equity securities shifted from a gain of $3.17 million in 2024 to a loss of $(0.73) million in 2025 for the six-month period[57] - Limited partnership investments' carrying value decreased to $19.77 million as of June 30, 2025, with an unfunded balance of $2.99 million. The Company recognized a net investment loss of $0.66 million for the six months ended June 30, 2025, compared to net investment income of $0.09 million in the prior year[60][63] - Real estate investments at cost increased to $93.90 million as of June 30, 2025. Sales of real estate investments generated $2.01 million in proceeds and $0.44 million in gains for the six months ended June 30, 2025[67][68] - Net investment income decreased slightly to $30.20 million for the six months ended June 30, 2025, from $30.95 million in the prior year, primarily due to a shift from income to loss in limited partnership investments and lower real estate investment income[69] Note 6 -- Other Comprehensive Income (Loss) This note explains the components of other comprehensive income, primarily related to unrealized gains or losses on investments - Other comprehensive income (loss) for the six months ended June 30, 2025, was $1.91 million (net of tax), an increase from $0.60 million for the same period in 2024, primarily reflecting changes in unrealized gains or losses on available-for-sale fixed-maturity securities[70] Note 7 -- Fair Value Measurements This note describes the fair value hierarchy used for financial assets and liabilities, categorizing inputs into three levels - The Company categorizes financial assets and liabilities into a three-level fair value hierarchy based on the observability of inputs[72] - Cash, restricted cash, and equity securities are primarily measured using Level 1 inputs (quoted prices in active markets)[78] - Available-for-sale fixed-maturity securities are valued using Level 1 and Level 2 inputs (quoted prices or observable inputs from pricing services/brokers)[78] - Long-term debt, specifically promissory notes, is valued using Level 3 inputs (discounted cash flow method)[77][79] Note 8 -- Intangible Assets, Net This note provides details on the company's intangible assets, including their carrying value and remaining amortization periods - Intangible assets, net, decreased to $3.93 million as of June 30, 2025, from $5.21 million as of December 31, 2024[81] - The remaining weighted-average amortization periods are 17.7 years for in-place leases and 0.9 years for policy renewal rights - United[82] Note 9 -- Other Assets This note explains the increase in other assets, primarily due to prepaid premium taxes and lease acquisition costs - Other assets increased to $24.12 million as of June 30, 2025, from $9.82 million as of December 31, 2024, driven by increases in prepaid premium taxes and lease acquisition costs[83] Note 10 -- Revolving Credit Facility This note details the company's revolving credit facility, including outstanding amounts, interest expense, and available borrowing capacity - The Company had $40.00 million outstanding under its revolving credit facility as of June 30, 2025[84] - Interest expense for the six months ended June 30, 2025, was $1.31 million, down from $1.63 million in 2024[84] - The Company was in compliance with all covenants and had an additional available borrowing capacity of $35.00 million as of June 30, 2025[84] Note 11 -- Long-Term Debt This note details the significant reduction in long-term debt, primarily due to the conversion of convertible senior notes into common shares - Total long-term debt significantly decreased to $15.60 million as of June 30, 2025, from $185.25 million as of December 31, 2024[85] - This reduction was primarily due to the conversion of $172.50 million of 4.75% Convertible Senior Notes into 2,187,063 common shares during the six months ended June 30, 2025[85][87] - Interest expense related to long-term debt for the six months ended June 30, 2025, was $5.82 million, compared to $4.97 million in 2024[86] Note 12 -- Reinsurance This note details the company's reinsurance activities, including premiums written and earned, and amounts recoverable from reinsurers Premiums Written (Six Months Ended June 30, YoY) (in millions) | Metric | 2025 (in millions) | 2024 (in millions) | | :-------------------------------- | :------------------ | :------------------ | | Gross written | $645.79 | $561.89 | | Ceded | $(202.16) | $(144.82) | | Net premiums written | $443.63 | $417.07 | Premiums Earned (Six Months Ended June 30, YoY) (in millions) | Metric | 2025 (in millions) | 2024 (in millions) | | :-------------------------------- | :------------------ | :------------------ | | Gross earned | $603.01 | $520.21 | | Ceded | $(202.16) | $(144.82) | | Net premiums earned | $400.85 | $375.39 | - Total net amounts recoverable and