HCI Group, Inc. (Form: 10-Q, Received: 08/03/2018 16:09:23)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2018

☐	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

20-5961396

(State of

Incorporation)

(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)

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 ☒ 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 ☒ No ☐

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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate number of shares of the Registrant’s Common Stock, no par value, outstanding on July 26, 2018 was 9,284,475.

HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
	PART I – FINANCIAL INFORMATION

Item 1	Financial Statements
	Consolidated Balance Sheets:
	June 30, 2018 (unaudited) and December 31, 2017		1-2
	Consolidated Statements of Income:
	Three and six months ended June 30, 2018 and 2017 (unaudited)		3
	Consolidated Statements of Comprehensive Income:
	Three and six months ended June 30, 2018 and 2017 (unaudited)		4
	Consolidated Statements of Cash Flows:
	Six months ended June 30, 2018 and 2017 (unaudited)		5-6
	Consolidated Statements of Stockholders’ Equity:
	Six months ended June 30, 2018 and 2017 (unaudited)		7-8
	Notes to Consolidated Financial Statements (unaudited)		9-41

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42-56

Item 3	Quantitative and Qualitative Disclosures about Market Risk		57-58

Item 4	Controls and Procedures		59

	PART II – OTHER INFORMATION

Item 1	Legal Proceedings		59

Item 1A	Risk Factors		59

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		60-61

Item 3	Defaults upon Senior Securities		61

Item 4	Mine Safety Disclosures		61

Item 5	Other Information		61

Item 6	Exhibits
Signatures
Certifications

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)


	June 30,		December 31,
	2018		2017
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $166,552 and $235,633, respectively)	$	165,133	$	237,484
Equity securities, at fair value (cost: $38,608 and $54,282, respectively)		40,125		59,956
Short-term investments, at fair value		110,042		—
Limited partnership investments, at equity		25,951		23,184
Investment in unconsolidated joint venture, at equity		1,634		1,304
Real estate investments (Note 4 – Consolidated Variable Interest Entity)		64,081		58,358

Total investments		406,966		380,286
Cash and cash equivalents		216,453		255,884
Restricted cash		809		809
Accrued interest and dividends receivable		1,472		1,983
Income taxes receivable		3,108		16,192
Premiums receivable		25,897		17,807
Prepaid reinsurance premiums		29,580		22,286
Reinsurance recoverable:
Paid losses and loss adjustment expenses		12,903		2,344
Unpaid losses and loss adjustment expenses		82,998		100,760
Deferred policy acquisition costs		20,086		16,712
Property and equipment, net		12,845		12,465
Intangible assets, net		5,102		4,995
Other assets (Note 4 – Consolidated Variable Interest Entity)		23,493		9,741

Total assets	$	841,712	$	842,264

(continued)

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets - continued

(Dollar amounts in thousands)


	June 30,			December 31,
	2018			2017
	(Unaudited)
Liabilities and Stockholders’ Equity
Losses and loss adjustment expenses	$	172,387		$	198,578
Unearned premiums		194,828			164,896
Advance premiums		13,150			4,948
Assumed reinsurance balances payable		133			15
Accrued expenses (Note 4 – Consolidated Variable Interest Entity)		10,044			6,035
Reinsurance recovered in advance on unpaid losses		—			13,885
Deferred income taxes, net		2,993			1,890
Long-term debt		240,983			237,835
Other liabilities (Note 4 – Consolidated Variable Interest Entity)		16,173			20,207

Total liabilities		650,691			648,289

Commitments and contingencies (Note 16)
Stockholders’ equity:
7% Series A cumulative convertible preferred stock (no par value, 1,500,000 shares authorized, no shares issued or outstanding)		—			—
Series B junior participating preferred stock (no par value, 400,000 shares authorized, no shares issued or outstanding)		—			—
Preferred stock (no par value, 18,100,000 shares authorized, no shares issued or outstanding)		—			—
Common stock (no par value, 40,000,000 shares authorized, 8,517,888 and 8,762,416 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively)		—			—
Additional paid-in capital		—			—
Retained income		192,080			189,409
Accumulated other comprehensive (loss) income, net of taxes		(1,059	)		4,566

Total stockholders’ equity		191,021			193,975

Total liabilities and stockholders’ equity	$	841,712		$	842,264

See accompanying Notes to Consolidated Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(Dollar amounts in thousands, except per share amounts)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Revenue
Gross premiums earned	$	85,919		$	90,088		$	171,691		$	181,707
Premiums ceded		(32,954	)		(28,241	)		(65,204	)		(56,824	)

Net premiums earned		52,965			61,847			106,487			124,883
Net investment income		3,399			2,810			6,617			5,644
Net realized investment gains		2,662			1,787			4,894			2,502
Net unrealized investment losses		(1,557	)		—			(4,157	)		—
Net other-than-temporary impairment losses		(40	)		(177	)		(80	)		(390	)
Policy fee income		855			908			1,720			1,816
Other		529			405			1,071			838

Total revenue		58,813			67,580			116,552			135,293

Expenses
Losses and loss adjustment expenses		21,803			27,665			41,458			53,194
Policy acquisition and other underwriting expenses		9,959			10,070			19,319			19,719
General and administrative personnel expenses		7,840			7,374			14,123			14,349
Interest expense		4,505			4,378			8,975			7,920
Loss on repurchases of senior notes		—			743			—			743
Other operating expenses		3,186			3,045			6,353			5,921

Total expenses		47,293			53,275			90,228			101,846

Income before income taxes		11,520			14,305			26,324			33,447
Income tax expense		5,117			4,763			9,130			11,885

Net income	$	6,403		$	9,542		$	17,194		$	21,562

Basic earnings per share	$	0.96		$	1.05		$	2.21		$	2.32

Diluted earnings per share	$	0.92		$	0.93		$	2.03		$	2.07

Dividends per share	$	0.375		$	0.35		$	0.725		$	0.70

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net income	$	6,403		$	9,542		$	17,194		$	21,562

Other comprehensive income:
Change in unrealized gain (loss) on investments:
Net unrealized (loss) gain arising during the period		(65	)		654			(2,693	)		2,667
Other-than-temporary impairment loss charged to income		40			177			80			390
Call and repayment losses charged to investment income		3			8			4			9
Reclassification adjustment for net realized loss (gain)		35			(1,787	)		(661	)		(2,502	)

Net change in unrealized gain (loss)		13			(948	)		(3,270	)		564
Deferred income taxes on above change		(3	)		365			829			(218	)

Total other comprehensive income (loss), net of income taxes		10			(583	)		(2,441	)		346

Comprehensive income	$	6,413		$	8,959		$	14,753		$	21,908

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	Six Months Ended
	June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	17,194		$	21,562
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		1,905			2,139
Net amortization of debt securities		528			535
Depreciation and amortization		5,439			4,380
Deferred income tax expense (benefit)		1,932			(1,430	)
Net realized investment gains		(4,894	)		(2,502	)
Net unrealized investment losses		4,157			—
Other-than-temporary impairment losses		80			390
Income from unconsolidated joint venture		(330	)		(142	)
Distribution received from unconsolidated joint venture		—			147
Net income from limited partnership interests		(852	)		(1,332	)
Distributions received from limited partnership interests		609			426
Loss on repurchases of senior notes		—			743
Foreign currency remeasurement loss (gain)		115			(51	)
Other		—			116
Changes in operating assets and liabilities:
Accrued interest and dividends receivable		511			(427	)
Income taxes		13,084			1,838
Premiums receivable		(8,090	)		(9,345	)
Prepaid reinsurance premiums		(7,294	)		(11,478	)
Reinsurance recoverable		7,203			—
Deferred policy acquisition costs		(3,374	)		(3,612	)
Other assets		1,520			(6,862	)
Losses and loss adjustment expenses		(26,191	)		2,597
Unearned premiums		29,932			24,167
Advance premiums		8,202			10,316
Assumed reinsurance balances payable		118			(3,113	)
Reinsurance recovered in advance on unpaid losses		(13,885	)		—
Accrued expenses and other liabilities		(28	)		2,411

Net cash provided by operating activities		27,591			31,473

Cash flows from investing activities:
Investments in limited partnership interests		(2,638	)		(1,489	)
Distributions received from limited partnership interests		114			11,758
Distribution from unconsolidated joint venture		—			417
Purchase of property and equipment		(1,045	)		(1,295	)
Purchase of real estate investments		(6,520	)		(1,931	)
Purchase of intangible assets		(409	)		—
Purchase of fixed-maturity securities		(50,976	)		(91,354	)
Purchase of equity securities		(20,832	)		(22,738	)
Purchase of short-term investments		(125,001	)		—
Proceeds from sales of fixed-maturity securities		77,769			6,873
Proceeds from calls, repayments and maturities of fixed-maturity securities		27,207			3,937
Proceeds from sales of equity securities		40,436			20,902
Proceeds from sales, redemptions and maturities of short-term investments		15,093			—
Proceeds from sales of derivative instruments		24			—

Net cash used in investing activities		(46,778	)		(74,920	)

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, continued

(Unaudited)

(Amounts in thousands)


	Six Months Ended
	June 30,
	2018			2017
Cash flows from financing activities:
Cash dividends paid		(5,011	)		(7,026	)
Cash dividends received under share repurchase forward contract		590			503
Proceeds from exercise of common stock options		—			75
Proceeds from issuance of long-term debt		—			143,859
Repurchases of senior notes		—			(40,250	)
Repayment of long-term debt		(520	)		(465	)
Repurchases of common stock		(941	)		(30,636	)
Repurchases of common stock under share repurchase plan		(13,711	)		(1,590	)
Purchase of non-controlling interest		(539	)		—
Debt issuance costs		—			(4,975	)

Net cash (used in) provided by financing activities		(20,132	)		59,495

Effect of exchange rate changes on cash		(112	)		50

Net (decrease) increase in cash, cash equivalents, and restricted cash		(39,431	)		16,098
Cash, cash equivalents, and restricted cash at beginning of period		256,693			281,131

Cash, cash equivalents, and restricted cash at end of period	$	217,262		$	297,229

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	43		$	11,476

Cash paid for interest	$	5,309		$	3,620

Non-cash investing and financing activities:
Unrealized (loss) gain on investments in available-for-sale securities, net of tax	$	(2,441	)	$	346

Conversion of revolving credit facility to long-term debt	$	—		$	9,441

Receivable from sales of equity securities	$	530		$	—

Payable on purchases of equity securities	$	—		$	694

Receivable from maturities of fixed-maturity securities	$	15,000		$	—

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Six Months Ended June 30, 2018

(Unaudited)

(Dollar amounts in thousands)


	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income (Loss),			Total Stockholders’
	Shares			Amount		Capital			Income			Net of Tax			Equity
Balance at December 31, 2017		8,762,416		$	—	$	—		$	189,409		$	4,566		$	193,975
Net income		—			—		—			17,194			—			17,194
Total other comprehensive loss, net of income taxes		—			—		—			—			(2,441	)		(2,441	)
Cumulative effect adjustments for adoption of new accounting standards:
Reclassification of after-tax net unrealized holding gains related to equity securities		—			—		—			4,168			(4,168	)		—
Reclassification of stranded tax effects related to available-for-sale fixed-maturity and equity securities		—			—		—			(984	)		984			—
Issuance of restricted stock		183,360			—		—			—			—			—
Forfeiture of restricted stock		(45,020	)		—		—			—			—			—
Repurchase and retirement of common stock		(23,346	)		—		(941	)		—			—			(941	)
Repurchase and retirement of common stock under share repurchase plan		(359,522	)		—		(13,711	)		—			—			(13,711	)
Purchase of noncontrolling interest		—			—		(539	)		—			—			(539	)
Common stock dividends		—			—		—			(4,421	)		—			(4,421	)
Stock-based compensation		—			—		1,905			—			—			1,905
Additional paid-in capital shortfall allocated to retained income		—			—		13,286			(13,286	)		—			—

Balance at June 30, 2018		8,517,888		$	—	$	—		$	192,080		$	(1,059	)	$	191,021

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity - continued

For the Six Months Ended June 30, 2017

(Unaudited)

(Dollar amounts in thousands)


	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive Income (Loss),		Total Stockholders’
	Shares			Amount		Capital			Income			Net of Tax		Equity
Balance at December 31, 2016		9,662,761		$	—	$	8,139		$	232,964		$	2,643	$	243,746
Net income		—			—		—			21,562			—		21,562
Total other comprehensive income, net of income taxes		—			—		—			—			346		346
Exercise of common stock options		30,000			—		75			—			—		75
Issuance of restricted stock		154,936			—		—			—			—		—
Forfeiture of restricted stock		(10,874	)		—		—			—			—		—
Repurchase and retirement of common stock		(434,505	)		—		(21,236	)		—			—		(21,236	)
Repurchase and retirement of common stock under share repurchase plan		(38,416	)		—		(1,590	)		—			—		(1,590	)
Repurchase of common stock under prepaid forward contract		(191,100	)		—		(9,400	)		—			—		(9,400	)
Equity component on 4.25% convertible senior notes (net of offering costs of $543)		—			—		15,151			—			—		15,151
Deferred taxes on debt discount		—			—		(5,845	)		—			—		(5,845	)
Common stock dividends		—			—		—			(6,523	)		—		(6,523	)
Stock-based compensation		—			—		2,139			—			—		2,139
Additional paid-in capital shortfall allocated to retained income		—			—		12,567			(12,567	)		—		—

Balance at June 30, 2017		9,172,802		$	—	$	—		$	235,436		$	2,989	$	238,425

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 1 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements for HCI Group, Inc. and its majority-owned and controlled subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2018 and the results of operations and cash flows for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2018. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017 included in the Company’s Form 10-K, which was filed with the SEC on March 7, 2018.

In preparing the interim unaudited consolidated financial statements, management was required to make certain judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates.

Material estimates that are particularly susceptible to significant change in the near term are related to the Company’s losses and loss adjustment expenses, which include amounts estimated for claims incurred but not yet reported. The Company uses various assumptions and actuarial data it believes to be reasonable under the circumstances to make these estimates. In addition, accounting policies specific to reinsurance with retrospective provisions, reinsurance recoverable, deferred income taxes, and stock-based compensation expense involve significant judgments and estimates material to the Company’s consolidated financial statements.

All significant intercompany balances and transactions have been eliminated.

Adoption of New Accounting Standards

The Company adopted the following accounting standards effective January 1, 2018.

