HCI Group, Inc. Annual Report 2014

FY2014 Annual Report · HCI Group, Inc.

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SECURITIES & EXCHANGE COMMISSION EDGAR FILING

Form: 10-K

Date Filed: 2015-03-10

Corporate Issuer CIK: 1400810

© Copyright 2015, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the fiscal year ended December 31, 2014

❑ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

Commission File Number
001-34126

HCI Group, Inc.

(Exact name of Registrant as specified in its charter)

Florida
(State of Incorporation)

20-5961396
(IRS Employer
Identification No.)

5300 West Cypress Street, Suite 100
Tampa, FL 33607
(Address, including zip code of principal executive offices)

(813) 849-9500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Common Shares, no par value
Preferred Share Purchase Rights
8.00% Senior Notes due 2020

Name of Each Exchange on Which Registered

New York Stock Exchange
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ❑ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes ❑ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such

reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ❑

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ❑

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ❑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.

Large accelerated filer ❑

Non-accelerated filer

❑

Accelerated filer

Smaller reporting company ❑

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes ❑ No x

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2014, computed by

reference to the price at which the common stock was last sold on June 30, 2014, was $379,970,934.

The number of shares outstanding of the registrant’s common stock, no par value, on March 2, 2015 was 10,761,107.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Form 10-K is incorporated by reference from the registrant’s definitive proxy

statement which will be filed not later than 120 days after the end of the fiscal year covered by this Form 10-K.

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HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

PART I:

PART II:

Item 5

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B

Item 10
Item 11
Item 12

Item 13
Item 14

Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

PART III:

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

PART IV:

Page

2-11
11-23
23
24
25
25

26-29
30
31-46
46-48
49-107
108
108-109
109

110
110

110
110
111

Item 15

Exhibits, Financial Statement Schedules

112-119

Signatures
Certifications

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ITEM 1 – Business

General

PART I

HCI Group, Inc. is a Florida-based company owning subsidiaries primarily engaged in the property and casualty insurance
business. HCI was incorporated in 2006. References to “we,” “our,” “us,” “the Company,” or “HCI” in this Form 10-K generally refer to
HCI Group, Inc. and its subsidiaries. Our principal executive offices are located at 5300 West Cypress Street, Suite 100, Tampa,
Florida 33607, and our telephone number is (813) 849-9500.

Over the years, we have broadened and diversified our business portfolio through acquisitions to include information

technologies and investment real estate. Based on the organizational structure, revenue sources, and evaluation of financial and
operating performances by management, we manage our operations under one business segment, which includes the following
operations:

Insurance Operations

•

Property and casualty insurance

Reinsurance

Other Operations

•

Information technology

Real estate

Insurance Operations

Property and Casualty Insurance

Our principal operating subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”), was

incorporated and began operations in 2007. Through HCPCI, we currently provide property and casualty insurance to homeowners,
condominium owners and tenants residing in Florida. HCPCI’s operations are supported by certain of HCI’s wholly owned
subsidiaries as well as HCI Group, Inc.:

•

Homeowners Choice Managers, Inc. – acts as managing general agent and provides marketing, underwriting,

claims settlement, accounting and financial services to HCPCI; and

Southern Administration, Inc. – provides policy administration services to HCPCI.

HCPCI began operations by participating in a “take-out program” through which we assumed insurance policies held by

Citizens Property Insurance Corporation (“Citizens”), a Florida state-supported insurer. The take-out program is a legislatively
mandated program designed to

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reduce the State’s risk exposure by encouraging private companies to assume policies from Citizens. We have assumed policies in
eleven separate transactions, which took place from July 2007 through December 2014 and included the most recent assumption of
primarily wind-only policies in December 2014. In addition, we completed a transaction with HomeWise Insurance Company
(“HomeWise”) in November 2011 through which we acquired its Florida policies. Substantially all of our premium revenue since
inception has come from the policies acquired in these assumption transactions and subsequent renewals. Through the Citizens
assumptions and HomeWise policies, we have increased our geographic diversification within the state of Florida. Following the
December 2014 assumption, we have approximately 175,000 policies in force and approximately $435 million in annualized gross
premiums.

Citizens has historically required us to offer renewals on the policies we acquire in the take-out program for a period of

three years subsequent to the initial expiration of the assumed policies. The policyholders have the option to renew with us or they
may place their coverage with another insurance company. Policyholders also have the option to opt out of the assumption and return
to Citizens. With respect to our November 2013 and December 2014 assumptions, the opt-out provision was limited to the thirty-day
period preceding and following the assumption date. We strive to retain these policies by offering competitive rates and exceptional
service to our policyholders. We may selectively pursue additional assumption transactions with Citizens in the future.

We face various challenges to implementing our operating and growth strategies. Since we currently write policies that

cover Florida homeowners, condominium owners, and tenants, we cover losses that may arise from, among other things,
catastrophes, which could have a significant effect on our business, results of operations, and financial condition. To mitigate our risk
of such catastrophic losses, we cede a portion of our exposure to reinsurers under contracts called catastrophe excess of loss
reinsurance and quota share treaties. 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, which
must approve our policy forms and premium rates as well as monitor HCPCI’s compliance with financial and regulatory requirements.
Additionally, we may compete with large, well-established insurance companies, possessing greater financial resources, larger
agency networks, and greater name recognition. See Item 1A, “Risk Factors,” below.

In addition, HCPCI began writing flood coverage in January 2014 in response to the demand for an alternative to the
Federal National Flood Insurance Program for Florida homeowners. The flood coverage is offered on a limited basis as a policy
endorsement to eligible new and pre-existing Florida customers who are likely most impacted by the significant rate increases that
may result from the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012.

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We seek opportunities to enter the property and casualty insurance market and establish our presence in other states. In

August 2013, our subsidiary, Homeowners Choice Assurance Company, Inc., was approved and licensed by the Alabama
Department of Insurance.

Competition

We operate in highly competitive markets where we face competition from national, regional and residual market insurance

companies. We believe that we have approximately 20 significant competitors writing homeowners’ property and casualty insurance
in the state of Florida. Since beginning business in 2007, we have grown our business to become the third largest provider of
homeowners’ property and casualty insurance in the state of Florida based on September 30, 2014 annualized premiums written data
from the Florida Office of Insurance Regulation.

Many of our competitors have larger financial capacities, greater resource availability, and more diversification in terms of

insurance coverage. Our competitors include companies which market their products through agents, as well as companies which sell
insurance directly to their customers. Large national insurers may have certain competitive advantages such as increased name
recognition, increased loyalty of their customer base, and reduced policy acquisition costs. We may also face competition from new or
temporary entrants in our niche markets. In some cases, such entrants may, because of inexperience, desire for new business, or
other reasons, price their insurance products below ours. Although our pricing is inevitably influenced to some degree by that of our
competitors, we believe that it is generally not in our best interest to compete solely on price.

Our competitive strategies focus on the following key areas:

•

Exceptional service – We are committed to maintaining superior service to our policyholders and agents.

Claims settlement practices – We focus on fair and timely settlement of policyholder claims.

Disciplined underwriting – We analyze exposures and utilize available underwriting data to ensure policies

meet our selective criteria.

Effective and efficient use of technology – We strive to add or improve technology that can effectively and
efficiently enhance service to our policyholders and agents. For instance, we currently use our internally
developed application, Exzeo, to increase the efficiency of our claims processing and settlement.

New product offerings – In addition to our flood-endorsed policies and wind-only program, we may cross-sell

additional insurance products to our existing policyholders in order to broaden our lines of business and
product mix or identify other lines of insurance to offer.

Geographical expansion – We continue to seek opportunities to expand our business within the state of Florida

and perhaps into other states to increase overall geographic diversification.

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Seasonality of Our Business

Our insurance business is seasonal as hurricanes and tropical storms typically occur during the period from June 1 through

November 30 each year. With our reinsurance treaty year effective on June 1 each year, any variation in the cost of our reinsurance,
whether due to changes in reinsurance rates or changes in the total insured value of our policy base, will occur and be reflected in
our financial results beginning June 1 each year.

Government Regulation

We are subject to the laws and regulations in any state in which we conduct our insurance business. The regulations cover
all aspects of our business and are generally designed to protect the interests of insurance policyholders as opposed to the interests
of shareholders. Such regulations relate to a wide variety of financial and non-financial matters including:

•

authorized lines of business;

capital and surplus requirements;

approval of allowable rates and forms;

approval of reinsurance contracts;

investment parameters;

underwriting limitations;

transactions with affiliates;

dividend limitations;

changes in control; and

market conduct.

Our failure to comply with certain provisions of applicable insurance laws and regulations could have a material, adverse

effect on our business, results of operations or financial condition.

Regulatory Uncertainty

Certain states including Florida have adopted laws or are considering proposed legislation which, among other things,

limits the ability of insurance companies to effect rate increases or to cancel, reduce or non-renew insurance coverage with respect to
existing policies. The Florida legislature continuously considers bills affecting the Florida residential property insurance
market. Current law penalizes insurers for noncompliance with the insurance code, establishes a private cause of action relating to
claims payment practices, extends the notice period applicable to non-renewals of certain residential policies, prevents non-renewals
and cancellation except for material misrepresentation and non-payment of premium and establishes procedures governing rate
filings. Any changes in such laws and regulations could materially and adversely affect our operations or our ability to expand.

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State Licensure and Approval

Most states, including Florida, require licensure and regulatory approval prior to the marketing of insurance products.

Typically, licensure review is comprehensive and includes a review of a company’s business plan, solvency, reinsurance, rates, and
forms, the character of its officers and directors and other of its financial and non-financial aspects. The regulatory authorities may not
allow entry into a new market by not granting a license. In addition, regulatory authorities may preclude or delay our entry into
markets by disapproving or withholding approval of our product filings.

Statutory Reporting and Examination

All insurance companies must file quarterly and annual statements with certain regulatory agencies and are subject to

regular and special examinations by those agencies. The National Association of Insurance Commissioners mandates that all
insurance companies be examined once every five years. However, the FLOIR has the authority to conduct an examination of HCPCI
whenever it is deemed appropriate. HCPCI’s latest FLOIR financial examination related to the year ended December 31, 2010.

Liability for Losses and Loss Adjustment Expenses

Our liability for losses and loss adjustment expenses represents our estimate of the total cost of (i) claims that have been
incurred, but not yet paid (case reserves), (ii) claims that have been incurred but not yet reported (“IBNR”), and (iii) loss adjustment
expenses (“LAE”) which are intended to cover the ultimate cost of settling claims, including investigation and defense of lawsuits
resulting from such claims. We base our estimates on various assumptions and actuarial data we believe to be reasonable under the
circumstances. The process of estimating the liability is inherently subjective and is influenced by many variables such as past loss
experience, current claim trends and the prevailing social, economic and legal environments.

Significant time can elapse between the occurrence of an insured loss, the reporting of the loss to us and our payment of

that loss. Our liability for losses and LAE, which we believe represents the best estimate at a given point in time based on facts,
circumstances and historical trends then known, may necessarily be adjusted to reflect additional facts that become available during
the loss settlement period.

For a discussion and summary of the activity in the liability for losses and LAE for the years ended December 31, 2014,

2013 and 2012, see Note 11 — “Losses and Loss Adjustment Expenses” to our consolidated financial statements under Item 8 of this
Annual Report on Form 10-K.

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Loss Development

Our liability for losses and LAE represent estimated costs ultimately required to settle all claims for a given period. The

following table illustrates development of the estimated liability for losses and LAE for the years 2007 (inception) through 2014
(amounts in thousands):

Schedule of Loss Development

Years Ended December 31,

Original liability for losses and LAE1
Re-estimated losses and LAE2 as of:

2007
$1,688 $14,763 $ 19,178 $ 22,146 $ 27,424 $ 41,168 $ 43,686 $ 48,908

2008

2013

2010

2011

2012

2014

2009

1 year later
2 years later
3 years later
4 years later
5 years later
6 years later
7 years later

1,412 10,879 18,399 26,776 27,309 38,712 47,344
1,236 10,991 19,866 26,003 28,536 40,015
1,268 11,661 19,361 27,226 28,499
1,327 11,528 19,617 26,544
1,330 11,424 18,969
1,330 11,361
1,330

Cumulative redundancy (deficiency)3

358 3,402

209

(4,398)

(1,075)

1,153

(3,658)

Cumulative amount of liability paid as of:

1 year later
2 years later
3 years later
4 years later
5 years later
6 years later
7 years later

760 7,725 10,481 16,833 15,652 22,365 26,595

1,108 9,229 15,336 20,708 21,707 31,824
1,108 10,339 17,065 23,732 25,350
1,327 10,947 17,992 25,063
1,330 11,121 18,375
1,330 11,167
1,330

Gross premiums earned

$9,546 $61,925 $110,011 $119,757 $143,606 $233,607 $337,113 $365,488

1
2

Represents management’s original estimated liability for (i) unpaid claims, (ii) IBNR, and (iii) loss adjustment expenses.
Represents the re-estimated liabilities in later years for unpaid claims, IBNR and loss adjustment expenses for each of the
respective years.
Represents the difference between the latest re-estimate and the original estimate. A redundancy indicates the original estimate
is higher than the current estimate whereas a deficiency indicates the original estimate is lower than the current estimate.

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For the years ended December 31, 2014, 2013 and 2012, revenues from property and casualty insurance operations

represented 96.1%, 95.0% and 93.0%, respectively, of total revenues of all operating segments. As a result, our property and
casualty insurance operations are our only reportable operating segment.

Reinsurance

We have a Bermuda domiciled wholly owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd., which

participates in HCPCI’s reinsurance program and uses cash as collateral for its loss exposure.

Other Operations

Information Technology

Our information technology operations include a team of experienced software developers with extensive knowledge in
developing web-based products and applications for mobile devices. The operations, which are in India and in Tampa, Florida, are
focused on developing cloud-based, innovative products or services that can be marketed to the public in addition to providing
affiliates with back-office technology support services that can facilitate and improve ongoing operations. Some of the technologies
originally developed in-house for our own insurance operations have been launched for use by third parties. These products include
the following.

ExzeoTM

Exzeo is a cloud application available at Exzeo.com that provides automation and intelligence across multiple business

processes. The product offers a highly customizable environment for businesses to integrate existing applications and develop new
ones to address their unique business needs.

PropletTM

We introduced to a selected group of independent insurance agents our new web-based tool called Proplet. Agents can

search a property’s insurance-related information such as wind mitigation reports, inspection reports, claims activity reports or flood
zone areas by name, address or by dropping a pin on a specific location on a map interface. In addition, agents can get an instant
insurance quote from HCPCI through the use of Proplet. We plan to improve this technology continually as part of our commitment to
exceptional service to policyholders and agents.

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Atlas Viewer

Atlas Viewer is our new interactive cloud-based data mapping and visualization platform. Atlas Viewer allows users to
upload, view and securely share data feeds on a customized map. Atlas Viewer, an industry agnostic data visualization product,
allows users to combine data from multiple sources and leverage location coordinates to make more informed business decisions.
Atlas Viewer is offered as a subscription-based service.

Real Estate

Our real estate operations consist of several properties we own including our headquarters building in Tampa, Florida and
a secondary insurance operations site in Ocala, Florida. In addition, the Ocala location serves as our alternative site in the event we
experience any significant disruption at our headquarters building. We also own investment real estate in Treasure Island, Florida and
Tierra Verde, Florida with a combined 20 acres of waterfront property.

With the exception of the Ocala location, we lease office or retail space at each location to non-affiliates on various terms.
In addition, we own and operate one full-service restaurant and two marinas that we acquired in connection with our purchase of the
waterfront properties. The combined marina facilities offer to the general public: a) one dry-stack boat storage facility with capacity for
305 boats; b) 64 wet slips; c) two fuel facilities; and d) open areas for parking and storage. Dry-stack boat storage space is generally
rented on a monthly or annual basis while the wet slips are rented on a daily or monthly basis.

In June 2014, we entered into an Acquisition, Development and Construction loan arrangement (“ADC Arrangement”)

under which it agreed to provide financing for up to a maximum of $9.8 million for the acquisition, development and construction of a
retail shopping center and appurtenant facilities. Greenleaf Capital has an option to purchase the property when the construction
project is completed contingent upon tenant rental commitments for at least 90% of rentable space being secured by the developer.
We believe this opportunity will enable us to grow our real estate portfolio and diversify our future sources of income. See Note 4 —
“Investments” under ADC Arrangement to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K for
additional information.

In September 2014, we entered into a joint venture agreement with FMKT Sponsor, LLC. The joint venture plans to acquire

land and construct a retail shopping center for lease or for sale in Melbourne, Florida. See Investment in Joint Venture under
Note 4 — “Investments” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K for additional
information.

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Financial Highlights

The following table summarizes our financial performance during the years ended December 31, 2014, 2013 and 2012:

(Amounts in millions except per share amounts)

For the year ended December 31:
Net premium earned
Total revenue
Losses and loss adjustment expenses
Income before income taxes
Net income
Income available to common stockholders

Earnings per share of common stock:

Basic
Diluted

Dividends per common share

Net cash provided by operating activities

Cash dividends paid on common stock

At December 31:
Total investments
Cash and cash equivalents
Total assets
Total stockholders’ equity
Common shares outstanding (in millions)

2014

2013

2012

$252.1
$266.1
$ 79.5
$101.0
$ 62.7
$ 62.7

$234.2
$241.1
$ 65.1
$106.5
$ 65.6
$ 65.5

$157.7
$163.1
$ 66.3
$ 49.6
$ 30.2
$ 29.8

$ 5.90
$ 5.36

$ 5.82
$ 5.63

$ 3.45
$ 3.02

$ 1.10

$ 0.95

$ 0.88

$ 88.7

$ 55.5

$106.3

$ 11.7

$ 10.8

8.1

$168.8
$314.7
$602.2
$182.6
10.2

$146.0
$293.4
$526.0
$160.5
10.9

$ 60.9
$230.2
$338.3
$121.3
10.9

Environmental Matters

Our subsidiaries that own waterfront property, including marina facilities, are subject to regulation under various federal,

state, and local laws concerning the environment, including laws addressing the discharge of pollutants into the air and water and the
management and disposal of hazardous substances and wastes and the cleanup of contaminated sites.

Employees

As of February 20, 2015, we employed approximately 200 full-time individuals working primarily from our corporate offices
in Florida and approximately 80 employees located in India. In addition, our real estate operations have approximately 70 employees
leased through professional employer organizations.

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Available Information

We file annual, quarterly, and current reports with the U.S. Securities and Exchange Commission (“SEC”). These filings
are accessible free of charge on our website, www.hcigroup.com (click “SEC filings” at the “Investor Information” tab), as soon as
reasonably practicable after they have been electronically filed with or furnished to the SEC. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information regarding issuers, which can be accessed via the SEC’s
website at www.sec.gov. In addition, these filings are accessible at the SEC’s Public Reference Room, which is located at 100 F
Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330.

ITEM 1A – Risk Factors

Our business is subject to a number of risks, including those described below, which could have a material effect on our

results of operations, financial condition or liquidity and, additionally, could cause our operating results to vary significantly from period
to period.

Although we plan to enter the insurance market in other states, our insurance business is currently in Florida only. Thus,
any single catastrophic event or other condition affecting losses in Florida could adversely affect our financial condition
and results of operations.

A single catastrophic event, a destructive weather pattern, a general economic trend, regulatory developments or other

conditions specifically affecting the state of Florida could have a disproportionately adverse impact on our business, financial
condition, and results of operations. While we actively manage our exposure to catastrophic events through our underwriting process
and the purchase of reinsurance, the fact that our business is concentrated in the state of Florida subjects it to increased exposure to
certain catastrophic events and destructive weather patterns such as hurricanes, tropical storms, and tornados. Changes in the
prevailing regulatory, legal, economic, political, demographic and competitive environment, and other conditions in the state of Florida
could also make it less attractive for us to do business in Florida and would have a more pronounced effect on our business than it
would on other insurance companies that are geographically diversified. Since our business is concentrated in this manner, the
occurrence of one or more catastrophic events or other conditions affecting losses in the state of Florida could have an adverse effect
on our business, financial condition, and results of operations.

Our results may fluctuate based on many factors including cyclical changes in the insurance industry.

The insurance business historically has been a cyclical industry characterized by periods of intense price competition due

to excessive underwriting capacity, as well as periods when shortages of capacity permitted an increase in pricing and, thus, more
favorable underwriting profits. As premium levels increase, there may be new entrants to the market, which could then lead to a
decrease in premium levels. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms
and fewer opportunities to underwrite insurance risks, which could

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have a material, adverse effect on our results of operations and cash flows. In addition to these considerations, changes in the
frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance business significantly.

We cannot predict whether market conditions will improve, remain constant or deteriorate. Negative market conditions may
impair our ability to write insurance at rates that we consider appropriate relative to the risk assumed. If we cannot write insurance at
appropriate rates, our business would be materially and adversely affected.

Our business could be harmed if we lose the services of our key personnel.

Our operations are highly dependent on the efforts of our senior executive officers, particularly our chief executive officer,
Paresh Patel, as well as our chief financial officer, Richard Allen, and HCPCI’s president, Scott Wallace. The loss of their leadership,
industry knowledge and experience could negatively impact our operations. However, we have management succession plans to
lessen any such negative impact. With the exception of Mr. Patel, Mr. Allen and Mr. Wallace, we have no employment agreements
with any of our personnel nor do we offer any guarantee of any employee’s ongoing service. We maintain key-man life insurance on
Mr. Patel although such policy may be insufficient to cover us for the damage resulting to our company from the loss of Mr. Patel’s
services.

Our information technology systems may fail or suffer a loss of security, which could adversely affect our business.

Our insurance business is highly dependent upon the successful and uninterrupted functioning of our computer and data
processing systems. We rely on these systems to perform actuarial and other modeling functions necessary for writing business, as
well as to handle our policy administration process (i.e., the printing and mailing of our policies, endorsements, renewal notices, etc.).
The successful operation of our systems depends on a continuous supply of electricity. The failure of these systems or disruption in
the supply of electricity could interrupt our operations and result in a material, adverse effect on our business.

The development and expansion of our insurance business is dependent upon the successful development and

implementation of advanced computer and data processing systems. Because HCPCI intends to expand its writing of voluntary
policies, we are enhancing our information technology systems to handle and process an increased volume of voluntary policies. The
failure of these systems to function as planned could slow our growth and adversely affect our future business volume and results of
operations.

In addition, a security breach of our computer systems could damage our reputation or result in liability. We retain

confidential business and policyholder information in our computer systems. We may be required to spend significant capital and
other resources to protect against security breaches or to alleviate problems caused by such breaches. It is critical that these facilities
and infrastructure remain secure. Despite the implementation of security measures, this infrastructure may be vulnerable to physical
break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. In addition, we could be
subject to liability if hackers were able to penetrate our network security or otherwise misappropriate confidential information.

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We conduct our business primarily from offices located in Tampa, Florida where tropical storms could damage our facilities

or interrupt our power supply. The loss or significant impairment of functionality in these facilities for any reason could have a
material, adverse effect on our business although we believe we have sufficient redundancies to replace our facilities if functionality is
impaired. We contract with a third party vendor to maintain complete daily backups of our systems, which are stored at the vendor’s
facility in Atlanta, Georgia. Access to these databases is strictly controlled and limited to authorized personnel. In the event of a
disaster causing a complete loss of functionality at our Tampa location, we plan to use temporarily the secondary office in Ocala,
Florida to continue our operations.

Increased competition, competitive pressures, industry developments, and market conditions could affect the growth of our
business and adversely impact our financial results.

The property and casualty insurance industry in Florida is cyclical and highly competitive. We compete not only with other

stock companies but also with mutual companies, other underwriting organizations and alternative risk sharing mechanisms. Our
principal lines of business are written by numerous other insurance companies. Competition for any one account may come from very
large, well-established national companies, smaller regional companies, other specialty insurers in our field, and new entrants to the
Florida market. Many of these competitors have greater financial resources, larger agency networks and greater name recognition
than our company. We compete for business not only on the basis of price, but also on the basis of financial strength, types of
coverage offered, availability of coverage desired by customers, commission structure, and quality of service. We may have difficulty
continuing to compete successfully on any of these bases in the future. Competitive pressures coupled with market conditions may
affect our rate of premium growth and financial results.

Our ability to compete in the property and casualty insurance industry and our ability to expand our business may be

negatively affected by the fact that we are not a long-established company. HCPCI has obtained a Demotech rating of “A
Exceptional,” which is accepted by major mortgage companies operating in the state of Florida and many other states. Mortgage
companies may require homeowners to obtain property insurance from an insurance company with an acceptable A.M. Best rating.
Such a requirement could prevent us from expanding our business, which may in turn limit our ability to compete with large, national
insurance companies and certain regional insurance companies. We currently do not have an A.M. Best rating but may seek to obtain
such a rating. A downgrade or loss of our Demotech rating could result in a substantial loss of business in the event insureds move
their business to insurers with a sufficient financial strength rating.

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There are inherent limitations and risks related to our projections and our estimates of claims and loss reserves. If our
actual losses exceed our loss reserves, our financial results, our ability to expand our business, and our ability to compete in the
property and casualty insurance industry may be negatively affected. In addition, industry developments could further increase
competition in our industry. These developments could include —

•

an influx of new capital in the marketplace as existing companies attempt to expand their businesses and new companies

attempt to enter the insurance business as a result of better pricing and/or terms;

•

new programs or changes to existing programs in which federally or state-sponsored entities provide property insurance in

catastrophe-prone areas or other alternative markets;

changes in Florida or any other states’ regulatory climate; and

the enactment of federal proposals for an optional federal charter that would allow some competing insurers to operate

under regulations different or less stringent than those applicable to our insurance subsidiaries.

•

These developments and others could make the property and casualty insurance marketplace more competitive by

increasing the supply of insurance available.

If competition limits our ability to write new business at adequate rates, our future results of operations would be adversely

affected.

