HCI Group, Inc. (NYSE:HCI) Files An 8-K Entry into a Material Definitive Agreement

ME Staff 8-k
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HCI Group, Inc. (NYSE:HCI) Files An 8-K Entry into a Material Definitive Agreement

HCI Group, Inc. (NYSE:HCI) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 Entry into a Material Definitive Agreement

To mitigate risk from hurricanes and other catastrophes, each year HCI Group, Inc. and its wholly-owned insurance subsidiaries implement a comprehensive reinsurance program whereby we pay premiums to other entities that agree to indemnify us against costs associated with policyholder claims caused by certain catastrophic events. We have secured our non-flood reinsurance program for the year June 1, 2019 through May 31, 2020 by entering into contracts with multiple private reinsurance companies and the State Board of Administration of Florida, which administers the Florida Hurricane Catastrophe Fund.

The private reinsurance companies include, MS Amlin AG, AXIS Specialty Limited, Chubb Tempest Reinsurance Ltd., Arch Reinsurance Ltd., Swiss Reinsurance America, numerous Lloyd’s syndicates, Endurance Specialty Insurance Ltd., which is an affiliate of Sompo Holdings, Inc. and National Liability & Fire Insurance Company, which is an affiliate of Berkshire Hathaway, Inc. In the recent past, portions of the reinsurance program were secured through our own reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd. For the 2019-2020 year we retained no risk within Claddaugh.

The reinsurance contracts offer various coverages, limits, retentions, and durations. The private reinsurance contracts cover, in general, hurricanes, tropical storms, tornados, and other large events. The Florida Hurricane Catastrophe Fund agreement covers only storms designated as hurricanes by the National Hurricane Center.

Our 2019-2020 reinsurance program provides coverage up to $901 million for catastrophic losses in a single event, excluding flood losses, which according to catastrophe models approved by the Florida Office of Insurance Regulation is sufficient to cover the company’s probable maximum loss resulting from a 1 in 282-year storm based on projected exposure at September 30, 2019. The total coverage for all occurrences is $1.477 billion.

The Florida Hurricane Catastrophe Fund component of our program is estimated to cover 45% of $707 million of first event loss in excess of $252 million.

We expect to recognize net reinsurance costs of approximately $112 million for the 2019-2020 contract year starting June 1, 2019, assuming no losses occur during that period. Expected growth from TypTap Insurance Company, HCI’s technology driven insurance subsidiary, could increase net reinsurance premiums at the exposure true up on September 30, 2019. Based on assumed growth and including reinsurance premiums for flood, HCI’s total ceded reinsurance premiums for the 2019-2020 contract year are estimated to be $124 million.

Our non-flood reinsurance retention is $16 million in a first event and $16 million in a second event. Our private reinsurers are AM Best rated ‘A-’ or better or have fully collateralized their potential obligations to us.

One of our private reinsurance contracts entered into in a previous year is a multi-year contract that includes retrospective provisions that adjust premiums in the event losses are minimal or zero. In accordance with generally accepted accounting principles, 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. On the contrary, we will derecognize such asset in the period in which a loss experience arises. Such adjustments to the asset, which accrue throughout the contract term, will negatively impact our operating results when a catastrophic loss event occurs.

Forward Looking Statements

This form 8-K may contain forward-looking statements made to the Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “estimate,” “expect,” “intend,” “plan” 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. For example, there can be no assurance that our ceded premium estimates will be accurate or that our coverages will be enough to cover all the costs associated with one or more catastrophic events that may occur. 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.


About HCI Group, Inc. (NYSE:HCI)

HCI Group, Inc. (HCI) is a holding company. The Company is engaged in providing property and casualty insurance to homeowners, condominium owners, and tenants in the state of Florida through its subsidiaries. The Company operates through property and casualty insurance operations segment. The Company’s operations include Insurance Operations and Other Operations. The Company’s Insurance Operations include property and casualty insurance, and reinsurance. HCI’s Other Operations include information technology (IT) and real estate. The Company, through its subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., provides property and casualty insurance. Its real estate operations consist of properties it owns, operations located at those owned properties and investments in approximately three commercial development projects. Its IT operations are focused on developing cloud-based products or services, including Exzeo, Proplet and Atlas Viewer.