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. The Company elected to use a modified retrospective method for transition to the new revenue recognition standard. The impact is limited to certain revenue generating activities that are not material to the Company’s results of operations.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Accounting Standards Update No. 2016-01 (“ASU 2016-01”), Financial Instruments—Overall (Subtopic 825-10) . ASU 2016-01 amends the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01 requires all equity investments other than those accounted for under the equity method of accounting or those that result in consolidation of the investee to be measured at fair value with changes in the fair value recognized through income. ASU 2016-01 also supersedes the guidance that requires classification of equity securities with readily determinable fair values into either “trading” or “available-for-sale.” Upon adoption of this standard, the after-tax net unrealized holding gains of $4,168 in accumulated other comprehensive income at December 31, 2017, which pertain to available-for-sale equity securities and represent a cumulative-effect amount, were reclassified to beginning retained income. Any subsequent changes in the fair value of equity securities have now been recognized in the Company’s consolidated statement of income rather than in accumulated other comprehensive income. In addition, previously reported available-for-sale and trading equity securities of $58,911 and $1,045, respectively, at December 31, 2017 are combined and presented as equity securities on the comparative balance sheet. Certain prior-period disclosures related to equity securities are reorganized to conform with current period presentation.

Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . ASU 2016-18 amends guidance on the classification and presentation of restricted cash in the statement of cash flows. Upon adoption of this standard, restricted cash is now included with cash and cash equivalents when the Company reconciles the beginning-of-period and end-of-period total amounts shown on the consolidated statement of cash flows. In addition, the consolidated statement of cash flows for the prior period presented is retrospectively restated to comply with the new standard. This change in classification and presentation of restricted cash increases the previously reported cash flows from operating activities for the six months ended June 30, 2017 from $31,364 to $31,473.

Accounting Standards Update No. 2017-09 (“ASU 2017-09”), Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting . ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an application of modification accounting. The adoption of this standard will impact the Company’s accounting for any future modification of its existing share-based awards.

Accounting Standards Update No. 2018-02 (“ASU 2018-02”), Income Statement – Reporting Comprehensive Income (Topic 220) . ASU 2018-02 primarily allows a reclassification from accumulated other comprehensive income to retained income for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The Company elected to early adopt this standard in the first quarter of 2018. As a result, the Company decreased beginning retained income and increased accumulated other comprehensive income by $984 of the net deferred tax effects pertaining to available-for-sale fixed-maturity and equity securities as of December 31, 2017.

Equity Securities

Equity securities represent ownership interests held by the Company in entities for investment purpose. Prior to January 1, 2018, these equity securities were classified as either available-for-sale or trading and were carried at fair value on the Company’s consolidated balance sheet. Unrealized holding gains and losses from the changes in the fair values of available-for-sale equity securities were reported in accumulated other comprehensive income. Effective January 1, 2018, unrealized holding gains and losses are reported in the consolidated statement of income as net unrealized investment gains and losses. As a result, other-than-temporary impairments will no longer be considered for equity securities. Realized investment gains and losses from sales are recorded on the trade date and are determined using the first-in first-out method (see Equity Securities in Note 4 — “Investments”).

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Short-Term Investments

Short-term investments include certificates of deposit issued by financial institutions and commercial paper with original maturities of more than three months but less than one year at date of acquisition. These short-term investments are carried at cost or amortized cost, which approximates fair value.

Reclassifications

Certain reclassifications of prior year amounts have been made to conform to the current year presentation. For example, certain payroll-related costs such as share-based compensation expense, payroll taxes and employee benefits, which were previously reported in other operating expenses totaling $1,931 and $3,903 for the three and six months ended June 31, 2017, respectively, were reclassified to general and administrative personnel expenses to conform with the 2018 presentation.

Note 2 — Recent Accounting Pronouncements

Accounting Standard to be Adopted in Fiscal Year 2019

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842). The guidance establishes new principles that lessees and lessors will apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 supersedes accounting for leases prescribed in Topic 840, Leases. ASU 2016-02 leaves lessor accounting substantially unchanged. The key change affecting the Company is the requirement that operating leases be recorded on the balance sheet. The Company is required to use a modified retrospective method and apply this standard at the beginning of the earliest comparative period presented in the financial statements. The Company has identified lease contracts that will be affected by this standard. The Company has chosen to apply the practical expedients related to the identification and classification of leases that commenced before the effective date, initial direct cost for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease. The Company has not yet elected the transition method. The Company does not anticipate a material impact on its financial position.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 3 — Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows.


	June 30,		December 31,
	2018		2017
Cash and cash equivalents	$	216,453	$	255,884
Restricted cash		809		809

Total	$	217,262	$	256,693

Restricted cash primarily represents funds held by certain states in which the Company’s insurance subsidiaries conduct business to meet regulatory requirements.

Note 4 — Investments

a) Available-for-Sale Fixed-Maturity Securities

The Company holds investments in fixed-maturity securities that are classified as available-for-sale. At June 30, 2018 and December 31, 2017, 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:


	Cost or Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value
*As of June 30, 2018*
U.S. Treasury and U.S. government agencies	$	70,017	$	2	$	(404	)	$	69,615
Corporate bonds		73,812		224		(1,764	)		72,272
State, municipalities, and political subdivisions		13,464		184		(2	)		13,646
Exchange-traded debt		9,259		363		(22	)		9,600

Total	$	166,552	$	773	$	(2,192	)	$	165,133

*As of December 31, 2017*
U.S. Treasury and U.S. government agencies	$	42,313	$	1	$	(287	)	$	42,027
Corporate bonds		106,897		1,110		(904	)		107,103
State, municipalities, and political subdivisions		78,954		1,816		(75	)		80,695
Exchange-traded debt		7,469		197		(7	)		7,659

Total	$	235,633	$	3,124	$	(1,273	)	$	237,484

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

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 as of June 30, 2018 and December 31, 2017 are as follows:


	Cost or Amortized Cost		Estimated Fair Value
*As of June 30, 2018*
Due in one year or less	$	71,013	$	70,746
Due after one year through five years		75,293		74,028
Due after five years through ten years		17,125		17,080
Due after ten years		3,121		3,279

	$	166,552	$	165,133


	Cost or Amortized Cost		Estimated Fair Value
*As of December 31, 2017*
Due in one year or less	$	35,386	$	35,364
Due after one year through five years		116,378		115,766
Due after five years through ten years		57,415		58,984
Due after ten years		26,454		27,370

	$	235,633	$	237,484

Sales of Available-for-Sale Fixed-Maturity Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and six months ended June 30, 2018 and 2017 were as follows:


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2018	$	559	$	—	$	(35	)

Three months ended June 30, 2017	$	2,434	$	6	$	(18	)

Six months ended June 30, 2018	$	77,769	$	1,161	$	(500	)

Six months ended June 30, 2017	$	6,873	$	29	$	(22	)

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;

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

•

general market conditions and industry or sector specific factors and other qualitative factors;

•

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

•

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

For the three and six months ended June 30, 2018, the Company recognized $40 and $80, respectively, of impairment loss on one fixed-maturity security. Prior to the sale of one intent-to-sell fixed-maturity security, the Company recognized $38 of impairment loss for this security for the three months ended June 30, 2017. For the six months ended June 30, 2017, the Company recognized impairment losses of $100 attributable to the sale of two intent-to-sell fixed-maturity securities. At June 30, 2018, one fixed-maturity security was considered other-than-temporarily impaired versus two fixed-maturity securities at June 30, 2017.

The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in income from available for sale fixed-maturity securities.


	2018		2017
Balance at January 1	$	—	$	475
Additional credit impairments on previously impaired securities		—		—

Balance at June 30	$	—	$	475

Securities with gross unrealized loss positions at June 30, 2018 and December 31, 2017, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:


	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of June 30, 2018	Loss			Value		Loss			Value		Loss			Value
U.S. Treasury and U.S. government agencies	$	(327	)	$	59,820	$	(77	)	$	3,903	$	(404	)	$	63,723
Corporate bonds		(324	)		24,493		(1,440	)		32,434		(1,764	)		56,927
State, municipalities, and political subdivisions		(2	)		724		—			—		(2	)		724
Exchange-traded debt		(22	)		1,761		—			—		(22	)		1,761

Total	$	(675	)	$	86,798	$	(1,517	)	$	36,337	$	(2,192	)	$	123,135

At June 30, 2018, there were 119 securities in an unrealized loss position. Of these securities, 18 securities had been in an unrealized loss position for 12 months or longer.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Less Than Twelve Months					Twelve Months or Longer					Total
	Gross			Estimated		Gross			Estimated		Gross			Estimated
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
As of December 31, 2017	Loss			Value		Loss			Value		Loss			Value
U.S. Treasury and U.S. government agencies	$	(246	)	$	40,587	$	(41	)	$	1,938	$	(287	)	$	42,525
Corporate bonds		(174	)		40,627		(730	)		30,563		(904	)		71,190
State, municipalities, and political subdivisions		(30	)		9,775		(45	)		2,297		(75	)		12,072
Exchange-traded debt		(6	)		2,481		(1	)		36		(7	)		2,517

Total available-for-sale securities	$	(456	)	$	93,470	$	(817	)	$	34,834	$	(1,273	)	$	128,304

At December 31, 2017, there were 77 securities in an unrealized loss position. Of these securities, 15 securities had been in an unrealized loss position for 12 months or longer.

b) Equity Securities

The Company holds investments in equity securities measured at fair values which are readily determinable. At June 30, 2018 and December 31, 2017, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:


			Gross Unrealized		Gross Unrealized			Estimated Fair
	Cost		Gain		Loss			Value
June 30, 2018	$	38,608	$	3,008	$	(1,491	)	$	40,125
December 31, 2017	$	54,282	$	6,383	$	(709	)	$	59,956

The table below presents the portion of unrealized gains and losses in the Company’s consolidated statement of income for the periods related to equity securities still held.


	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Net gains recognized	$	1,134		$	70
Less: Net realized gains recognized for securities sold		2,691			4,227

Net unrealized losses recognized*	$	(1,557	)	$	(4,157	)

*	Unrealized holding gains and losses for the corresponding periods in 2017 were reported in accumulated other comprehensive income.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Sales of Equity Securities

Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and six months ended June 30, 2018 and 2017 were as follows:


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2018	$	16,003	$	2,794	$	(103	)

Three months ended June 30, 2017	$	13,631	$	2,090	$	(291	)

Six months ended June 30, 2018	$	40,436	$	4,971	$	(744	)

Six months ended June 30, 2017	$	20,902	$	2,835	$	(340	)

c) Short-Term Investments

Short-term investments consist of the following at June 30, 2018. The Company did not have short-term investments at December 31, 2017.


Certificates of deposit	$	55,458
Zero-coupon commercial paper		54,584

Total	$	110,042

d) Limited Partnership Investments

The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships. In February 2018, the Company entered into a subscription agreement to invest $5,000 with a limited partnership specializing in real estate private equity funds and portfolios. The following table provides information related to the Company’s investments in limited partnerships:

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	June 30, 2018						December 31, 2017
Investment Strategy	Carrying Value		Unfunded Balance		(%)(a)		Carrying Value		Unfunded Balance		(%)(a)
Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e)	$	7,847	$	4,775		15.37	$	7,276	$	5,505		15.37
Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)		9,256		—		1.76		7,951		1,745		1.76
High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(f)(g)		7,939		2,073		0.18		7,509		2,512		0.18
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(h)(i)		909		4,000		0.47		448		4,566		0.47
Value-oriented investments in mature real estate private equity funds and portfolios globally. (b)(j)		—		5,000		4.63		—		—		—

Total	$	25,951	$	15,848			$	23,184	$	14,328

(a)	Represents the Company’s percentage investment in the fund at each balance sheet date.

(b)	Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.

(c)	Expected to have a ten-year term and the capital commitment is expected to expire on September 3, 2019.

(d)	Expected to have a three-year term from June 30, 2018.

(e)	At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods.

(f)	Expected to have a ten-year term and the capital commitment is expected to expire on June 30, 2020.

(g)	With the consent of a supermajority of partners, the term of the fund may be extended for up to three additional one-year periods.

(h)	Expected to have a six-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners.

(i)	Unless extended or terminated for reasons specified in the agreement, the capital commitment is expected to expire on December 1, 2018.

(j)	Expected to have an eight-year term after the final fund closing date, which has yet to be determined.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The following is the summary of aggregated unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Company’s respective balance sheet dates. In applying the equity method of accounting, the Company uses the most recently available financial information provided by the general partner of each of these partnerships. The financial statements of these limited partnerships are audited annually.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Operating results:
Total income	$	51,074		$	157,433		$	209,030		$	229,750
Total expenses		(27,951	)		(26,177	)		(85,695	)		(53,819	)

Net income (loss)	$	23,123		$	131,256		$	123,335		$	175,931


	June 30,		December 31,
	2018		2017
Balance Sheet:
Total assets	$	5,591,391	$	4,381,321
Total liabilities	$	272,046	$	382,310

For the three and six months ended June 30, 2018, the Company recognized net investment income of $247 and $852, respectively, for these investments. During the three and six months ended June 30, 2018, the Company received total cash distributions of $595 and $723, respectively. Cash distributions representing return on investment were $481 and $609 for the three and six months ended June 30, 2018, respectively.

For the three and six months ended June 30, 2017, the Company recognized net investment income of $560 and $1,332, respectively. During the three months ended June 30, 2017, the Company received in cash a return on investment of $154. During the six months ended June 30, 2017, the Company received total cash distributions of $12,184, representing $11,758 of returned capital and $426 of return on investment. At June 30, 2018 and December 31, 2017, the Company’s cumulative contributed capital to the partnerships at each respective balance sheet date totaled $23,810 and $21,172, respectively, and the Company’s maximum exposure to loss aggregated $25,951 and $23,184, respectively.

e) Investment in Unconsolidated Joint Venture

The Company has an equity investment in FMKT Mel JV (“FMJV”), which is a limited liability company treated as a joint venture under U.S. GAAP. At June 30, 2018 and December 31, 2017, the Company’s maximum exposure to loss relating to the variable interest entity was $1,634 and $1,304, respectively, representing the carrying value of the investment. There was no cash distribution during the six months ended June 30, 2018. During the six months ended June 30, 2017, the Company received a cash distribution of $564, representing a combined distribution of $147 in earnings and $417 in capital. There was no undistributed income at June 30, 2018 and December 31, 2017. In June 2018, FMJV sold one of its outparcels for $849 and recognized a gain of $438. The following tables provide FMJV’s summarized unaudited financial results and unaudited financial positions:

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Operating results:
Total revenues and gain	$	438		$	—		$	438		$	331
Total expenses		(14	)		(33	)		(71	)		(65	)

Net income (loss)	$	424		$	(33	)	$	367		$	266

The Company’s share of net income (loss)*	$	381		$	(30	)	$	330		$	142

*	Included in net investment income in the Company’s consolidated statements of income. Gain from the sale of an outparcel in 2017 was allocated in accordance with the method specified in the operating agreement.