If our actual losses from claims exceed our loss reserves, our financial results would be adversely affected.

Our objective is to establish loss reserves that are adequate and represent management’s best estimate; that is, the

amounts initially recorded as reserves should approximate the ultimate cost to investigate and settle a specific claim. However, the
process of establishing adequate reserves is complex and inherently uncertain, and the ultimate cost of a claim may vary materially
from the amounts reserved. We regularly monitor and evaluate loss and loss adjustment expense reserve development to determine
reserve adequacy.

Due to these uncertainties, the ultimate losses may vary materially from current loss reserves which could have a material,

adverse effect on our future financial condition, results of operations and cash flows.

Our failure to pay claims accurately could adversely affect our insurance business, financial results and capital
requirements.

We rely on our claims personnel to accurately evaluate and pay the claims made under our policies. Many factors could
affect our ability to accurately evaluate and pay claims, including the accuracy of our external independent adjusters as they make
their assessments and submit their estimates of damages; the training, background, and experience of our claims representatives;
the ability of our claims personnel to ensure consistent claims handling given the input by our external

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independent adjusters; the ability of our claims department to translate the information provided by our external independent adjusters
into acceptable claims settlements; and the ability of our claims personnel to maintain and update our claims handling procedures and
systems as they evolve over time based on claims and geographical trends in claims reporting. Any failure to pay claims accurately
could lead to material litigation, undermine our reputation in the marketplace, impair our corporate image and negatively affect our
financial results.

The effects of emerging claim and coverage issues on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended
issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage
beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become
apparent until sometime after we have issued insurance contracts that are affected by the changes. As a result, the full extent of
liability under our insurance contracts may not be known for many years after a contract is issued and renewed, and our financial
position and results of operations may be adversely affected.

If we are unable to expand our business because our capital must be used to pay greater than anticipated claims, our
financial results may suffer.

Our future growth will depend on our ability to expand the number of insurance policies we write, to expand the kinds of

insurance products we offer, and to expand the geographic markets in which we do business, all balanced by the insurance risks we
choose to assume and cede. Our existing sources of funds include possible sales of our securities and our income from operations
and investments. Unexpected catastrophic events in our market areas, such as hurricanes, may result in greater claims losses than
anticipated, which could require us to limit or halt our growth while we redeploy our capital to pay these unanticipated claims unless
we are able to raise additional capital.

HCI Group, Inc. depends on the ability of its subsidiaries to generate and transfer funds to meet its debt obligations.

HCI Group, Inc. does not have significant revenue generating operations of its own. Our ability to make scheduled

payments on our debt obligations depends on the financial condition and operating performance of our subsidiaries. If the funds we
receive from our subsidiaries are insufficient to meet our debt obligations, we may be required to raise funds through the issuance of
additional debt or equity securities, reduce or suspend dividend payments, or sell assets.

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We may require additional capital in the future which may not be available or may only be available on unfavorable terms.

Our future capital requirements depend on many factors, including our ability to write new business successfully and to

establish premium rates and reserves at levels sufficient to cover losses. To the extent that our present capital is insufficient to meet
future operating requirements or to cover losses, we may need to raise additional funds through financings or curtail our growth.
Based on our current operating plan, we believe current capital together with our anticipated retained income will support our
operations. However, we cannot provide any assurance in that regard, since many factors will affect our capital needs and their
amount and timing, including our growth and profitability, and the availability of reinsurance, as well as possible acquisition
opportunities, market disruptions and other unforeseeable developments. If we require additional capital, it is possible that equity or
debt financing may not be available at all or may be available only on terms unfavorable to us. Equity financings could result in
dilution to our shareholders, and in any case such securities may have rights, preferences and privileges that are senior to those of
existing shareholders. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition or results of
operations could be materially affected.

Limited markets for and restrictions on certain holdings in our investment portfolio.

Certain holdings in our investment portfolio include limited partnership interests, a construction loan (which is referred to

herein as the ADC Arrangement) and one real estate joint venture. We also plan to increase our holdings in these types of
investments in the near future. These investments may be illiquid in the near term as they are privately placed and are subject to
certain restrictions or conditions that may limit our ability to immediately dispose of the investment. If it becomes necessary to sell any
of these investments at a time when the fair market value is below our carrying value, we may incur significant losses which could
have a material adverse effect on our net income and financial position.

Our financial results may be negatively affected by the fact that a portion of our income is generated by the investment of
our available cash.

A portion of our income is, and likely will continue to be, generated by the investment of our available cash. The amount of

income so generated is a function of our investment policy, available investment opportunities, and the amount of available cash
invested. We may alter our investment policy to accept higher levels of risk with the expectation of higher returns. Fluctuating interest
rates and other economic factors make it impossible to estimate accurately the amount of investment income that will be realized. In
fact, we may realize losses on our investments.

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Reinsurance coverage may not be available to us in the future at commercially reasonable rates or at all and we risk non-
collectability of reinsurance amounts due us from reinsurers with which we have contracted.

Reinsurance is a method of transferring part of an insurance company’s liability and premium under an insurance policy to

another insurance company, or reinsurer. We use reinsurance arrangements to limit and manage the amount of risk we retain, to
stabilize our underwriting results and to increase our underwriting capacity. The cost of such reinsurance is subject to prevailing
market conditions beyond our control, such as the amount of capital in the reinsurance market and natural and man-made
catastrophes. We cannot be assured that reinsurance will remain continuously available to us in the amounts we consider sufficient
and at prices acceptable to us. As a result, we may determine to increase the amount of risk we retain or look for other alternatives to
reinsurance, which could in turn have a material, adverse effect on our financial position, results of operations and cash flows.

With respect to the reinsurance treaties we currently have in effect, our ability to recover amounts due from reinsurers is

subject to the reinsurance company’s ability and willingness to pay and to meet their obligations to us. We attempt to select financially
strong reinsurers with an A.M. Best rating of “A-” or better or we require the reinsurer to fully collateralize its exposure. While we
monitor from time to time their financial condition, we rely principally on A.M. Best, our reinsurance broker, and other rating agencies
in determining their ability to meet their obligations to us. Any failure on the part of any one reinsurance company to meet its
obligations to us could have a material, adverse effect on our financial condition or results of operations.

We have exposure to unpredictable catastrophes, which can materially and adversely affect our financial results.

We write insurance policies that cover homeowners, condominium owners, and tenants for losses that result from, among

other things, catastrophes. We are therefore subject to losses, including claims under policies we have written, arising out of
catastrophes that may have a significant effect on our business, results of operations, and financial condition. A significant
catastrophe could also have an adverse effect on our reinsurers. Catastrophes can be caused by various events, including
hurricanes, tropical storms, tornadoes, windstorms, earthquakes, hailstorms, explosions, power outages, fires and man-made events.
The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both
the total amount of insured exposure in the area affected by the event and the severity of the event. Our policyholders are currently
concentrated in Florida, which is especially subject to adverse weather conditions such as hurricanes and tropical storms. Therefore,
although we attempt to manage our exposure to catastrophes through our underwriting process and the purchase of reinsurance
protection, an especially severe catastrophe or series of catastrophes could exceed our reinsurance protection and may have a
material, adverse impact on our results of operations and financial condition.

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Industry trends, such as increased litigation against the insurance industry and individual insurers, the willingness of
courts to expand covered causes of loss, rising jury awards, and the escalation of loss severity may contribute to increased
costs and to the deterioration of the reserves of our insurance subsidiary.

Loss severity in the property and casualty insurance industry may increase and may be driven by larger court judgments. In

the event legal actions and proceedings are brought on behalf of classes of complainants, this may increase the size of judgments.
The propensity of policyholders and third party claimants to litigate and the willingness of courts to expand causes of loss and the size
of awards may render our loss reserves inadequate for current and future losses.

The failure of the risk mitigation strategies we utilize could have a material, adverse effect on our financial condition or
results of operations.

We utilize a number of strategies to mitigate risk exposure within our insurance business, which include:

•

engaging in vigorous underwriting;

carefully evaluating terms and conditions of our policies;

focusing on our risk aggregations by geographic zones and other bases; and

ceding insurance risk to reinsurance companies.

However, there are inherent limitations in all of these tactics. We cannot provide assurance that an event or series of

unanticipated events will not result in loss levels which could have a material, adverse effect on our financial condition or results of
operations.

The failure of any of the loss limitation methods we employ could have a material, adverse effect on our financial condition
or our results of operations.

Our insurance underwriting process is generally designed to limit our exposure to known and manageable risks. Various
provisions of our policies, such as limitations or exclusions from coverage, which have been negotiated to limit our risks, may not be
enforceable in the manner we intend.

In addition, the policies we issue contain conditions requiring the prompt reporting of claims to us and our right to decline

coverage in the event of a violation of that condition. While our insurance product exclusions and limitations reduce the loss exposure
to us and help eliminate known exposures to certain risks, it is possible that a court or regulatory authority could nullify or void an
exclusion or legislation could be enacted modifying or barring the use of such endorsements and limitations in a way that would
adversely affect our loss experience, which could have a material, adverse effect on our financial condition or results of operations.

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In the future, we may rely on independent agents to write our insurance policies, and if we are not able to contract with and
retain independent agents, our revenues would be negatively affected.

Although voluntary policies comprise a small percentage of our business, we expect to increase the number of voluntary
policies we write as our business expands. An inability to sell our products through independent agents would negatively affect our
revenues.

We must compete with other insurers for independent agents’ business. Our competitors may offer a greater variety of

insurance products, lower premiums for insurance coverage, or higher commissions to their agents. If our products, pricing and
commissions do not remain competitive, we may find it more difficult to attract business from independent agents to sell our products.
A material reduction in the amount of our products that independent agents sell could negatively affect our revenues.

Our success depends on our ability to accurately price the risks we underwrite.

The results of our operations and our financial condition depend on our ability to underwrite and set premium rates

accurately for a wide variety of risks, including risks associated with new product offerings. Rate adequacy is necessary to generate
sufficient premiums to pay losses, loss adjustment expenses, and underwriting expenses and to earn a profit. In order to price our
products accurately, we must collect and properly analyze a substantial amount of data; develop, test and apply appropriate rating
formulas; closely monitor and timely recognize changes in trends; and project both severity and frequency of losses with reasonable
accuracy. Our ability to undertake these efforts successfully, and as a result price our products accurately, is subject to a number of
risks and uncertainties, some of which are outside our control, including —

•

the availability of sufficient reliable data;

the uncertainties that inherently characterize estimates and assumptions;

our selection and application of appropriate rating and pricing techniques;

changes in legal standards, claim settlement practices, and restoration costs; and

legislatively imposed consumer initiatives.

In addition, we could underprice risks, which would negatively affect our profit margins. We could also overprice risks,

which could reduce our retention, sales volume and competitiveness. In any event, our profitability could be materially and adversely
affected.

Use of current operating resources may be necessary to develop future new insurance products.

We may expand our product offerings by underwriting additional insurance products and programs. Claddaugh may offer

reinsurance products to unaffiliated insurance companies. Expansion of our product offerings will result in increases in expenses due
to additional costs incurred in actuarial rate justifications, software and personnel. Offering additional insurance products will also
require regulatory approval, further increasing our costs and potentially affecting the speed with which we will be able to pursue new
market opportunities. We cannot assure you that we will be successful bringing new insurance products to markets.

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Use of current operating resources may be necessary to expand our insurance business geographically.

Although we currently conduct our homeowners’ insurance business in Florida, we plan to enter the homeowners’

insurance markets in other states. Geographic expansion of our insurance business will result in increases in expenses due to
additional costs incurred in actuarial rate justifications, software, personnel and regulatory compliance. Although we plan to enter
other states judiciously with attention to profitability, we cannot assure you that our entry into other states will be successful.

As an insurance holding company, we are currently subject to state regulation and in the future may become subject to
federal regulation.

All states regulate insurance holding company systems. State statutes and administrative rules generally require each

insurance company in the holding company group to register with the department of insurance in its state of domicile and to furnish
information concerning the operations of the companies within the holding company system that may materially affect the operations,
management or financial condition of the insurers within the group. As part of its registration, each insurance company must identify
material agreements, relationships and transactions with affiliates, including without limitation, loans, investments, asset transfers,
transactions outside of the ordinary course of business, certain management, service, and cost sharing agreements, reinsurance
transactions, dividends, and consolidated tax allocation agreements.

Insurance holding company regulations generally provide that transactions between an insurance company and its

affiliates must be fair and equitable, allocated between the parties in accordance with customary accounting practices, and fully
disclosed in the records of the respective parties. Many types of transactions between an insurance company and its affiliates, such
as transfers of assets among such affiliated companies, certain dividend payments from insurance subsidiaries and certain material
transactions between companies within the system may be subject to prior approval by, or prior notice to, state regulatory authorities.
If we are unable to obtain the requisite prior approval for a specific transaction, we would be precluded from taking the action, which
could adversely affect our operations. In addition, state insurance regulations also frequently impose notice or approval requirements
for the acquisition of specified levels of ownership in the insurance company or insurance holding company.

HCPCI is approved as an admitted carrier in Florida and as a non-admitted carrier in Maryland, New Jersey, South

Carolina and Virginia. In addition, our Alabama subsidiary is approved as an admitted carrier to write insurance products in Alabama.
We may in the future seek authorization to transact business in other states as well. We will therefore become subject to the laws and
regulatory requirements of those states. These regulations may vary from state to state, and states occasionally may have conflicting
regulations. Currently, the federal government’s role in regulating or dictating the policies of insurance companies is limited. However,
Congress, from time to time, considers proposals that would increase the role of the federal government in insurance regulation,
either in addition to or in lieu of state regulation. The impact of any future federal insurance regulation on our insurance operations is
unclear and may adversely impact our business or competitive position.

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Our insurance subsidiaries are subject to extensive regulation, which may reduce our profitability or limit our growth.
Moreover, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions,
which may adversely affect our financial condition and results of operations.

The insurance industry is highly regulated and supervised. Our insurance subsidiaries are subject to the supervision and
regulation of the states in which they are domiciled and the states in which they transact insurance business. Such supervision and
regulation is primarily designed to protect our policyholders rather than our shareholders. These regulations are generally
administered by a department of insurance in each state and relate to, among other things —

•

the content and timing of required notices and other policyholder information;

the amount of premiums the insurer may write in relation to its surplus;

the amount and nature of reinsurance a company is required to purchase;

participation in guaranty funds and other statutorily created markets or organizations;

business operations and claims practices;

approval of policy forms and premium rates;

standards of solvency, including risk-based capital measurements;

licensing of insurers and their products;

restrictions on the nature, quality and concentration of investments;

restrictions on the ability of insurance company subsidiaries to pay dividends to insurance holding companies;

restrictions on transactions between insurance companies and their affiliates;

restrictions on the size of risks insurable under a single policy;

requiring deposits for the benefit of policyholders;

requiring certain methods of accounting;

periodic examinations of our operations and finances;

the form and content of records of financial condition required to be filed; and

the level of reserves.

The FLOIR and regulators in other jurisdictions where we may become licensed and offer insurance products conduct
periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial
condition, holding company issues and other matters. These regulatory requirements may adversely affect or inhibit our ability to
achieve some or all of our business objectives. These regulatory authorities also conduct periodic examinations into insurers’
business practices. These reviews may reveal deficiencies in our insurance operations or non-compliance with regulatory
requirements.

HCPCI is subject to assessments levied by the Florida Insurance Guaranty Association, Inc. While we can recover these

assessments from policyholders through policy surcharges, our payment of the assessments and our recoveries may not offset each
other in the same reporting period in our financial statements and may cause a material, adverse effect on our results of operations in
a particular reporting period.

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In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including

the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we
believe may be generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory
authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements,
insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise
penalize us. This could adversely affect our ability to operate our business.

Finally, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or

interpretations by regulatory authorities could adversely affect our ability to operate our business, reduce our profitability and limit our
growth.

Our real estate operations include owning marina operations, which are subject to regulation under various federal, state,
and local laws concerning the environment.

Our marina operations are subject to regulation under various federal, state, and local laws concerning the environment,

including laws addressing the discharge of pollutants into the air and water and the management and disposal of hazardous
substances and wastes and the cleanup of contaminated sites. We could incur substantial costs, including remediation costs, fines
and civil or criminal sanctions and third-party damage or personal injury claims, if in the future we were to violate or become liable
under environmental laws relating to our marina operations.

Our real estate operations include owning restaurant operations, which expose us to additional risks, which could
negatively impact our operating results and financial condition.

Our restaurant operations expose us to unique business risks. For example, restaurant operations are dependent in large

part on food, beverage, and supply costs that are not within our control. Also, the restaurant industry is affected by changes in
consumer preferences and discretionary spending patterns that could adversely affect revenues from restaurant operations.
Moreover, the restaurant industry is affected by litigation and publicity concerning food quality, health, and other issues which can
cause guests to avoid restaurants and that can result in liabilities. Any one of these risks, among others, could negatively impact our
operating results and financial condition.

Our operations in India expose us to additional risks, which could negatively impact our business, operating results, and
financial condition.

Our India operations expose us to additional risks including currency exchange rate fluctuations and risks related to other

challenges caused by distance, language, and compliance with Indian labor laws and other complex foreign and U.S. laws and
regulations that apply to our India operations. These numerous and sometimes conflicting laws and regulations include anti-corruption
laws, such as the Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials, among
others. Violations of these laws and regulations could result in fines and penalties, or criminal sanctions against us, our officers, or
our employees. Although policies and procedures are designed to ensure compliance with these laws and regulations, there can be
no assurance that our employees, contractors, or agents will not violate our policies.

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Unintended consequences of the anti-takeover provisions of our shareholder rights agreement.

Our shareholder rights agreement is intended to deter coercive or unfair takeover tactics and to protect our shareholders’
interests by encouraging anyone seeking control of our company to negotiate with our board of directors. However, these rights may
discourage, delay or prevent a tender offer or takeover attempt, including offers or attempts that could be beneficial to our
shareholders. In addition, the rights agreement may deter investors from participating in any future equity offerings we propose.

ITEM 1B – Unresolved Staff Comments

Not applicable.

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ITEM 2 – Properties

Real Estate Owned and Used in Operations

Tampa, Florida. The real estate consists of 3.5 acres of land, a building with gross area of 122,000 square feet, and a

four-level parking garage. This facility is used by us and our U.S. subsidiaries and serves as our headquarters. In addition, we lease
an aggregate of approximately 42,500 square feet to non-affiliates.

Ocala, Florida. The real estate consists of 1.6 acres of land and an office building with gross area of approximately 16,000

square feet. The facility is designated for our insurance operations and will be used as an alternative location in the event a
catastrophic event impacts our operations in Tampa, Florida.

Investment Real Estate

Treasure Island, Florida. The real estate consists of approximately 10 acres of waterfront property and land improvements,

a restaurant and a marina facility. The marina facility and the restaurant are currently operated by us.

Tierra Verde, Florida. The real estate consists of 7.1 acres of waterfront property, a dry rack storage building with gross

area of 57,500 square feet, and three buildings with retail space having an aggregate gross area of 28,893 square feet. This marina
facility is operated by us. Approximately 49% of the available retail space is leased to non-affiliates.

Leased Property

Noida, India. We lease 15,000 square feet of office space for our information technology operations. The lease
commenced January 15, 2013 and has an initial term of nine years. We are permitted to terminate the lease after the 36-month period
following the commencement date by providing 3 months’ written notice to the landlord.

Rental expense under all facility leases was $222,000, $248,000 and $527,000 during the years ended December 31,

2014, 2013 and 2012, respectively. The 2012 expense included $179,000 related to our former corporate headquarters.

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ITEM 3 – Legal Proceedings

We are a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot
predict with certainty the ultimate resolution of the claims asserted against us, we do not believe that any currently pending legal
proceeding to which we are a party will have a material, adverse effect on our consolidated financial position, results of operations or
cash flows.

ITEM 4 – Mine Safety Disclosures

Not applicable.

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PART II

ITEM 5 – Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Markets for Common Stock

Our common stock is trading on the New York Stock Exchange under the symbol “HCI.” The following table represents the

high and low sales prices for our common stock as reported by the New York Stock Exchange for the periods indicated:

Calendar Quarter - 2014

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Calendar Quarter - 2013

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Common Stock
Price

High

Low

$52.07
$41.41
$43.35
$50.84

35.92
34.24
35.99
35.36

$27.25
$35.21
$41.66
$53.50

20.16
24.66
29.99
37.79

Holders

As of February 27, 2015, the market price for our common stock was $47.32 and there were 21 holders of record of our

common stock.

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Dividends

The declaration and payment of dividends is at the discretion of our board of directors. Our ability to pay dividends depends

on many factors, including the Company’s operating results, financial condition, capital requirements, and legal and regulatory
constraints and requirements on the payment of dividends and such other factors as our board of directors deems relevant. The
following table represents the frequency and amount of all cash dividends declared on common equity for the two most recent fiscal
years:

Declaration
Date
1/22/2013
4/8/2013
7/16/2013
10/18/2013
1/27/2014
3/17/2014
6/26/2014
10/21/2014

Payment
Date
3/15/2013
6/21/2013
9/20/2013
12/20/2013
3/21/2014
6/20/2014
9/19/2014
12/19/2014

Date of
Record
2/15/2013
5/17/2013
8/16/2013
11/15/2013
2/21/2014
5/16/2014
8/15/2014
11/21/2014

Per Share
Amount
$ 0.225
$ 0.225
$ 0.225
$ 0.275
$ 0.275
$ 0.275
$ 0.275
$ 0.275

Under Florida law, a domestic insurer such as HCPCI may not pay any dividend or distribute cash or other property to its

stockholders unless certain requirements, which are discussed in Note 19 — “Regulatory Requirements and Restrictions” to our
consolidated financial statements under Item 8 of this Annual Report on Form 10-K, are met.

In the first quarter of 2015, we increased cash dividends on our common stock from 27.5 cents per share to 30 cents per

share, although we are not obligated to do so and may discontinue cash dividends or change the cash-dividend rate on our common
stock at any time and for any reason.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes our equity compensation plans as of December 31, 2014. We currently have no equity

compensation plans not approved by our stockholders.

(a)

(b)

Number of Securities
To be Issued Upon
Exercise of

Weighted-Average
Exercise Price of

Outstanding Options

(c)
Number of Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))

Plan Category

Equity Compensation Plans Approved by

Stockholders

230,000 $

3.00

4,246,470

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Performance Graph

The following graph compares the 5-year cumulative total dollar return to shareholders on our common stock relative to the
cumulative total returns of the Russell 2000 Index and the NASDAQ Insurance Index. An investment of $100 (with reinvestment of all
dividends) is assumed to have been made in our common stock and in each index on December 31, 2008 and its relative
performance is tracked through December 31, 2014. The returns shown are based on historical results and are not intended to
suggest future performance.

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Recent Sales of Unregistered Securities

All information related to sales of unregistered securities had been reported in a current report on Form 8-K.

Issuer Purchases of Equity Securities

The table below summarizes the number of common shares repurchased under a share repurchase plan and also the

number of shares of common stock surrendered by employees to satisfy their minimum federal income tax liability associated with the
vesting of restricted shares during the three months ended December 31, 2014 (dollar amounts in thousands, except share and per
share amounts):

For the Month Ended

October 31, 2014
November 30, 2014
December 31, 2014

Total Number
of Shares
Purchased

81,020
153,949
21,355

Average
Price Paid
Per Share

$ 39.83
$ 42.05
$ 40.31

256,324

$ 41.20

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (a)

Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under
The Plans
or Programs (b)

81,020
153,402
21,355

255,777

$
$
$

8,972
2,526
1,666

(a)

In March 2014, our Board of Directors approved a one-year plan to repurchase up to $40 million of common shares. See Note
14 — “Stockholders’ Equity” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K.

(b) Represents the balances before commissions and fees at the end of each month.

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ITEM 6 – Selected Financial Data

The following selected consolidated financial data should be read in conjunction with Item 7 “Management’s Discussion

and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes
appearing in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. The consolidated
statements of income data for the years ended December 31, 2014, 2013, and 2012 and the consolidated balance sheet data at
December 31, 2014 and 2013 are derived from our audited consolidated financial statements appearing in Item 8 of this Annual
Report on Form 10-K. The consolidated statements of income data for the years ended December 31, 2011 and 2010, and the
consolidated balance sheet data at December 31, 2012, 2011, and 2010, are derived from our audited consolidated financial
statements that are not included in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the
results to be expected in any future period.