receivable from reinsurers decreased to $437.93 million as of June 30, 2025, from $558.44 million as of December 31, 2024[92] - The Company decreased its reinsurance recoverable for unpaid losses and loss adjustment expenses by $61.20 million due to a favorable change in estimated losses from Hurricane Milton[92] - No benefits were accrued under the multi-year reinsurance contract with retrospective provisions for the six months ended June 30, 2025, compared to a $13.99 million reduction in premiums ceded for the same period in 2024[96] - The Company ceased providing quota share reinsurance to United Property & Casualty Insurance Company due to its financial insolvency, resulting in a net balance of $2.40 million due to United as of June 30, 2025[98][99][100] Note 13 -- Losses and Loss Adjustment Expenses This note details the activity in the liability for losses and loss adjustment expenses, including incurred and paid amounts Activity in Liability for Losses and LAE (Six Months Ended June 30, YoY) (in millions) | Metric | 2025 (in millions) | 2024 (in millions) | | :-------------------------------- | :------------------ | :------------------ | | Net balance, beginning of period | $323.34 | $254.35 | | Total incurred, net of reinsurance | $123.75 | $158.25 | | Total paid, net of reinsurance | $(125.53) | $(120.81) | | Net balance, end of period | $321.56 | $291.79 | | Gross balance, end of period | $696.89 | $571.65 | - Lower losses and loss adjustment expenses for the six months ended June 30, 2025, primarily resulted from a decrease in claims and litigation related to Florida policies[105] Note 14 -- Variable Interest Entities This note explains the consolidation of reciprocal insurance exchanges as Variable Interest Entities (VIEs) and their financial impact - The Company consolidates two reciprocal insurance exchanges, CORE and Tailrow, as Variable Interest Entities (VIEs) because it is deemed the primary beneficiary[108] - VIE assets are legally restricted for their obligations, and creditors of the VIEs have no legal right to pursue additional sources of payment from the Company[109] VIE Assets and Liabilities (June 30, 2025 vs. Dec 31, 2024) (in millions) | Item | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Total assets | $123.97 | $101.34 | | Total liabilities | $64.18 | $50.60 | Note 15 -- Segment Information This note provides financial data by reportable segment, including Insurance Operations, Exzeo Group, and Real Estate - The Company has five reportable segments: Insurance Operations, Exzeo Group, Reciprocal Exchange Operations, Real Estate, and Corporate and Other[110] - For the six months ended June 30, 2025, Insurance Operations represented 77.5% of total segment revenue and 81.0% of combined segment assets[111] - For the six months ended June 30, 2025, Exzeo Group represented 16.5% of total segment revenue and 6.0% of combined segment assets[111] - Gross premiums earned from Florida were $543.28 million for the six months ended June 30, 2025, compared to $461.51 million in 2024[124] Note 16 -- Leases This note outlines the company's operating lease liabilities, weighted-average lease terms, and discount rates - Operating lease liabilities totaled $1.07 million as of June 30, 2025, with a weighted-average remaining lease term of 4.2 years and a weighted-average discount rate of 6.0%[127][128] - In March 2025, the Company entered into an operating lease agreement for a commercial property in Tampa, Florida, with total net lease payments of $56.87 million over an initial term of 130 months[129] Note 17 -- Income Taxes This note details the company's effective tax rate and the establishment of a valuation allowance for deferred income tax assets - The effective tax rate for the six months ended June 30, 2025, was 25.8% (income tax expense of $50.22 million), slightly up from 25.7% in 2024, primarily due to certain non-deductible compensation expense[133] - A valuation allowance of $0.54 million was established for deferred income tax assets related to the deferred intercompany taxable loss from the sale of TTIC by Exzeo to HCI[131] Note 18 -- Earnings Per Share This note presents the calculation of basic and diluted earnings per share, including income attributable to common stockholders and shares outstanding Basic EPS (Six Months Ended June 30, YoY) (in millions) | Metric | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Income attributable to common stockholders (in millions) | $130.15 | $98.44 | | Shares (in thousands) | 10,846 | 9,897 | | Basic EPS | $12.00 | $9.95 | Diluted EPS (Six Months Ended June 30, YoY) (in millions) | Metric | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Income attributable to common stockholders (in millions) | $135.65 | $101.84 | | Shares (in thousands) | 12,837 | 12,661 | | Diluted EPS | $10.57 | $8.04 | Note 19 -- Redeemable Noncontrolling Interests This note discusses the redemption of Exzeo's Series A Preferred Stock and changes in subscriber surplus contributions - Exzeo's Series A Preferred Stock, previously presented as redeemable noncontrolling interest, was fully redeemed during the first quarter of 2024[138] - Subscriber surplus contributions in redeemable noncontrolling interests, representing a refundable portion from VIE policyholders, increased to $2.41 million as of June 30, 2025, from $0.79 million as of June 30, 2024[139][140] Note 20 -- Equity This note covers dividend declarations, outstanding warrants, and the remaining availability under the 'at-the-market' facility - A quarterly dividend of $0.40 per common share was declared on April 23, 2025, and paid on June 20, 2025[141] - As of June 30, 2025, there were 11,250 warrants outstanding with an exercise price of $54.40 and an expiration date of December 31, 2028[142] - The 'at-the-market' (ATM) facility had $75.00 million remaining availability as of June 30, 2025, for issuing new shares of common stock[143] - As of June 30, 2025, 7,701,189 shares of Exzeo's common stock were not owned by HCI[146] Note 21 -- Stock-Based Compensation This note details shares available for grant, outstanding stock options, and unrecognized compensation expense for restricted stock awards - As of June 30, 2025, 683,676 shares were available for grant under the 2012 Omnibus Incentive Plan[148] - 590,000 stock options were outstanding as of June 30, 2025, with a weighted-average exercise price of $51.54 and a remaining contractual term of 4.4 years[149] - Unrecognized compensation expense for nonvested restricted stock awards was $17.45 million as of June 30, 2025, expected to be recognized over a weighted-average period of 2.7 years[151] - Compensation expense related to Exzeo's stock-based awards was $1.40 million for the six months ended June 30, 2025[155] Note 22 -- Commitments and Contingencies This note addresses the company's involvement in legal matters, unfunded capital commitments, and FIGA assessments payable - The Company is involved in litigation and other legal matters in the ordinary course of business but does not believe any will have a material adverse effect on its financial position, results of operations, or cash flows[158] - Unfunded capital commitments for limited partnership investments totaled $2.99 million as of June 30, 2025[159] - FIGA assessments payable were $3.59 million as of June 30, 2025[160] Note 23 -- Related Party Transactions This note discloses transactions with related parties, specifically a reinstatement premium protection contract with Oxbridge Reinsurance Limited - Oxbridge Reinsurance Limited, where a non-employee director serves as chairman and CEO, participates in a reinstatement premium protection (RPP) contract with HCPCI and Tailrow[161] - Oxbridge's annual premium for this RPP contract is $1.03 million, paid in installments and fully collateralized in a trust account[161] Note 24 -- Subsequent Events This note reports significant events occurring after the reporting period, including dividend declarations and real estate transactions - A quarterly dividend of $0.40 per common share was declared on July 1, 2025, payable on September 19, 2025[162] - The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, and the Company is currently assessing its impact on consolidated financial statements[163] - On July 24, 2025, the Company entered into a $17.00 million loan agreement secured by commercial real estate[164] - On August 1, 2025, the Company entered into a purchase and sale agreement for a $17.50 million commercial property in St. Petersburg, Florida, to be funded using available cash on hand[165] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and cash flows for the three and six months ended June 30, 2025, compared to the same periods in 2024, highlighting key drivers and trends across its operating segments OVERVIEW This section provides a high-level summary of HCI Group, Inc.'s diverse operations across its five reportable segments - HCI Group, Inc. operates in property and casualty insurance, information technology services, insurance management, real estate, and reinsurance, managing operations across five segments: Insurance Operations, Exzeo Group, Reciprocal Exchange Operations, Real Estate, and Corporate and Other[168] - For the six months ended June 30, 2025, Insurance Operations represented 77.5% of total segment revenue and 81.0% of combined segment assets, while Exzeo Group represented 16.5% of total segment revenue and 6.0% of combined segment assets[169] - Exzeo's proprietary platform includes configurable applications designed to support the full insurance value chain, such as AtlasViewer®, SAMSTM, HarmonyTM, and ClaimColonyTM[175] RESULTS