	June 30, 2018		December 31, 2017
Balance Sheet:
Construction in progress - real estate	$	—	$	27
Real estate investments, net		801		1,199
Cash		1,017		236
Other		5		5

Total assets	$	1,823	$	1,467

Other liabilities	$	7	$	18
Members’ capital		1,816		1,449

Total liabilities and members’ capital	$	1,823	$	1,467

Investment in unconsolidated joint venture, at equity**	$	1,634	$	1,304

**	Includes the 90% share of FMKT Mel JV’s operating results.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

f) Real Estate Investments

Real estate investments consist of the following as of June 30, 2018 and December 31, 2017.


	June 30,			December 31,
	2018			2017
Land	$	30,510		$	26,315
Land improvements		9,920			9,904
Buildings		21,348			21,284
Tenant and leasehold improvements		1,292			1,204
Other		5,206			3,050

Total, at cost		68,276			61,757
Less: accumulated depreciation and amortization		(4,195	)		(3,399	)

Real estate investments	$	64,081		$	58,358

On June 13, 2018, the Company, through a wholly owned subsidiary, acquired commercial real estate in Clearwater, Florida, including assumed liabilities of $35, for a purchase price of $6,766. The real estate consisted of land, one in-place lease agreement which was recorded in intangible assets, and commercial structures that will require renovation. This transaction was accounted for as an asset acquisition.

Depreciation and amortization expense related to real estate investments was $402 and $351 for the three months ended June 30, 2018 and 2017, respectively, and $796 and $688 for the six months ended June 30, 2018 and 2017, respectively.

g) Consolidated Variable Interest Entity

On January 26, 2018, Greenleaf Essence, LLC, a wholly own subsidiary and a member of the limited liability company treated under U.S. GAAP as a joint venture which the Company used to consolidate as the primary beneficiary, purchased the interest of the only noncontrolling member for $539 which was reported in the Company’s consolidated statement of stockholders’ equity. The purchase, which was accounted for as an equity transaction, gave the Company full ownership of this limited liability company. No gain or loss was recognized as there was no change in control. The following table summarizes the assets and liabilities related to this variable interest entity which are included in the accompanying consolidated balance sheet as of December 31, 2017.


Real estate investments	$	4,680
Other assets	$	152
Accrued expenses	$	21
Other liabilities	$	160

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

h) Net Investment Income

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Available-for-sale fixed-maturity securities	$	1,126		$	1,403		$	2,265		$	2,640
Equity securities		527			797			1,148			1,671
Investment expense		(140	)		(191	)		(310	)		(350	)
Limited partnership investments		247			560			852			1,332
Real estate investments		14			(168	)		217			(564	)
Income (loss) from unconsolidated joint venture		381			(30	)		330			142
Cash and cash equivalents		818			439			1,642			767
Short-term investments		426			—			473			—
Other		—			—			—			6

Net investment income	$	3,399		$	2,810		$	6,617		$	5,644

Note 5 — Comprehensive Income (Loss)

Comprehensive income (loss) includes net income and other comprehensive income or loss, which for the Company includes changes in unrealized gains or losses of available-for-sale investments carried at fair value and changes in the unrealized other-than-temporary impairment losses related to these investments. Reclassification adjustments for realized (gains) losses are reflected in net realized investment gains (losses) on the consolidated statements of income. The components of other comprehensive income or loss and the related tax effects allocated to each component were as follows:


	Three Months Ended									Three Months Ended
	June 30, 2018									June 30, 2017
				Income Tax									Income Tax
	Before			Expense			Net of			Before			Expense			Net of
	Tax			(Benefit)			Tax			Tax			(Benefit)			Tax
Unrealized (loss) gain arising during the period	$	(65	)	$	(16	)	$	(49	)	$	654		$	252		$	402
Other-than-temporary impairment loss		40			10			30			177			69			108
Call and repayment losses charged to investment income		3			1			2			8			3			5
Reclassification adjustment for realized losses (gains)		35			8			27			(1,787	)		(689	)		(1,098	)

Total other comprehensive gain (loss)	$	13		$	3		$	10		$	(948	)	$	(365	)	$	(583	)

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Six Months Ended									Six Months Ended
	June 30, 2018									June 30, 2017
				Income Tax									Income Tax
	Before			Expense			Net of			Before			Expense			Net of
	Tax			(Benefit)			Tax			Tax			(Benefit)			Tax
Unrealized (loss) gain arising during the period	$	(2,693	)	$	(682	)	$	(2,011	)	$	2,667		$	1,029		$	1,638
Other-than-temporary impairment loss		80			20			60			390			150			240
Call and repayment losses charged to investment income		4			1			3			9			4			5
Reclassification adjustment for realized gains		(661	)		(168	)		(493	)		(2,502	)		(965	)		(1,537	)

Total other comprehensive (loss) gain	$	(3,270	)	$	(829	)	$	(2,441	)	$	564		$	218		$	346

Note 6 — 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:

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.

Short-term investments

Short-term investments consist of certificates of deposit and zero-coupon commercial paper maturing in one year. Due to their short maturity, the carrying value approximates fair value.

Fixed-maturity and equity securities

Estimated fair values 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

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

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, which are level 2 inputs. 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.

Limited Partnership Investments

As described in Note 4 — “Investments” under Limited Partnership Investments , the Company has interests in limited partnerships which are private equity funds. Pursuant to U.S. GAAP, these funds are required to use fair value accounting; therefore, the estimated fair value approximates the carrying value of these funds.

Long-term debt

The following table summarizes components of the Company’s long-term debt and methods used in estimating their fair values:


	Maturity Date		Valuation Methodology
3.875% Convertible Senior Notes		2019	Quoted price
4.25% Convertible Senior Notes		2037	Quoted price
3.95% Promissory Note		2020	Discounted cash flow method/Level 3 inputs
4% Promissory Note		2031	Discounted cash flow method/Level 3 inputs
3.75% Promissory Note		2036	Discounted cash flow method/Level 3 inputs

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Assets Measured at Estimated Fair Value on a Recurring Basis

The following table presents 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 June 30, 2018 and December 31, 2017:


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
*As of June 30, 2018*
Financial Assets:
Cash and cash equivalents	$	216,453	$	—	$	—	$	216,453
Short-term investments		—		—		110,042		110,042
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies		68,115		1,500		—		69,615
Corporate bonds		72,272		—		—		72,272
State, municipalities, and political subdivisions		—		13,646		—		13,646
Exchange-traded debt		9,600		—		—		9,600

Total available-for-sale securities		149,987		15,146		—		165,133

Equity securities		40,125		—		—		40,125

Total	$	406,565	$	15,146	$	110,042	$	531,753


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
*As of December 31, 2017*
Financial Assets:
Cash and cash equivalents	$	255,884	$	—	$	—	$	255,884
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies		40,527		1,500		—		42,027
Corporate bonds		106,109		994		—		107,103
State, municipalities, and political subdivisions		—		80,695		—		80,695
Exchange-traded debt		7,659		—		—		7,659

Total available-for-sale securities		154,295		83,189		—		237,484

Equity securities		59,956		—		—		59,956

Total	$	470,135	$	83,189	$	—	$	553,324

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Assets and Liabilities Carried at Other Than Estimated 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 June 30, 2018 and December 31, 2017:


	Carrying		Fair Value Measurements Using						Estimated
	Value		(Level 1)		(Level 2)		(Level 3)		Fair Value
*As of June 30, 2018*
Financial Assets:
Limited partnership investments	$	25,591	$	—	$	—	$	25,591	$	25,591
Financial Liabilities:
Long-term debt:
3.875% Convertible senior notes	$	87,270	$	—	$	87,853	$	—	$	87,853
4.25% Convertible senior notes		128,252		—		140,556		—		140,556
3.95% Promissory note		9,174		—		—		9,063		9,063
4% Promissory note		7,972		—		—		7,460		7,460
3.75% Promissory note		8,315		—		—		7,411		7,411

Total long-term debt	$	240,983	$	—	$	228,409	$	23,934	$	252,343


	Carrying		Fair Value Measurements Using						Estimated
	Value		(Level 1)		(Level 2)		(Level 3)		Fair Value
*As of December 31, 2017*
Financial Assets:
Limited partnership investments	$	23,184	$	—	$	—	$	23,184	$	23,184
Financial Liabilities:
Long-term debt:
3.875% Convertible senior notes	$	85,436	$	—	$	90,827	$	—	$	90,827
4.25% Convertible senior notes		126,454		—		124,444		—		124,444
3.95% Promissory note		9,270		—		—		9,227		9,227
4% Promissory note		8,206		—		—		7,894		7,894
3.75% Promissory note		8,469		—		—		7,820		7,820

Total long-term debt	$	237,835	$	—	$	215,271	$	24,941	$	240,212

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 7 — Other Assets

The following table summarizes the Company’s other assets.


	June 30,		December 31,
	2018		2017
Receivables from sales and maturities of investment securities	$	15,530	$	255
Benefits receivable related to retrospective reinsurance contracts		2,579		2,393
Prepaid expenses		1,902		1,741
Lease acquisition costs, net		670		723
Other		2,812		4,629

Total other assets	$	23,493	$	9,741

Note 8 — Long-Term Debt

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


	June 30,			December 31,
	2018			2017
3.875% Convertible Senior Notes, due March 15, 2019	$	89,990		$	89,990
4.25% Convertible Senior Notes, due March 1, 2037		143,750			143,750
3.95% Promissory note, due through February 17, 2020		9,243			9,360
4% Promissory note, due through February 1, 2031		8,105			8,348
3.75% Promissory note, due through September 1, 2036		8,453			8,613

Total principal amount		259,541			260,061
Less: unamortized discount and issuance costs		(18,558	)		(22,226	)

Total long-term debt	$	240,983		$	237,835

The following table summarizes future maturities of long-term debt as of June 30, 2018, which takes into consideration the assumption that the 4.25% Convertible Senior Notes are repurchased at the earliest call date.


Due in 12 months following June 30,
2018	$	91,060
2019		9,867
2020		898
2021		144,683
2022		971
Thereafter		12,062

Total	$	259,541

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Information with respect to interest expense related to long-term debt is as follows:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018		2017			2018		2017
Interest Expense:
Contractual interest	$	2,653	$	2,680		$	5,307	$	5,104
Non-cash expense (a)		1,852		1,718			3,668		2,877
Capitalized interest (b)		—		(20	)		—		(61	)

	$	4,505	$	4,378		$	8,975	$	7,920

(a)	Includes amortization of debt discount and issuance costs.

(b)	Interest was capitalized for a construction project in Riverview, Florida which is intended for lease.

Convertible Senior Notes

3.875% Convertible Notes . Since January 2015, the Company’s cash dividends on common stock have exceeded $0.275 per share, resulting in adjustments to the conversion rate of the 3.875% Convertible Notes. Accordingly, as of June 30, 2018, the conversion rate of the Company’s 3.875% Convertible Notes was 16.2913 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $61.38 per share.

4.25% Convertible Notes . In May 2018, the conversion rate of the 4.25% Convertible Notes was adjusted due to the payment of a cash dividend on common stock that exceeds $0.35 per share. Accordingly, as of June 30, 2018, the conversion rate of the Company’s 4.25% Convertible Notes was 16.2733 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $61.45 per share.

The effective interest rates for the 3.875% Convertible Notes and the 4.25% Convertible Notes, taking into account both cash and non-cash components, approximate 8.3% and 7.6%, respectively. As of June 30, 2018, the remaining amortization periods of the debt discounts were expected to be 8 months for the 3.875% Convertible Notes and 3.7 years for the 4.25% Convertible Notes.

Note 9 — Reinsurance

The Company cedes a portion of its insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and one quota share reinsurance agreements. The Company remains liable for claims payments in the event that any reinsurer is unable to meet its 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 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 probable maximum losses and reinsurance market conditions.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The impact of the reinsurance contracts on premiums written and earned is as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Premiums Written:
Direct	$	132,391		$	134,609		$	202,616		$	206,995
Assumed		(19	)		(160	)		(97	)		(1,121	)

Gross written		132,372			134,449			202,519			205,874
Ceded		(32,954	)		(28,241	)		(65,204	)		(56,824	)

Net premiums written	$	99,418		$	106,208		$	137,315		$	149,050

Premiums Earned:
Direct	$	85,207		$	86,308		$	170,036		$	172,580
Assumed		712			3,780			1,655			9,127

Gross earned		85,919			90,088			171,691			181,707
Ceded		(32,954	)		(28,241	)		(65,204	)		(56,824	)

Net premiums earned	$	52,965		$	61,847		$	106,487		$	124,883

During the three and six months ended June 30, 2018, ceded losses of $58,671 and $58,466, respectively, were recognized as a reduction in losses and loss adjustment expenses. During the three and six months ended June 30, 2017, ceded losses of $5 were deducted from losses incurred. At June 30, 2018 and December 31, 2017, there were 38 and 37 reinsurers, respectively, participating in the Company’s reinsurance program. Amounts receivable with respect to reinsurers at June 30, 2018 and December 31, 2017 were $95,901 and 103,104, respectively. Approximately 29.1% of the reinsurance recoverable balance at June 30, 2018 was concentrated in two reinsurers. Based on the insurance ratings, the payment history and the financial strength of the reinsurers, management believes there was no significant credit risk associated with its reinsurers’ obligations to perform on any prepaid reinsurance contract and to fund any reinsurance recoverable balance as of June 30, 2018.

Certain of the reinsurance contracts include retrospective provisions that adjust premiums, increase the amount of future coverage, or result in a profit commission in the event losses are minimal or zero. For the three and six months ended June 30, 2018, the Company recognized net premiums ceded of $378 and $715, respectively, related to these adjustments, of which $400 and $448 were attributable to the Company’s contract with Oxbridge Reinsurance Limited (“Oxbridge”), a related party. In contrast, these adjustments were reflected in the consolidated statements of income as net reductions in ceded premiums of $3,634 and $6,956 for the three and six months ended June 30, 2017, respectively, of which $936 and $1,512 related to the Company’s contract with Oxbridge.

In addition, adjustments related to retrospective provisions are reflected in other assets. At June 30, 2018 and December 31, 2017, other assets included $2,579 and $2,393, respectively, of which $0 and $479 related to the contract with Oxbridge. See Note 17 — “Related Party Transaction” regarding the termination of the Company’s reinsurance contract with Oxbridge. Management believes the credit risk associated with the collectability of these accrued benefits is minimal as the amount receivable is concentrated with one reinsurer and the Company monitors the creditworthiness of this reinsurer based on available information about the reinsurer’s financial condition.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 10 — Losses and Loss Adjustment Expenses

The liability for losses and loss adjustment expenses 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.

The Company primarily 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 quarterly 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.