Operating Revenue
Gross premiums earned
Premiums ceded

Net premiums earned
Net investment income
Policy fee income
Net realized investment gains
Gain on bargain purchase
Other income

Total operating revenue

Operating Expenses
Losses and loss adjustment expenses
Policy acquisition and other underwriting expenses
Salaries and wages
Interest expense
Goodwill impairment loss
Other operating expenses

Total operating expenses

Income before income taxes
Income tax expense

Net income
Preferred stock dividends

Per Share Data:

Basic earnings per common share

Diluted earnings per common share

Dividends per common share

Ratios to Net Premium Earned:

Loss Ratio
Expense Ratio

Combined Ratio

Ratios to Gross Premiums Earned:

Loss Ratio
Expense Ratio

Combined Ratio

Consolidated Balance Sheet Data:
Total investments
Total cash and cash equivalents
Total assets
Total stockholders’ equity

2014

As of or for the Years Ended December 31,
2012
(Dollar amounts in thousands, except per share amounts)

2011

2013

2010

$ 365,488
(113,423)

$ 337,113
(102,865)

$233,607
(75,939)

$143,606
(55,525)

$119,757
(57,322)

252,065
4,781
2,820
4,735
—
1,707

234,248
1,469
3,098
80
—
2,193

157,668
980
2,538
276
179
1,424

88,081
2,061
1,438
290
936
1,003

62,435
1,962
1,464
2,003
—
751

266,108

241,088

163,065

93,809

68,615

79,468
37,952
16,483
10,453
—
20,790

65,123
31,619
14,714
3,607
—
19,572

66,310
25,930
10,545
—
161
10,539

48,243
18,129
4,916
—
—
6,116

37,667
14,878
3,066
—
—
4,418

165,146

134,635

113,485

77,404

60,029

100,962
38,298

$ 62,664
4

106,453
40,891

$ 65,562
(104)

49,580
19,423

$ 30,157
(322)

5.90

5.36

1.10

5.82

5.63

0.95

3.45

3.02

0.88

16,405
6,441

9,964
(815)

9,149

1.49

1.34

0.53

31.53%
33.99%

65.52%

21.74%
23.45%

45.19%

27.80%
29.67%

57.47%

19.32%
20.62%

39.94%

42.06%
29.92%

71.98%

28.39%
20.19%

48.58%

54.77%
33.11%

87.88%

33.59%
20.31%

53.90%

8,586
3,164

5,422
—

5,422

0.88

0.81

0.30

60.33%
35.82%

96.15%

31.45%
18.67%

50.12%

$ 168,799
$ 314,716
$ 602,210
$ 182,585

$ 146,028
$ 293,398
$ 526,316
$ 160,521

$ 60,916
$230,214
$338,288
$121,253

$ 58,759
$100,355
$214,818
$ 63,830

$ 43,481
$ 54,849
$140,948
$ 46,629

Income available to common stockholders

$ 62,668

$ 65,458

$ 29,835

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ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and related notes

included elsewhere in this annual report on Form 10-K. All dollar amounts, except per share amounts, stated in this Management’s
Discussion and Analysis of Financial Condition and Results of Operations are in thousands unless specified otherwise.

Forward-Looking Statements

In addition to historical information, this annual report on Form 10-K contains forward-looking statements as

defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our
plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known
and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future
results, performances or achievements expressed or implied by the forward-looking statements. The important factors that
could cause actual results to differ materially from those indicated by such forward-looking statements include but are not
limited to the effect of governmental regulation; changes in insurance regulations; the frequency and extent of claims;
uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, availability of or
collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; and
other risks and uncertainties and other factors listed under Item 1A - “Risk Factors” and elsewhere in this annual report on
Form 10-K and in our other Securities and Exchange Commission filings.

OVERVIEW

General

HCI Group, Inc. is a Florida-based holding company primarily providing property and casualty insurance to homeowners,
condominium owners, and tenants in the state of Florida through its subsidiaries. We offer insurance products at competitive rates,
while pursuing profitability using selective underwriting criteria.

We began operations in 2007 by participating in a “take-out program” which is a legislatively mandated program designed

to encourage private companies to assume policies from Citizens, a Florida state sponsored insurance carrier. Our growth since
inception has resulted primarily from a series of policy assumptions from Citizens and one assumption transaction with HomeWise
Insurance Company. This growth track has been beneficial to us in terms of reduced policy acquisition costs and, depending on the
timing of the transaction, temporarily lower reinsurance costs. Even though expanding our policyholder base through opportunistic
assumptions may continue to be a part of our growth plan, we will also seek opportunities to expand and to provide new product
offerings such as our flood product, which we began offering as an endorsement in January 2014, and our wind-only policies, which
we assumed from Citizens in December 2014.

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Recent Developments

On January 19, 2015, our Board of Directors declared a quarterly dividend of $0.30 per common share. The dividends will

be paid March 20, 2015 to stockholders of record on February 20, 2015.

RESULTS OF OPERATIONS

Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013

Our results of operations for the year ended December 31, 2014 reflect income available to common stockholders of

$62,668, or $5.36 earnings per diluted common share, compared with income available to common stockholders of $65,458, or $5.63
earnings per diluted common share, for the year ended December 31, 2013.

Revenue

Gross Premiums Earned for the years ended December 31, 2014 and 2013 were $365,488 and $337,113, respectively.

The increase in 2014 was primarily attributable to revenue from the Citizens assumptions completed in November 2013 and
December 2014.

Premiums Ceded for the years ended December 31, 2014 and 2013 were $113,423 and $102,865, respectively. Our

premiums ceded represent amounts paid to reinsurers to cover losses from catastrophes that exceed the retention levels defined by
our catastrophe excess of loss reinsurance treaties. During the years ended December 31, 2014 and 2013, premiums ceded reflect
net reductions of $23,543 and $12,521, respectively, that relate to certain provisions under certain reinsurance contracts. See
“Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.” Our
reinsurance rates are based primarily on policy exposures reflected in gross premiums earned. Premiums ceded were 31.0% and
30.5% of gross premiums earned during the years ended December 31, 2014 and 2013, respectively.

Net Premiums Written during the years ended December 31, 2014 and 2013 totaled $294,230 and $251,906, respectively.

Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance
costs.

Net Premiums Earned for the years ended December 31, 2014 and 2013 were $252,065 and $234,248, respectively, and

reflect the gross premiums earned less reinsurance costs as described above.

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The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the years ended

December 31, 2014 and 2013:

Net Premiums Written
Increase in Unearned Premiums

Net Premiums Earned

Years Ended
December 31,

2014

$294,230
(42,165)

2013
$251,906
(17,658)

$252,065

$234,248

Net Investment Income for the years ended December 31, 2014 and 2013 was $4,781 and $1,469, respectively. The
increase in 2014 is primarily due to the increase in late 2013 in our investments in available-for-sale securities that comprise the
majority of our investment portfolio and the change in the mix of our available-for-sale investments during 2014. See Note 4 —
“Investments” under Net Investment Income (Loss) to our consolidated financial statements under Item 8 of this Annual Report on
Form 10-K.

Policy Fee Income for the years ended December 31, 2014 and 2013 was $2,820 and $3,098, respectively. The decrease

in 2014 is primarily due to the change in the fourth quarter of 2013 in the method of recognizing policy fees, which are recognized
ratably over the policy coverage period.

Net Realized Investment Gains for the years ended December 31, 2014 and 2013 was $4,735 and $80, respectively. The

increase in 2014 is due to sales of fixed-maturity securities primarily in the third quarter of 2014.

Expenses

Our Losses and Loss Adjustment Expenses amounted to $79,468 and $65,123, respectively, during the years ended

December 31, 2014 and 2013. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and
Estimates.”

Policy Acquisition and Other Underwriting Expenses for the years ended December 31, 2014 and 2013 were $37,952 and

$31,619, respectively, and primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for
production and renewal of policies, and premium taxes and brokerage fees. The increase in 2014 is primarily attributable to
commissions and premium taxes related to the policies assumed from Citizens in 2013 that have renewed and are included in 2014
direct written premiums.

Salaries and Wages for the years ended December 31, 2014 and 2013 were $16,483 and $14,714, respectively. The

$1,769 increase in 2014 was primarily attributable to an increase in employee headcount. As of December 31, 2014, we had 200
employees located at our headquarters in Florida compared with 177 employees as of December 31, 2013. We also had 79
employees located in Noida, India at December 31, 2014 versus 67 at December 31, 2013.

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Interest Expense for the years ended December 31, 2014 and 2013 were $10,453 and $3,607, respectively. The increase

in 2014 was primarily the result of the 3.875% convertible debt offering completed in December 2013.

Other Operating Expenses for the years ended December 31, 2014 and 2013 were $20,790 and $19,572, respectively.

The $1,218 increase in 2014 was primarily attributable to a $3,383 increase in stock-based compensation and employee benefit
expenses offset by a decrease in other general expenses such as professional service fees, director fees, and charitable
contributions.

Income Tax Expense for the years ended December 31, 2014 and 2013 was $38,298 and $40,891, respectively, for state,

federal and foreign income taxes resulting in an effective tax rate of 37.9% for 2014 and 38.4% for 2013.

Ratios:

The loss ratio applicable to the year ended December 31, 2014 (losses and loss adjustment expenses related to net

premiums earned) was 31.5% compared with 27.8% for the year ended December 31, 2013. (See Gross Premiums Earned and
Losses and Loss Adjustment Expenses above).

The expense ratio applicable to the year ended December 31, 2014 (defined as underwriting expenses, salaries and

wages, interest and other operating expenses related to net premiums earned) was 34.0% compared with 29.7% for the year ended
December 31, 2013. The increase in our expense ratio is primarily attributable to the increase in 2014 specific to interest expense
and compensation and related costs.

The combined ratio (total of all expenses in relation to net premiums earned) is the measure of overall underwriting

profitability before other income. Our combined ratio for the year ended December 31, 2014 was 65.5% compared with 57.5% for the
year ended December 31, 2013. Our combined ratio was negatively impacted by an increase in interest expense and compensation
and related costs and, also, the increase in 2014 in our losses and loss adjustment expenses.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes
the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to
gross premiums earned for the year ended December 31, 2014 was 45.2% compared with 39.9% for the year ended December 31,
2013.

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Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012

Our results of operations for the year ended December 31, 2013 reflect income available to common stockholders of

$65,458, or $5.63 earnings per diluted common share, compared with income available to common stockholders of $29,835, or $3.02
earnings per diluted common share, for the year ended December 31, 2012.

Revenue

Gross Premiums Earned for the years ended December 31, 2013 and 2012 were $337,113 and $233,607, respectively,

and primarily reflect the revenue from policies acquired from HomeWise and Citizens and subsequent renewals. The increase in 2013
was primarily attributable to revenue from the Citizens assumptions completed in November 2013 and 2012.

Premiums Ceded for the years ended December 31, 2013 and 2012 were $102,865 and $75,939, respectively. Our

premiums ceded represent amounts paid to reinsurers to cover losses from catastrophes that exceed the retention levels defined by
our catastrophe excess of loss reinsurance treaties. During the year ended December 31, 2013, premiums ceded reflect a net
reduction of $12,521 related to the provisions under certain reinsurance contracts. Our reinsurance rates are based primarily on
policy exposures reflected in gross premiums earned. Premiums ceded were 30.5% and 32.5% of gross premiums earned during the
years ended December 31, 2013 and 2012, respectively.

Net Premiums Written during the years ended December 31, 2013 and 2012 totaled $251,906 and $203,240, respectively.

Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance
costs.

Net Premiums Earned for the years ended December 31, 2013 and 2012 were $234,248 and $157,668, respectively, and

reflect the gross premiums earned less reinsurance costs as described above.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the years ended

December 31, 2013 and 2012:

Net Premiums Written
Increase in Unearned Premiums

Net Premiums Earned

Years Ended
December 31,

2013

$251,906
(17,658)

2012
$203,240
(45,572)

$234,248

$157,668

Net Investment Income for the years ended December 31, 2013 and 2012 was $1,469 and $980, respectively. The

increase in 2013 is primarily due to higher returns on our investment portfolio, which has grown from $44,829 in 2012 to $129,800 in
2013, and lower operating losses related to certain of our real estate investments.

Policy Fee Income for the years ended December 31, 2013 and 2012 was $3,098 and $2,538, respectively, and reflects

the policy fee income we earn with respect to our issuance of renewal policies.

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Other Income for the years ended December 31, 2013 and 2012 was $2,193 and $1,424, respectively. The increase in

other income in 2013 is primarily due to the recognition of income related to the Aon Benfield settlement.

Expenses

Our Losses and Loss Adjustment Expenses amounted to $65,123 and $66,310, respectively, during the years ended

December 31, 2013 and 2012. During the year ended December 31, 2013, we experienced favorable development of $2,456 with
respect to our net unpaid losses and loss adjustment expenses established as of December 31, 2012, which contributed to the overall
favorable variance of $1,187 with respect to the total losses and loss adjustment expenses incurred in 2013 as compared with 2012.
In addition, our losses and loss adjustment expenses for the year ended December 31, 2012 included approximately $3,500 related
to claims from Tropical Storm Debby and Tropical Storm Isaac, which occurred in June and August 2012, respectively.

Policy Acquisition and Other Underwriting Expenses for the years ended December 31, 2013 and 2012 were $31,619 and

$25,930, respectively, and primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for
production and renewal of policies, and premium taxes, marketing costs and policy fees. The increase in 2013 is primarily attributable
to an increase in commissions and premium taxes related to the increase in policy renewals in 2013, the effect of which is offset by a
one-time charge of $1,210 in 2012 resulting from a change in accounting standards with respect to deferred acquisition costs.

Salaries and Wages for the years ended December 31, 2013 and 2012 were $14,714 and $10,545, respectively. The

$4,169 increase in 2013 was primarily attributable to increases in employee headcount and cash bonus expense. As of
December 31, 2013, we had 177 employees located at our offices in Florida compared with 145 employees as of December 31, 2012.
We also had 67 employees located in Noida, India at December 31, 2013 versus 62 at December 31, 2012.

Interest Expense totaled $3,607 for the year ended December 31, 2013 and relates to the two debt offerings we completed

during 2013. See Note 9 — “Long-Term Debt” to our consolidated financial statements under Item 8 of this Annual Report on
Form 10-K.

Other Operating Expenses for the years ended December 31, 2013 and 2012 were $19,572 and $10,539, respectively.
The $9,033 increase was primarily attributable to a $5,127 increase in stock-based compensation and employee benefit expenses.
The remaining increase of $3,906 relates to charitable contributions of $1,066 and other administrative costs, which include a variety
of professional service fees, corporate insurances, information system expense, and other general expenses of $2,840.

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Income Tax Expense for the years ended December 31, 2013 and 2012 was $40,891 and $19,423, respectively, for state,

federal and foreign income taxes resulting in an effective tax rate of 38.4% for 2013 and 39.2% for 2012.

Ratios:

The loss ratio applicable to the year ended December 31, 2013 was 27.8% compared with 42.1% for the year ended

December 31, 2012. Our loss ratio was positively impacted by a significant increase in our net premiums earned during 2013
combined with favorable development in claim trends for frequency and severity and favorable development of reserves for prior
accident years (see Gross Premiums Earned and Losses and Loss Adjustment Expenses above).

The expense ratio applicable to the year ended December 31, 2013 was 29.7% compared with 29.9% for the year ended

December 31, 2012.

The combined ratio is the measure of overall underwriting profitability before other income. Our combined ratio for the year

ended December 31, 2013 was 57.5% compared with 72.0% for the year ended December 31, 2012. Our combined ratio was
positively impacted by a significant increase in our net premiums earned during 2013 (see Gross Premiums Earned above) and, also,
by continued favorable trends in 2013 related to our losses and loss adjustment expenses.

The combined ratio to gross premiums earned for the year ended December 31, 2013 was 39.9% compared with 48.6%

for the year ended December 31, 2012.

Seasonality of Our Business

Our insurance business is seasonal as hurricanes and tropical storms typically occur during the period from June 1 through

LIQUIDITY AND CAPITAL RESOURCES

Over the years, our liquidity requirements have been met through issuance 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 insurance subsidiaries from premiums written and investment income. We may consider raising additional capital
through debt and equity offerings to support our growth and future investment opportunities.

Our main insurance subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., requires 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,

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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. A substantial portion of our losses and loss adjustment expenses are
fully settled and paid within 90 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs
such as commissions, taxes, payroll, and general overhead expenses.

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 dividends
and also to fund operations. In addition, we intend to increase the size of our portfolios of limited partnership investments and real
estate investments in order to maximize returns during 2015.

Senior Notes

Our long-term debt at December 31, 2014 consisted of 8% Senior Notes due 2020 and 3.875% Senior Convertible Notes

due 2019, which were issued during 2013 for gross proceeds of $40,250 and $103,000, respectively. We make quarterly interest
payments of $805 on the senior notes due 2020 with quarterly payments due on January 30, April 30, July 30 and October 30. We
make semiannual interest payments of approximately $1,996 on the convertible notes with payments due in arrears on March 15 and
September 15 of each year. See Note 9 — “Long-term debt” to our consolidated financial statements under Item 8 of this Annual
Report on Form 10-K.

Share Repurchase Plan

On March 18, 2014, our Board of Directors approved a one-year plan to repurchase up to $40,000 of common shares

under which we may purchase shares of common stock in open market purchases, block transactions and privately negotiated
transactions in accordance with applicable federal securities laws. See Note 14 — “Stockholders’ Equity” to our consolidated financial
statements under Item 8 of this Annual Report on Form 10-K.

Limited Partnership Investment

We entered into a subscription agreement to invest up to a maximum of $12,500 for a 16.5% interest in a limited
partnership. The partnership which was approved to operate as a small investment company in October 2014 aims to provide direct
lending to private U.S. lower-middle-market companies. At December 31, 2014, there is an unfunded capital balance of $9,860. See
Limited Partnership Investment under Note 4— “ Investment” to our consolidated financial statements under Item 8 of this Annual
Report on Form 10-K.

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ADC Arrangement

In June 2014, we entered into an ADC Arrangement under which we agreed to provide financing up to a maximum of

$9,785 for the acquisition, development and construction of a retail shopping center and appurtenant facilities. At December 31, 2014,
$6,981 of the commitment is available and unused. See Note 4 — “Investments” under ADC Arrangement to our consolidated
financial statements under Item 8 of this Annual Report on Form 10-K.

Cash Flows

Our cash flows from operating, investing and financing activities for the years ended December 31, 2014, 2013 and 2012

are summarized below.

Cash Flows for the Year ended December 31, 2014

Net cash provided by operating activities for the year ended December 31, 2014 totaled $88,729, which consisted primarily

of cash received from net written premiums less cash disbursed for operating expenses, losses and loss adjustment expenses and
interest payments. Net cash used in investing activities of $18,652 was primarily due to the purchases of available-for-sale securities
of $127,622, the funding of the ADC Arrangement of $2,803 and the $4,500 cash contribution to a joint venture, offset by redemptions
and repayments of fixed-maturity securities of $4,603, and the proceeds from sales of available-for-sale securities of $115,175. Net
cash used in financing activities totaled $48,730, which was primarily due to $38,354 used in our share repurchase plan and $11,670
of net cash dividend payments.

Cash Flows for the Year ended December 31, 2013

Net cash provided by operating activities for the year ended December 31, 2013 was $55,472, which consisted primarily of

cash received from net written premiums less cash disbursed for operating expenses, reinsurance premiums and losses and loss
adjustment expenses. Net cash used in investing activities of $90,040 was primarily due to the purchases of available-for-sale
securities of $94,215, the purchase of $3,433 in property and equipment and the purchase of $565 in other investments offset by
redemptions and repayments of fixed-maturity securities of $3,607, and the proceeds from sales of available-for-sale securities of
$4,558. Net cash provided by financing activities totaled $97,752, which was primarily due to $143,250 from the issuance of long-term
debt offset by $4,770 of related underwriting and issuance costs, $10,902 of cash dividend payments, and $30,886 of payments to
repurchase common stock.

Cash Flows for the Year ended December 31, 2012

Net cash provided by operating activities for the year ended December 31, 2012 was $106,266, which consisted primarily

of cash received from net written premiums less cash disbursed for operating expenses and losses and loss adjustment expenses.
Net cash used in investing activities amounted to $1,211 and was primarily due to $8,157 used to complete our business acquisitions
in 2012, $16,538 used for the purchases of fixed-maturity and equity securities, and $2,796 used for the

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purchases of property, equipment and other investments offset by $10,726 from the proceeds from sales of fixed-maturity and equity
securities, $3,127 of proceeds from calls, repayments, and maturities of fixed-maturity securities and $12,427 from time deposit
redemptions. Net cash provided by financing activities totaled $24,799, which was primarily due to $20,082 from the issuance of
common stock, $12,152 related to the exercise of stock options and warrants and $1,161 excess tax benefit from stock options
exercised offset by $8,561 in cash dividends paid.

Investments

The main objective of our investment policy is to maximize our after-tax investment income with a minimum of risk given

the current financial market. Our excess cash is invested primarily in money market accounts and available-for-sale investments.

At December 31, 2014, we had $142,634 of available-for-sale investments, which are carried at fair value. Changes in the

general interest rate environment affect the returns available on new fixed-maturity investments. While a rising interest rate
environment enhances the returns available on new investments, it reduces the market value of existing fixed-maturity investments
and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed-maturity
investments but increases the market value of existing fixed-maturity investments, creating the opportunity for realized investment
gains on disposition.

With the exception of large national and regional banks, it is our current practice not to maintain cash deposits of more

than an aggregate of $5,500 in any one bank at any time. From time to time, we may have in excess of $5,500 of cash available for
investment and on deposit at a single national brokerage firm. In the future, we may alter our investment policy as 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.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2014, we are contractually committed to provide financing for the acquisition, development and

construction of one real estate property and to provide a capital contribution for a limited partnership interest (which are referred to
herein as the ADC Arrangement and the Limited Partnership Investment, respectively). Such commitments are not recognized in the
financial statements but are required to be disclosed in the notes to the financial statements. See Note 17 — “Commitments and
Contingencies” to our consolidated financial statements under Item 8 of this Annual Report on Form 10-K and Contractual Obligations
and Commitments below for additional information. As of December 31, 2013, we had no off-balance sheet arrangements as defined
in Item 303(a)(4) of SEC Regulation S-K.

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CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table summarizes our material contractual obligations and commitments as of December 31, 2014:

Payment Due by Period (in thousands)
Less than
1 Year

1-3 Years 3-5 Years

More than
5 Years

Total

Operating lease (1)
Service agreement (1)
Reinsurance contracts (2)
Acquisition, development and construction loan commitment (3)
Unfunded capital commitment (4)
Long-term debt obligations (5)

253
46

958
172

118
21

308
279
55
50
—
89,440 66,451 22,989 —
—
6,981 — —
—
9,860 — —
7,211 14,423 115,427 41,055

6,981
9,860
178,116

Total

$285,527

90,642

37,711

115,756

41,418

(1) Represents the lease and maintenance service agreement for office space in Noida, India. Liabilities were converted from India

Rupee to U.S. dollars using the December 31, 2014 exchange rate.

(2) Represents the minimum payment of reinsurance premiums under multi-year reinsurance contracts.
(3) Represents the unused portion of our commitment related to the ADC Arrangement. See Note 17 — “Commitments and

Contingencies” under Financing Commitment to our consolidated financial statements under Item 8 of this Annual Report.
(4) Represents the unfunded balance of capital commitment under the subscription agreement related to one limited partnership.
(5) Amounts represent principal and interest payments over the life of the senior notes due January 30, 2020 and the convertible

notes due March 15, 2019.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in

the United States of America. The preparation of these consolidated financial statements requires us to make estimates and
judgments to develop amounts reflected and disclosed in our financial statements. Material estimates that are particularly susceptible
to significant change in the near term are related to our losses and loss adjustment expenses, which include amounts estimated for
claims incurred but not yet reported. We base our estimates on various assumptions and actuarial data we believe to be reasonable
under the circumstances. Actual results may differ materially from these estimates.

We believe our accounting policies specific to losses and loss adjustment expenses, reinsurance with retrospective

provisions, deferred income taxes, and stock-based compensation expense involve our most significant judgments and estimates
material to our consolidated financial statements.

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Reserves for Losses and Loss Adjustment Expenses. We establish reserves for the estimated total unpaid costs of

losses including LAE. We believe reserves reflect management’s best estimate of the total cost of (i) claims that have been incurred,
but not yet paid, and (ii) claims that have been incurred but not yet reported. 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 reserves represent, we
believe, management’s best estimate of our company’s liability based on the application of actuarial techniques and other projection
methodologies and taking into consideration other facts and circumstances known at the balance sheet date. The process of
establishing loss reserves is complex and inherently imprecise, as it involves using judgment that is affected by many variables such
as past loss experience, current claim trends and the prevailing social, economic and legal environments. The impact of both internal
and external variables on ultimate losses and LAE costs is difficult to estimate. Our exposure is impacted by both the risk
characteristics of the physical locations where we write policies, such as hurricane and tropical storm-related risks, as well as risks
associated with varying social, judicial and legislative characteristics in the states in which we operate. In determining loss reserves,
we give careful consideration to all available data and actuarial analyses. This process involves significant judgment.

Reserves represent estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet
been reported to our insurance company. The amount of loss reserves for reported claims consist of case reserves (based on a case-
by-case evaluation of the kind of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy
provisions relating to the type of loss) and bulk reserves for additional growth on carried case reserves on known claims (based on
historical patterns of development on aggregate claims grouped by loss date). The amounts of reserves for unreported claims and
LAE (incurred but not reported claims, or IBNR) are determined using historical homeowners insurance information as adjusted to
current conditions. Inflation is ordinarily implicitly provided for in the reserving function through analysis of costs, trends and reviews
of historical reserving results over multiple years.

Reserves are closely monitored and are recalculated periodically using the most recent information on reported claims and

a variety of actuarial techniques. Specifically, claims management personnel complete weekly and ongoing reviews of existing case
reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior years. As we develop
historical data regarding paid and incurred losses, we use this data to develop expected ultimate loss and loss adjustment expense
ratios. We then apply these expected loss and loss adjustment expense ratios to earned premium to derive a reserve level for our
homeowners line of business. In connection with the determination of these reserves, we will also consider other specific factors such
as recent weather-related losses, trends in historical paid losses, and legal and judicial trends regarding liability. Most of our
business was assumed from Citizens and HomeWise. Therefore, we use the loss ratio method, among other methods, to project an
ultimate loss expectation, and then the related loss history must be regularly evaluated and loss expectations updated, with the
possibility of variability from the initial estimate of ultimate losses.

When a claim is reported to us, our claims personnel establish a “case reserve” for the estimated amount of the ultimate

payment. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and
knowledge of the estimator. The individual estimating the reserve considers the nature and value of the specific claim, the severity of

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injury or damage, location, and the policy provisions relating to the type of loss. Case reserves are adjusted by us as more
information becomes available. It is our policy to settle each claim as expeditiously as possible.

We maintain IBNR reserves to provide for claims that have been incurred but have not been reported and subsequent

development on reported claims. The IBNR reserve is determined by estimating our insurance company’s ultimate net liability for both
reported and unreported claims and then subtracting the case reserves and payments made to date for reported claims.