OF OPERATIONS This section analyzes the company's financial performance, including revenue, expenses, and profitability, for the current and prior periods - Net income for the three months ended June 30, 2025, increased by $13.18 million to $70.28 million, with diluted EPS rising by $0.94 to $5.18[183] - Net income for the six months ended June 30, 2025, increased by $30.45 million to $144.51 million, with diluted EPS rising by $2.53 to $10.57[197] Key Financial Ratios (Six Months Ended June 30, YoY) | Ratio | 2025 | 2024 | Change | | :-------------------------------- | :----- | :----- | :----- | | Net Loss Ratio | 30.9% | 42.2% | -11.3% | | Net Expense Ratio (excl. interest) | 28.1% | 25.2% | +2.9% | | Net Combined Ratio (excl. interest) | 59.0% | 67.4% | -8.4% | Comparison of the Three Months Ended June 30, 2025 to the Three Months Ended June 30, 2024 This section compares the company's financial performance for the three months ended June 30, 2025, against the same period in 2024 - Net income increased to $70.28 million from $57.10 million, driven by a $13.26 million increase in net premiums earned and a $13.87 million decrease in losses and loss adjustment expenses[183] - Gross Premiums Earned increased by $39.07 million to $302.63 million, primarily due to a higher volume of policies in force from Citizens' take-out program[184] - Premiums Ceded increased by $25.81 million to $102.52 million, representing 33.9% of gross premiums earned (up from 29.1%), due to higher reinsurance costs[185] - Losses and Loss Adjustment Expenses decreased by $13.87 million to $64.46 million, attributed to lower claims and litigation frequency[190] - The Net Loss Ratio decreased to 32.2% from 41.9%, while the Net Expense Ratio increased to 29.7% from 25.9% due to higher policy acquisition and general & administrative personnel expenses. The Net Combined Ratio decreased to 61.9% from 67.8%[194][195][196] Comparison of the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024 This section compares the company's financial performance for the six months ended June 30, 2025, against the same period in 2024 - Net income increased to $144.51 million from $114.06 million, primarily due to a $34.50 million decrease in losses and loss adjustment expenses and a $25.47 million increase in net premiums earned[197] - Gross Premiums Earned increased by $82.81 million to $603.01 million, mainly due to a higher volume of policies in force from Citizens' take-out program[198] - Premiums Ceded increased by $57.34 million to $202.16 million, representing 33.5% of gross premiums earned (up from 27.8%), due to higher reinsurance costs[199] - Losses and Loss Adjustment Expenses decreased by $34.50 million to $123.75 million, primarily due to a decline in claims and litigation frequency[203] - Net Unrealized Investment Losses were $0.73 million, compared with net unrealized investment gains of $3.17 million in the prior year, primarily due to an overall decline in the equity markets[202] - The Net Loss Ratio decreased to 30.9% from 42.2%, while the Net Expense Ratio increased to 28.1% from 25.2%. The Net Combined Ratio decreased to 59.0% from 67.4%[207][208] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's sources and uses of cash, capital structure, and strategies for managing liquidity - The Company's liquidity requirements are met through operations, common and preferred stock issuances, and debt offerings, with future needs expected to be covered by premiums and investment income[210] - A comprehensive reinsurance program is maintained to diversify risk and safeguard the financial position[212] - As of June 30, 2025, the revolving credit facility had an additional available borrowing capacity of $35.00 million, and an 'at-the-market' (ATM) facility had $75.00 million remaining availability for common stock issuance[215][217] - Unexpired capital commitments for limited partnership investments totaled $2.99 million as of June 30, 2025[218] - The Company plans to expand its real estate investment portfolio, with a recent purchase agreement for a $17.50 million commercial property in St. Petersburg, Florida[219][220] - Net cash provided by operating activities for the six months ended June 30, 2025, was $307.01 million, a significant increase from $152.99 million in 2024[222][223] - Net cash provided by investing activities for the six months ended June 30, 2025, was $120.02 million, a reversal from net cash used of $179.43 million in 2024[222][223] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section highlights key accounting policies and estimates that require significant judgment and are susceptible to material change - Material estimates susceptible to significant change include losses and loss adjustment expenses (LAE), reinsurance recoverable, income taxes, stock-based