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net balance, beginning of period*	$	91,403		$	69,911		$	97,818		$	70,492
Incurred, net of reinsurance, related to:
Current period		20,917			22,165			40,407			45,373
Prior period		886			5,500			1,051			7,821

Total incurred, net of reinsurance		21,803			27,665			41,458			53,194

Paid, net of reinsurance, related to:
Current period		(9,710	)		(12,859	)		(14,157	)		(19,504	)
Prior period		(14,107	)		(11,633	)		(35,730	)		(31,098	)

Total paid, net of reinsurance		(23,817	)		(24,492	)		(49,887	)		(50,602	)

Net balance, end of period		89,389			73,084			89,389			73,084
Add: reinsurance recoverable		82,998			5			82,998			5

Gross balance, end of period	$	172,387		$	73,089		$	172,387		$	73,089

*	Net balance represents beginning-of-period liability for unpaid losses and loss adjustment expenses less beginning-of-period reinsurance recoverable for unpaid losses and loss adjustment expenses.

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as these 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 estimates are adjusted. During the three and six months ended June 30, 2018, the Company established loss reserves of $886 and $1,051, respectively, which resulted from unfavorable development in the prior loss years. During the three months ended June 30, 2018, the Company increased its estimated gross losses related to Hurricane Irma from $267,000 to $326,000. The increase of $59,000 had no impact to the Company’s results of operations as these additional losses were entirely ceded. The increase in estimated gross losses was attributable to an increased number of claims and lawsuits.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 11 — Segment Information

The Company identifies its operating divisions based on organizational structure and revenue source. Currently, the Company has three reportable segments: insurance operations, real estate operations, and corporate and other. Due to their economic characteristics, the Company’s property and casualty insurance division and reinsurance division are grouped together into one reportable segment under insurance operations. The real estate operations segment includes companies engaged in operating commercial properties the Company owns for investment purposes or for use in its own operations. The corporate and other segment represents the activities of the holding companies, the information technology division, and other companies that do not meet the quantitative thresholds for a reportable segment. The determination of segments may change over time due to changes in operational emphasis, revenues, and results of operations. The Company’s chief executive officer, who serves as the Company’s chief operating decision maker, evaluates each division’s financial and operating performance based on revenue and operating income.

For the three months ended June 30, 2018 and 2017, revenues from the Company’s insurance operations before intracompany elimination represented 95.6% and 96.7%, respectively, of total revenues of all operating segments. For the six months ended June 30, 2018 and 2017, revenues from the Company’s insurance operations before intracompany elimination represented 95.2% and 96.6%, respectively, of total revenues of all operating segments. At June 30, 2018 and December 31, 2017, insurance operations’ total assets represented 86.6% and 87.1%, respectively, of the combined assets of all operating segments. In addition, there was no other operating division representing ten percent or more of the greater, in absolute amount, of the combined profits of all operating divisions reporting a profit or the combined losses of all operating divisions reporting a loss. The following tables present segment information reconciled to the Company’s consolidated statements of income. Intersegment transactions are not eliminated from segment results. However, intracompany transactions are eliminated in segment results below.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Insurance			Real Estate		Corporate/			Reclassification/
For Three Months Ended June 30, 2018	Operations			(a)		Other(b)			Elimination			Consolidated
Revenue:
Net premiums earned	$	52,965		$	—	$	—		$	—		$	52,965
Net investment income		2,386			—		737			276			3,399
Net realized investment gains		1,550			—		1,112			—			2,662
Net unrealized investment losses		(1,096	)		—		(461	)		—			(1,557	)
Net other-than-temporary impairment losses		—			—		(40	)		—			(40	)
Policy fee income		855			—		—			—			855
Other		173			2,345		1,456			(3,445	)		529

Total revenue		56,833			2,345		2,804			(3,169	)		58,813

Expenses:
Losses and loss adjustment expenses		21,803			—		—			—			21,803
Amortization of deferred policy acquisition costs		8,696			—		—			—			8,696
Interest expense		—			391		4,233			(119	)		4,505
Depreciation and amortization		32			606		250			(553	)		335
Other		7,643			915		5,893			(2,497	)		11,954

Total expenses		38,174			1,912		10,376			(3,169	)		47,293

Income (loss) before income taxes	$	18,659		$	433	$	(7,572	)	$	—		$	11,520

Total revenue from non-affiliates(c)	$	56,833		$	1,963	$	2,519

(a)	Other revenue under real estate primarily consisted of rental income from investment properties.

(b)	Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.

(c)	Represents amounts before reclassification to conform with an insurance company’s presentation.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Insurance			Real Estate			Corporate/			Reclassification/
For Three Months Ended June 30, 2017	Operations			(a)			Other(b)			Elimination			Consolidated
Revenue:
Net premiums earned	$	61,847		$	—		$	—		$	—		$	61,847
Net investment income		2,217			2			820			(229	)		2,810
Net realized investment gains (losses)		1,813			—			(26	)		—			1,787
Net other-than-temporary impairment losses		(177	)		—			—			—			(177	)
Policy fee income		908			—			—			—			908
Other		138			1,674			1,324			(2,731	)		405

Total revenue		66,746			1,676			2,118			(2,960	)		67,580

Expenses:
Losses and loss adjustment expenses		27,665			—			—			—			27,665
Amortization of deferred policy acquisition costs		8,785			—			—			—			8,785
Interest expense		—			298			4,112			(32	)		4,378
Loss on repurchases of senior notes		—			—			743			—			743
Depreciation and amortization		33			508			220			(472	)		289
Other		8,077			942			4,852			(2,456	)		11,415

Total expenses		44,560			1,748			9,927			(2,960	)		53,275

Income (loss) before income taxes	$	22,186		$	(72	)	$	(7,809	)	$	—		$	14,305

Total revenue from non-affiliates(c)	$	66,746		$	1,295		$	1,940

(a)	Other revenue under real estate primarily consisted of rental income from investment properties.

(b)	Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.

(c)	Represents amounts before reclassification to conform with an insurance company’s presentation.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Insurance			Real Estate		Corporate/			Reclassification/
For Six Months Ended June 30, 2018	Operations			(a)		Other(b)			Elimination			Consolidated
Revenue:
Net premiums earned	$	106,487		$	—	$	—		$	—		$	106,487
Net investment income		4,743			1		1,564			309			6,617
Net realized investment gains		3,755			—		1,139			—			4,894
Net unrealized investment losses		(3,507	)		—		(650	)		—			(4,157	)
Net other-than-temporary impairment losses		—			—		(80	)		—			(80	)
Policy fee income		1,720			—		—			—			1,720
Other		372			4,647		2,734			(6,682	)		1,071

Total revenue		113,570			4,648		4,707			(6,373	)		116,552

Expenses:
Losses and loss adjustment expenses		41,458			—		—			—			41,458
Amortization of deferred policy acquisition costs		17,510			—		—			—			17,510
Interest expense		—			783		8,430			(238	)		8,975
Depreciation and amortization		66			1,196		509			(1,098	)		673
Other		13,948			2,036		10,665			(5,037	)		21,612

Total expenses		72,982			4,015		19,604			(6,373	)		90,228

Income (loss) before income taxes	$	40,588		$	633	$	(14,897	)	$	—		$	26,324

Total revenue from non-affiliates(c)	$	113,570		$	3,883	$	4,139

(a)	Other revenue under real estate primarily consisted of rental income from investment properties.

(b)	Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.

(c)	Represents amounts before reclassification to conform with an insurance company’s presentation.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Insurance			Real Estate			Corporate/			Reclassification/
For Six Months Ended June 30, 2017	Operations			(a)			Other(b)			Elimination			Consolidated
Revenue:
Net premiums earned	$	124,883		$	—		$	—		$	—		$	124,883
Net investment income		4,590			3			1,530			(479	)		5,644
Net realized investment gains		2,419			—			83			—			2,502
Net other-than-temporary impairment losses		(390	)		—			—			—			(390	)
Policy fee income		1,816			—			—			—			1,816
Other		343			3,203			2,384			(5,092	)		838

Total revenue		133,661			3,206			3,997			(5,571	)		135,293

Expenses:
Losses and loss adjustment expenses		53,194			—			—			—			53,194
Amortization of deferred policy acquisition costs		17,637			—			—			—			17,637
Interest expense		—			562			7,415			(57	)		7,920
Loss on repurchases of senior notes		—			—			743			—			743
Depreciation and amortization		61			1,016			426			(931	)		572
Other		15,446			1,651			9,266			(4,583	)		21,780

Total expenses		86,338			3,229			17,850			(5,571	)		101,846

Income (loss) before income taxes	$	47,323		$	(23	)	$	(13,853	)	$	—		$	33,447

Total revenue from non-affiliates(c)	$	133,661		$	2,443		$	3,646

(a)	Other revenue under real estate primarily consisted of rental income from investment properties.

(b)	Other revenue under corporate and other primarily consisted of revenue from restaurant and marina businesses.

(c)	Represents amounts before reclassification to conform with an insurance company’s presentation.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

The following table presents segment assets reconciled to the Company’s total assets in the consolidated balance sheets.


	June 30,			December 31,
	2018			2017
Segment:
Insurance Operations	$	649,411		$	652,754
Real Estate Operations		86,371			80,152
Corporate and Other		136,890			127,822
Consolidation and Elimination		(30,960	)		(18,464	)

Total assets	$	841,712		$	842,264

Note 12 — Income Taxes

During the three months ended June 30, 2018 and 2017, the Company recorded approximately $5,117 and $4,763, respectively, of income taxes, which resulted in effective tax rates of 44.4% and 33.3%, respectively. The increase in the effective tax rate during the second quarter of 2018 was primarily attributable to the derecognition of deferred tax assets of $1,620 for restricted stock awards of which market conditions will not be met prior to their expiry date and the disallowance of the deductibility of the $1,727 expense representing dividends cumulatively paid on such restricted stock awards which were reclassified from retained income (see Restricted Stock Awards in Note 15 — “Stock-Based Compensation”). During the six months ended June 30, 2018 and 2017, the Company recorded approximately $9,130 and $11,885, respectively, of income taxes, which resulted in effective tax rates of 34.7% and 35.5%, respectively. The decrease in the effective tax rate in 2018 as compared with the corresponding period in the prior year was primarily attributable to the reduction of the federal corporate income tax rate from 35% to 21%, offset by the negative effect of the aforementioned derecognition of deferred tax assets, the nondeductible expense related to reclassified dividends, and an increase in nondeductible compensation expenses due to the elimination of the deductibility of most performance-based compensation, resulting from the enactment of the Tax Cuts and Jobs Act in 2017. The Company’s estimated annual effective tax rate differs from the statutory federal tax rate due to state and foreign income taxes as well as certain nondeductible and tax-exempt items.

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 affect the computation of both basic and diluted earnings per share during periods of net income or loss.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

A summary of the numerator and denominator of the basic and diluted earnings per common share is presented below.


	Three Months Ended						Three Months Ended
	June 30, 2018						June 30, 2017
	Income		Shares		Per Share		Income			Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)			(Denominator)		Amount
Net income	$	6,403					$	9,542
Less:Loss (income) attributable to participating securities*		1,202						(572	)

Basic Earnings Per Share:
Income allocated to common stockholders		7,605		7,923	$	0.96		8,970			8,503	$	1.05

Effect of Dilutive Securities:
Stock options		—		17				—			41
Convertible senior notes		3,160		3,803				2,514			3,790

Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions	$	10,765		11,743	$	0.92	$	11,484			12,334	$	0.93


	Six Months Ended						Six Months Ended
	June 30, 2018						June 30, 2017
	Income		Shares		Per Share		Income			Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)			(Denominator)		Amount
Net income	$	17,194					$	21,562
Less:Loss (income) attributable to participating securities*		501						(1,281	)

Basic Earnings Per Share:
Income allocated to common stockholders		17,695		8,002	$	2.21		20,281			8,727	$	2.32

Effect of Dilutive Securities:
Stock options		—		17				—			43
Convertible senior notes		6,294		3,801				4,013			2,988

Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions	$	23,989		11,820	$	2.03	$	24,294			11,758	$	2.07

Loss attributable to participating securities for the three and six months ended June 30, 2018 included the reclassification of cumulative dividends paid on certain restricted stock with market based vesting conditions from retained income to expense. See Restricted Stock Awards in Note 15 — “Stock-Based Compensation” for additional information.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 14 — Stockholders’ Equity

Common Stock

In December 2017, the Company’s Board of Directors authorized a plan to repurchase up to $20,000 of the Company’s common shares before commissions and fees. During the three months ended June 30, 2018, the Company repurchased and retired a total of 174,951 shares at a weighted average price per share of $40.97 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended June 30, 2018 was $7,174, or $41.00 per share. During the six months ended June 30, 2018, the Company repurchased and retired a total of 359,522 shares at a weighted average price per share of $38.11. The total cost of shares repurchased, inclusive of fees and commissions, during the six months ended June 30, 2018 was $13,711, or $38.14 per share.

In December 2016, the Company’s Board of Directors authorized a plan to repurchase up to $20,000 of the Company’s common shares before commissions and fees. During the three months ended June 30, 2017, the Company repurchased and retired a total of 900 shares at a weighted average price per share of $44.26 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended June 30, 2017 was $40, or $44.30 per share. During the six months ended June 30, 2017, the Company repurchased and retired a total of 38,416 shares at a weighted average price per share of $41.36. The total cost of shares repurchased, inclusive of fees and commissions, during the six months ended June 30, 2017 was $1,590, or $41.40 per share.

Note 15 — Stock-Based Compensation

Incentive Plans

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 active and available for future grants. At June 30, 2018, there were 1,747,315 shares available for grant.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Stock Options

Stock options granted and outstanding under the incentive plans 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 three and six months ended June 30, 2018 and 2017 is as follows (option amounts not in thousands):


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term		Value
Outstanding at January 1, 2018		130,000		$	34.82		8.2 years	$	472
Granted		110,000		$	40.00

Outstanding at March 31, 2018		240,000		$	37.19		8.8 years	$	637

Outstanding at June 30, 2018		240,000		$	37.19		8.6 years	$	749

Exercisable at June 30, 2018		47,500		$	25.81		6.3 years	$	749

Outstanding at January 1, 2017		50,000		$	4.02		2.3 years	$	1,773
Granted		110,000		$	40.00

Outstanding at March 31, 2017		160,000		$	28.76		7.4 years	$	2,591
Exercised		(30,000	)	$	2.50

Outstanding at June 30, 2017		130,000		$	34.82		8.7 years	$	1,675

Exercisable at June 30, 2017		20,000		$	6.30		4.2 years	$	828

There were no options exercised during the three and six months ended June 30, 2018. The aggregate intrinsic value and realized tax benefits of the options exercised during the three and six months ended June 30, 2017 were $1,319 and $509, respectively. For the three months ended June 30, 2018 and 2017, the Company recognized $136 and $53, respectively, of compensation expense which was included in general and administrative personnel expenses. For the six months ended June 30, 2018 and 2017, the Company recognized $246 and $149, respectively, of compensation expense. Deferred tax benefits related to stock options were $20 and $21 for the three months ended June 30, 2018 and 2017, respectively, and $39 and $58 for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018 and December 31, 2017, there was $1,634 and $941, respectively, of unrecognized compensation expense related to nonvested stock options. The Company expects to recognize the remaining compensation expense over a weighted-average period of 3.1 years.