Loss Reserve Estimation Methods. We apply the following general methods in projecting loss and LAE reserves:

•

Reported loss development;

Paid loss development;

Reported Bornhuetter-Ferguson method;

Paid Bornhuetter-Ferguson method;

Loss ratio method; and

Frequency-Severity method.

Selected reserves are based on a review of the indications from these methods as well as emergence since the most

recent evaluation and number of open claims for a given accident period.

Description of Ultimate Loss Estimation Methods. The reported loss development method relies on the assumption that, at

any given state of maturity, ultimate losses can be predicted by multiplying cumulative reported losses (paid losses plus case
reserves) by a cumulative development factor. The validity of the results of this method depends on the stability of claim reporting and
settlement rates, as well as the consistency of case reserve levels. Case reserves do not have to be adequately stated for this method
to be effective; they only need to have a fairly consistent level of adequacy at all stages of maturity. Because of our limited loss
experience, we select loss development factors based on industry data found in current A.M. Best’s Aggregates and Averages –
Property/Casualty – United States & Canada. We assume that our loss development patterns will be reasonably consistent with
industry averages, and use the selected factors to assist in the projection of the ultimate losses.

The paid loss development method is mechanically identical to the reported loss development method described above.

The paid method does not rely on case reserves or claim reporting patterns in making projections.

The validity of the results from using a loss development approach can be affected by many conditions, such as internal

claim department processing changes, a shift between single and multiple claim payments, legal changes, or variations in our mix of
business from year to year. Also, since the percentage of losses paid for immature years is often low, development factors are
volatile. A small variation in the number of claims paid can have a leveraging effect that can lead to significant changes in estimated
ultimate losses. Therefore, ultimate values for immature loss years are often based on alternative estimation techniques.

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The loss ratio method used by us relies on the assumption that remaining unreported losses are a function of the total

expected losses rather than a function of currently reported losses. The expected loss ratio is multiplied by earned premium to
produce ultimate losses. Reported incurred losses are then subtracted from this estimate to produce expected unreported losses.

The loss ratio method is most useful as an alternative to other models for immature loss years. For these immature years,

the amounts reported or paid may be small and unstable, and therefore, not predictive of future development. Therefore, future
development is assumed to follow an expected pattern that is supported by more stable historical data or by emerging trends. This
method is also useful when variations in reporting or payment patterns distort the historical development of losses.

The paid and reported Bornhuetter-Ferguson methods are a weighting of the loss ratio method and the corresponding

development method. Outstanding reserves or IBNR reserves are derived by applying the loss ratio estimate to the estimated unpaid
or unreported percent of losses based on the development patterns from the development methods.

Finally, we employ the frequency/severity method. We segregate our claims according to when they were incurred and

conduct a detailed review in order to estimate average future development of open claims and average projected loss on IBNR
claims. We combine this estimate with our open claims in order to derive an estimate of expected unreported losses. Paid losses are
added to this estimate in order to derive an estimate of ultimate losses. This method is based on the assumption that future
unreported claims and the average severity of open claims and unreported claims can be reasonably estimated from the experience
available.

While the property and casualty industry has incurred substantial aggregate losses from claims related to asbestos-related

illnesses, environmental remediation, sinkholes, product and mold, and other uncertain or environmental exposures, we have not
experienced significant losses from these types of claims. However, we have experienced losses from exposures (sinkholes and
catastrophes) that follow materially different loss patterns than the balance of our experience. To address this situation, we separate
these exposures from the remainder of the business and derive reserves specific to each of these exposures. Total reserves are
determined by adding the reserves related to each segment of business.

Currently, our estimated ultimate liability is calculated monthly using these principles and procedures applied to the lines of
business written. However, because the establishment of loss reserves is an inherently uncertain process, we cannot be certain that
ultimate losses will not exceed the established loss 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 reserves. However, management believes that a reasonably likely increase or decrease in the severity of claims could impact
our net loss reserves. The table below summarizes the effect on net loss reserves and equity in the event of reasonably likely
changes in the severity of claims considered in establishing loss and loss adjustment expense reserves. The range of reasonably
likely changes in the severity of our claims

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was established based on a review of changes in loss year development and applied to loss 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

-10.0%
-7.5%
-5.0%
-2.5%

Base

2.5%
5.0%
7.5%
10.0%

Year Ended December 31, 2014

Reserves

44,017
45,240
46,463
47,685
48,908
50,131
51,353
52,576
53,799

Percentage
change in
equity, net of tax

1.65%
1.23%
0.82%
0.41%
—
-0.41%
-0.82%
-1.23%
-1.65%

Economic Impact of Reinsurance Contracts with Retrospective Provisions. Certain of our reinsurance contracts

include retrospective provisions that adjust premiums, increase the amount of future coverage, or result in profit commissions in the
event losses are minimal or zero. In accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”), we will recognize an asset in the period in which the absence of loss experience gives rise to an increase in future coverage
or 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. Such adjustments to the asset, which accrue throughout the contract term, will
negatively impact our operating results should a catastrophic loss event occur during the contract term.

For the years ended December 31, 2014 and 2013, we accrued benefits of $20,794 and $8,815, respectively, and deferred

recognition of $2,749 and $3,706, respectively, in ceded premiums for total reductions in ceded premiums of $23,543 and $12,521,
respectively. As of December 31, 2014, we have accrued a benefit of $28,123 and deferred recognition of $6,456 in ceded premiums,
amounts that would be charged to earnings in the event we experience a catastrophic loss that exceeds the coverage limits provided
under such agreements and in the period that the increased coverage is applicable, respectively. At December 31, 2013, we had
$8,815 of accrued benefits and $3,706 of ceded premiums deferred related to these agreements. In June 2014, we received $1,485
under the terms of one retrospective reinsurance contract, which terminated May 31, 2014.

Income Taxes. We account for income taxes in accordance with U.S. GAAP, resulting in two components of income tax
expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying
the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. We determine deferred income
taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects
of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized
in the period in which they occur. Valuation allowances are provided against assets that are not likely to be realized, if any. We have
elected to classify the related interest and penalties, if any, as income tax expense as permitted by current accounting standards.

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Stock-Based Compensation. We account for our stock option and incentive plan under the fair value recognition

provisions of U.S. GAAP, which requires the measurement, and recognition of compensation for all stock-based awards made to
employees and non-employee directors including stock options and restricted stock issuances based on estimated fair values. We
recognize stock-based compensation in the consolidated statements of income on a straight-line basis over the vesting period. We
use the Black-Scholes option-pricing model, which requires the following variables for input to calculate the fair value of each stock
award on the option grant date: 1) expected volatility of our stock price, 2) the risk-free interest rate, 3) expected term of each award,
4) expected dividends, and 5) an expected forfeiture rate. For restricted stock awards with market-based conditions, we estimate
their fair values by using a Monte Carlo simulation model, which requires the following variables for input: 1) expected dividends per
share, 2) expected volatility, 3) risk-free interest rate, 4) estimated cost of capital, and 5) expected term of each award.

ITEM 7A – Quantitative and Qualitative Disclosures About Market Risk

Our investment portfolios at December 31, 2014 included fixed-maturity and equity securities, the purposes of which are

not for trading or speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet
policyholder 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 investment companies and are overseen by the investment committee appointed by our board of directors.

Our investment portfolios are 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 portfolios.

We classify our fixed-maturity and equity 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 the carrying value of our stockholders’ equity.

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Interest Rate Risk

Our 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 fixed-maturity

securities at December 31, 2014 (in thousands):

Hypothetical Change in Interest Rates
300 basis point increase
200 basis point increase
100 basis point increase
100 basis point decrease
200 basis point decrease
300 basis point decrease

Credit Risk

Change
in
Estimated
Fair Value
$(11,888)
(7,925)
(3,963)
3,951
7,613
10,158

Percentage
Increase
(Decrease) in
Estimated
Fair Value

(12.25)%
(8.16)%
(4.08)%
4.07%
7.84%
10.46%

Estimated
Fair Value
$ 85,196
89,159
93,121
101,035
104,697
107,242

Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the

issuers of our fixed-maturity securities. We mitigate the risk by investing in fixed-maturity securities that are generally investment
grade and by diversifying our investment portfolio to avoid concentrations in any single issuer or business sector.

The following table presents the composition of our fixed-maturity securities, by rating, at December 31, 2014 (in

thousands):

Comparable Rating
AAA
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
BB+, BB, BB-
Not rated

Total

% of
Total
Amortized
Cost

2
18
33
33
7
7

Estimated
Fair Value
$ 2,293
17,106
32,784
32,386
5,974
6,541

% of
Total
Estimated
Fair Value
2
18
34
33
6
7

100

$ 97,084

100

Amortized
Cost

$ 2,287
16,984
32,072
31,996
6,254
6,570

$ 96,163

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Equity Price Risk

Our equity investment portfolio at December 31, 2014 included common stocks, perpetual preferred stocks, mutual funds

and exchange traded funds (“ETF”). 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 allocation techniques.

The following table illustrates the composition of our equity securities at December 31, 2014 (in thousands):

Stocks by sector:
Financial
Energy
Consumer
Other (1)

Mutual funds and ETF by type:

Debt
Equity

Total

Estimated
Fair Value

$ 29,361
3,003
4,047
294

36,705

7,550
1,295

8,845

% of Total
Estimated
Fair Value

64
7
9
1

17
2

$ 45,550

100

(1) Represents an aggregate of less than 5% sectors.

Foreign Currency Exchange Risk

At December 31, 2014, we did not have any material exposure to foreign currency related risk.

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ITEM 8 – Financial Statements and Supplementary Data

Index to Financial Statements

Reports of Independent Registered Public Accounting Firm:

Reports of Dixon Hughes Goodman LLP, Independent Registered Public Accounting firm
Report of Hacker, Johnson & Smith PA, Independent Registered Public Accounting firm

Consolidated Balance Sheets at December 31, 2014 and 2013
Consolidated Statements of Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to the Consolidated Financial Statements for the Years Ended December 31, 2014, 2013 and 2012

Page

50-51
52
53
54
55
56-58
59-60
61-107

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of
HCI Group, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of HCI Group, Inc. and Subsidiaries (the “Company”) as

of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity,
and cash flows for each of the years in the two-year period ended December 31, 2014. The Company’s management is responsible
for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United

States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of HCI Group, Inc. and Subsidiaries as of December 31, 2014 and 2013, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 2014, 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), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 10, 2015, expressed an unqualified opinion.

/s/ Dixon Hughes Goodman LLP

Clearwater, Florida
March 10, 2015

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Report of Independent Registered Public Accounting Firm on Internal Control

To the Board of Directors and Stockholders of
HCI Group, Inc. and Subsidiaries

We have audited HCI Group, Inc. and Subsidiaries’ (the “Company”) internal control over financial reporting as of

December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). 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 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United

States). 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 of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

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.

In our opinion, HCI Group, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial

reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United

States), the consolidated balance sheets and the related consolidated statements of income, comprehensive income, stockholders’
equity, and cash flows of HCI Group, Inc. and Subsidiaries, and our report dated March 10, 2015, expressed an unqualified opinion
on those consolidated financial statements.

/s/ Dixon Hughes Goodman LLP

Clearwater, Florida
March 10, 2015

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
HCI Group, Inc.
Tampa, Florida:

We have audited the consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows of
HCI Group, Inc. and Subsidiaries (the “Company”) for the year ended December 31, 2012. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United

States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated results of the Company’s operations, comprehensive income and cash flows for the year ended December 31, 2012, in
conformity with accounting principles generally accepted in the United States of America.

/s/ Hacker, Johnson & Smith PA

HACKER, JOHNSON & SMITH PA
Tampa, Florida
March 10, 2015

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HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)

Assets

Fixed-maturity securities, available for sale, at fair value (amortized cost: $96,163 and $110,738,

respectively)

Equity securities, available for sale, at fair value (cost: $45,387 and $17,248, respectively)
Limited partnership investment, at equity
Investment in joint venture, at equity
Real estate investments

Total investments
Cash and cash equivalents
Accrued interest and dividends receivable
Income taxes receivable
Premiums receivable
Prepaid reinsurance premiums
Deferred policy acquisition costs
Property and equipment, net
Deferred income taxes, net
Other assets

Total assets

Liabilities and Stockholders’ Equity

Losses and loss adjustment expenses
Unearned premiums
Advance premiums
Assumed reinsurance balances payable
Accrued expenses
Dividends payable
Income taxes payable
Deferred income taxes, net
Long-term debt
Other liabilities

Total liabilities

Commitments and contingencies (Note 17)
Stockholders’ equity:

7% Series A cumulative convertible preferred stock (liquidation preference $10.00 per share), no par
value, 1,500,000 shares authorized, 0 and 110,684 shares issued and outstanding in 2014 and
2013, respectively

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, 10,189,128 and 10,939,268 shares

issued and outstanding in 2014 and 2013, respectively)

Additional paid-in capital
Retained income
Accumulated other comprehensive income, net of taxes

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying Notes to Consolidated Financial Statements.

December 31,

2014

2013

$ 97,084 $112,151
17,649
—
—
16,228

45,550
2,550
4,477
19,138

168,799
314,716
1,059
2,624
15,824
34,096
15,014
12,292
2,499
35,287

146,028
293,398
1,133
—
14,674
28,066
14,071
13,132
—
15,814

$602,210

$526,316

$ 48,908
214,071
4,380
218
4,826
—
—
—
129,539
17,683

$ 43,686
171,907
4,504
4,660
4,032
19
543
2,740
126,932
6,772

419,625

365,795

—

—
—

—

—
—

—
20,465
161,454
666

—
48,966
110,441
1,114

182,585

160,521

$602,210

$526,316

Years Ended December 31,
2013

2014

2012

$ 365,488 $ 337,113 $233,607
(75,939)

(113,423)

(102,865)

252,065

234,248

157,668

4,781
2,820
4,735
—
1,707

1,469
3,098
80
—
2,193

980
2,538
276
179
1,424

266,108

241,088

163,065

79,468
37,952
16,483
10,453
—
20,790

65,123
31,619
14,714
3,607
—
19,572

66,310
25,930
10,545
—
161
10,539

165,146

134,635

113,485

100,962

106,453

49,580

38,298

40,891

19,423

$ 62,664

$ 65,562

$ 30,157

(104)

(322)

$ 62,668

$ 65,458

$ 29,835

5.90

5.36

1.10

5.82

5.63

0.95

3.45

3.02

0.88

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollar amounts in thousands, except per share amounts)

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Revenue

Gross premiums earned
Premiums ceded

Net premiums earned

Net investment income
Policy fee income
Net realized investment gains
Gain on bargain purchase
Other

Total revenue

Expenses

Losses and loss adjustment expenses
Policy acquisition and other underwriting expenses
Salaries and wages
Interest expense
Goodwill impairment loss
Other operating expenses

Total expenses

Income before income taxes

Income tax expense

Net income

Preferred stock dividends

Income available to common stockholders

Basic earnings per common share

Diluted earnings per common share

Dividends per common share

See accompanying Notes to Consolidated Financial Statements.

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HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Dollar amounts in thousands)

Net income

Other comprehensive (loss) income:
Change in unrealized (loss) gain on investments:
Net unrealized gain (loss) arising during the period
Other-than-temporary impairment loss charged to investment income
Call and repayment losses charged to investment income
Reclassification adjustment for net realized gain

Net change in unrealized (loss) gain
Deferred income taxes on above change

Total other comprehensive (loss) income, net of income taxes

Comprehensive income

See accompanying Notes to Consolidated Financial Statements.

Years Ended December 31,

2014

2013

2012

$62,664 $65,562 $30,157

3,870
107
28
(4,735)

(767)
—
24
(80)

2,571
—
3
(276)

(730)
282

(448)

(823)
317

2,298
(886)

(506)

1,412

$62,216

$65,056

$31,569

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Balance at December 31,

2013
Net income
Total other comprehensive
loss, net of income taxes
Conversion of preferred stock

to common stock

Issuance of restricted stock
Exercise of common stock

options

Forfeiture of restricted stock
Repurchase and retirement of

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
For the Year Ended December 31, 2014
(Dollar amounts in thousands)

Additional

Series A Preferred Stock
Amount

Common Stock
Shares

Amount Capital

Paid-In Retained
Income

Accumulated
Other
Comprehensive
Income, Net
of Tax

Total
Stockholders’
Equity

110,684 $ — 10,939,268 $ — $ 48,966 $110,441 $
— 62,664

— —

—

1,114 $
—

160,521
62,664

—

— —

—

(448)

(107,298)
—

—
—

107,298 —
108,720 —

—
—

50,000 —
(10,840) —

—
—

125
—

—
—

125
—

common stock

—

(14,617) —

(643)

—

(643)

Repurchase and retirement of
common stock under share
repurchase plan

Redemption of Series A

preferred stock

Deferred taxes on debt

discount

Common stock dividends
Derecognition of preferred
stock dividends payable
Tax benefits on stock-based

compensation

Stock-based compensation

Balance at December 31,

—

(990,701) — (38,354)

—

(38,354)

(3,386)

—

— —

(34)

—

(34)

—
—

— —
— —

215
—
— (11,655)

—
—

215
(11,655)

—

— —

—

—
—

— —
— —

2,080
8,110

—
—

2,080
8,110

2014

— $ —

10,189,128 $ — $ 20,465 $161,454 $

666 $

182,585

Table of Contents

Balance at December 31,

2012
Net income
Total other comprehensive
loss, net of income taxes
Conversion of preferred stock

to common stock

Issuance of restricted stock
Forfeiture of restricted stock
Repurchase and retirement of

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity – (Continued)
For the Year Ended December 31, 2013
(Dollar amounts in thousands)

Additional

Series A Preferred Stock
Amount

Common Stock
Shares

Amount Capital

Paid-In Retained
Income

Accumulated
Other
Comprehensive,
Net of
Tax

Total
Stockholders’
Equity

241,182 $ — 10,877,537 $ — $ 63,875 $ 55,758 $
— 65,562

— —

—

1,620 $
—

121,253
65,562

—

— —

—

(506)

(130,498)
—
—

—
—
—

130,498 —
612,000 —
(29,670) —

—
—
—

common stock

—

(28,346) —

(963)

—

(963)

Repurchase of common stock

under prepaid forward
contract

Equity component on 3.875%
convertible senior notes
(net of offering costs of
$557)

Deferred taxes on debt

discount

Common stock dividends
Preferred stock dividends
Tax benefits on stock-based

compensation

Stock-based compensation

Balance at December 31,

—

(622,751) — (29,923)

—

(29,923)

—

— — 15,900

—

15,900

—
—
—

—
—

—
—
—

—
—

— —
— —
— —

(6,348)

—
— (10,775)
(104)
—

— —
— —

1,060
5,365

—
—

—
—
—

—
—

(6,348)
(10,775)
(104)

1,060
5,365

2013

110,684 $ —

10,939,268 $ — $ 48,966 $110,441 $

1,114 $

160,521

Table of Contents

Balance at December 31,

2011
Net income
Total other comprehensive

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity – (Continued)
For the Year Ended December 31, 2012
(Dollar amounts in thousands)

Additional

Series A Preferred Stock
Amount

Common Stock
Shares

Amount Capital

Paid-In Retained
Income

Accumulated
Other
Comprehensive
Income, Net
of Tax

Total
Stockholders’
Equity

1,247,700 $ — 6,202,485 $ — $ 29,636 $33,986 $
— 30,157

— —

208 $
—

63,830
30,157

income, net of income taxes

— —

1,412

Exercise of common stock

options

Shares surrendered upon

exercising common stock
options

Exercise of common stock

warrants

Excess tax benefit from stock

— —

340,000 —

283 —

—

283

— —

(72,592) —

— —

—

— — 1,314,806 — 11,869 —

—

11,869

options exercised

— —

1,161 —

—

1,161

Conversion of preferred stock

to common stock

Issuance of restricted stock
Issuance of common stock
(net of offering costs of
$220)

Common stock dividends
Preferred stock dividends
Stock-based compensation

Balance at December 31,

(1,006,518) — 1,006,518 —
246,320 —

— —

— —
— —

—
—

— — 1,840,000 — 20,082 —
— (8,063)
— —
—
— —
(322)
844 —
— —

— —
— —
— —

—
—
—
—

20,082
(8,063)
(322)
844

2012

241,182 $ —

10,877,537 $ — $ 63,875 $55,758 $

1,620 $

121,253

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

(Amounts in thousands)

Years Ended December 31,
2013

2014

2012

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation
Net amortization of discounts and premiums on investments in fixed-maturity

$ 62,664 $ 65,562 $ 30,157

8,110

5,365

844

securities

Depreciation and amortization
Deferred income tax (benefit) expense
Net realized investment gains
Other-than-temporary impairment charge
Income from real estate investments
Loss from joint venture
Loss from limited partnership interest
Gain on bargain purchase
Goodwill impairment loss
(Gain) loss on sale of real estate investment
Loss on disposal of real estate investment
Foreign currency remeasurement loss
Changes in operating assets and liabilities:
Premiums and reinsurance receivable
Advance premiums
Prepaid reinsurance premiums
Accrued interest and dividends receivable
Other assets
Assumed reinsurance balances payable
Deferred policy acquisition costs
Losses and loss adjustment expenses
Unearned premiums
Income taxes
Accrued expenses and other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

782
4,958
(4,742)
(4,735)
107
(85)
23
90
—
—
(1)
—
29

336
2,103
557
(80)
—
—
—
—
—
—
20
6
69

279
1,591
(2,366)
(276)
—
—
—
—
(179)
161
—
—
23

(1,150)
(124)
(6,030)
74
(19,845)
(4,442)
(943)
5,222
42,164
(3,167)
9,770

(4,032)
475
(18,954)
(758)
(9,728)
3,283
(4,039)
2,518
17,658
(8,270)
3,381

3,267
1,897
5,057
33
(803)
1,377
2,289
13,744
45,572
3,857
(258)

88,729

55,472

106,266

Cash consideration paid for acquired business, net of cash acquired
Investment in real estate under acquisition, development, and construction arrangement
Investment in limited partnership interest
Investment in joint venture
Purchase of property and equipment
Purchase of real estate investments
Purchase of fixed-maturity securities
Purchase of equity securities
Proceeds from sales of fixed-maturity securities
Proceeds from calls, repayments and maturities of fixed-maturity securities
Proceeds from sales of equity securities
Proceeds from sales of property and equipment
Proceeds from sales of real estate investments
Time deposits, net

—
(2,803)
(2,640)
(4,500)
(453)
(413)
(83,365)
(44,257)
98,365
4,603
16,810
—
1
—

—
—
—
—
(3,433)
(565)
(82,907)
(11,308)
1,749
3,607
2,809
1
7
—

(8,157)
—
—
—
(1,196)
(1,600)
(10,128)
(6,410)
8,991
3,127
1,735
—
—
12,427

Net cash used in investing activities

(18,652)

(90,040)

(1,211)

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows – (Continued)

(Amounts in thousands)

Years Ended December 31,
2013

2014

2012

Cash flows from financing activities:

Net proceeds from the issuance of common stock
Proceeds from the exercise of common stock options
Proceeds from the exercise of common stock warrants
Proceeds from the issuance of long-term debt
Cash dividends paid
Cash dividends received under share repurchase forward contract
Repurchases of common stock
Repurchases of common stock under share repurchase plan
Redemption of Series A preferred stock
Debt issuance costs
Tax benefits on stock-based compensation

Net cash (used) provided by financing activities

Effect of exchange rate changes on cash

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosure of cash flow information:

Cash paid for income taxes

Cash paid for interest

Non-cash investing and financing activities:

Unrealized (loss) gain on investments in available-for-sale securities, net of tax

Conversion of Series A preferred stock to common stock

See accompanying Notes to Consolidated Financial Statements.

—
125
—
—
(12,355)
685
(643)
(38,354)
(34)
(234)
2,080

—
—
—
143,250
(10,902)
—
(30,886)
—
—
(4,770)
1,060

20,082
283
11,869
—
(8,561)
—
—
—
—
(35)
1,161

(48,730)

97,752

24,799

(29)

—

21,318
293,398

63,184
230,214

129,859
100,355

$314,716

$293,398

$230,214

$ 43,902

$ 47,435

$ 16,710

6,258

2,531

—

(448) $

(506) $

1,412

972

1,170

9,121

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 1 — Nature of Operations

HCI Group, Inc. together with the insurance and non-insurance subsidiaries (“HCI” or the “Company”), is primarily engaged

in the property and casualty insurance business through Homeowners Choice Property & Casualty Insurance Company, Inc.
(“HCPCI”), its principal operating subsidiary. HCPCI is authorized to underwrite various homeowners’ property and casualty insurance
products in the state of Florida. HCPCI’s operations are supported by the following HCI subsidiaries:

•

Homeowners Choice Managers, Inc. – acts as managing general agent and provides marketing, underwriting,

claims settlement, accounting and financial services to HCPCI;

Southern Administration, Inc. – provides policy administration services to HCPCI; and

Claddaugh Casualty Insurance Company, Ltd. – participates in the reinsurance program to HCPCI.

Homeowners Choice Assurance Company, Inc. was organized and was approved and licensed by the Alabama
Department of Insurance in August 2013. During 2014, HCPCI was also approved to underwrite excess and surplus lines insurance
products in Maryland, New Jersey, South Carolina, and Virginia.

In addition, HCI has various subsidiaries primarily engaged in the businesses of owning and leasing real estate, operating

marina facilities and one restaurant, and developing software.

The Company reports its operations under one business segment.

The Company obtained a majority of its policies through participation in a “take-out program” with Citizens Property

Insurance Corporation (“Citizens”), a Florida state supported insurer. Policies were obtained in eleven separate assumption
transactions with Citizens that took place from July 2007 through December 2014. The Company is required to offer renewals on the
policies acquired for a period of three years subsequent to the initial expiration of the assumed policies. During the first full year after
assumption, such renewals are required to have rates that are equivalent to or less than the rates charged by Citizens. The
Company’s premium revenue since inception comes from these assumptions and one additional assumption from HomeWise
Insurance Company (“HomeWise”) in November 2011 through which the Company acquired the Florida policies of HomeWise.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

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 and its

majority-owned and controlled subsidiaries. All significant intercompany accounts 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. When a VIE is not consolidated, the Company uses the equity method to
account for the investment. Under this method, the carrying value is generally the Company’s share of the net asset value of the
unconsolidated entity, and changes in the Company’s share of the net asset value are recorded in net investment income.

Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ materially from these estimates. Material estimates that are
particularly susceptible to significant change in the near term are primarily related to losses and loss adjustment expenses,
reinsurance with retrospective provisions, deferred income taxes, and stock-based compensation expense.

Cash and Cash Equivalents. The Company considers all short-term highly liquid investments with original maturities of

less than three months to be cash and cash equivalents. At December 31, 2014 and 2013, cash and cash equivalents consist of cash
on deposit with financial institutions and securities brokerage firms and also includes a $300 statutory deposit held by the State of
Florida for the benefit of all policyholders.

Investments in Available-for-Sale Securities. Investments consist of fixed-maturity and equity securities. Fixed-maturity

securities include debt securities and redeemable preferred stock. Securities may be classified as either trading, held to maturity or
available-for-sale. The Company’s available-for-sale securities are carried at fair value. Temporary changes in the fair value of
available-for-sale securities are excluded from net investment income and reported in stockholders’ equity as a component of
accumulated other comprehensive income, net of deferred income taxes. Realized investment gains and losses from sales 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 investment income using the interest
method over the estimated remaining term of the security. Gains and losses from call redemptions and repayments are charged to
investment income.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

The Company reviews all securities for other-than-temporary impairment on a quarterly basis and more frequently when
economic or market conditions warrant such review. When the fair value of any investment is lower than its cost, an assessment is
made to determine whether the decline is temporary or other-than-temporary. If the decline is determined to be other-than-temporary,
the investment is written down to fair value and an impairment charge is recognized in income in the period in which the Company
makes such determination. For a debt security that the Company does not intend to sell nor is it more likely than not that the
Company will be required to sell before recovery of its amortized cost, only the credit loss component of the impairment is recognized
in income, while the impairment related to all other factors is recognized in other comprehensive income. The Company considers
various factors in determining whether an individual security is other-than-temporarily impaired (see Note 4 — “Investments”).

Limited Partnership Investment. The Company has interest in a limited partnership that is not registered under the

United Stated Securities Act of 1933, as amended, the securities laws of any state or the securities laws of any other jurisdictions.
The partnership interest cannot be resold in the public market and any withdrawal is subject to the terms and conditions of the
partnership agreement. The Company has no influence over partnership operating and financial policies. The Company did not elect
the fair value option and, therefore, uses the equity method to account for this investment (see Note 4 — “Investments”). The
Company will generally recognize its share of the limited partnership’s earnings on a three- to six-month lag.

Investment in Joint Venture. The Company has a 90% equity interest in a joint venture that was organized to acquire and

develop land on which the joint venture partners plan to construct a retail shopping center (see Note 4 — “Investments”) for lease or
for sale. The joint venture was determined to be a variable interest entity as it lacks sufficient equity to finance its activities without
additional subordinated financial support. Despite having a majority equity interest, the Company does not have a controlling financial
interest and, accordingly, is not required to consolidate the joint venture as its primary beneficiary.

In addition, the joint venture agreement contains an embedded purchase option the Company can exercise to purchase

the entire interest of the other party to the joint venture after the expiration of a restricted period. The Company determined the
embedded purchase option is not required to be bifurcated and fair value accounting at each reporting date is not applicable. Due to
the lack of a controlling financial interest and until the embedded purchase option becomes exercisable, the Company uses the equity
method rather than consolidation to account for its investment in the joint venture.

Real Estate Investments. Real estate investments consist of an acquisition, development and construction loan

agreement (“ADC Arrangement”) and also real estate and the related assets purchased for investment purposes (see Note 4 —
“Investments”).

Under the ADC Arrangement, the Company provides financing to a property developer for the acquisition, development,

and construction of a retail shopping center. The Company also expects to participate in the residual profit resulting from the ultimate
sale or other use of the property. Classification and accounting for the ADC Arrangement as a loan, an investment in real estate, or a
joint venture is determined by the Company’s evaluation of the characteristics and the risks and rewards of

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

the ADC Arrangement. If the Company expects to receive more than 50% of the residual profit from the ADC Arrangement and it has
characteristics similar to a real estate investment, the costs of the real estate project will be capitalized and interest will be recognized
in net investment income.

In addition, the Company considers any rights or features embedded in the ADC Arrangement that may require bifurcation

and derivative accounting. Due to its participation in the expected residual profit, which is deemed a variable interest, the Company
evaluates its involvements in the design and essential activities of the entity to which the Company provides financing for possible
consolidation as the primary beneficiary under the Variable Interest Model.

Any subsequent changes in terms, rights or the developer’s equity interest that may result in a reclassification or a change

in the accounting treatment of the ADC Arrangement will be evaluated. The Company will continually assess the collectability of
principal, accrued interest and fees.

Real estate and the related depreciable assets are carried at cost, net of accumulated depreciation, which is included in
net investment income and allocated over the estimated useful life of the asset using the straight-line method of depreciation. Real
estate is 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”) primarily represent commissions paid to

outside agents at the time of collection of the policy premium and premium taxes and are amortized over the life of the related policy
in relation to the amount of gross premiums earned.

The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value, which
gives effect to the gross premium earned, related investment income, unpaid losses and LAE and certain other costs expected to be
incurred as the premium is earned.

DAC is reviewed to determine if it is recoverable from future income, including investment income. If such costs are

determined to be unrecoverable, they are expensed at the time of determination. The amount of DAC considered recoverable could
be reduced in the near term if the estimates of total revenues discussed above 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 estimates
discussed above are revised.

Property and Equipment. Property and equipment is stated at cost less accumulated depreciation and amortization,

which is included in other operating expenses. Depreciation is calculated on a straight-line basis over the estimated useful lives as
follows: building 39 years; computer hardware and software 3 years; office and furniture equipment 3 to 7 years. Leasehold
improvements are amortized over the shorter of the lease term or the asset’s 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.

Impairment of Long-Lived Assets. Long-lived assets, such as property and equipment, are reviewed for impairment

annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
The Company assesses the recoverability of long-lived

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

assets by determining whether the assets can be recovered from undiscounted future cash flows. Recoverability of long-lived assets
is dependent upon, among other things, the Company’s ability to maintain profitability, so as to be able to meet its obligations when
they become due. In the opinion of management, based upon current information and projections, long-lived assets will be recovered
over the period of benefit.

Long-Term Debt. Long-term debt is generally classified as a liability and carried at amortized cost, net of any discount. 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. If such instrument is not subject to derivative accounting, it is further evaluated to
determine if the Company is required to separately account for the liability and equity components.

To determine the carrying values of the liability and equity components at issuance, the Company measures the fair value

of a similar liability, including any embedded features other than the conversion option, and assigns such value to the liability
component. The liability component’s fair value is then subtracted from the initial proceeds to determine the carrying value of the debt
instrument’s equity component, which is included in additional paid-in capital.

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 nonsubstantive and would not impact the initial measurement and expected life of the debt
instrument’s liability component.

Transaction costs related to issuing a debt instrument that embodies both liability and equity components are allocated to

the liability and equity components in proportion to the allocation of the proceeds and accounted for as debt issuance costs and equity
issuance costs, respectively. Debt issuance costs are recognized in other assets. Both debt discount and deferred debt issuance
costs are amortized to interest expense over the expected life of the debt instrument using the effective interest method. Equity
issuance costs are a reduction to the proceeds allocated to the equity component.

Prepaid Share Repurchase Forward Contract. A prepaid share repurchase forward contract is generally a contract that
allows the Company to buy from the counterparty a specified number of common shares at a specific time at a given forward price.
The Company entered into such a contract in December 2013 and evaluated the characteristics of the forward contract to determine
whether it met the definition of a derivative financial instrument pursuant to U.S. GAAP. The Company determined the forward
contract is an equity contract on the Company’s common shares requiring physical settlement in common shares of the Company. As
such, the transaction is recognized as a component of stockholders’ equity with a charge to additional paid-in capital equal to the
prepayment amount, which represents the cash paid to the counterparty. There will be no recognition in earnings for changes in fair
value in subsequent periods.

Losses and Loss Adjustment Expenses. Reserves for losses and loss adjustment expenses (“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. Changes in the estimated liability are
charged or credited to income as the losses and LAE are settled.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

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.

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.

Reinsurance. In the normal course of business, the Company seeks to reduce the loss that may arise from catastrophes
or other events that cause unfavorable underwriting results 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 each year. The Company purchases reinsurance each year taking into consideration
probable maximum losses and reinsurance market conditions. Amounts recoverable from reinsurers would be estimated in a manner
consistent with the applicable reinsurance contract(s). Reinsurance premiums 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 ceded to other companies have been reported as a reduction of gross premiums earned. Prepaid reinsurance
premiums represent the unexpired portion of premiums ceded to reinsurers.

Certain of the Company’s current contracts contain retrospective provisions including terms and conditions that adjust

premiums, increase the amount of future coverage, or result in profit commissions based on the loss experience under the contracts.
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, profit commissions and coverage changes 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 are reflected in the Company’s current operations and recorded in other assets until received upon the expiration of the
contracts.

Premium Revenue. 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 premium related to the unexpired policy term. The
Company reviews its policy detail and establishes an allowance for any amount outstanding for more than 90 days. As of
December 31, 2014 and 2013, there was no allowance required.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

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. Effective October 1, 2013 on a prospective basis, policy fees are recognized ratably
over the policy coverage period. Prior to October 1, 2013, the fees were recognized in income when the policy was written on the
basis that the revenues were appropriately matched to the Company’s incremental direct costs related to policy underwriting.

Florida Insurance Guaranty Association Assessments. The Company may be assessed by the state guaranty
association. 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. The Company is permitted by Florida statutes 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 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 allocates taxes among its wholly

owned subsidiaries in accordance with a written tax-allocation agreement.

The Company accounts for income taxes in accordance with U.S. GAAP, resulting in two components of income tax

expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying
the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines
deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based
on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and
laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax
assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained
upon examination. The term “more likely than not” means a likelihood of more than fifty percent; the terms “examined” and “upon
examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-
than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than fifty
percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The
determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts,
circumstances,

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax
asset will not be realized. As of December 31, 2014, management is not aware of any uncertain tax positions that would have a
material effect on the Company’s consolidated financial statements.

Fair Value of Financial Instruments. The carrying amounts for the Company’s cash and cash equivalents approximate

their fair values at December 31, 2014 and 2013. Fair values for securities are based on the framework for measuring fair value
established by U.S. GAAP (see Note 5 — “Fair Value Measurements”).

Stock-Based Compensation. The Company accounts for stock-based compensation under the fair value recognition

provisions of U.S. GAAP which requires the measurement and recognition of compensation for all stock-based awards made to
employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with
U.S. GAAP, the fair value of stock-based awards is generally recognized as compensation expense over the requisite service period,
which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses
a straight-line attribution method for all grants that include only a service condition. The Company’s restricted stock awards include
service, market and performance conditions. As a result, restricted stock grants with market condition are expensed over the derived
service period for each separately vesting tranche. For awards with performance conditions, the Company recognizes compensation
expense over the requisite service period when it is probable that the performance condition will be achieved. Compensation
expense related to all awards is included in other operating expense.

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income

attributable to common stockholders by the weighted-average number of common shares outstanding for the period. U.S. GAAP
requires the inclusion of restricted stock as participating securities since holders of the Company’s restricted stock have the right to
share in dividends, if declared, equally with common stockholders. During periods of net income, participating securities are allocated
a proportional share of net income determined by dividing total weighted-average participating securities by the sum of total weighted-
average common shares and participating securities (the “two-class method”). Diluted earnings per common share reflect the
potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted as well as
participating equities. See Note 13 — “Earnings Per Share” for potentially dilutive securities at December 31, 2014, 2013 and 2012.

Reclassifications. Certain reclassifications of prior year amounts have been made to conform to the current year

presentation.

Note 3 — Recent Accounting Pronouncements

Accounting Standards Update No. 2014-15. In August 2014, the FASB issued Accounting Standards Update No. 2014-

15 (“ASU 2014-15”), Presentation of Financial Statements – Going Concern (Subtopic 205-40). The purpose of this update is to
provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to
continue as a

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

going concern and to provide related footnote disclosures. ASU 2014-15 applies to all reporting entities and is effective for the annual
period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. Adoption
of this guidance is expected to have no effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2014-12. In June 2014, the FASB issued Accounting Standards Update No. 2014-12

(“ASU 2014-12”), Compensation – Stock Compensation (Topic 718). ASU 2014-12 applies to all reporting entities that grant
employees share-based payments in which the terms of the award provide that a performance target affecting vesting could be
achieved after the requisite service period. ASU 2014-12 is effective for all entities for reporting periods beginning after December 15,
2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or
modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning
of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. Although the
Company has share-based awards with performance targets, such awards do not permit vesting when a performance target is
achieved after termination of an employee’s service. Adoption of this guidance had no effect on the Company’s consolidated financial
statements.

Accounting Standards Update No. 2014-09. In May 2014, the FASB issued Accounting Standards Update No. 2014-09

(“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes the revenue recognition
requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the
Codification. ASU 2014-09 also amends the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial
assets that are not in a contract with a customer to be consistent with the guidance in this ASU. ASU 2014-09 is effective for public
entities for reporting periods beginning after December 15, 2016. Early adoption is not permitted. While the guidance specifically
excludes revenues from insurance contracts, investments and financial instruments from the scope of the new guidance, the guidance
will be applicable to the Company’s other forms of revenue not specifically exempted from the guidance. The adoption of this
guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Table of Contents

Note 4 — Investments

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale.

At December 31, 2014 and 2013, the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the
Company’s available-for-sale securities by security type were as follows:

As of December 31, 2014
Fixed-maturity securities
U.S. Treasury and U.S. government agencies
Corporate bonds
Mortgage-backed securities
State, municipalities, and political subdivisions
Redeemable preferred stock
Other

Total

Equity securities

Cost or
Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Estimated
Fair
Value

$
3,747
24,342
2,138
56,336
9,433
167

96,163
45,387

9
57
4
1,205
178
1

1,454
1,694

(8)
(430)
(3)
(38)
(54)
—

(533)
(1,531)

$
3,748
23,969
2,139
57,503
9,557
168

97,084
45,550

Total available-for-sale securities

$141,550

3,148

$ (2,064)

$142,634

As of December 31, 2013
Fixed-maturity securities
U.S. Treasury and U.S. government agencies
Corporate bonds
Mortgage-backed securities
State, municipalities, and political subdivisions
Redeemable preferred stock

Total

Equity securities

$
4,549
25,139
10,929
69,715
406

110,738
17,248

37
484
499
917
5

1,942
920

(22)
(219)
(96)
(181)
(11)

(529)
(519)

$
4,564
25,404
11,332
70,451
400

112,151
17,649

Total available-for-sale securities

$127,986

2,862

$ (1,048)

$129,800

At December 31, 2014 and 2013, $113 and $105, respectively, of U.S. Treasury securities relate to a statutory deposit held

in trust for the Treasurer of Alabama.

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with
or without penalties. The scheduled contractual maturities of fixed-maturity securities at December 31, 2014 and 2013 are as follows:

Available-for-sale
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed securities

December 31,

2014

2013

Amortized
Cost

Estimated
Fair
Value

Amortized
Cost

Estimated
Fair
Value

715
$
25,973
57,157
10,180
2,138

721
$
26,093
57,560
10,571
2,139

2,366
$
24,829
59,083
13,531
10,929

2,381
$
25,145
59,582
13,711
11,332

$ 96,163

$ 97,084

$110,738

$112,151

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Sales of Available-for-Sale Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the years ended

December 31, 2014, 2013 and 2012 were as follows:

Year ended December 31, 2014
Fixed-maturity securities

Equity securities

Year ended December 31, 2013
Fixed-maturity securities

Equity securities

Year ended December 31, 2012
Fixed-maturity securities

Equity securities

Gross
Realized

Proceeds

Gains

Gross
Realized
Losses

$ 98,365

$ 4,096

(98)

$ 16,810

$ 1,372

$ (635)

$ 1,749

$ 2,809

$ 8,991

$ 1,735

(4)

155

$ (163)

421

(6)

$ (230)

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment. The Company

considers various factors in determining whether each individual security is other-than-temporarily impaired, including:

•

the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or

earnings;

•

the length of time and 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;

nonpayment by the issuer of its contractually obligated interest and principal payments; and

the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Securities with gross unrealized loss positions at December 31, 2014 and 2013, aggregated by investment category and

length of time the individual securities have been in a continuous loss position, are as follows:

As of December 31, 2014
Fixed-maturity securities
U.S. treasury and U.S. government agencies
Corporate bonds
Mortgage-backed securities
State, municipalities, and political subdivisions
Redeemable preferred stock

Total fixed-maturity securities
Equity securities

Total available-for-sale securities

Less Than Twelve Months

Twelve Months or
Greater

Total

Gross
Unrealized
Loss

Estimated
Fair
Value

Gross
Unrealized
Loss

Estimated
Fair
Value

Gross
Unrealized
Loss

Estimated
Fair
Value

(8) $
(428)
(3)
(19)
(54)

2,485 $
12,929
1,018
3,144
2,586

— $ — $
998
—
202
—

(2)
—
(19)
—

(8) $ 2,485
(430) 13,927
1,018
3,346
2,586

(3)
(38)
(54)

(512)
(1,449)

22,162
18,848

(21)
(82)

1,200
4,619

(533) 23,362
(1,531) 23,467

(1,961) $ 41,010 $

(103) $ 5,819 $ (2,064) $ 46,829

At December 31, 2014, there were 94 securities in an unrealized loss position. Of these securities, 9 securities had been in

an unrealized loss position for 12 months or greater.

Less Than Twelve Months

Twelve Months or
Greater

Total

Gross
Unrealized
Loss

Estimated
Fair
Value

Gross
Unrealized
Loss

Estimated
Fair
Value

Gross
Unrealized
Loss

Estimated
Fair
Value

As of December 31, 2013
Fixed-maturity securities
U.S. treasury and U.S. government agencies
Corporate bonds
Mortgage-backed securities
State, municipalities, and political subdivisions
Redeemable preferred stock

Total fixed-maturity securities
Equity securities

Total available-for-sale securities

(22) $
(212)
(96)
(181)
(11)

(522)
(273)

3,291 $
9,502
2,179
20,233
239

35,444
10,742

— $ — $
230
—
—
—

(7)
—
—
—

(219)
(96)

(22) $ 3,291
9,732
2,179
(181) 20,233
239

(11)

(7)
(246)

230
1,069

(529) 35,674
(519) 11,811

(795) $ 46,186 $

(253) $ 1,299 $ (1,048) $ 47,485

At December 31, 2013, there were 100 securities in an unrealized loss position. Of these securities, 8 securities had been

in an unrealized loss position for 12 months or greater.

Based on the review, the Company believes the unrealized losses on investments in fixed-maturity securities were caused

by interest rate changes. Because the decline in fair value is attributable to changes in interest rates or market conditions and not
credit quality, and because the Company has the ability and intent to hold these securities and it is not more likely than not that the
Company will be required to sell these securities until a market price recovery or maturity, the Company does not consider any of its
fixed-maturity securities to be other-than-temporarily impaired at December 31, 2014 and 2013.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability

to hold a security for a period of time sufficient to allow for the recovery of cost. In the fourth quarter of 2014, the Company
determined that one equity security was other-than-temporarily impaired after considering the length of time this security had been in
an unrealized loss position, the extent of the decline and its near term prospect of recovery. As a result, the Company recognized an
impairment charge of $107 in net investment income.

Limited Partnership Investment

During the fourth quarter of 2014, the Company entered into a subscription agreement to invest up to a maximum of

$12,500 for a 16.5% limited partnership interest. The primary investment strategy of the partnership is to invest in senior secured
loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. Except under certain
circumstances, the Company is not permitted to withdraw any amount of its capital investment for a minimum of 10 years. The
Company’s involvement is limited to that of a passive investor. As such, the Company is not the primary beneficiary and does not
consolidate the partnership. For the year ended December 31, 2014, the Company recognized a $90 investment loss in net
investment income. At December 31, 2014, the Company’s contributed capital to the partnership is $2,640 and its carrying value and
maximum exposure to loss is $2,550.

Investment in Joint Venture

In September 2014, Melbourne FMA, LLC, a wholly owned subsidiary, entered into a joint venture agreement with FMKT

Sponsor, LLC to organize FMKT Mel JV, LLC (“FMJV”), a Florida limited liability company. Melbourne FMA and FMKT Sponsor
contributed cash of $4,500 and $500, respectively, for equity interests in FMJV of 90% and 10%, respectively. The joint venture will
acquire and develop land on which the joint venture partners plan to construct a retail shopping center for lease or for sale in
Melbourne, Florida. FMJV is deemed a VIE due to its lack of sufficient equity to finance its operations without direct or indirect
additional financial support from parties to the joint venture. Although Melbourne FMA holds a majority interest in FMJV, certain major
economic decisions specified in the agreement are not under Melbourne FMA’s control. As a result, Melbourne FMA is not the
primary beneficiary and is not required to consolidate FMJV.

In addition, FMJV is contractually required to engage affiliates of FMKT Sponsor to manage and develop the project, and

also operate the property while the joint venture agreement is in effect. The agreement includes FMKT Sponsor’s right of sale and
first offer as well as an embedded option under which Melbourne FMA can purchase the entire interest of FMKT Sponsor. Under the
right of sale and first offer, Melbourne FMA can either choose to purchase the interest of FMKT Sponsor in the developed property or
approve the sale of the developed property to a third party buyer. Either party can initiate these provisions after the expiration of a
restricted period.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

At December 31, 2014, the Company’s maximum exposure to loss relating to the VIE was $4,477 representing the carrying
value of the investment. At December 31, 2014, an undistributed $23 loss from equity method investees was included in consolidated
retained income. The joint venture partners received no distributions during 2014. The following tables provide summarized operating
results and the financial position of FMJV:

Operating results:
Revenue
Operating expenses

Net loss

Melbourne FMA’s share of net loss*

Included in net investment income in the Company’s consolidated statements of income.

Balance Sheet:
Construction in progress - real estate
Cash
Other

Total assets

Other liabilities
Members’ capital

Total liabilities and members’ capital

Investment in joint venture, at equity

Year Ended
December 31, 2014
(Unaudited)

—
25

(25)

(23)

December 31,
2014
(Unaudited)

3,612
1,323
40

4,975

—
4,975

4,975

4,477

Real Estate Investments

Real estate investments consist of the ADC Arrangement and the Company’s real estate portfolio and the related assets of
the marina and restaurant facilities. Operating activities related to the Company’s real estate investments include leasing of office and
retail space to tenants, wet and dry boat storage, a restaurant, and fuel services with respect to marina clients and recreational
boaters.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Real estate investments consist of the following as of December 31, 2014 and 2013:

Land
Land improvements
Building
Other

Total, at cost

Less: accumulated depreciation and amortization

Real estate, net
ADC Arrangement classified as real estate investment

Real estate investments

December 31,

2014
$11,476
1,425
3,097
1,359

17,357
(1,107)

16,250
2,888

2013
$11,299
1,351
3,022
1,262

16,934
(706)

16,228
—

$19,138

$16,228

Depreciation and amortization expense for other investments was $402, $388 and $279, respectively, for the years ended

December 31, 2014, 2013 and 2012.

ADC Arrangement

In June 2014, the Company’s wholly owned subsidiary, Greenleaf Capital, LLC, entered into an ADC Arrangement under

which it agreed to provide financing up to a maximum of $9,785 for the acquisition, development and construction of a retail shopping
center and appurtenant facilities. Greenleaf Capital has an option to purchase the property when the construction project is completed
contingent upon tenant rental commitments for at least 90% of rentable space being secured by the developer. The purchase price is
calculated at maturity of the loan using a predetermined capitalization rate and the projected net operating income of the developed
property. The loan has an initial term of 24 months and can be extended for an additional 12 months if the purchase option is not
exercised by Greenleaf Capital. Prepayment is not permitted while the ADC Arrangement is in effect. The loan bears a fixed annual
interest rate of 6% due monthly in arrears. The loan agreement is secured by a) a first mortgage on the land and improvements, b)
assignment of all leases, rents, issues, and profits from the land and improvements, and c) personal guarantees.

Under this ADC Arrangement, Greenleaf Capital will provide substantially all necessary funds to complete the development

and Greenleaf Capital will receive the entire residual profit of the developed property if it exercises the purchase option. The
developer may make multiple draws on the credit facility as the construction progresses. Based on the characteristics of this ADC
Arrangement which are similar to those of an investment, combined with the expected residual profit being greater than 50%, the
arrangement is accounted for and reported in the balance sheet as a real estate investment. All project costs associated with the
ADC Arrangement are capitalized. The loan commitment fee received by Greenleaf Capital is deferred and recognized in investment
income on a straight-line basis over the term of the loan agreement.

Because of the purchase option and the substantial financial support provided by Greenleaf Capital, the developer who has
no equity interest in the property is a VIE. However, Greenleaf Capital’s involvement is solely as the lender on the mortgage loan with
protective rights as the lender. Greenleaf Capital does not have power to direct the activities that most significantly impact economic
performance of the VIE. As a result, Greenleaf Capital is not the primary beneficiary and is not required to consolidate the VIE. At
December 31, 2014, the Company’s maximum exposure to loss relating to the VIE was $2,888 representing the carrying value of the
ADC Arrangement.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

In addition, Greenleaf Capital determined that the option to purchase the entire developed property is not a derivative

financial instrument pursuant to U.S. GAAP. As such, the embedded feature is not required to be bifurcated and the fair value
accounting for the embedded feature at each reporting date is not applicable.