compensation, limited partnership investments, and acquired intangible assets[229] - Reserves for losses and LAE decreased from $845.90 million as of December 31, 2024, to $696.89 million as of June 30, 2025, primarily due to reductions in catastrophe reserves (Hurricane Ian, Helene, Milton) and non-catastrophe reserves[234] - As of June 30, 2025, $616.23 million of the total $696.89 million Reserves is attributable to Incurred But Not Reported (IBNR) losses[232] - Management considers its Reserves adequate as of June 30, 2025, but acknowledges they are subject to significant variability and continuous review due to future events and changing conditions[235] Item 3 Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, including interest rate risk, credit risk, and equity price risk, and the strategies employed to mitigate these risks within its investment portfolio - The Company's investment portfolio is exposed to interest rate risk, credit risk, and equity price risk[238] - A hypothetical 100 basis point increase in interest rates would decrease the fair value of available-for-sale fixed-maturity securities by $11.75 million (-2%), while a 100 basis point decrease would increase it by $11.76 million (+2%)[240] - Credit risk is mitigated by investing in generally investment-grade securities, diversifying the portfolio, and continuously monitoring credit quality. As of June 30, 2025, 76% of available-for-sale fixed-maturity securities had an AA+, AA, or AA- rating[241][242] - Equity price risk is managed through industry and issuer diversification and asset mix. As of June 30, 2025, the equity securities portfolio was composed of 34% stocks by sector and 66% mutual funds/exchange-traded funds[243] Item 4 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[246] - There were no material changes in the Company's internal control over financial reporting during the three months ended June 30, 2025[247] PART II – OTHER INFORMATION Item 1 Legal Proceedings The company is involved in various legal matters arising in the ordinary course of business but does not anticipate any material adverse effects on its financial position, results of operations, or cash flows - For details on legal proceedings and related matters, refer to Note 22 'Commitments and Contingencies' in the consolidated financial statements[249] Item 1A Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report - No material changes to the risk factors previously disclosed in Part I, Item 1A of the 2024 Annual Report[250] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's equity security transactions, including common share repurchases to satisfy payroll tax liabilities, and confirms no unregistered sales or use of proceeds from registered equity securities. It also outlines dividend restrictions on insurance subsidiaries - There were no unregistered sales of equity securities or use of proceeds from registered equity securities[251][252] - 266 common shares were purchased at an average price of $150.57 per share in June 2025 to satisfy payroll tax liabilities associated with the vesting of restricted stock awards[253] - The Company's insurance subsidiaries are subject to Florida law restrictions on dividend payments, which could impact HCI's ability to pay dividends in the future[254][255][256] - During the six months ended June 30, 2025, the insurance subsidiaries paid $14.00 million in dividends to HCI[257] Item 3 Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[258] Item 4 Mine Safety Disclosures The company reported no mine safety disclosures - There were no mine safety disclosures[259] Item 5 Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - During the three months ended June 30, 2025, none of the Company's directors or officers adopted or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement'[260] Item 6 Exhibits This section lists all exhibits filed or incorporated by reference as part of the Form 10-Q, including articles of incorporation, bylaws, various agreements, and certifications Exhibits Index This index provides a comprehensive list of all documents and agreements filed as exhibits to the Form 10-Q - The exhibits include Articles of Incorporation, Bylaws, Common Stock Purchase Warrant, Indentures, Preferred Stock Purchase Agreement, Shareholders Agreement, Parent Guaranty Agreement, Incentive Plans, Employment Agreements, Reimbursement Contracts, various Reinsurance Contracts, Equity Distribution Agreement, Assumption Agreements, and Certifications[264][265][266][267][268][269][270][271] SIGNATURES This section contains the official signatures of the company's Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed on August 8, 2025, by Paresh Patel, Chief Executive Officer, and James Mark Harmsworth, Chief Financial Officer, on behalf of HCI Group, Inc[275]