The following table provides assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the stock options granted during the six months ended June 30, 2018 and 2017:


	2018			2017
Expected dividend yield		4.00	%		3.53	%
Expected volatility		42.22	%		42.86	%
Risk-free interest rate		2.57	%		1.92	%
Expected life (in years)		5			5

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Restricted Stock Awards

From time to time, the Company has granted and may grant restricted stock awards to its 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 containing only performance or service-based conditions is based on the market value of the Company’s common stock on the grant date.

Information with respect to the activity of unvested restricted stock awards during the three and six months ended June 30, 2018 and 2017 is as follows:


	Number of			Weighted
	Restricted			Average
	Stock			Grant Date
	Awards			Fair Value
Nonvested at January 1, 2018		597,690		$	32.82
Granted		40,000		$	34.92
Vested		(28,643	)	$	45.17
Forfeited		(17,905	)	$	38.55

Nonvested at March 31, 2018		591,142		$	31.53

Granted		143,360		$	43.83
Vested		(59,974	)	$	40.09
Forfeited		(27,115	)	$	32.76

Nonvested at June 30, 2018		647,413		$	33.41

Nonvested at January 1, 2017		542,503		$	30.81
Granted		45,000		$	40.15
Vested		(20,109	)	$	48.42
Forfeited		(926	)	$	35.52

Nonvested at March 31, 2017		566,468		$	30.92

Granted		109,936		$	44.05
Vested		(45,874	)	$	34.51
Forfeited		(9,948	)	$	40.90

Nonvested at June 30, 2017		620,582		$	32.82

The Company recognized compensation expense related to restricted stock, which is included in general and administrative personnel expenses, of $897 and $984 for the three months ended June 30, 2018 and 2017, respectively, and $1,659 and $1,990 for the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018 and December 31, 2017, there was approximately $13,879 and $9,101, 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 3.2 years. The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to restricted stock awards and paid dividends, and the fair value of vested restricted stock for the three and six months ended June 30, 2018 and 2017.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Deferred tax benefits recognized	$	180	$	341	$	336	$	694
Tax benefits realized for restricted stock and paid dividends	$	652	$	816	$	848	$	1,183
Fair value of vested restricted stock	$	2,404	$	1,583	$	3,698	$	2,557

In May 2018, the Company reclassified from retained income dividends of $1,727 cumulatively paid on unvested restricted stock awards with market based vesting conditions to general and administrative personnel expenses for $1,346 and to other operating expenses for $381. These awards, of which the market conditions will not be met, were granted to the Company’s employee and nonemployee directors in 2013. The awards will lapse in May 2019. Any future dividend payment associated with these awards will be expensed when declared.

Note 16 — Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contract

As of June 30, 2018, the Company has a contractual obligation related to one multi-year reinsurance contract. This contract may be cancelled only with the other party’s consent. The table below presents the future minimum aggregate premium amounts payable to the reinsurer.


Due in 12 months following June 30,
2018*	$	3,276
2019*		3,275

Total	$	6,551

*	Premiums payable after September 30, 2018 are estimated.

Capital Commitment

As described in Note 4 — “Investments” under Limited Partnership Investments , the Company is contractually committed to capital contributions for four limited partnership interests. At June 30, 2018, there was an aggregate unfunded balance of $15,848.

Note 17 — Related Party Transactions

On May 28, 2018, Claddaugh Casualty Insurance Company Ltd (“Claddaugh”), the Company’s wholly owned subsidiary, terminated its multi-year reinsurance contract with Oxbridge, a related party, effective June 1, 2018. Upon termination, Claddaugh agreed to pay Oxbridge a settlement fee of $600 and derecognized the benefits accrued in connection with retrospective provisions. The settlement fee and the derecognition of the $622 accrued benefits were recorded in premiums ceded.

During the first quarter of 2018, the Company purchased six-month certificates of deposit totaling approximately $15,094 from First Home Bank, a local bank in the Tampa Bay area where two of the Company’s directors are members of the bank’s board of directors. These certificates of deposit had a fixed interest rate of 1.95% with interest payable at maturity. The interest rate and terms of the certificates were comparable to those offered to other clients of the bank. In May 2018, the Company moved the entire funds from a certificate of deposit account to a money market account.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

(Amounts in thousands, except share and per share amounts, unless otherwise stated)

Note 18 — Subsequent Events

On July 6, 2018, Century Park Holdings, LLC, a subsidiary of the Company, entered into a 18-year secured loan agreement for proceeds of $6,000. The loan is collateralized by the Company’s Tampa, Florida real estate, which is owned by Century Park Holdings, and the lease agreement associated with this property. The loan bears a fixed annual interest rate of 4.55%. Approximately $41 of principal and interest is payable in 216 monthly installments. The promissory note may be repaid in full or in part after September 1, 2020 as long as the Company provides at least 30 days’ written notice and pays a prepayment consideration as specified in the loan agreement. The proceeds were used for real estate development projects or other general business purposes.

On July 6, 2018, the Company’s Board of Directors declared a quarterly dividend of $0.375 per common share. The dividends are payable on September 21, 2018 to stockholders of record on August 17, 2018.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion under this Item 2 in conjunction with our consolidated financial statements and related notes and information included elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 7, 2018. Unless the context requires otherwise, as used in this Form 10-Q, the terms “HCI,” “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to HCI Group, Inc., a Florida corporation incorporated in 2006, and its subsidiaries. All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in whole dollars unless specified otherwise.

Forward-Looking Statements

In addition to historical information, this quarterly report 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. Typically, forward-looking statements can be identified by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions. 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 effects of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; changes 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 detailed herein and from time to time in our SEC reports.

OVERVIEW – General

HCI Group, Inc. is a Florida-based company that, through its subsidiaries, is engaged in a variety of business activities, including property and casualty insurance, reinsurance, real estate and information technology. Based on our organizational structure, revenue sources, and evaluation of financial and operating performances by management, we manage the following operating divisions:

Insurance Operations

•

Property and casualty insurance

•

Reinsurance

Other Operations

•

Real estate

•

Information technology

For the three months ended June 30, 2018 and 2017, revenues from insurance operations before intracompany elimination represented 95.6% and 96.7%, respectively, of total revenues of all operating segments. For the six months ended June 30, 2018 and 2017, revenues from insurance operations before intracompany elimination represented 95.2% and 96.6%, respectively, of total revenues of all operating segments. At June 30, 2018 and December 31, 2017, insurance operations’ total assets represented 86.6% and 87.1%, respectively, of the combined assets of all operating segments. See Note 11 — “Segment Information” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

Insurance Operations

Property and Casualty Insurance

Our insurance business is operated through two insurance subsidiaries: Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”), our principal operating subsidiary, and TypTap Insurance Company (“TypTap”). We provide various forms of residential insurance products such as homeowners insurance, fire insurance, flood insurance and wind-only insurance. We are authorized to write residential property and casualty insurance in the states of Arkansas, California, Florida, Maryland, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina and Texas. Florida is currently our only major market. Our growth since inception has resulted primarily from a series of policy assumptions from Citizens Property Insurance Corporation, a Florida state-supported insurer. This growth track has been beneficial to us although there are fewer policies available for assumption today as a result of increased competition in the Florida market. We expect the flood insurance products offered by TypTap and HCPCI to become significant contributors to future financial results.

Reinsurance

We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd. We selectively retain risk in Claddaugh, displacing the need for HCPCI or TypTap to pay premiums to third party reinsurers. Claddaugh fully collateralizes its exposure to our insurance subsidiaries by depositing funds into a trust account. Claddaugh may mitigate a portion of its risk through retrocessional reinsurance contracts. Currently, Claddaugh does not provide reinsurance to non-affiliates.

Other Operations

Real Estate

Our real estate operations consist of properties we own and use for our own operations and multiple properties we own and operate for investment purposes. Properties used in operations consist of our Tampa headquarters building and a secondary insurance operations site in Ocala, Florida. We also have investment properties consisting of a combined 24 acres of waterfront properties that include one full-service restaurant and two marinas, two retail shopping centers, and one office building. In January 2018, we acquired full ownership of one limited liability company which owns commercial real estate in Riverview, Florida. See Consolidated Variable Interest Entity in Note 4 — “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information. In addition, we acquired commercial real estate in Clearwater, Florida for lease to retail businesses in June 2018. See Real Estate Investments in Note 4 — “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

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 Tampa, Florida and Noida, India, are focused on developing cloud-based, innovative products or services that support in-house operations as well as our third party relationships with our agency partners and claim vendors. These products include Proplet ^TM , TypTap ^TM , SAMS ^TM , CasaClue ^TM , Exzeo ^® , and Atlas Viewer ^TM .

Recent Events

On June 13, 2018, we acquired commercial real estate in Clearwater, Florida, including assumed liabilities of approximately $35,000, for a purchase price of approximately $6,766,000. The real estate consisted of land, one in-place lease agreement, and commercial structures.

On July 6, 2018, we entered into a 18-year secured loan agreement for proceeds of $6,000,000. See Note 18 — “Subsequent Events” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

On July 6, 2018, our Board of Directors declared a quarterly dividend of $0.375 per common share. The dividends are payable on September 21, 2018 to stockholders of record on August 17, 2018.

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three and six months ended June 30, 2018 and 2017 (dollar amounts in thousands, except per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Operating Revenue
Gross premiums earned	$	85,919		$	90,088		$	171,691		$	181,707
Premiums ceded		(32,954	)		(28,241	)		(65,204	)		(56,824	)

Net premiums earned		52,965			61,847			106,487			124,883
Net investment income		3,399			2,810			6,617			5,644
Net realized investment gains		2,662			1,787			4,894			2,502
Net unrealized investment losses		(1,557	)		—			(4,157	)		—
Net other-than-temporary impairment losses		(40	)		(177	)		(80	)		(390	)
Policy fee income		855			908			1,720			1,816
Other income		529			405			1,071			838

Total operating revenue		58,813			67,580			116,552			135,293

Operating Expenses
Losses and loss adjustment expenses		21,803			27,665			41,458			53,194
Policy acquisition and other underwriting expenses		9,959			10,070			19,319			19,719
General and administrative personnel expenses*		7,840			7,374			14,123			14,349
Interest expense		4,505			4,378			8,975			7,920
Loss on repurchases of senior notes		—			743			—			743
Other operating expenses		3,186			3,045			6,353			5,921

Total operating expenses		47,293			53,275			90,228			101,846

Income before income taxes		11,520			14,305			26,324			33,447
Income tax expense		5,117			4,763			9,130			11,885

Net income	$	6,403		$	9,542		$	17,194		$	21,562

Ratios to Net Premiums Earned:
Loss Ratio		41.16	%		44.73	%		38.93	%		42.60	%
Expense Ratio		48.13	%		41.41	%		45.80	%		38.95	%

Combined Ratio		89.29	%		86.14	%		84.73	%		81.55	%

Ratios to Gross Premiums Earned:
Loss Ratio		25.38	%		30.71	%		24.15	%		29.27	%
Expense Ratio		29.66	%		28.43	%		28.40	%		26.78	%

Combined Ratio		55.04	%		59.14	%		52.55	%		56.05	%

Earnings Per Share Data:
Basic	$	0.96		$	1.05		$	2.21		$	2.32

Diluted	$	0.92		$	0.93		$	2.03		$	2.07

For the three and six months ended June 30, 2017, we reclassified certain payroll-related costs such as share-based compensation expense, payroll taxes and employee benefits previously reported in other operating expenses to general and administrative personnel expenses to conform with our 2018 presentation.

Comparison of the Three Months ended June 30, 2018 to the Three Months ended June 30, 2017

Our results of operations for the three months ended June 30, 2018 reflect income available to common stockholders of approximately $6,403,000, or $0.92 earnings per diluted common share, compared with approximately $9,542,000, or $0.93 earnings per diluted common share, for the three months ended June 30, 2017. The quarter-over-quarter decrease was primarily due to a $8,882,000 decrease in net premiums earned and a decrease in net realized and unrealized investment gains of $682,000, offset by a $5,862,000 decrease in losses and loss adjustment expenses, which contributed to a decrease in pre-tax income of $2,785,000. In addition, our income tax expense in 2018 was negatively impacted by the derecognition of deferred tax assets of $1,620,000 related to unvested restricted stock with market conditions and the nondeductible expense of $1,727,000 associated with the reclassified dividends on such restricted stock awards, offset by a lower federal corporate income tax rate effective January 1, 2018.

Revenue

Gross Premiums Earned for the three months ended June 30, 2018 and 2017 were approximately $85,919,000 and $90,088,000, respectively. The decrease in 2018 compared with the second quarter of the prior year was primarily attributable to policy attrition.

Premiums Ceded for the three months ended June 30, 2018 and 2017 were approximately $32,954,000 and $28,241,000, respectively, representing 38.4% and 31.3%, respectively, of gross premiums earned. The $4,713,000 increase was primarily attributable to a net increase of premiums ceded attributable to retrospective provisions under certain reinsurance contracts due to losses incurred by Hurricane Irma in 2017 as opposed to a net reduction in premiums ceded in the corresponding period in 2017. During the second quarter of 2018, we incurred additional premiums ceded of approximately $1,222,000 resulting from the termination of one reinsurance contract. See Note 17 — “Related Party Transactions” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

Our premiums ceded represent costs of reinsurance to cover losses from catastrophes that exceed the retention levels defined by our catastrophe excess of loss reinsurance contracts or to assume a proportional share of losses as defined in a quota share agreement. The rates we pay for reinsurance are based primarily on policy exposures reflected in gross premiums earned. For the three months ended June 30, 2018, premiums ceded included a net increase of approximately $378,000 related to retrospective provisions. For the three months ended June 30, 2017, premiums ceded reflected a net reduction of approximately $3,634,000. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”

Net Premiums Written for the three months ended June 30, 2018 and 2017 totaled approximately $99,418,000 and $106,208,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The $6,790,000 decrease in 2018 resulted from the increase in premiums ceded as described above combined with a decrease in gross premiums written during the period due to policy attrition. We had approximately 132,000 policies in force at June 30, 2018 as compared with approximately 143,000 policies in force at June 30, 2017.