Net Investment Income (Loss)

Net investment income (loss), by source, is summarized as follows:

Available-for-sale securities:
Fixed-maturity securities
Equity securities
Other-than-temporary impairment charge
Investment expense
Limited partnership investment
Time deposits
Real estate investments
Cash and cash equivalents

Years Ended December 31,

2014

2013

2012

$3,339
2,364
(107)
(436)
(90)
—
(955)
666

$ 1,868
499
—
(210)
—
—
(1,045)
357

$ 1,464
492
—
(150)
—
357
(1,334)
151

$4,781

$ 1,469

980

At December 31, 2014, $234,025 or 74.4% of the Company’s cash and cash equivalents were deposited at three national

banks and included $48,674 in three custodial accounts. At December 31, 2013, $241,378 or 82.3% of the Company’s cash and cash
equivalents were deposited at three national banks and included $22,252 in two custodial accounts.

Note 5 — Fair Value Measurements

The Company records and discloses certain financial assets at their estimated fair value. 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.

Level 3 – Inputs that are unobservable.

Valuation Methodology

Cash and cash equivalents

Cash and cash equivalents primarily consist of money-market funds. Their carrying value approximates fair value due to

the short maturity and high liquidity of these funds.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Available-for-sale securities

Estimated fair values of the Company’s available-for-sale securities are determined in accordance with U.S. GAAP, using

valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are
generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or
indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are
measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that
market participants would use in pricing the security and are developed based on the best information available in the
circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including
the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be
substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a
current market exchange.

The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices

obtained from an independent pricing service and information provided by brokers. Management reviews the assumptions and
methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains
assurance of the overall reasonableness and consistent application of the assumptions and methodologies and compliance with
accounting standards for fair value determination through ongoing monitoring of the reported fair values.

ADC Arrangement Classified as Real Estate Investment

As described in Note 4 — “Investments” under ADC Arrangement, the ADC Arrangement represents a financing

agreement with a purchase option between Greenleaf Capital and a property developer. Based on the characteristics of this ADC
Arrangement which are similar to those of an investment, combined with the expected residual profit being greater than 50%, the
arrangement is included in real estate investments at its carrying value in the balance sheet. Projected future cash inflows at maturity
are discounted using a prevailing borrowing rate to estimate its fair value that relies on Level 3 inputs.

Limited Partnership Investment

As described in Note 4 — “Investments” under Limited Partnership Investment, the Company entered into a subscription

agreement to invest up to a maximum of $12,500 for a 16.5% limited partnership interest. The initial contribution was made in
December 2014. Valuation of the Company’s limited partnership interest will be based upon the net asset value provided by the fund
manager. The net asset value will be on a three- to six-month lag and was not available as of December 31, 2014 as the partnership
was newly formed during the quarter ended December 31, 2014.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Long-term debt

Long-term debt includes the Company’s 8% senior notes due 2020 and 3.875% convertible senior notes due 2019. The

8% senior notes were initially sold to the public in January 2013 and trade on the New York Stock Exchange. The estimated fair value
of the 8% senior notes is based on the closing market price on December 31, 2014. The 3.875% convertible senior notes were sold
in a private offering completed on December 30, 2013. The fair value of the 3.875% convertible senior notes is estimated using a
discounted cash flow method that relies on Level 3 inputs.

Assets Measured at Estimated Fair Value on a Recurring Basis:

The following tables present information about the Company’s financial assets measured at estimated fair value on a

recurring basis. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair
value as of December 31, 2014 and 2013:

As of December 31, 2014
Financial Assets:
Cash and cash equivalents

Fixed-maturity securities:
U.S. Treasury and U.S. government agencies
Corporate bonds
Mortgage-backed securities
State, municipalities, and political subdivisions
Redeemable preferred stock
Other

Total fixed-maturity securities

Equity securities

Total available-for-sale securities

Total

As of December 31, 2013
Financial Assets:
Cash and cash equivalents

Fixed-maturity securities:
U.S. Treasury and U.S. government agencies
Corporate bonds
Mortgage-backed securities
State, municipalities, and political subdivisions
Redeemable preferred stock

Total fixed-maturity securities

Equity securities

Total available-for-sale securities

Total

Fair Value Measurements Using

(Level 1)

(Level 2)

(Level 3)

Total

$314,716

$ —

$314,716

1,069
22,274
—
—
9,557
—

32,900
45,550

2,679
1,695
2,139
57,503
—
168

64,184
—

—
—
—
—
—
—

—
—

3,748
23,969
2,139
57,503
9,557
168

97,084
45,550

78,450

64,184

—

142,634

$393,166

$64,184

$ —

$457,350

Fair Value Measurements Using

(Level 1)

(Level 2)

(Level 3)

Total

$293,398

$ —

$293,398

3,520
24,476
—
—
400

28,396
17,649

1,044
928
11,332
70,451
—

83,755
—

—
—
—
—
—

—
—

4,564
25,404
11,332
70,451
400

112,151
17,649

46,045

83,755

—

129,800

$339,443

$83,755

$ —

$423,198

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

There were no transfers between Level 1, 2 or 3 during the year ended December 31, 2014. During the second quarter of

2013, the Company analyzed its investment portfolio and determined the municipal bonds, which were previously classified as
Level 1, should be classified as Level 2 based on the inputs used to measure fair value and the level of market activity in those
instruments. As such, transfers into Level 2 from Level 1 were $10,684 during the year ended December 31, 2013.

Assets and Liabilities Carried at Other Than Fair Value

The following tables present fair value information for assets and liabilities that are carried on the balance sheet at amounts

other than fair value as of December 31, 2014 and 2013:

As of December 31, 2014
Financial Assets:
ADC Arrangement classified as real estate investment

Financial Liabilities:
Long-term debt:
8% Senior notes
3.875% Convertible senior notes

Total long-term debt

As of December 31, 2013
Financial Liabilities:
Long-term debt:
8% Senior notes
3.875% Convertible senior notes

Total long-term debt

Fair Value Measurements Using

(Level 1)

(Level 2)

(Level 3)

Total

$ —

$ 2,835

2,835

$ —
—

$42,955
—

$ —
93,367

$ 42,955
93,367

$ —

$42,955

$93,367

$136,322

Fair Value Measurements Using

(Level 1)

(Level 2)

(Level 3)

Total

$ —
—

$43,390
—

$ —
86,630

$ 43,390
86,630

$ —

$43,390

$86,630

$130,020

Note 6 — Deferred Policy Acquisition Costs

The following table summarizes the activity with respect to deferred policy acquisition costs:

Beginning balance
Policy acquisition costs deferred
Amortization

Ending balance

December 31,

2014

$ 14,071
33,861
(32,918)

2013
$ 10,032
31,097
(27,058)

$ 15,014

$ 14,071

The amount of policy acquisition costs amortized and included in policy acquisition and other underwriting expenses for the

years ended December 31, 2014, 2013 and 2012 was $32,918, $27,058 and $18,273, respectively.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 7 — Property and Equipment, net

Property and equipment, net consists of the following:

Land
Building
Computer hardware and software
Office furniture and equipment
Tenant and leasehold improvements
Other

Total, at cost
Less: accumulated depreciation and amortization

Property and equipment, net

December 31,

2014
1,642
7,622
1,617
1,647
3,093
691

2013
1,642
7,596
1,486
1,407
3,093
629

16,312
(4,020)

15,853
(2,721)

$ 12,292

$ 13,132

In February 2013, the Company purchased real estate in Ocala, Florida for a total purchase price of $2,002. At acquisition,
the real estate consisted of 1.6 acres of land and a vacant office building with rentable area of approximately 16,000 square feet. The
facility is currently used by the Company’s insurance operations and, also, as an alternative location in the event a catastrophic event
impacts the Company’s home office and other support operations.

Depreciation and amortization expense under property and equipment was $1,304, $1,151 and $848, respectively, for the

years ended December 31, 2014, 2013 and 2012.

Note 8 — Other Assets

The following table summarizes the Company’s other assets:

Benefits receivable related to retrospective reinsurance contracts
Deferred costs related to retrospective reinsurance contracts
Deferred offering costs on senior notes issued in 2013
Prepaid expenses
Other

Total other assets

December 31,

2014

$ 28,123
473
3,653
1,444
1,594

2013
8,815
194
4,305
771
1,729

$ 35,287

$ 15,814

In June 2014, the Company received $1,485 under the terms of one of the retrospective reinsurance contracts, which

terminated May 31, 2014.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 9 — Long-Term Debt

The following table summarizes the Company’s long-term debt:

8% Senior Notes, due January 30, 2020
3.875% Convertible Senior Notes, due March 15, 2019*

Total long-term debt

December 31,

2014

$ 40,250
89,289

2013
$ 40,250
86,682

$129,539

$126,932

* net carrying value

8% Senior Notes

On January 17, 2013, the Company completed the sale of unsecured senior notes in a public offering for an aggregate

principal amount of $35,000. In addition, effective January 25, 2013, the Company received an aggregate principal amount of $5,250
pursuant to the underwriters’ exercise of the over-allotment option. The offering was made pursuant to the Company’s effective
registration statement on Form S-3, as amended (Registration Statement No. 333-185228) and the prospectus supplement dated
January 10, 2013. The combined net proceeds were $38,690 after underwriting and issuance costs of approximately $1,560, of which
$1,525 was paid during the year ended December 31, 2013. The notes will mature on January 30, 2020 and bear interest at a fixed
annual rate of 8% payable quarterly on January 30, April 30, July 30 and October 30, commencing on April 30, 2013. The notes may
be redeemed, in whole or in part, at any time on and after January 30, 2016 upon not less than 30 or more than 60 days’ notice. The
redemption price will be equal to 100% of the principal amount redeemed plus accrued and unpaid interest. Additionally, the
Company may, at any time, repurchase the senior notes at any price in the open market and may hold, resell or surrender the notes
for cancellation.

The senior notes rank on parity with all of the Company’s other existing and future senior unsecured obligations. In

addition, to the extent the senior notes are unsecured, they also rank junior in right of payment to any secured debt that the Company
may have outstanding to the extent of the value of the assets securing such debt.

The senior notes contain customary restrictive covenants relating to merger, modification of the indenture, subordination,

issuance of debt securities and sale of assets, the most significant of which include limitations with respect to certain designated
subsidiaries on the incurrence of additional indebtedness or guarantees secured by any security interest on any shares of their
capital stock. The senior note covenants also limit the Company’s ability to sell or otherwise dispose of any shares of capital stock of
such designated subsidiaries. The senior note covenants do not contain any restrictions on the Company’s payment or declaration of
dividends nor require a sinking fund to be established for the purpose of redemption.

Interest expense with respect to the senior notes was approximately $3,403 and $3,228, respectively, for the years ended

December 31, 2014 and 2013 and included amortization of debt issuance costs of approximately $182 and $159, respectively. The
effective interest rate, taking into account the stated interest expense and amortization of debt issuance costs, approximates 8.7%.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

3.875% Convertible Senior Notes

On December 11, 2013, the Company issued 3.875% Convertible Senior Notes (the “Convertible Notes”) in a private

offering for an aggregate principal amount of $100,000. In addition, pursuant to the over-allotment option exercised by the
underwriters, the Company received an aggregate principal amount of $3,000 on December 30, 2013. The aggregate net proceeds of
the Convertible Notes were $99,514, after $3,486 in related issuance and transaction costs. The Convertible Notes rank equally in
right of payment to the Company’s existing and future unsecured and unsubordinated obligations. The Convertible Notes bear interest
at a rate of 3.875% per year, payable semiannually in arrears on March 15 and September 15 of each year. The Convertible Notes
will mature on March 15, 2019 unless repurchased or converted prior to such date. The Company may not redeem the Convertible
Notes prior to maturity unless requested by the note holders under certain events specified in the indenture.

The Convertible Notes do not contain any financial or operating covenants or restrictions on the payments of dividends, the

incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. The Convertible
Notes provide no protection to the note holders in the event of a fundamental change or other corporate transaction involving the
Company except those described in the indenture to the Convertible Notes. The Convertible Notes do not require a sinking fund to be
established for the purpose of redemption.

In conjunction with the issuance of the Convertible Notes, the Company entered into a prepaid stock repurchase forward

contract and used $29,923 of the net proceeds from the Convertible Notes offering to repurchase the Company’s common stock. See
Note 14 — “Stockholders’ Equity” for the effect of the repurchase forward contract on earnings per share.

For the years ended December 31, 2014 and 2013, interest expense applicable to the Convertible Notes included the

contractual interest coupon, discount amortization and amortization of allocated issuance costs aggregating $7,050 and $379,
respectively, the amounts of which included non-cash interest expense of $3,070 and $164. The effective interest rate, taking into
account both cash and non-cash components, approximates 8.3%. As of December 31, 2014, the remaining amortization period of
the debt discount was expected to be 4.2 years.

The following table summarizes information regarding the equity and liability components of the Convertible Notes:

Principal amount
Unamortized discount

Liability component – net carrying value

Equity component – conversion, net of offering costs

December 31,

2014

$103,000
(13,711)

2013
$103,000
(16,318)

$ 89,289

$ 86,682

$ 15,900

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Embedded Conversion Feature

Each $1 of principal of the Convertible Notes will initially be convertible into 16.0090 shares of common stock, which is the
equivalent of approximately $62.47 per share, subject to adjustment upon the occurrence of specified events but will not be adjusted
for any accrued and unpaid interest. The note holders may convert all or a portion of their Convertible Notes during specified periods
as follows: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014, if the last reported sale
price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last
trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading
day; (2) during the five business-day period after any ten consecutive trading-day period in which the trading price per $1 principal
amount of the Convertible Notes is less than 98% of the product of the last reported sale price and the conversion rate on each such
trading day; (3) if specified corporate events, including a change in control, occur; or (4) at any time on or after January 1, 2019.

The note holders who elect to convert their Convertible Notes in connection with a fundamental change as described in the

indenture will be entitled to a “make-whole” adjustment in the form of an increase in the conversion rate. Upon conversion, the
Company has options to satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of
cash and shares of its common stock. As of December 31, 2014, none of the conditions allowing the note holders to convert had been
met.

The Company determined that the embedded conversion feature is not a derivative financial instrument but rather is

required to be separately accounted for in equity because the Company may elect to settle the conversion option entirely or partially
in cash. At issuance, the Company accounted for the equity component of the embedded conversion feature, which amounted to
$16,457, as a reduction in the carrying amount of the debt and an increase in additional paid-in capital. The increase in additional
paid-in capital was offset in part by $557 in related transaction costs.

Embedded Redemption Feature

The note holders also have the right to require the Company to repurchase for cash all or any portion of the Convertible

Notes at par prior to the maturity date should any of the fundamental change events described in the indenture occur. The Company
concluded that the embedded redemption feature is not a derivative financial instrument and that it is not probable at issuance that
any of the specified fundamental change events will occur. Therefore, the embedded redemption feature is not substantive and will
not affect the expected life of the liability component.

Note 10 — Reinsurance

The Company cedes a portion of its homeowners insurance exposure to other entities under catastrophe excess of loss

reinsurance treaties. The Company remains liable with respect to claims payments in the event that any of its reinsurers are unable to
meet their obligations under the reinsurance agreements. Failure of reinsurers to honor their obligations could result in losses to the
Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant
losses from reinsurer insolvencies. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage,
which generally becomes effective June 1st each year. The Company purchases reinsurance each year taking into consideration
maximum projected losses and reinsurance market conditions.

The impact of the catastrophe excess of loss reinsurance treaties on premiums written and earned is as follows:

Premiums Written:

Direct
Assumed

Gross written
Ceded

Net premiums written

Premiums Earned:

Direct
Assumed

Gross earned
Ceded

Net premiums earned

Years Ended December 31,
2013

2014

2012

$ 341,685
65,968

$ 315,695
39,076

$205,839
73,340

407,653
(113,423)

354,771
(102,865)

279,179
(75,939)

$ 294,230

$ 251,906

$203,240

$ 332,175
33,313

365,488
(113,423)

$ 273,037
64,076

337,113
(102,865)

$168,937
64,670

233,607
(75,939)

$ 252,065

$ 234,248

$157,668

During the years ended December 31, 2014, 2013 and 2012, there were no recoveries pertaining to reinsurance contracts
that were deducted from losses incurred. There were 28 reinsurers at December 31, 2014 and 27 reinsurers at December 31, 2013,
respectively, participating in the Company’s reinsurance program. There were no amounts receivable with respect to reinsurers at
December 31, 2014 and 2013. Thus, there were no concentrations of credit risk associated with reinsurance receivables and prepaid
reinsurance premiums as of December 31, 2014 and 2013. The ratio of assumed premiums earned to net premiums earned for the
years ended December 31, 2014, 2013 and 2012 were 13.2%, 27.4%, and 41.0%, respectively.

Certain of the reinsurance contracts include retrospective provisions that adjust premiums, increase the amount of future
coverage, or result in profit commissions in the event losses are minimal or zero. These adjustments are reflected in the statements
of income as net reductions in ceded premiums of $23,543, $12,521 and $0, respectively, for the years ended December 31, 2014,
2013 and 2012. At December 31, 2014 and 2013, other assets included $28,596 and $9,009, respectively, and prepaid reinsurance
premiums included $5,983 and $3,512, respectively, which are related to these adjustments.

Note 11 — Losses and Loss Adjustment Expenses

The liability for losses and loss adjustment expenses (“LAE”) is determined on an individual case basis for all claims

reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and losses incurred, but
not reported.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Activity in the liability for losses and LAE is summarized as follows:

Balance, beginning of year

$ 43,686

$ 41,168

$ 27,424

Years Ended December 31,
2013

2014

2012

Incurred related to:

Current year
Prior years

Total incurred

Paid related to:

Current year
Prior years

Total paid

Balance, end of year

75,810
3,658

67,579
(2,456)

66,425
(115)

79,468

65,123

66,310

(47,650)
(26,596)

(40,240)
(22,365)

(36,914)
(15,652)

(74,246)

(62,605)

(52,566)

$ 48,908

$ 43,686

$ 41,168

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected
as such estimates are subject to the outcome of future events. 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. During the year ended
December 31, 2014, the Company experienced unfavorable development of $3,658 with respect to its net unpaid losses and loss
adjustment expenses established for the year ended December 31, 2013. Factors attributable to this unfavorable development
include a higher severity of claims and increased frequency of reported claims.

The Company writes insurance in the state of Florida, which could be exposed to hurricanes or other natural catastrophes.

The occurrence of a major catastrophe could have a significant effect on the Company’s yearly results and cause a temporary
disruption of the normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such
events that may occur in the near term or thereafter.

Note 12 — Income Taxes

A summary of income tax expense is as follows:

Years Ended December 31,

2014

2013

2012

$36,651 $34,372 $18,484
3,168
137

5,844
118

6,222
167

43,040

40,334

21,789

(4,060)
(678)
(4)

(4,742)

514
43
—

(1,986)
(380)
—

557

(2,366)

$38,298

$40,891

$19,423

Current:

Federal
State
Foreign

Total current taxes

Deferred:

Federal
State
Foreign

Total deferred taxes

Income tax expense

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized

as follows:

Years Ended December 31,

Income taxes at statutory rate
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefits
Other

2014

2013
Amount % Amount % Amount %
$35,337 35.0 $37,258 35.0 $17,353 35.0

2012

3,601 3.6 3,802 3.6 1,799 3.6
271 0.6

(640) (0.7)

(169) (0.2)

Income tax expense

$38,298

37.9 $40,891

38.4 $19,423

39.2

The Company has no uncertain tax positions or unrecognized tax benefits that, if recognized, would impact the effective
income tax rate. The tax years ending December 31, 2013, 2012, and 2011 remain subject to examination by the Company’s major
taxing jurisdictions. The Company elected to classify, if any, interest and penalties arising from uncertain tax positions as income tax
expense as permitted by current accounting standards. There have been no material amounts of interest or penalties for the years
ended December 31, 2014 and 2013. Effective October 20, 2014, the Internal Revenue Service notified the Company that the
examination of the Company’s 2011 federal income tax return was completed with no change to the Company’s reported tax. In
addition, as of April 18, 2014, the Florida Department of Revenue completed an audit of the state income tax returns filed for 2010,
2011, and 2012. The audit resulted in no material changes to the state income taxes originally reported.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and

liabilities for financial reporting purposes and the amounts used for income tax purposes.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Significant components of the Company’s net deferred income tax (liabilities) assets are as follows:

Deferred tax assets:

Unearned premiums
Losses and loss adjustment expenses
Organizational costs
Stock-based compensation
Accrued expenses
Deferred expenses
Unearned revenue
Bad debt reserve

Total deferred tax assets

Deferred tax liabilities:

Property and equipment
Deferred policy acquisition costs
Unrealized net gain on securities available-for-sale
Basis difference related to convertible senior notes
Prepaid expenses
Other

Total deferred tax liabilities

Net deferred tax assets (liabilities)

December 31,

2014

2013

$ 11,718
866
83
3,081
175
—
381
10

$ 8,829
885
95
2,026
163
—
52
5

16,314

12,055

(1,604)
(5,959)
(418)
(5,110)
(464)
(260)

(1,748)
(5,600)
(700)
(6,295)
(296)
(156)

(13,815)

(14,795)

$ 2,499

$ (2,740)

A valuation allowance is established if, based upon the relevant facts and circumstances, management believes any

portion of the deferred tax assets will not be realized. Although realization of deferred income tax assets is not certain, management
believes it is more likely than not that deferred tax assets will be realized. As a result, the Company did not have a valuation
allowance established as of December 31, 2014 or 2013.

Note 13 — Earnings Per Share

U.S. GAAP requires the Company to use the two-class method in computing basic earnings per share since holders of the

Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating
securities effect the computation of both basic and diluted earnings per share during periods of net income.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

A summary of the numerator and denominator of the basic and fully diluted earnings per common share is presented

below:

Year Ended December 31, 2014

Net income

Less: Preferred stock dividends

Less: Income attributable to participating securities

Basic Earnings Per Share:
Income allocated to common stockholders

Effect of Dilutive Securities:
Stock options
Convertible preferred stock
Convertible senior notes

Diluted Earnings Per Share:
Income available to common stockholders and assumed

Income

(Numerator)

(Denominator)

Per Share
Amount

62,664

(4,318)

58,350

9,888

5.90

—
(4)
4,343

137
20
1,649

conversions

62,689

11,694

5.36

Year Ended December 31, 2013

Net income

Less: Preferred stock dividends

Less: Income attributable to participating securities

Basic Earnings Per Share:
Income allocated to common stockholders

Effect of Dilutive Securities:
Stock options
Convertible preferred stock
Convertible senior notes

Diluted Earnings Per Share:
Income available to common stockholders and assumed

65,562

(104)

(3,213)

62,245

10,691

5.82

—
104
237

163
178
90

conversions

62,586

11,122

5.63

Year Ended December 31, 2012

Net income

Less: Preferred stock dividends

Less: Income attributable to participating securities

Basic Earnings Per Share:
Income available to common stockholders

Effect of Dilutive Securities:
Stock options
Convertible preferred stock
Warrants

Diluted Earnings Per Share:
Income available to common stockholders and assumed

30,157

(322)

(488)

29,347

8,497

3.45

—
322
—

220
655
441

conversions

29,669

9,813

3.02

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 14 — Stockholders’ Equity

Common Stock

Effective March 18, 2014, the Company’s Board of Directors authorized a plan to repurchase up to $40,000 of the
Company’s common shares before commissions and fees. The repurchase plan allows the Company to repurchase shares from time
to time through March 31, 2015. The shares may be purchased for cash in open market purchases, block transactions and privately
negotiated transactions in accordance with applicable federal securities laws. The share repurchase plan may be modified,
suspended, terminated or extended by the Company any time without prior notice. During the year ended December 31, 2014, the
Company repurchased and retired a total of 990,701 shares at a weighted average price per share of $38.69 under this authorized
repurchase plan. The total costs of shares repurchased, inclusive of fees and commissions, during the year ended December 31,
2014 were $38,354, or $38.71 per share. At December 31, 2014, a total of $1,666 is available in connection with this plan.

Series B Junior Participating Preferred Share Purchase Right

On October 17, 2013, the Company’s Board of Directors declared a dividend of one preferred share purchase right (“Right”)
for each outstanding share of its common stock to shareholders of record at the close of business on November 15, 2013. Each Right
entitles the common shareholder to purchase from the Company one one-hundredth of a share of Series B Junior Participating
Preferred Stock, no par value, at a price of $125.00 per one one-hundredth of such preferred share, subject to adjustment for certain
events. The Right is intended to prevent any unsolicited takeover attempt that is unfair and unfavorable to the Company’s
shareholders. The Right will not interfere with any merger approved by the Company’s Board of Directors.

The Right will not be exercisable until ten days following a public announcement that a person or group has acquired

beneficial ownership of 10% or more of the Company’s common stock or until ten business days after a person or group begins a
tender or exchange offer that would result in beneficial ownership of 10% or more of the Company’s common stock. The Right may
be redeemed or exchanged by the Company for $0.001 per Right at any time until the Right’s expiration date on October 18, 2018.

Prepaid Share Repurchase Forward Contract

Effective December 11, 2013, in conjunction with the issuance of the Convertible Notes, the Company entered into a

prepaid share repurchase forward contract (the “forward contract”) with Deutsche Bank AG, London Branch (the “forward
counterparty”). Pursuant to the forward contract, the Company prepaid $29,923 of the net proceeds of the offering to repurchase
622,751 shares of the Company’s common stock under which the shares will be delivered over a settlement period in 2019. The
forward contract is subject to early settlement, in whole or in part, at any time prior to the final settlement date at the option of the
forward counterparty, as well as early settlement or settlement with alternative consideration in the event of certain corporate
transactions. In the event the Company pays any cash dividends on its common shares, the forward counterparty will pay an
equivalent amount to the Company. The shares to be purchased under the prepaid forward contract will be treated as retired as of the
effective date of the forward contract, but will remain outstanding for corporate law purposes, including for purposes of any future
stockholders votes.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

The Company determined that the forward contract does not meet the characteristic of a derivative instrument and, as

such, the transaction resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common
shares outstanding for both basic and diluted earnings per share.