Net Premiums Earned for the three months ended June 30, 2018 and 2017 were approximately $52,965,000 and $61,847,000, 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 three months ended June 30, 2018 and 2017 (amounts in thousands):


	Three Months Ended June 30,
	2018			2017
Net Premiums Written	$	99,418		$	106,208
Increase in Unearned Premiums		(46,453	)		(44,361	)

Net Premiums Earned	$	52,965		$	61,847

Net Realized Investment Gains for the three months ended June 30, 2018 and 2017 were approximately $2,662,000 and $1,787,000, respectively. The gains in 2018 resulted primarily from sales to rebalance our investment portfolio.

Net Unrealized Investment Losses for the three months ended June 30, 2018 were $1,557,000, representing a net unfavorable change in the fair value of equity securities during the period subsequent to the adoption of the new accounting standard as described in Note 1 — “Summary of Significant Accounting Policies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Expenses

Our Losses and Loss Adjustment Expenses amounted to approximately $21,803,000 and $27,665,000 for the three months ended June 30, 2018 and 2017, respectively. During the second quarter of 2018, we had fewer non-catastrophe claims as compared with the corresponding period in 2017. Loss reserves established during the second quarter of 2018 primarily pertained to claims in the 2018 loss year, whereas our 2017 losses and loss adjustment expenses were impacted by the strengthening of loss reserves in response to trends involving assignment of insurance benefits and related litigation. In addition, our non-catastrophe loss reserves during the second quarter of 2018 decreased in relation to the decrease in net premiums earned as described earlier. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”

Policy Acquisition and Other Underwriting Expenses for the three months ended June 30, 2018 and 2017 of approximately $9,959,000 and $10,070,000, respectively, primarily reflected commissions and premium taxes related to the policies that have renewed.

General and Administrative Personnel Expenses for the three months ended June 30, 2018 and 2017 were approximately $7,840,000 and $7,374,000, respectively. Our general and administrative personnel expenses include salaries, wages, payroll taxes, share-based compensation expenses, and employee benefit costs. Factors such as merit increases, changes in headcount, and periodic restricted stock grants, among others, cause fluctuations in this expense. In addition, our personnel expenses are decreased by the capitalization of payroll costs related to a project to develop software for internal use and the payroll costs associated with the processing and settlement of Hurricane Irma claims which are recoverable from reinsurers under reinsurance contracts. The quarter-over-quarter increase of $466,000 was primarily attributable to the reclassification of approximately $1,346,000 of cumulative dividends paid on unvested restricted stock awards of which market conditions will not be met. The reclassification to general and administrative personnel expenses from retained income was offset by recoverable payroll costs during the second quarter of 2018.

Loss on repurchases of Senior Notes for the three months ended June 30, 2017 was approximately $743,000, resulting from the early extinguishment of our 8% senior notes.

Income Tax Expense for the three months ended June 30, 2018 and 2017 was approximately $5,117,000 and $4,763,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 44.4% for 2018 and 33.3% for 2017. The increase was primarily attributable to the derecognition of deferred tax assets of approximately $1,620,000 for restricted stock awards with market conditions that will not be met and the disallowance of the deductibility of approximately $1,727,000 of dividends reclassified to expense from retained income (see Restricted Stock Awards in Note 15 — “Stock-Based Compensation” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q). The increase was offset in large part by tax savings from a lower federal corporate income tax rate effective January 1, 2018.

Ratios:

The loss ratio applicable to the three months ended June 30, 2018 (losses and loss adjustment expenses incurred related to net premiums earned) was 41.2% compared with 44.7% for the three months ended June 30, 2017. The decrease was primarily due to a decrease in losses and loss adjustment expenses as described previously.

The expense ratio applicable to the three months ended June 30, 2018 (defined as underwriting expenses, general and administrative personnel expenses, interest and other operating expenses related to net premiums earned) was 48.1% compared with 41.4% for the three months ended June 30, 2017. The increase in our expense ratio was primarily attributable to the decrease in net premiums earned.

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 three months ended June 30, 2018 was 89.3% compared with 86.1% for the three months ended June 30, 2017. The increase was attributable to the higher percentage decrease in net premiums earned than the percentage decrease in total expenses which included the dividends reclassified to expense of approximately $1,727,000 as described earlier.

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 three months ended June 30, 2018 was 55.0% compared with 59.1% for the three months ended June 30, 2017. The decrease in 2018 was attributable to the factors described above.

Comparison of the Six Months ended June 30, 2018 to the Six Months ended June 30, 2017

Our results of operations for the six months ended June 30, 2018 reflect income available to common stockholders of approximately $17,194,000, or $2.03 earnings per diluted common share, compared with approximately $21,562,000, or $2.07 earnings per diluted common share, for the six months ended June 30, 2017. The period-over-period decrease was primarily due to a $18,396,000 decrease in net premiums earned and a $1,765,000 decrease in net realized and unrealized investment gains, offset by a $11,736,000 decrease in losses and loss adjustment expenses, which contributed to a decrease in pre-tax income of $7,123,000. In addition, our income tax expense in 2018 was positively impacted by a lower federal corporate income tax rate effective January 1, 2018.

Revenue

Gross Premiums Earned for the six months ended June 30, 2018 and 2017 were approximately $171,691,000 and $181,707,000, respectively. The decrease in 2018 compared with the corresponding period in 2017 was primarily attributable to policy attrition.

Premiums Ceded for the six months ended June 30, 2018 and 2017 were approximately $65,204,000 and $56,824,000, respectively, representing 38.0% and 31.3%, respectively, of gross premiums earned. The $8,380,000 increase was primarily attributable to a net increase of premiums ceded attributable to retrospective provisions under certain reinsurance contracts due to losses incurred by Hurricane Irma in 2017 as opposed to a net reduction in premiums ceded in the corresponding period in 2017 and the recognition of additional premiums ceded resulting from the termination of the reinsurance contract as described earlier.

For the six months ended June 30, 2018, premiums ceded included a net increase of approximately $715,000 related to retrospective provisions. For the six months ended June 30, 2017, premiums ceded reflected a net reduction of approximately $6,956,000. See “Economic Impact of Reinsurance Contracts with Retrospective Provisions” under “Critical Accounting Policies and Estimates.”

Net Premiums Written for the six months ended June 30, 2018 and 2017 totaled approximately $137,315,000 and $149,050,000, respectively. The $11,735,000 decrease in 2018 resulted primarily from the increase in premiums ceded as described above combined with a decrease in gross premiums written during the period due to policy attrition.

Net Premiums Earned for the six months ended June 30, 2018 and 2017 were approximately $106,487,000 and $124,883,000, 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 six months ended June 30, 2018 and 2017 (amounts in thousands):


	Six Months Ended June 30,
	2018			2017
Net Premiums Written	$	137,315		$	149,050
Increase in Unearned Premiums		(30,828	)		(24,167	)

Net Premiums Earned	$	106,487		$	124,883

Net Realized Investment Gains for the six months ended June 30, 2018 and 2017 were approximately $4,894,000 and $2,502,000, respectively. The gains in 2018 resulted primarily from sales intended to rebalance our investment portfolio to mitigate the impact from the rising interest rate trend and to decrease our holdings in municipal bonds as they become less attractive in a low tax rate environment.

Net Unrealized Investment Losses for the six months ended June 30, 2018 were $4,157,000, representing a net unfavorable change in the fair value of equity securities during the period subsequent to the adoption of the new accounting standard as described in Note 1 — “Summary of Significant Accounting Policies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Expenses

Our Losses and Loss Adjustment Expenses amounted to approximately $41,458,000 and $53,194,000 for the six months ended June 30, 2018 and 2017, respectively. During the six-month period of 2018, we had fewer non-catastrophe claims as compared with the corresponding period in 2017. Loss reserves established during the six-month period of 2018 primarily pertained to claims in the 2018 loss year, whereas our 2017 losses and loss adjustment expenses were impacted by the strengthening of loss reserves in response to trends involving assignment of insurance benefits and related litigation. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”

Policy Acquisition and Other Underwriting Expenses for the six months ended June 30, 2018 and 2017 of approximately $19,319,000 and $19,719,000, respectively, primarily reflected commissions and premium taxes related to the policies that have renewed.

General and Administrative Personnel Expenses for the six months ended June 30, 2018 and 2017 were approximately $14,123,000 and $14,349,000, respectively. The period-over-period decrease of $226,000 was primarily attributable to recoverable Hurricane Irma payroll costs and lower share-based compensation expense during 2018.

Loss on repurchases of Senior Notes for the six months ended June 30, 2017 was approximately $743,000, resulting from the early extinguishment of our 8% senior notes.

Interest Expense for the six months ended June 30, 2018 and 2017 was approximately $8,975,0000 and $7,920,000, respectively. The increase primarily resulted from the 4.25% convertible debt offering completed in March 2017.

Income Tax Expense for the six months ended June 30, 2018 and 2017 was approximately $9,130,000 and $11,885,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 34.7% for 2018 and 35.5% for 2017. The decrease was primarily attributable to the positive impact from a lower federal corporate income tax rate effective January 1, 2018, offset by the negative effect of the derecognition of deferred tax assets of approximately $1,620,000 and the nondeductible expense of approximately $1,727,000, both of which related to unvested restricted stock awards with market conditions as described earlier.

Ratios:

The loss ratio applicable to the six months ended June 30, 2018 was 38.9% compared with 42.6% for the three months ended June 30, 2017. The decrease was primarily due to a decrease in losses and loss adjustment expenses as described previously.

The expense ratio applicable to the six months ended June 30, 2018 was 45.8% compared with 39.0% for the six months ended June 30, 2017. The increase in our expense ratio was primarily attributable to the decrease in net premiums earned.

The combined ratio is the measure of overall underwriting profitability before other income. Our combined ratio for the six months ended June 30, 2018 was 84.7% compared with 81.6% for the six months ended June 30, 2017. The increase was attributable to the higher percentage decrease in net premiums earned than the percentage decrease in total expenses which included the dividends reclassified to expense of approximately $1,727,000 as described earlier.

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 six months ended June 30, 2018 was 52.6% compared with 56.1% for the six months ended June 30, 2017. The decrease in 2018 was primarily attributable to the decrease in losses and loss adjustment expenses.

Seasonality of Our Business

Our insurance business is seasonal as hurricanes and tropical storms affecting Florida typically occur during the period from June 1 through November 30 each year. Also, with our reinsurance treaty year typically effective 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.

LIQUIDITY AND CAPITAL RESOURCES

Throughout our history, our liquidity requirements have been met through issuances of our common and preferred stock, debt offerings and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by 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 insurance subsidiary 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, 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. Substantially all of our losses and loss adjustment expenses are fully settled and paid within 100 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.

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 to fund operating expenses and real estate acquisitions.

Senior Notes and Promissory Notes

The following table summarizes the principal and interest payment obligations of our long-term debt at June 30, 2018:


	Maturity Date	Interest Payment Due Date
3.875% Convertible Senior Notes	March 2019	March 15 and September 15
4.25% Convertible Senior Notes	March 2037	March 1 and September 1
4% Promissory Note	Through February 2031	1 ^st day of each month
3.75% Callable Promissory Note	Through September 2036	1 ^st day of each month
3.95% Promissory Note	Through February 2020	17 ^th of each month

See Note 8 — “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Limited Partnership Investments

Our limited partnership investments consist of five private equity funds managed by their general partners. Four of these funds have unexpired capital commitments which are callable at the discretion of the fund’s general partner for funding new investments or expenses of the fund. At June 30, 2018, there was an aggregate unfunded capital balance of $15,848,000. See Limited Partnership Investments under Note 4 — “Investments” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

Share Repurchase Plan

In December 2017, our Board of Directors approved a one-year plan to repurchase up to $20,000,000 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. At June 30, 2018, there was approximately $6,300,000 available under the plan. See Note 14 — “Stockholders’ Equity” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Sources and Uses of Cash

Cash Flows for the Six Months Ended June 30, 2018

Net cash provided by operating activities for the six months ended June 30, 2018 was approximately $27,591,000, which consisted primarily of cash received from net premiums written and reinsurance recoveries less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $46,778,000 was primarily due to the purchases of fixed-maturity and equity securities of $71,808,000, the purchases of short-term investments of $125,001,000, the purchases of real estate investments of $6,520,000, and the limited partnership investments of $2,638,000, offset by the proceeds from sales of fixed-maturity and equity securities of $118,205,000, the proceeds from redemptions and maturities of fixed-maturity securities of $27,207,000, and the proceeds from sales and maturities of short-term investments of $15,093,000. Net cash used in financing activities totaled $20,132,000, which was primarily due to $14,652,000 used in our share repurchases and $4,421,000 of net cash dividend payments.

Cash Flows for the Six Months Ended June 30, 2017

Net cash provided by operating activities for the six months ended June 30, 2017 was approximately $31,473,000, which consisted primarily of cash received from net premiums written less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash used in investing activities of $74,920,000 was primarily due to the purchases of fixed-maturity and equity securities of $114,092,000, the limited partnership investments of $1,489,000, and the real estate investments of $1,931,000, offset by the distributions of $11,758,000 from limited partnership investments, the proceeds from sales of fixed-maturity and equity securities of $27,775,000, and the redemptions and repayments of fixed-maturity securities of $3,937,000. Net cash provided by financing activities totaled $59,495,000, which was primarily due to the proceeds from issuance of 4.25% Convertible Senior Notes of $143,750,000, offset by $40,250,000 used in the repurchases of our 8% senior notes, $4,975,000 of related underwriting and issuance costs, $32,226,000 used in our share repurchases and $6,523,000 of net cash dividend payments.

Investments

The main objective of our investment policy is to maximize our after-tax investment income with a reasonable level of risk given the current financial market. Our excess cash is invested primarily in money market accounts, certificates of deposit, and fixed-maturity and equity securities.

At June 30, 2018, we had $205,258,000 of fixed-maturity and equity 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.

In addition, we had short-term investments of $110,042,000 at June 30, 2018. These investments consisted of certificates of deposit and zero-coupon commercial paper.

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 June 30, 2018, we had unexpired capital commitments for four limited partnerships in which we hold interests. Such commitments are not recognized in the financial statements but are required to be disclosed in the notes to the financial statements. See Note 16 — “Commitments and Contingencies” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q and Contractual Obligations and Commitment below for additional information.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table summarizes our material contractual obligations and commitments as of June 30, 2018 (amounts in thousands):


	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating lease (1)	$	916		284		560		72		—
Service agreement (1)		86		23		50		13		—
Reinsurance contracts (2)		6,551		3,276		3,275		—		—
Unfunded capital commitments (3)		15,848		15,848		—		—		—
Long-term debt obligations (4)		294,047		102,153		24,376		152,773		14,745

Total	$	317,448		121,584		28,261		152,858		14,745

(1)	Represents the lease for office space in Miami Lakes, Florida and the lease and maintenance service agreement for office space in Noida, India. Liabilities related to our India operations were converted from Indian rupees to U.S. dollars using the July 2, 2018 exchange rate.