Preferred Stock

Series A Cumulative Convertible Preferred Stock (“Series A Preferred”)

On February 4, 2014, the Company announced its Board of Directors fixed April 1, 2014 as the cancellation date for the

conversion rights on its 7% Series A cumulative convertible preferred stock. The Company later extended the conversion privilege in
April 2014. On June 2, 2014, 3,386 shares of Series A Preferred were redeemed at $10 per share, resulting in the derecognition of $4
in dividends payable. During the years ended December 31, 2014 and 2013, holders of 107,298 and 130,498 shares of Series A
Preferred converted their Series A Preferred shares to 107,298 and 130,498 shares of common stock, respectively. As of
December 31, 2014, no shares of Series A Preferred were outstanding.

Series B Junior Participating Preferred Stock (“Series B Preferred”)

On October 17, 2013, in connection with the declaration of the Right dividends, the Company’s Board of Directors

established and fixed the rights and preferences of the Series B Preferred. Of the authorized shares, the Company designated
400,000 shares as Series B Preferred. Each Series B Preferred will be entitled to a minimum preferential quarterly dividend payment
of $1.00 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per common share of the
Company. In the event of liquidation, the holders of the Series B Preferred will be entitled to a minimum preferential liquidation
payment of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per common share. Each
Series B Preferred will have 100 votes per share, voting together as one class on all matters submitted to a vote of shareholders of
the Company. Finally, in the event of any merger, consolidation or other transaction in which common shares are exchanged, each
Series B Preferred will be entitled to receive 100 times the amount received per common share. The aforementioned rights of Series
B Preferred are protected by customary anti-dilution provisions. As of December 31, 2014 and 2013, there were no Series B
Preferred issued or outstanding.

Undesignated Preferred Stock

The Company is authorized to issue up to an additional 18,100,000 shares of preferred stock, no par value. The authorized

but unissued and undesignated preferred stock may be issued in one or more series and the shares of each series shall have such
rights as determined by the Company’s Board of Directors subject to the rights of the holders of the Series A Preferred and Series B
Preferred.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 15 — Stock-Based Compensation

Incentive Plan

The Company currently has outstanding stock-based awards granted under the 2007 Stock Option and Incentive Plan and

the 2012 Omnibus Incentive Plan. Only the 2012 Plan is available for future grants as the 2007 Plan was terminated in 2012. With
respect to the 2012 Plan, the Company may grant stock-based awards to employees, directors, consultants, and advisors of the
Company. At December 31, 2014, there were 4,246,470 shares available for grant under the 2012 Plan.

Stock Options

Stock options granted and outstanding under the incentive plan vest over periods ranging from immediately vested to five

years and are exercisable over the contractual term of ten years.

A summary of the stock option activity for the years ended December 31, 2014, 2013 and 2012 is as follows (option

amounts not in thousands):

Outstanding at January 1, 2012
Exercised

Outstanding at December 31, 2012

Outstanding at December 31, 2013

Exercised

Outstanding at December 31, 2014

Exercisable at December 31, 2014

Weighted
Average
Exercise

Number of

Options

Price

620,000
(340,000)

280,000

(50,000)

230,000

$
$

2.97
3.03

2.91

2.50

3.00

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

5.7 years

$ 3,122

4.9 years

$ 5,007

3.9 years

$ 14,166

3.0 years

$ 9,256

3.0 years

$ 9,256

The following table summarizes information about options exercised, and the fair value of vested options for the years

ended December 31, 2014, 2013 and 2012 (option amounts not in thousands):

Options exercised
Total intrinsic value of exercised options
Fair value of vested stock options
Tax benefits realized

2014
50,000
$ 1,970
17
$
603
$

2013
—
$—
$ 17
$—

2012
340,000
3,648
$
22
$
1,161
$

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

During the year ended December 31, 2012, a total of 340,000 options were exercised of which 227,003 options were net
settled by surrender of 72,592 shares. Compensation expense recognized for the years ended December 31, 2014, 2013 and 2012
totaled approximately $6, $19 and $68, respectively, and is included in other operating expenses. At December 31, 2014 and 2013,
there was approximately $0 and $6, respectively, of unrecognized compensation expense related to nonvested stock options granted
under the plan. Deferred tax benefits related to stock options for the years ended December 31, 2014, 2013 and 2012 were
immaterial.

Restricted Stock Awards

From time to time, the Company has granted and may grant restricted stock awards to certain executive officers, other
employees and nonemployee directors in connection with their service to the Company. The terms of the Company’s outstanding
restricted stock grants may include service, performance and market-based conditions. The fair value of the awards with market-
based conditions is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and
then establishes fair value based on the most likely outcome. The determination of fair value with respect to the awards with only
performance or service-based conditions is based on the value of the Company’s stock on the grant date.

Information with respect to the activity of unvested restricted stock awards during the years ended December 31, 2014,

2013 and 2012 is as follows (share amounts not in thousands):

Nonvested at January 1, 2012
Granted

Nonvested at December 31, 2012

Granted
Vested
Forfeited

Nonvested at December 31, 2013

Granted
Vested
Forfeited

Nonvested at December 31, 2014

Number of
Restricted
Stock
Awards

—
246,320

246,320

612,000
(93,000)
(29,670)

735,650

108,720
(193,825)
(10,840)

639,705

Weighted
Average
Grant Date
Fair Value

—
14.54

14.54

27.36
12.18
15.03

25.48

47.40
27.48
41.53

28.33

$
$
$

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

The Company recognized compensation expense, which is included in other operating expenses, of $8,104, $5,346 and

$776, respectively, for the years ended December 31, 2014, 2013 and 2012. At December 31, 2014 and 2013, there was
approximately $10,355 and $13,757, respectively, of total unrecognized compensation expense related to nonvested restricted stock
arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period of 23
months. The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to
restricted stock awards as well as their paid dividends, and the fair value of vested restricted stock for the years ended December 31,
2014, 2013 and 2012.

Deferred tax benefits recognized
Tax benefits realized for restricted stock and paid dividends
Fair value of vested restricted stock

2014
$3,126
$1,477
$5,326

2013
$2,062
$1,060
$1,133

2012
$299
$ —
$ —

The following presents assumptions used in a Monte Carlo simulation model to determine the fair value of the awards with

market-based conditions:

Expected dividends per share
Expected volatility
Risk-free interest rate
Estimated cost of capital
Expected life (in years)

Note 16 — Employee Benefit Plan

2014
$1.10

2013
$0.90

2012
$0.80

42.1 – 46.6% 41.5 – 51.6% 36.7 – 50.0%

0.1 – 1.5%
11.5%
4.00

0.1 – 1.2%

0.0 – 1.9%
9.3 – 10.3% 11.9 – 12.1%
4.00 – 6.00

6.00

Effective July 1, 2013, the Company implemented a 401(k) Safe Harbor Profit Sharing Plan (“401(k) Plan”) that qualifies as

a defined contribution plan under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees are
eligible for company matching and discretionary profit sharing contributions. Plan participants may elect to defer up to one hundred
percent of their pre-tax gross wages, subject to annual limitations. The company matching contribution is limited to a maximum of four
percent of the employee’s annual salary or wage and is fully vested when contributed. Eligibility and vesting of the Company’s
discretionary profit sharing contribution is subject to the plan participant’s years of service. During the years ended December 31,
2014 and 2013, the Company contributed approximately $311 and $183, respectively, in matching contributions, which are included
in other operating expenses. There has been no discretionary profit sharing contribution since the plan’s inception.

The Company also maintains benefit plans for its employees in India including a statutory post-employment benefit plan, or

gratuity plan, providing defined, lump-sum benefits. The Company’s liability for the gratuity plan reflects the undiscounted benefit
obligation payable as of the balance sheet date, which was based upon the employees’ salary and years of service. As of
December 31, 2014 and 2013, the amounts accrued under the gratuity plan were $10 and $6, respectively. In addition, the Company
provides matching contributions with respect to two defined contribution plans; the Provident Fund and the Employees State
Insurance Fund, both of which are available to qualifying employees in India. Expense recognized by the Company for all benefit
plans in India was $12 and $7, respectively, for the years ended December 31, 2014 and 2013. No expense was recognized for any
benefit plan in India for the year ended December 31, 2012.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 17 — Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contracts

As of December 31, 2014, the Company has contractual obligations related to two-year and three-year reinsurance

contracts. These contracts have effective dates of either June 1, 2013 or June 1, 2014 and may be cancelable only with the other
party’s consent. The future minimum aggregate amounts payable to the reinsurers for 2015 and 2016 are $66,451 and $22,989,
respectively.

Lease Commitments

The Company currently leases 15,000 square feet of office space in Noida, India. The lease commenced January 15, 2013

and has an initial term of nine years with monthly rental payments of approximately $10 plus applicable service tax for the first year.
Thereafter the monthly rental payment will increase by five percent every year. The Company is entitled to terminate the lease 36
months after the commencement date by providing 3 months’ written notice to the landlord.

Provided the lease is not early terminated, minimum future rental payments under operating leases after December 31,

2014 are as follows:

Year
2015
2016
2017
2018
2019
Thereafter

Total minimum future payments

Amount
$ 118
123
130
136
143
308

$ 958

Rental expense under all facility leases was $222, $248 and $527, respectively, during the years ended December 31,

2014, 2013 and 2012. Expense in 2012 includes amounts related to a lease for the Company’s former corporate headquarters
location.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Service Agreement

In connection with the lease for new office space in India as described in the lease commitments above, the Company

signed a long-term contract with the landlord to receive maintenance and facility services. The agreement has the same initial term of
nine years with monthly payments of approximately $2 plus applicable service tax for the first year. Thereafter, the monthly payment
will increase by five percent every year. The Company is also entitled to terminate the agreement 36 months after the
commencement date by providing 3 months’ written notice to the landlord.

Provided the agreement is not early terminated, minimum future payments under the service agreement after

December 31, 2014 are as follows:

Year
2015
2016
2017
2018
2019
Thereafter

Total minimum future payments

Rental Income

Amount
21
$
22
24
24
26
55

$ 172

The Company owns real estate that consists of 3.5 acres of land, a building with gross area of 122,000 square feet, and a

four-level parking garage. This facility is used by the Company and its subsidiaries. In addition, the Company leases space to non-
affiliates.

Expected annual rental income due under non-cancellable operating leases for all properties and other investments owned

at December 31, 2014 are as follows:

Year
2015
2016
2017
2018
2019

Total

Amount
995
$
698
248
86
47

$ 2,074

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Regulatory Assessments

Regular Insurance Assessments and Surcharges

As a direct premium writer in the state of Florida, the Company is subject to mandatory assessments by Citizens and the
Florida Hurricane Catastrophe Fund (“FHCF”). These assessments are paid based on a percentage of the Company’s direct written
premium by line of business. For the years ended December 31, 2014, 2013 and 2012, HCPCI paid assessments to FHCF amounting
to $4,481, $4,103 and $2,517, respectively. Additionally, HCPCI paid assessments to Citizens of $3,447, $3,156 and $1,936,
respectively, for the years ended December 31, 2014, 2013 and 2012. As of December 31, 2014, the Company’s other liabilities
included $349 and $453 payable to Citizens and FHCF, respectively. These assessments are recorded as a surcharge in premium
billings to insureds. As of December 31, 2014, 2013 and 2012, the surcharge rates in effect for FHCF and Citizens were 1.3% and
1.0%, respectively, for each of these years.

Effective January 1, 2015, the FHCF assessment imposed on all property insurance policies was removed. In addition, the

Citizens assessment will be eliminated effective June 1, 2015.

Guaranty Fund

The Florida Insurance Guaranty Association may assess the Company to provide for the payment of covered claims of
insolvent insurance entities. The assessments are generally based on a percentage of premiums written as of the end of the prior
year in which the assessment is levied. Although the Company is permitted by Florida statutes to recover the entire amount of
assessments from existing and future policyholders through policy surcharges, 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.
During 2012, the Company paid $1,139 of guaranty fund assessments, $482 of which was recognized as an asset recoverable from
policyholders. The balance of $657 was charged to expense in 2012. As approved by the Florida Office of Insurance Regulation, the
Company had recovered a total of $1,030 during 2013, $434 of which was credited to the asset recoverable from policyholders. The
amount recovered in excess of $434 reduced the Company’s 2013 policy acquisition and other underwriting expenses and was offset
by a $48 expense for the amount unrecovered from policyholders. At December 31, 2014 and 2013, the Company has no liability
related to guaranty fund assessments.

Financing Commitment

As described in Note 4 — “Investments” under ADC Arrangement, the Company is contractually committed to provide

financing for a real estate acquisition, development and construction project. At December 31, 2014, $6,981 of the available
commitment was unused by the property developer.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Capital Commitment

As described in Note 4 — “Investments” under Limited Partnership Investment, the Company is contractually committed to

a capital contribution for a limited partnership interest. At December 31, 2014, there was an unfunded balance of $9,860.

Premium Tax

In September 2013, the Company received a notice of intent to make audit adjustments from the Florida Department of

Revenue in connection with the Department’s audit of the Company’s premium tax returns for the three-year period ended
December 31, 2012. The auditor’s proposed adjustments primarily relate to the Department’s proposed disallowance of the entire
amount of $1,754 in Florida salary credits applicable to that period. The proposed adjustment, which includes interest through
September 10, 2013, approximates $1,913. The Company did not agree with the proposed adjustment and notified the Department of
its intention to protest the Department’s position. While the Company remains confident in the merits of its position in claiming the
Florida salary credits, management continued to hold discussions with Department staff throughout 2014 and believes the Company
has reached an agreement in principle towards resolution of this matter. The pending resolution entails having certain subsidiaries
individually file and pay state reemployment taxes plus interest covering the periods under audit through the second quarter of 2014.
The Company believes the payroll of certain of these subsidiaries then will continue to qualify for substantially all of the salary tax
credits claimed by the Company. The incremental reemployment taxes due to the Department as a result of the subsidiaries’ separate
reemployment tax filings will be netted against amounts refundable to the parent for the same periods during which the parent filed
and paid state reemployment taxes as a single payer. As such, and based on the current status and expected resolution, the
Company has accrued a net amount of approximately $140 as of December 31, 2014 related to this contingency.

Litigation

The Company is party to claims and legal actions arising routinely in the ordinary course of business. In the opinion of

management, the ultimate disposition of these matters will not have a material, adverse effect on the consolidated financial position or
liquidity.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 18 — Quarterly Results of Operations (Unaudited)

The tables below summarize unaudited quarterly results of operations for 2014, 2013 and 2012.

Net premiums earned
Total revenue
Losses and loss adjustment expenses
Policy acquisition and other underwriting expenses
Interest expense
Total expenses
Income before income taxes
Net income
Net income available to common stockholders
Earnings per share:

03/31/14

06/30/14

09/30/14

12/31/14

Three Months Ended

66,380 $
68,117
18,565
9,129
2,574
39,807
28,310
17,620
17,623

62,649 $
66,284
18,383
9,559
2,609
39,901
26,383
16,430
16,431

61,260 $
66,955
21,991
9,986
2,626
44,180
22,775
14,052
14,052

61,776
64,752
20,529
9,278
2,644
41,258
23,494
14,562
14,562

Basic
Diluted

$
$

1.60 $
1.44 $

1.53 $
1.39 $

1.34 $
1.23 $

1.43
1.30

03/31/13

06/30/13

09/30/13

12/31/13

Three Months Ended

60,551 $
61,811
15,872
5,968
686
28,641
33,170
20,387
20,353

57,335 $
59,333
17,414
7,308
846
32,926
26,407
16,235
16,203

52,934 $
54,692
14,489
8,887
847
33,048
21,644
13,378
13,356

63,428
65,252
17,348
9,456
1,228
40,020
25,232
15,562
15,546

Basic
Diluted

$
$

1.87 $
1.81 $

1.44 $
1.40 $

1.17 $
1.13 $

1.36
1.31

Net premiums earned
Total revenue
Losses and loss adjustment expenses
Policy acquisition and other underwriting expenses
Total expenses
Income before income taxes
Net income
Net income available to common stockholders
Earnings per share:

03/31/12

06/30/12

09/30/12

12/31/12

Three Months Ended

40,431 $
41,652
19,168
6,836
30,271
11,381
6,968
6,787

37,070 $
38,855
16,197
6,243
26,846
12,009
7,262
7,199

30,603 $
31,481
15,017
6,611
26,356
5,125
2,826
2,784

49,564
51,077
15,928
6,240
30,012
21,065
13,101
13,065

Basic
Diluted

$
$

1.07 $
0.88 $

0.85 $
0.74 $

0.30 $
0.27 $

1.27
1.19

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 19 — Regulatory Requirements and Restrictions

The following briefly describes certain requirements and restrictions regulated by the states or jurisdiction in which the

Company’s insurance subsidiaries are incorporated.

Florida

HCPCI, which is domiciled in Florida, prepares its statutory financial statements in accordance with accounting principles
and practices prescribed or permitted by the Florida Department of Financial Services, Office of Insurance Regulation (the “FLOIR”),
which Florida utilizes for determining solvency under the Florida Insurance Code (the “Code”). The commissioner of the FLOIR has
the right to permit other practices that may deviate from prescribed practices. Prescribed statutory accounting practices are those
practices that are incorporated directly or by reference in state laws, regulations, and general administrative rules applicable to all
insurance enterprises domiciled in Florida. Permitted statutory accounting practices encompass all accounting practices that are not
prescribed; such practices differ from state to state, may differ from entity to entity within a state, and may change in the future.

The Code requires HCPCI to maintain capital and surplus equal to the greater of 10% of its liabilities or a statutory

minimum as defined in the Code. At December 31, 2014, HCPCI is required to maintain a minimum capital and surplus of $24,757.

U.S. GAAP differs in certain respects from the accounting practices prescribed or permitted by insurance regulatory

authorities (statutory-basis). HCPCI’s statutory-basis financial statements are presented on the basis of accounting practices
prescribed or permitted by the FLOIR. The FLOIR has adopted the National Association of Insurance Commissioner’s (“NAIC”)
Accounting Practices and Procedures Manual as the basis of its statutory accounting practices. At December 31, 2014, 2013 and
2012, HCPCI’s statutory-basis capital and surplus was approximately $168,000, $116,900 and $69,800, respectively. HCPCI had
statutory-basis net income of approximately $48,900, $45,700 and $13,200, respectively, for the years ended December 31, 2014,
2013 and 2012. Statutory-basis surplus differs from stockholders’ equity reported in accordance with U.S. GAAP primarily because
policy acquisition costs are expensed when incurred. In addition, the recognition of deferred tax assets is based on different
recoverability assumptions.

Since inception, HCPCI has maintained a cash deposit with the Insurance Commissioner of the state of Florida, in the

amount of $300, to meet regulatory requirements.

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholders

except out of that part of its available and accumulated capital and surplus funds which is derived from realized net operating profits
on its business and net realized capital gains. A Florida domestic insurer may not make dividend payments or distributions to
stockholders without prior approval of the FLOIR if the dividend or distribution would exceed the larger of (1) the lesser of (a) 10.0% of
its capital surplus or (b) net income, not including realized capital gains, plus a two year carry forward, (2) 10.0% of capital surplus
with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (3) the lesser of (a) 10.0% of capital
surplus or (b) net investment income plus a three year carry forward with dividends payable constrained to unassigned funds minus
25% of unrealized capital gains.

Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the FLOIR if

(1) the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards to policyholders derived
from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net operating profits and
realized net capital gains derived during the immediately preceding calendar year, (2) the insurer will have policy holder capital
surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (3) the
insurer files a notice of the dividend or distribution with the FLOIR at least ten business days prior to the dividend payment or
distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or
distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a
Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the FLOIR or (2) 30 days
after the FLOIR has received notice of such dividend or distribution and has not disapproved it within such time.

As a result, HCPCI was qualified to make dividend payments at December 31, 2014 and 2013. At December 31, 2012, no

dividends were available to be paid by HCPCI.

In addition, a Florida insurance company is required to adhere to prescribed premium-to-capital surplus ratios. Florida state
law requires that the ratio of 90% of written premiums divided by surplus as to policyholders does not exceed 10 to 1 for gross written
premiums or 4 to 1 for net written premiums. The ratio of gross and net written premium to surplus for the year ended December 31,
2014, was 2.21 to 1, and 1.50 to 1, respectively. The ratio of gross and net written premium to surplus for the year ended
December 31, 2013, was 2.76 to 1, and 1.68 to 1, respectively. The ratio of gross and net written premium to surplus for the year
ended December 31, 2012, was 3.63 to 1, and 2.27 to 1, respectively.

100

Table of Contents

Alabama

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Homeowners Choice Assurance Company, Inc. (“HCA”) is domiciled in Alabama and was organized in 2013. HCA is

required to maintain minimum paid-in capital of $500. In addition, HCA must maintain a minimum deposit in trust of $100 with the
Treasurer of Alabama. At December 31, 2014 and 2013, HCA’s statutory capital and surplus was $1,926 and $1,969, respectively.
Similar to HCPCI in Florida, HCA is required to file statutory-basis financial statements with the Alabama Department of Insurance,
which has also adopted the NAIC Accounting Practices and Procedures Manual as the basis of its statutory accounting practices.

Bermuda

The Bermuda Monetary Authority requires Claddaugh to maintain minimum capital and surplus of $2,000. At December 31,

2014, 2013 and 2012, Claddaugh’s statutory capital and surplus was $21,307, $15,526 and $10,313, respectively. Claddaugh’s
statutory net profit was $1,980, $4,164 and $4,818, respectively, for the years ended December 31, 2014, 2013 and 2012. There was
no cash dividend paid by Claddaugh during 2014. During the years ended December 31, 2013 and 2012, Claddaugh paid its parent,
HCI, cash dividends of $4,000 and $6,000, respectively.

HCPCI and HCA are subject to risk-based capital (“RBC”) requirements as specified by the NAIC. Under those

requirements, the amount of minimum capital and surplus maintained by a property and casualty insurance company is to be
determined based on the various risks related to it. Pursuant to the RBC requirements, insurers having less statutory capital than
required by the RBC calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy.
At December 31, 2014, 2013 and 2012, the Company’s insurance subsidiaries exceeded any applicable minimum risk-based capital
requirements and no corrective actions have been required

Note 20 — Related Party Transactions

Claddaugh Casualty Insurance Company, Ltd. (“Claddaugh”), the Company’s Bermuda domiciled captive reinsurer has

reinsurance treaties with Oxbridge Reinsurance Limited (“Oxbridge”) whereby a portion of the business assumed from the
Company’s insurance subsidiary, HCPCI, is ceded by Claddaugh to Oxbridge. With respect to the period from June 1, 2013 through
May 31, 2014, Oxbridge assumed $10,100 of the total covered exposure for approximately $4,900 in premiums. With respect to the
period from June 1, 2014 through May 31, 2015, Oxbridge assumed $8,800 of the total covered exposure for approximately $3,720 in
premiums. In addition, HCPCI has a reinsurance treaty with Oxbridge for the period from June 1, 2014 through May 31, 2015 under
which Oxbridge assumed $9,000 of the total covered exposure for approximately $1,350 in premiums. The premiums charged by
Oxbridge are at rates which management believes to be competitive with market rates available to Claddaugh. Oxbridge has
deposited funds into trust accounts to satisfy certain collateral requirements under its reinsurance contracts with HCPCI and
Claddaugh. Trust assets may be withdrawn by the trust beneficiary, which is either HCPCI or Claddaugh, in the event amounts are
due under the Oxbridge reinsurance agreements. Among the Oxbridge shareholders are Paresh Patel, the Company’s chief
executive officer, who is also chairman of the board of directors for Oxbridge, and members of his immediate family and three of the
Company’s non-employee directors including Sanjay Madhu who serves as Oxbridge’s president and chief executive officer.

101

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Prior to June 1, 2014, Claddaugh also had one reinsurance treaty with Moksha Re SPC Ltd. and multiple capital partners

whereby a portion of the business assumed from HCPCI was ceded by Claddaugh to Moksha. With respect to the period from
June 1, 2013 through May 31, 2014, Moksha assumed approximately $15,400 of the total covered exposure for approximately $4,300
in premiums, a rate which management believes to be competitive with market rates available to Claddaugh. The $4,300 premium
was fully paid by Claddaugh on June 27, 2013. Moksha deposited funds into a trust account to satisfy certain collateral requirements
under its reinsurance contract with Claddaugh. This contract also contained retrospective provisions resulting in a profit commission
of $1,485, which was received by the Company in June 2014. Among the Moksha capital partner participants are the Company’s
chief executive officer, Paresh Patel, and certain of his immediate family members and Sanjay Madhu, one of the Company’s non-
employee directors. This agreement terminated effective May 31, 2014 and has not been renewed.

One of the Company’s directors is a partner at a law firm that manages certain of the Company’s corporate legal matters.

Fees incurred with respect to this law firm for the years ended December 31, 2014, 2013 and 2012 were approximately $47, $450
and $335, respectively.

During 2012, the Company leased office space under an operating lease agreement with one director. The lease required

annual base rental payments of approximately $150. The lease was terminated in December 2012 and the total payments during
2012 were $179.

102

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HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 21 — Condensed Financial Information of HCI Group, Inc.