(2)

Represents the minimum payment of reinsurance premiums under one multi-year reinsurance contract. Reinsurance premiums payable after September 30, 2018 are estimated and subject to subsequent revision as the premiums are determined on a quarterly basis based on the premiums associated with the applicable flood total insured value on the last day of the preceding quarter.

(3)	Represents the unfunded balance of capital commitments under the subscription agreements related to four limited partnerships in which we hold interests.

(4)	Amounts represent principal and interest payments over the lives of various long-term debt obligations. See Note 8 — “Long-Term Debt” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have prepared our consolidated financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements and related disclosures requires us to make judgments, assumptions and estimates to develop amounts reflected and disclosed in our consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. Actual results may differ from these estimates and such differences may be material.

We believe our critical accounting policies and estimates are those related to losses and loss adjustment expenses, reinsurance recoverable, reinsurance with retrospective provisions, deferred income taxes, and stock-based compensation expense. These policies are critical to the portrayal of our financial condition and operating results. They require management to make judgments and estimates about inherently uncertain matters. 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 and reinsurance contracts with retrospective provisions.

Reserves for Losses and Loss Adjustment Expenses

Our liability for losses and loss adjustment expense (“Reserves”) is specific to property insurance, which is our insurance division’s only line of business. The Reserves include both case reserves on reported claims and our reserves for incurred but not reported (“IBNR”) losses. At each period end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are adjusted.

The IBNR represents our estimate of the ultimate cost of all claims that have occurred but have not been reported to us, and in some cases may not yet be known to the insured, and future development of reported claims. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At June 30, 2018, $135,209,000 of the total $172,387,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $37,178,000 relates to known cases which have been reported but not yet fully settled in which case we have established a reserve based on currently available information and our best estimate of the cost to settle each claim. At June 30, 2018, $31,310,000 of the $37,178,000 in reserves for known cases relates to claims incurred during prior years.

Our Reserves decreased from $198,578,000 at December 31, 2017 to $172,387,000 at June 30, 2018. The $26,191,000 decrease is comprised of net reductions in our Reserves of $44,253,000 for 2017 and $8,189,000 for 2016 and prior loss years offset by $26,251,000 in reserves established for claims occurring in the 2018 loss year. The $26,251,000 in Reserves established for 2018 claims is primarily driven by an allowance for those claims that have been incurred but not reported to the company as of June 30, 2018. The decrease of $52,442,000 specific to our 2017 and prior loss-year reserves is due to settlement of claims related to those loss years.

Based on all information known to us, we consider our Reserves at June 30, 2018 to be adequate to cover our claims for losses that have occurred as of that date including losses yet to be reported to us. However, these estimates are continually reviewed by management as they are subject to significant variability and may be impacted by trends in claim severity and frequency or unusual exposures that have not yet been identified. As part of the process, we review historical data and consider 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 loss adjustment expenses. 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.

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 a profit commission in the event losses are minimal or zero. In accordance with accounting principles generally accepted in the United States of America, 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 when a catastrophic loss event occurs during the contract term.

For the three months ended June 30, 2018, we recognized a net decrease in accrued benefits of $243,000 versus an increase in accrued benefits of $2,968,000 for the three months ended June 30, 2017. We recognized additional premiums ceded of $135,000 for the three months ended June 30, 2018, whereas we deferred recognition of $666,000 of reinsurance costs for the three months ended June 30, 2017. In combination, for the three months ended June 30, 2018, we recognized a net increase in ceded premiums of $378,000 as opposed to a net reduction in ceded premiums of $3,634,000 for the three months ended June 30, 2017.

For the six months ended June 30, 2018 and 2017, we accrued benefits of $186,000 and $5,459,000, respectively. We recognized additional premiums ceded of $901,000 for the six months ended June 30, 2018. For the six months ended June 30, 2017, we deferred recognition of $1,496,000 of reinsurance costs. In combination, for the six months ended June 30, 2018, we recognized a net increase in ceded premiums of $715,000 as opposed to a net reduction in ceded premiums of $6,956,000 for the six months ended June 30, 2017.

As of June 30, 2018, we had $2,579,000 of accrued benefits, the amount 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, 2017, we had $2,393,000 of accrued benefits related to these agreements.

We believe the credit risk associated with the collectability of these accrued benefits is minimal based on available information about the individual reinsurer’s financial position.

The above and other accounting estimates and their related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form 10-K, which we filed with the SEC on March 7, 2018. For the six months ended June 30, 2018, there have been no material changes with respect to any of our critical accounting policies.

RECENT ACCOUNTING PRONOUNCEMENTS

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2 to our Notes to Unaudited Consolidated Financial Statements.

ITEM 3

– QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our investment portfolios at June 30, 2018 included fixed-maturity and equity securities, the purposes of which are not for speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet our obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Our investment securities are managed primarily by outside investment advisors and are overseen by the investment committee appointed by our board of directors. From time to time, our investment committee may decide to invest in low risk assets such as U.S. government bonds.

Our investment 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 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. In addition, we recognize any unrealized gains and losses related to our equity securities in our statement of income. As a result, our results of operations can be materially affected by the volatility in the equity market.

Interest Rate Risk

Our 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 June 30, 2018 (amounts in thousands):


Hypothetical Change in Interest Rates	Estimated Fair Value		Change in Estimated Fair Value			Percentage Increase (Decrease) in Estimated Fair Value
300 basis point increase	$	156,059	$	(9,074	)		(5.49	)%
200 basis point increase		159,083		(6,050	)		(3.66	)%
100 basis point increase		162,107		(3,026	)		(1.83	)%
100 basis point decrease		168,158		3,025			1.83	%
200 basis point decrease		171,179		6,046			3.66	%
300 basis point decrease		173,702		8,569			5.19	%

Credit Risk

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, by diversifying our investment portfolio to avoid concentrations in any single issuer or business sector, and by continually monitoring each individual security for declines in credit quality. While we emphasize credit quality in our investment selection process, significant downturns in the markets or general economy may impact the credit quality of our portfolio.

The following table presents the composition of our fixed-maturity securities, by rating, at June 30, 2018 (amounts in thousands):


Comparable Rating	Amortized Cost		% of Total Amortized Cost		Estimated Fair Value		% of Total Estimated Fair Value
AAA	$	812		0.5	$	785		0.5
AA+, AA, AA-		77,597		46.6		77,037		46.6
A+, A, A-		50,302		30.2		49,180		29.8
BBB+, BBB, BBB-		24,312		14.6		24,365		14.8
BB+, BB, BB-		5,422		3.3		5,479		3.3
B+, B, B-		898		0.5		868		0.5
CCC+, CC and Not rated		7,209		4.3		7,419		4.5

Total	$	166,552		100.0	$	165,133		100.0

Equity Price Risk

Our equity investment portfolio at June 30, 2018 included common stocks, perpetual preferred stocks, mutual funds and exchange traded funds. We may incur losses due to adverse changes in equity security prices. We manage the risk primarily through industry and issuer diversification and asset mix.

The following table illustrates the composition of our equity securities at June 30, 2018 (amounts in thousands):


	Estimated Fair Value		% of Total Estimated Fair Value
Stocks by sector:
Financial	$	18,371		46
Consumer		4,781		12
Industrial		2,497		6
Energy		2,287		6
Utility		1,813		5
Other (1)		3,906		9

		33,655		84

Mutual funds and exchange traded funds by type:
Debt		3,351		8
Equity		3,119		8

		6,470		16

Total	$	40,125		100

(1)

Represents an aggregate of less than 5% sectors.

Foreign Currency Exchange Risk

At June 30, 2018, we did not have any material exposure to foreign currency related risk.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial and accounting officer), we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, our chief executive officer and our chief financial officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, implementation of possible controls and procedures depends on management’s judgment in evaluating their benefits relative to costs.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The Company is 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 and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 1A – RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the section entitled “Risk Factors” in our Form 10-K, which was filed with the SEC on March 7, 2018.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

Sales of Unregistered Securities and Use of Proceeds

None

(b)

Repurchases of Securities

The table below summarizes the number of common shares repurchased during the three months ended June 30, 2018 under the repurchase plan approved by our Board of Directors in December 2017 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 in May 2018 (dollar amounts in thousands, except share and per share amounts):


For the Month Ended	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares That May Yet Be Purchased Under The Plans or Programs (a)
April 30, 2018		75,557	$	39.71		75,557	$	10,468
May 31, 2018		69,840	$	41.88		52,584	$	8,273
June 30, 2018		46,810	$	42.15		46,810	$	6,300

		192,207	$	41.09		174,951

(a)

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

Working Capital Restrictions and Other Limitations on Payment of Dividends

We are not subject to working capital restrictions or other limitations on the payment of dividends. Our insurance subsidiaries, however, are subject to restrictions on the dividends they may pay. Those restrictions could impact HCI’s ability to pay future dividends.

Under Florida law, a domestic insurer may not pay any dividend or distribute cash or other property to its stockholder 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. Additionally, a Florida domestic insurer may not make dividend payments or distributions to its stockholder without prior approval of the Florida Office of Insurance Regulation 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 Florida Office of Insurance Regulation (1) if the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards 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 Florida Office of Insurance Regulation 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 Florida Office of Insurance Regulation or (2) 30 days after the Florida Office of Insurance Regulation has received notice of such dividend or distribution and has not disapproved it within such time.

During the six months ended June 30, 2018, our insurance subsidiaries paid dividends of $15,000,000 to HCI.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

None.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

The following documents are filed as part of this report:


EXHIBIT
NUMBER		DESCRIPTION

3.1		Articles of Incorporation, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 7, 2013.

3.1.1		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.

3.2		Bylaws. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 7, 2013.

4.1		Form of common stock certificate. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed November 7, 2013.

4.8		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.

4.9		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.

4.10		Indenture, dated March 3, 2017, between HCI Group, Inc. and The Bank of New York Mellon Trust Company, N.A. Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 3, 2017.

4.11		Form of Global 4.25% Convertible Senior Note due 2037 (included in Exhibit 4.1). Incorporated by reference to Exhibit 4.1 of our Form 8-K filed March 3, 2017.

10.1		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.

10.5**		Restated HCI Group, Inc. 2012 Omnibus Incentive Plan. Incorporated by reference to Exhibit 99.1 of our Form 8-K filed March 23, 2017.

10.6**		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.



10.7**		Executive Employment Agreement dated November 23, 2016 between Mark Harmsworth and HCI Group, Inc. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2017.

10.8		Working Layer Catastrophe Excess of Loss Reinsurance Contract, effective: June 1, 2016, issued to Homeowners Choice Property & Casualty Insurance Company, Inc. by subscribing reinsurers (National Fire). 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 3, 2016.

10.11		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2016, 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 3, 2016.

10.13		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2016 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 3, 2016.

10.14		Property Catastrophe Third Excess of Loss Reinsurance Contract effective June 1, 2016 issued to 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 3, 2016.

10.15		Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2016 issued to 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 3, 2016.

10.17		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2017 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 corresponding number exhibit to our Form 10-Q filed August 3, 2017.



10.18		Property Catastrophe Second Event Excess of Loss Reinsurance Contract effective June 1, 2017 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 corresponding numbered exhibit to our Form 10-Q filed August 3, 2017.

10.19		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2017 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 corresponding numbered exhibit to our Form 10-Q filed August 3, 2017.

10.20		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2018 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

10.21		Property Catastrophe Fifth Excess of Loss Reinsurance Contract (Odyssey Re) effective June 1, 2018 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

10.22		Property Catastrophe First Excess of Loss Reinsurance Contract (Endurance) effective June 1, 2018 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

10.23		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.

10.24		Assumption Agreement effective November 9, 2017 by and between Homeowners Choice Property & Casualty Insurance Company, Inc. and Citizens Property Insurance Corporation. Incorporated by reference to Exhibit 10.24 of our Form 8-K filed December 21, 2017.



10.25		Property Catastrophe First Excess of Loss Reinsurance Contract (Ren Re) effective June 1, 2018 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

10.26		Reinstatement Premium Protection Reinsurance Contract (For First Excess Cat U8GR0006) effective June 1, 2018 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

10.27		Reinstatement Premium Protection Reinsurance Contract (For Working Layer Cat U8GR0008) effective June 1, 2018 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

10.28		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2018 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

10.29		Working Layer Catastrophe Excess of Loss Reinsurance Contract (Endurance) effective June 1, 2018 issued to Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company by subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

10.30		Reimbursement Contract effective June 1, 2018 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 corresponding numbered exhibit to our Form 10-Q filed August 3, 2018.

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. See Exhibit 10.90



10.35**		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. See Exhibit 10.91

10.36**		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. See Exhibit 10.92

10.37**		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. See Exhibit 10.93

10.38**		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. See Exhibit 10.94

10.39**		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. See Exhibit 10.95

10.53**		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. See Exhibit 10.97

10.54**		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. See Exhibit 10.98

10.56		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.

10.57		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.

10.58		Purchase Agreement, dated February 28, 2017, by and between HCI Group, Inc. and JMP Securities LLC and SunTrust Robinson Humphrey, Inc., as representatives of the several initial purchasers named therein. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed February 28, 2017.



10.59		Prepaid Forward Contract, dated February 28, 2017 and effective as of March 3, 2017, between HCI Group, Inc. and Societe Generale. Incorporated by reference to Exhibit 10.1 of our Form 8-K filed March 3, 2017.

10.88**		Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 7, 2017. Incorporated by reference to exhibit 99.2 to our Form 8-K filed January 11, 2017.

10.89**		Employment Agreement between Paresh Patel and HCI Group, Inc. dated December 30, 2016. Incorporated by reference to the exhibit numbered 99.1 to our Form 8-K filed December 30, 2016.

10.90**		Amendment dated March 2, 2016 to Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated May 16, 2013. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 4, 2016.

10.91**		Amendment dated March 2, 2016 to Restricted Stock Award Contract between Sanjay Madhu and HCI Group, Inc. dated May 16, 2013. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 4, 2016.

10.92**		Amendment dated March 2, 2016 to Restricted Stock Award Contract between George Apostolou and HCI Group, Inc. dated May 16, 2013. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 4, 2016.

10.93**		Amendment dated March 2, 2016 to Restricted Stock Award Contract between Harish Patel and HCI Group, Inc. dated May 16, 2013. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 4, 2016.

10.94**		Amendment dated March 2, 2016 to Restricted Stock Award Contract between Gregory Politis and HCI Group, Inc. dated May 16, 2013. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 4, 2016.

10.95**		Amendment dated March 2, 2016 to Restricted Stock Award Contract between Anthony Saravanos and HCI Group, Inc. dated May 16, 2013. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 4, 2016.