Condensed financial information of HCI Group, Inc. is as follows:

Balance Sheets

Assets

Cash and cash equivalents
Fixed-maturity securities, available for sale, at fair value
Equity securities, available for sale, at fair value
Limited partnership investment, at equity
Investment in subsidiaries
Property and equipment, net
Income tax receivable
Other assets

Total assets

Liabilities and Stockholders’ Equity

Accrued expenses and other liabilities
Deferred income taxes, net
Dividends payable
Long-term debt
Due to related parties

Total liabilities
Total stockholders’ equity

Total liabilities and stockholders’ equity

103

December 31,

2014

2013

$ 32,082 $ 87,715
56
6,581
—
214,958
1,119
1,782
5,705

4,652
8,802
2,550
298,726
946
2,596
4,699

$355,053

$317,916

3,085
3,631
—
129,539
36,213

172,468
182,585

1,863
5,888
19
126,932
22,693

157,395
160,521

$355,053

$317,916

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Statements of Income

Years Ended December 31,

2014

2013

2012

739 $
309
120
(10,453)
(7,745)

84 $
(2)
864
(3,607)
(4,865)

8
—
144
—
(2,812)

(17,030)
6,462

(7,526)
2,863

(2,660)
750

(10,568)
73,232

(4,663)
70,225

(1,910)
32,067

$ 62,664

$65,562

$30,157

Net investment income
Net realized gain (loss) on investments
Other income
Interest expense
Operating expenses

Loss before income tax benefit and equity in income of subsidiaries
Income tax benefit

Net loss before equity in income of subsidiaries
Equity in income of subsidiaries

Net income

104

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HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Statements of Cash Flows

Years Ended December 31,
2013

2014

2012

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:

$ 62,664 $ 65,562 $ 30,157

Stock-based compensation
Net realized investment (gain) loss
Depreciation and amortization
Loss from limited partnership investment
Equity in income of subsidiaries
Deferred income taxes
Changes in operating assets and liabilities:

Income taxes receivable
Other assets
Accrued expenses and other liabilities
Income taxes payable
Due to related parties

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Investment in limited partnership interest
Purchase of fixed-maturity securities
Purchase of equity securities
Purchases of property and equipment
Proceeds from sales of equity securities
Dividends received from subsidiary
Investment in subsidiaries

Net cash used in investing activities

105

5,502
(309)
3,712
90
(73,232)
(2,058)

2,362
2
1,000
—
(70,225)
(914)

237
—
788
—
(32,067)
763

(814)
629
1,116
—
11,520

597
(1,001)
1,136
—
(6,338)

8,820

(7,819)

(2,379)
84
(1,051)
(1,605)
5,314

241

(2,640)
(2,616)
(7,000)
(277)
5,212
—
(8,402)

—
(64)
(6,835)
(262)
361
4,000
(5,735)

—
—
—
(668)
—
6,000
(24,056)

(15,723)

(8,535)

(18,724)

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Statements of Cash Flows (Continued)

Cash flows from financing activities:

Net proceeds from the issuance of common stock
Repurchases of common stock
Repurchases of common stock under share repurchase plan
Cash dividends paid to stockholders
Cash dividends received under share repurchase forward contract
Proceeds from exercise of stock options
Proceeds from exercise of stock warrants
Proceeds from issuance of long-term debt
Redemption of Series A preferred stock
Debt issuance costs paid
Tax benefits on stock-based compensation

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

106

Years Ended December 31,
2013

2014

2012

—
(643)
(38,354)
(12,355)
685
125
—
—
(34)
(234)
2,080

—
(30,886)
—
(10,902)
—
—
—
143,250
—
(4,770)
1,060

20,082
—
—
(8,561)
—
283
11,869
—
—
(35)
1,161

(48,730)

97,752

24,799

(55,633)
87,715

81,398
6,317

6,316
1

$ 32,082

$ 87,715

$ 6,317

Table of Contents

HCI GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts, unless otherwise stated)

Note 22 — Subsequent Events

On January 19, 2015, the Company’s Board of Directors declared a quarterly dividend of $0.30 per common share. The

dividends are scheduled for payment on March 20, 2015 to stockholders of record on February 20, 2015.

107

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ITEM 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our principal executive officer and principal financial

officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by
this Annual Report (December 31, 2014). Our disclosure controls and procedures are intended to ensure that the information we are
required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and
communicated to our management, including the principal executive officer and principal financial officer to allow timely decisions
regarding required disclosures.

Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the

period covered by this Annual Report, our disclosure controls and procedures were effective.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon
certain assumptions about the likelihood of future events.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over our financial reporting (as

defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). 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 accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of

records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial
statements.

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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. Our management, with the
participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our principal executive officer and
principal financial officer concluded that, as of December 31, 2014, our internal control over financial reporting was effective.

Dixon Hughes Goodman, LLP, an independent registered public accounting firm, has audited the 2014 consolidated

financial statements included in this Annual Report on Form 10-K and, as part of their audit, has issued an attestation report,
included herein, on our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have

materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B – Other Information

None.

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ITEM 10 – Directors, Executive Officers and Corporate Governance

Code of Ethics

PART III

We have adopted a code of ethics applicable to all of our employees and directors, including our Chief Executive Officer

(principal executive officer) and Chief Financial Officer (principal financial officer). We have posted the text of our code of ethics to our
Internet web site: www.hcigroup.com. Select “Investor Information” on the top and then select “Corporate Governance” and then
“Code of Conduct.” We intend to disclose any change to or waiver from our code of ethics by posting such change or waiver to our
Internet web site within the same section as described above.

The other information required under this item is incorporated by reference from our definitive proxy statement relating to

our annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of
our fiscal year ended December 31, 2014.

ITEM 11 – Executive Compensation

The information required under this item is incorporated by reference from our definitive proxy statement relating to our

annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of our
fiscal year ended December 31, 2014.

ITEM 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required under this item is incorporated by reference from our definitive proxy statement relating to our

annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of our
fiscal year ended December 31, 2014.

Securities authorized for issuance under equity compensation plans are summarized under Part II – Item 5 of this

Form 10-K.

ITEM 13 – Certain Relationships and Related Transactions, and Director Independence

The information required under this item is incorporated by reference from our definitive proxy statement relating to our

annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of our
fiscal year ended December 31, 2014.

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ITEM 14 – Principal Accounting Fees and Services

The following table sets forth the aggregate fees for services related to the years ended December 31, 2014 and 2013

provided by Dixon Hughes Goodman, LLP, our principal accountant and services related to the year ended December 31, 2013
provided by Hacker, Johnson & Smith PA, the Company’s former principal accountant:

Audit fees (a)
All other fees (b)

2014
$277
—

$277

2013
$262
235

$497

(a) Audit Fees represent fees billed for professional services rendered for the audit of our annual financial statements, review of our
quarterly financial statements included in our quarterly reports on Form 10-Q, and audit services provided in connection with
other statutory and regulatory filings. Of the amount for the year ended December 31, 2013, $258 related to services provided by
Dixon Hughes Goodman, LLP.

(b) All Other Fees represent fees billed for services provided to us not otherwise included in the category above, which are primarily
fees related to our senior note offerings completed in January 2013 and December 2013. Of the amount for the year ended
December 31, 2013, $162 related to services provided by Dixon Hughes Goodman, LLP.

The Audit Committee pre-approved all 2014 engagements and fees for services provided by our principal accountant.

Other information required under this item is incorporated by reference from our definitive proxy statement relating to our

annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of our
fiscal year ended December 31, 2014.

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ITEM 15 – Exhibits, Financial Statement Schedules

(a) Financial Statements, Financial Statement Schedules and Exhibits

PART IV

(1)

Consolidated Financial Statements: See Index to Consolidated Financial Statements in Part II, Item 8 of this Form
10-K.

(2)

Financial Statement Schedules:

Any supplemental information we are required to file with respect to our property and casualty insurance operations is

included in Part II, Item 8 of this Form 10-K or is not applicable.

(3)

Exhibits: See the exhibit listing set forth below:

The following documents are filed as part of this report:

EXHIBIT
NUMBER

3.1

3.1.1

3.2

4.1

4.2

4.3

4.4

DESCRIPTION

Articles of Incorporation, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 7, 2013.

Articles of Amendment to Articles of Incorporation designating the rights, preferences and limitations of Series B Junior
Participating Preferred Stock. Incorporated by reference to Exhibit 3.1 to our Form 8-K filed October 18, 2013.

Bylaws. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 7, 2013.

Form of common stock certificate. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-
Q filed November 7, 2013.

Supplement No. 1, dated as of January 17, 2013, to the Indenture, dated as of January 17, 2013, between HCI Group,
Inc. (formerly known as Homeowners Choice, Inc.) and The Bank of New York Mellon Trust Company, N.A., as
Trustee. Incorporated by reference to the correspondingly numbered exhibit to our Form 8-K filed January 17, 2013.

Form of 8.00% Senior Note due 2020 (included in Exhibit 4.2). Incorporated by reference to the correspondingly
numbered exhibit to our Form 8-K filed January 17, 2013.

Indenture, dated as of January 17, 2013, between HCI Group, Inc. (formerly known as Homeowners Choice, Inc.) and
The Bank of New York Mellon Trust Company, N.A. Incorporated by reference to Exhibit 4.4 to Amendment No. 1 to
our Registration Statement on Form S-3 (File No. 333-185228) filed December 10, 2012.

112

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4.6

4.7

4.8

4.9

10.1

10.2**

10.3

10.4**

Form of Subordinated Indenture. Incorporated by reference to the correspondingly numbered exhibit to Amendment
No. 1 to our Registration Statement on Form S-3 (File No. 333-185228) filed December 10, 2012.

Rights Agreement, dated as of October 18, 2013, between HCI Group, Inc. and American Stock Transfer & Trust
Company, LLC, which includes as Exhibit A thereto a summary of the terms of the Series B Junior Participating Preferred
Stock, as Exhibit B thereto the Form of Right Certificate, and as Exhibit C thereto the Summary of Rights to Purchase
Preferred Shares. Incorporated by reference to Exhibit 4.1 to our Form 8-K filed October 18, 2013.

Indenture, dated December 11, 2013, between HCI Group, Inc. and The Bank of New York Mellon Trust Company, N.A.
(including Global Note). Incorporated by reference to Exhibit 4.1 to our Form 8-K filed December 12, 2013.

See Exhibits 3.1, 3.1.1 and 3.2 of this report for provisions of the Articles of Incorporation, as amended, and our Bylaws,
as amended, defining certain rights of security holders.

Excess of Loss Retrocession Contract (flood), effective June 1, 2014, issued to Homeowners Choice Property &
Casualty Insurance Company, Inc. by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a
request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q
filed August 6, 2014.

Executive Agreement dated May 1, 2007 between HCI Group, Inc. (formerly known as Homeowners Choice, Inc.) and
Richard R. Allen. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on
Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.

Reimbursement Contract effective June 1, 2014 between Homeowners Choice Property & Casualty Insurance Company
and the State Board of Administration which administers the Florida Hurricane Catastrophe Fund. Incorporated by
reference to the correspondingly numbered exhibit to our Form 10-Q filed August 6, 2014.

Executive Employment Agreement dated July 1, 2011 between HCI Group, Inc. (formerly known as Homeowners
Choice, Inc.) and Paresh Patel. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q
filed August 12, 2011.

10.5**

HCI Group, Inc. 2012 Omnibus Incentive Plan. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 7, 2013.

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10.6**

10.7**

10.8

10.9

10.10

10.11

10.12

10.13

HCI Group, Inc. (formerly known as Homeowners Choice, Inc.) 2007 Stock Option and Incentive Plan. Incorporated by
reference to the correspondingly numbered exhibit to our Form 10-Q filed August 29, 2008.

Form of Incentive Stock Option Agreement. Incorporated by reference to the correspondingly numbered exhibit to our
Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as
amended.

Catastrophe Aggregate Excess of Loss Reinsurance Contract, effective: June 1, 2014, issued to, Homeowners Choice
Property & Casualty Insurance Company, Inc. by subscribing reinsurers (1). Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 6, 2014.

Catastrophe Aggregate Excess of Loss Reinsurance Contract, effective: June 1, 2014, issued to, Homeowners Choice
Property & Casualty Insurance Company, Inc. by subscribing reinsurers (2). Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 6, 2014.

Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2014, issued to, Homeowners Choice Property &
Casualty Insurance Company, Inc. by subscribing reinsurers (1). Portions of this exhibit have been omitted pursuant to a
request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q
filed August 6, 2014.

Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2014, issued to, Homeowners Choice Property &
Casualty Insurance Company, Inc. by subscribing reinsurers (2). Portions of this exhibit have been omitted pursuant to a
request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q
filed August 6, 2014.

Multi Year Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2014, issued to, Homeowners Choice
Property & Casualty Insurance Company, Inc. by subscribing reinsurers (1). Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 6, 2014.

Multi Year Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2014, issued to, Homeowners Choice
Property & Casualty Insurance Company, Inc. by subscribing reinsurers (2). Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 6, 2014.

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10.14

10.15

10.16

10.17

10.18

10.19

10.20

Reinstatement Premium Protection Reinsurance Contract effective June 1, 2014 by Homeowners Choice Property &
Casualty Insurance Company, Inc. and subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a
request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q
filed August 6, 2014.

Reinstatement Premium Protection Reinsurance Contract effective June 1, 2014 by Homeowners Choice Property &
Casualty Insurance Company, Inc. and subscribing reinsurers (Blue Water 1). Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 6, 2014.

Multi Year Reinstatement Premium Protection Reinsurance Contract effective June 1, 2014 by Homeowners Choice
Property & Casualty Insurance Company, Inc. and subscribing reinsurers. Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 6, 2014.

Form of indemnification agreement for our officers and directors. Incorporated by reference to the correspondingly
numbered exhibit to our Form 10-Q filed August 12, 2009.

Reinstatement Premium Protection Reinsurance Contract effective June 1, 2014 by Homeowners Choice Property &
Casualty Insurance Company, Inc. and subscribing reinsurers (Blue Water 2). Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 6, 2014.

Reinstatement Premium Protection Reinsurance Contract effective June 1, 2014 by Homeowners Choice Property &
Casualty Insurance Company, Inc. and subscribing reinsurers (Aeolus year 1). Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 6, 2014.

Per Occurrence Excess Of Loss Reinsurance contract dated June 1, 2012 by Homeowners Choice Property & Casualty
Insurance Company, Inc. and subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed
August 14, 2012.

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10.21

10.22

10.23

10.24**

10.27**

10.28**

10.30**

10.32

10.33

Endorsement No. 2 to the Per Occurrence Excess of Loss Reinsurance Contract Effective June 1, 2012 by
Homeowners Choice Property & Casualty Insurance Company, Inc. and subscribing reinsurers. Incorporated by
reference to the correspondingly numbered exhibit to our Form 10-Q filed August 6, 2014.

Reinstatement Premium Protection Reinsurance Contract effective June 1, 2015 by Homeowners Choice Property &
Casualty Insurance Company, Inc. and subscribing reinsurers (Aeolus year 2). Portions of this exhibit have been
omitted pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered
exhibit to our Form 10-Q filed August 6, 2014.

Assumption Agreement effective October 15, 2014 by and between Homeowners Choice Property & Casualty
Insurance Company, Inc. and Citizens Property Insurance Corporation. Incorporated by reference to Exhibit 10.1 of our
Form 8-K filed January 28, 2015.

Executive Employment Agreement dated March 8, 2012 between HCI Group, Inc. (formerly known as Homeowners
Choice, Inc.) and Scott R. Wallace. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-K filed March 30, 2012.

Restricted Stock Agreement dated April 20, 2012 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 100,000 shares of restricted common stock to Scott R. Wallace. Incorporated by reference to Exhibit 10.27
of our Form 10-Q filed May 14, 2012.

Restricted Stock Agreement dated May 8, 2012 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 30,000 shares of restricted common stock to Richard R. Allen. Incorporated by reference to Exhibit 10.28 of
our Form 8-K filed May 10, 2012.

Restricted Stock Agreement dated May 8, 2012 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 20,000 shares of restricted common stock to Andrew L. Graham. Incorporated by reference to Exhibit 10.30
of our Form 8-K filed May 10, 2012.

Endorsement No. 1 to the Per Occurrence Excess of Loss Reinsurance Contract Effective June 1, 2012 by
Homeowners Choice Property & Casualty Insurance Company, Inc. and subscribing reinsurers. Incorporated by
reference to the correspondingly numbered exhibit to our Form 10-Q filed May 9, 2013.

Working Layer Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2013 issued to Homeowners
Choice Property & Casualty Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted
pursuant to a request for confidential treatment. Incorporated by reference to the correspondingly numbered exhibit to
our Form 10-Q filed May 9, 2013.

10.34**

Restricted Stock Agreement dated May 16, 2013 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 400,000 shares of restricted common stock to Paresh Patel. Incorporated by reference to Exhibit 10.34 of
our Form 8-K filed May 21, 2013.

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10.35**

10.36**

10.37**

10.38**

10.39**

10.40**

10.41

10.49

Restricted Stock Agreement dated May 16, 2013 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 24,000 shares of restricted common stock to Sanjay Madhu. Incorporated by reference to Exhibit 10.35 of
our Form 8-K filed May 21, 2013.

Restricted Stock Agreement dated May 16, 2013 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 24,000 shares of restricted common stock to George Apostolou. Incorporated by reference to Exhibit 10.36
of our Form 8-K filed May 21, 2013.

Restricted Stock Agreement dated May 16, 2013 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 24,000 shares of restricted common stock to Harish Patel. Incorporated by reference to Exhibit 10.37 of our
Form 8-K filed May 21, 2013.

Restricted Stock Agreement dated May 16, 2013 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 24,000 shares of restricted common stock to Gregory Politis. Incorporated by reference to Exhibit 10.38 of
our Form 8-K filed May 21, 2013.

Restricted Stock Agreement dated May 16, 2013 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 24,000 shares of restricted common stock to Anthony Saravanos. Incorporated by reference to Exhibit
10.39 of our Form 8-K filed May 21, 2013.

Restricted Stock Agreement dated May 16, 2013 whereby HCI Group, Inc. (formerly known as Homeowners Choice,
Inc.) issued 24,000 shares of restricted common stock to Martin Traber. Incorporated by reference to Exhibit 10.40 of
our Form 8-K filed May 21, 2013.

Endorsement No 1 to Working Layer Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2013 issued
to Homeowners Choice Property & Casualty Insurance Company by subscribing reinsurers. Incorporated by reference
to the correspondingly numbered exhibit to our Form 10-Q filed August 6, 2014.

Excess of Loss Retrocession Contract, effective June 1, 2013, issued to Claddaugh Casualty Insurance Company Ltd.
by subscribing reinsurers, including Oxbridge Reinsurance Limited (working layer). Incorporated by reference to the
correspondingly numbered exhibit to our Form 10-Q filed August 7, 2013.

10.52**

Restricted Stock Agreement dated August 29, 2013 whereby HCI Group, Inc. issued 10,000 shares of restricted
common stock to Anthony Saravanos. Incorporated by reference to Exhibit 10.52 of our Form 8-K filed August 29, 2013.

117

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10.53**

10.54**

10.55

10.56

10.57

23.1

23.2

31.1

31.2

32.1

32.2

Restricted Stock Agreement dated November 12, 2013 whereby HCI Group, Inc. issued 24,000 shares of restricted
common stock to Wayne Burks. Incorporated by reference to Exhibit 10.11 of our Form 8-K filed November 13, 2013.

Restricted Stock Agreement dated November 12, 2013 whereby HCI Group, Inc. issued 24,000 shares of restricted
common stock to James J. Macchiarola. Incorporated by reference to Exhibit 10.12 of our Form 8-K filed November 13,
2013.

Purchase Agreement, dated December 5, 2013, by and between HCI Group, Inc. and JMP Securities LLC, as
representative of the several initial purchasers named therein. Incorporated by reference to Exhibit 10.1 of our
Form 8-K filed December 6, 2013.

Prepaid Forward Contract, dated December 5, 2013 and effective as of December 11, 2013, between HCI Group, Inc.
and Deutsche Bank AG, London Branch. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed December 12,
2013.

Form of executive restricted stock award contract. Incorporated by reference to Exhibit 10.57 of our Form 10-Q for the
quarter ended March 31, 2014 filed May 1, 2014.

Code of Conduct of HCI Group, Inc. Incorporated by reference to the correspondingly numbered exhibit to our
Form 10-Q filed August 7, 2013.

Subsidiaries of HCI Group, Inc.

Consent of Dixon Hughes Goodman LLP.

Consent of Hacker, Johnson & Smith PA.

Certification of the Chief Executive Officer

Certification of the Chief Financial Officer

Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.ss.1350

Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.ss.1350

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase.

101.DEF

XBRL Definition Linkbase.

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101.LAB

XBRL Taxonomy Extension Label Linkbase.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase.

** Management contract or compensatory plan.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused

this report to be signed on its behalf by the undersigned thereunto duly authorized.

March 10, 2015

HCI GROUP, INC.

By /s/ Paresh Patel

Paresh Patel, Chief Executive Officer and Chairman of The
Board of Directors (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated.

March 10, 2015

By /s/ Paresh Patel

Paresh Patel, Chief Executive Officer and Chairman of The
Board of Directors (Principal Executive Officer)

March 10, 2015

By /s/ Richard R. Allen

Richard R. Allen, Chief Financial Officer (Principal Financial
and Accounting Officer)

March 10, 2015

By /s/ George Apostolou

George Apostolou, Director

By /s/ Wayne Burks

Wayne Burks, Director

By /s/ James Macchiarola

James Macchiarola, Director

By /s/ Sanjay Madhu

Sanjay Madhu, Director

By /s/ Harish M. Patel

Harish M. Patel, Director

By /s/ Gregory Politis

Gregory Politis, Director

By /s/ Anthony Saravanos

Anthony Saravanos, Director

By /s/ Martin A. Traber

Martin A. Traber, Director

A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

120

As of December 31, 2014, the Company had the following active subsidiaries:

HCI GROUP, INC.

Subsidiaries

Wholly-owned subsidiaries of HCI Group, Inc.
Homeowners Choice Property & Casualty Insurance Company, Inc.
Homeowners Choice Managers, Inc.
Claddaugh Casualty Insurance Company Ltd.
Cypress Property Management Services, Inc.
Cypress Claims Services, Inc.
Cypress Tech Development Company, Inc.
Exzeo USA, Inc.
HCI Technical Resources, Inc.
Greenleaf Capital LLC (formerly known as HCI Holdings LLC)
Homeowners Choice Assurance Company, Inc.
Omega Insurance Agency, Inc.
Southern Administration, Inc.

Wholly-owned subsidiary of Homeowners Choice Property & Casualty Insurance Company, Inc.
HCPCI Holdings LLC

Wholly-owned subsidiary of HCI Technical Resources, Inc.
Unthink Technologies Private Limited

Wholly-owned subsidiaries of Greenleaf Capital LLC
Gators on the Pass Holdings, LLC
John’s Pass Marina Investment Holdings, LLC
JP Beach Holdings, LLC
Pass Investment Holdings, LLC
TI Marina Company, Inc.
Treasure Island Restaurant Company, Inc.
TV Investment Holdings LLC
Silver Springs Property Investments LLC
Melbourne FMA, LLC

Wholly-owned subsidiary of Cypress Tech Development Company, Inc.
Exzeo Software Private Limited

Exhibit 21

State or Sovereign Power
of Incorporation
Florida
Florida
Bermuda
Florida
Florida
Florida
Florida
Florida
Florida
Alabama
Florida
Florida

State or Sovereign Power
of Incorporation
Florida

State or Sovereign Power
of Incorporation
India

State or Sovereign Power
of Incorporation
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida

State or Sovereign Power
of Incorporation
India

Consent of Dixon Hughes Goodman LLP
Independent Registered Public Accounting Firm

Exhibit 23.1

The Board of Directors
HCI Group, Inc. and Subsidiaries:

We consent to the incorporation by reference in the registration statements (Nos. 333-180322 and 333-185228) on Form S-3 and
registration statements (Nos. 333-154436 and 333-184227) on Form S-8 of HCI Group, Inc. and Subsidiaries of our reports dated
March 10, 2015, with respect to the consolidated financial statements of HCI Group, Inc. and Subsidiaries and the effectiveness of
internal control over financial reporting, which appears in HCI Group, Inc. and Subsidiaries’ Annual Report on Form 10-K for the year
ended December 31, 2014.

/s/ Dixon Hughes Goodman LLP
DIXON HUGHES GOODMAN, LLP
Clearwater, Florida
March 10, 2015

Consent of Hacker, Johnson & Smith PA
Independent Registered Public Accounting Firm

Exhibit 23.2

We consent to the incorporation by reference in the registration statements (Form S-3 No. 333-180322 and No. 333-185228 as
supplemented from time to time and Form S-8 No. 333-154436 and No. 333-184227) of our report dated March 10, 2015, with respect
to the consolidated financial statements of HCI Group, Inc. and subsidiaries included in this report on Form 10-K for the year ended
December 31, 2014.

/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Tampa, Florida
March 10, 2015

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.1

I, Paresh Patel, certify that:

1. I have reviewed this annual report on Form 10-K of HCI Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

March 10, 2015

/s/ PARESH PATEL

Paresh Patel
President and Chief Executive Officer
(Principal Executive Officer)

A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2

I, Richard R. Allen, certify that:

1. I have reviewed this annual report on Form 10-K of HCI Group, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

March 10, 2015

/s/ RICHARD R. ALLEN
Richard R. Allen
Chief Financial Officer
(Principal Financial and Accounting Officer)

A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

Written Statement of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

Exhibit 32.1

Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Executive Officer of HCI Group, Inc. (the

“Company”), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the annual period
ended December 31, 2014 as filed with the Securities and Exchange Commission on March 10, 2015 (the “Report”), fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and that information contained in the
Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

/s/ PARESH PATEL
Paresh Patel
President and Chief Executive Officer
March 10, 2015

Written Statement of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

Exhibit 32.2

Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Financial Officer of HCI Group, Inc. (the

A signed original of this document has been provided to HCI Group, Inc. and will be retained by HCI Group, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

/s/ RICHARD R. ALLEN
Richard R. Allen
Chief Financial Officer
March 10, 2015