10.97**		Amendment dated March 2, 2016 to Restricted Stock Award Contract between Wayne Burks and HCI Group, Inc. dated November 12, 2013. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 4, 2016.



10.98**		Amendment dated March 2, 2016 to Restricted Stock Award Contract between Jim Macchiarola and HCI Group, Inc. dated November 12, 2013. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 4, 2016.

10.99**		Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 7, 2017. Incorporated by reference to exhibit 99.1 to our Form 8-K filed January 11, 2017.

10.100**		Restricted Stock Award Contract between Mark Harmsworth and HCI Group, Inc. dated December 5, 2016. Incorporated by reference to the corresponding numbered exhibit to our Form 10-Q filed August 3, 2017.

10.101**		Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated February 8, 2018. Incorporated by reference to exhibit 99.1 to our Form 8-K filed February 14, 2018.

10.102**		Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated February 8, 2018. Incorporated by reference to exhibit 99.2 to our Form 8-K filed February 14, 2018.

31.1		Certification of the Chief Executive Officer

31.2		Certification of the Chief Financial Officer

32.1		Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.ss.1350

32.2		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.

101.LAB		XBRL Taxonomy Extension Label Linkbase.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

**	Management contract or compensatory plan.

SIGNATURES

Pursuant to the requirements 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, who has signed this report on behalf of the Company.


	HCI GROUP, INC.

August 3, 2018	By:	/s/ Paresh Patel
		Paresh Patel
		Chief Executive Officer
		(Principal Executive Officer)

August 3, 2018	By:	/s/ James Mark Harmsworth
		James Mark Harmsworth
		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.

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EXHIBIT 10.20

**** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida


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TABLE OF CONTENTS


Article		Page
	Preamble		4
1	Business Covered		4
2	Retention and Limit		4
3	Florida Hurricane Catastrophe Fund		5
4	Term		6
5	Special Termination		7
6	Territory		8
7	Exclusions		8
8	Special Acceptance		10
9	Premium		10
10	Reinstatement		11
11	Definitions		12
12	Extra Contractual Obligations/Excess of Policy Limits		15
13	Net Retained Liability		16
14	Other Reinsurance		16
15	Original Conditions		16
16	No Third Party Rights		16
17	Notice of Loss and Loss Settlements		17
18	Late Payments		17
19	Offset		18
20	Currency		19
21	Unauthorized Reinsurance		19
22	Taxes		21
23	Access to Records		22
24	Confidentiality		23
25	Indemnification and Errors and Omissions		24
26	Insolvency		24
27	Run-Off Reinsurer		25
28	Arbitration		27
29	Service of Suit		28
30	Governing Law		29
31	Entire Agreement		29
32	Non-Waiver		29
33	Agency		29
34	Intermediary		30
35	Mode of Execution		30
	Company Signing Block		31


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PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE

INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO

AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of its net excess liability as a result of any

loss or losses which may occur during the Term of this Contract under any Policies not covered by the Company’s Flood Tower, in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, subject to the terms and conditions herein contained.

ARTICLE 2

RETENTION AND LIMIT

For each Layer of reinsurance provided hereunder, the Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above the initial Ultimate Net Loss retention as set forth in the schedule below for the Loss Occurrence, subject to a limit of liability to the Reinsurer for each such Loss Occurrence, and subject further to a limit of liability for all Loss Occurrences commencing during the term of this Contract, as set forth below:


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*RETENTION AND LIMIT SCHEDULE*
Layer	Company’s Retention	Reinsurer’s Limit of Liability
	Ultimate Net Loss in respect of each Loss Occurrence	Ultimate Net Loss in respect of each Loss Occurrence	Ultimate Net Loss in respect of all Loss Occurrences during the term of this Contract
Third Layer	****	****	****
Fourth Layer	****	****	****
Fifth Layer	****	****	****

In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article, recoveries hereunder shall always be made under the lowest Layer that is not entirely exhausted. If there is any amount of Ultimate Net Loss arising out of a Loss Occurrence in excess of the Company’s retention under the lowest Layer that has not been recovered thereunder due to the exhaustion of the lowest Layer, such amount shall be recovered under the next or subsequent Layer or Layers, as appropriate. Recoveries as respects losses applicable to each Layer shall inure as follows:

Recoveries under the Third Layer shall inure to the benefit of the Fourth Layer, whether or not recoverable; and

Recoveries under the Third and Fourth Layers shall inure to the benefit of the Fifth Layer, whether or not recoverable.

It is understood, however, that any fully exhausted Layer or the exhausted portion of any Layer shall no longer inure to the benefit of any subsequent Layer(s).

C.	No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract.

ARTICLE 3

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

The full reimbursement amount due from the FHCF, based on statutory limits of coverage as of June 1, shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCF’s inability to pay.


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For purposes of allocating recoveries from the FHCF with respect to each Loss Occurrence, only amounts recoverable by applying the pay-out and retention multiples for the FHCF prior to any reduction in retention due to multiple Loss Occurrences in the same annual period shall be included in calculating the deduction from Ultimate Net Loss.

If the Company’s aggregate limit of FHCF reimbursement coverage is exhausted from Loss Occurrences commencing during the term of this Contract, and the FHCF does not designate the portion of said limit allocable to each Loss Occurrence, the total FHCF reimbursement received shall be allocated to the each individual Loss Occurrence in the proportion that the Company’s losses in that Loss Occurrence bear to the Company’s total losses arising out of all Loss Occurrences to which the reimbursement applies.

For purposes of loss recoveries under this Contract prior to the final determination of the Company’s retention and limit under the FHCF, FHCF coverage shall be calculated using the Company’s “Projected Payout Multiple” under the FHCF. Upon determination of the Company’s retention and limit under the FHCF, losses will be adjusted, recognizing any adjustment to the “Projected Payout Multiple” caused by a change in the Aggregate Mandatory FHCF Premium but disregarding any change due to a decrease in the statutory limit.

B.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

C.	The Company has opted for a 45% coverage selection from the FHCF.

ARTICLE 4

TERM

This Contract shall take effect at 12:01 a.m., Standard Time, June 1, 2018, and unless terminated prior to that time and date as provided in the Special Termination Article, shall remain in effect until 12:01 a.m., Standard Time, June 1, 2019, applying to Loss Occurrences commencing during the term of this Contract. For purposes of this Contract, “Standard Time” shall mean the time as described in the original Policy.


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ARTICLE 5

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.

The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations.

The Subscribing Reinsurer’s policyholders’ surplus (or the equivalent under the Subscribing Reinsurer’s accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract).

The Subscribing Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Subscribing Reinsurer’s operations at the inception of this Contract.

The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Company’s prior written consent, except for retrocessions to members of the Subscribing Reinsurer’s holding company group.

The Subscribing Reinsurer has been assigned an A.M. Best’s rating of less than “A-” and/or an S&P rating of less than “BBB+.” However, as respects Underwriting Members of Lloyd’s, London, a Lloyd’s Market Rating of less than “A-” by A.M. Best and/or less than “BBB+” by S&P shall apply.

The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.


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Termination shall be effected on a cut-off basis and the Subscribing Reinsurer shall have no liability for Loss Occurrences commencing after the date of termination. The reinsurance premium due the Subscribing Reinsurer hereunder (including any minimum reinsurance premium) shall be prorated based on the period of the Subscribing Reinsurer’s participation hereon, and the Subscribing Reinsurer shall immediately return any excess reinsurance premium received. Reinstatement premium, if any, shall be calculated based on the Subscribing Reinsurer’s reinsurance premium earned during the period of the Subscribing Reinsurer’s participation hereon.

Additionally, in the event of any of the circumstances listed in paragraph A of this Article, the Company shall have the option to commute the Subscribing Reinsurer’s liability for losses on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to assess such amount and shall share equally any expense of the actuary and/or appraiser. If the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties in respect of liability arising from the Subscribing Reinsurer’s participation under this Contract.

D.	The Company’s option to require commutation under paragraph C above shall survive the termination or expiration of this Contract.

ARTICLE 6

TERRITORY

The territorial limits of this Contract shall be identical with those of the Company’s Policies.

ARTICLE 7

EXCLUSIONS

A.	This Contract shall not apply to and specifically excludes:

Flood when written as such.

Earthquake for standalone Policies where earthquake is the only named peril.

Hail damage to an insured’s growing or standing crops.

Reinsurance assumed by the Company under obligatory reinsurance agreements, except intercompany reinsurance between the Company and its affiliates and agency reinsurance where the Policies involved are to be re-underwritten in accordance with the underwriting standards of the Company and reissued as Policies of the Company at the next anniversary or expiration date.

Pools, Associations & Syndicates, per the attached exclusion.


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Liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any Insolvency Fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, that provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, that has been declared by any competent authority to be insolvent, or that is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

Loss or damage occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, martial law, or confiscation by order of any government or public authority, but not excluding loss or damage that would be covered under a standard form of Policy containing a standard war exclusion clause.

Losses excluded by the attached Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance – U.S.A.

Terrorism as defined in the attached Terrorism Exclusion.

10.

Mold unless directly resulting from an otherwise covered peril.

11.

Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company’s property loss under the applicable original Policy.

12.

Financial guarantee and insolvency.

13.

Loss or damage to overhead transmission and distribution lines, including supporting structures, of electrical companies, telephone companies, and cable companies. This exclusion shall not apply, however, to transmission and distribution lines and their supporting structures located on the property of any original insured or within 1,000 feet thereof.

Except as respects exclusions A(7), A(8), A(9), and A(12), if the Company inadvertently issues a Policy falling within the scope of one or more of the exclusions, such Policy shall be covered hereunder, provided that the Company issues, or causes to be issued, the required notice of cancellation within 30 days after a member of the executive or managerial staff at the Company’s home office having underwriting authority in the class of business involved becomes aware that the Policy applies to excluded classes, unless the Company is prevented from canceling said Policy within such period by applicable statute or regulation, in which case such Policy shall be covered hereunder until the earliest date on which the Company may cancel.


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ARTICLE 8

SPECIAL ACCEPTANCE

Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder, and such business, if accepted by the Reinsurer shall be covered hereunder, subject to the terms and conditions of this Contract, except as modified by the special acceptance. The Reinsurer shall be deemed to have accepted a risk, if it has not responded within five business days after receiving the underwriting information on such risk. Any renewal of a special acceptance agreed to for a predecessor contract to this Contract, shall automatically be covered hereunder.

ARTICLE 9

PREMIUM

As respects each Layer, the Company shall pay the Reinsurer a deposit premium in accordance with the schedule set forth below. The Final Adjusted Premium to be paid to the Reinsurer for the reinsurance provided under each Layer shall be calculated at the rates set out below multiplied by the Company’s final Total Insured Value, subject to the applicable minimum premium stated below:


*PREMIUM SCHEDULE*
Layer	Final Adjusted Premium Rate	Deposit Premium	Minimum Premium
Third Layer	****	****	****
Fourth Layer	****	****	****
Fifth Layer	****	****	****

B.	The deposit premiums set forth in paragraph A above shall be payable to the Reinsurer by the Company in installments as follows:


*DEPOSIT INSTALLMENT SCHEDULE*
Layer	June 1, 2018	September 1, 2018	January 1, 2019	April 1, 2019
Third Layer	****	****	****	****
Fourth Layer	****	****	****	****
Fifth Layer	****	****	****	****


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Within 45 days following the expiration of this Contract, the Company shall provide the Reinsurer with a report showing the Company’s final Total Insured Value. This final Total Insured Value shall be multiplied by the rate for each Layer as stated in paragraph A above. Should this amount be greater than or equal to **** and less than or equal to **** of the Deposit Premium as set forth above, there shall be no additional or return premium due. Should the amount so calculated exceed **** of the Deposit Premium paid in accordance with paragraph A above, the Company shall immediately pay the Reinsurer the difference in excess of **** of the Deposit Premium. Should the amount so calculated be less than **** of the Deposit Premium paid in accordance with paragraph A of this Article, the Reinsurer shall immediately pay the Company the difference below **** of the Deposit Premium, subject to the Minimum Premium as set forth above.

D.	“Total Insured Value” means the Company’s aggregate wind exposures on September 30, 2018 for business covered hereunder.

E.	The estimated Total Insured Value is $37,650,955,560.

F.	The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurer’s financial statements.

ARTICLE 10

REINSTATEMENT

Loss payments under any Layer of this Contract shall reduce the limit of coverage afforded by the amounts paid, but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for each amount so reinstated, the Company agrees to pay , simultaneously with the Reinsurer’s loss payment, an additional premium calculated at pro rata of the Reinsurer’s premium for the applicable layer(s) for the term of this Contract, being pro rata only as to the fraction of the Reinsurer’s limit of liability hereunder (i.e., the fraction of the Reinsurer’s limit of liability for each Loss Occurrence as set forth for the Layer in the Retention and Limit Article) so reinstated. Nevertheless, the Reinsurer’s liability under the applicable layer(s) shall not exceed such limit(s) in respect of any one Loss Occurrence, nor the applicable limit(s) in respect of all Loss Occurrences commencing during the term of this Contract, as set forth in the Retention and Limit Article.

B.	If at the time of a loss settlement hereon the reinsurance premium, as calculated in accordance with the Premium Article, is unknown, the above calculation of reinstatement premium shall be based upon the deposit premium, subject to adjustment when the reinsurance premium is finally established.


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ARTICLE 11

DEFINITIONS

1. “Ultimate Net Loss” means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 100% of any Extra Contractual Obligation and 100% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article. In no event, however, shall more than 25% of “Ultimate Net Loss” for any one Loss Occurrence be comprised of Extra Contractual Obligations and Loss in Excess of Policy Limits.

Salvages and all recoveries (including amounts due from all reinsurances that inure to the benefit of this Contract, whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder.

All salvages, recoveries or payments recovered or received subsequent to loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto.

The Company shall be deemed to be “liable to pay” a loss when a judgment has been rendered that the Company does not plan to appeal, and/or the Company has obtained a release, and/or the Company has accepted a proof of loss.

Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Company’s “Ultimate Net Loss” has been ascertained.

B.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

a pro rata share of salaries and expenses of Company field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract; and


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subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.

“Loss Occurrence” means the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event. However, the duration and extent of any one “Loss Occurrence” shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term “Loss Occurrence” shall be further defined as follows:

As regards any “Named Storm,” all individual losses sustained by the Company arising out of and directly occasioned by such “Named Storm,” without regard to the limitations of duration and extent set forth above. “Named Storm” means any storm or storm system declared by the US National Hurricane Center, US Central Pacific Hurricane Center, US Weather Prediction Center, or their successor organizations, all being divisions of the US National Weather Service to be a tropical storm or hurricane, and any successors thereof. A storm or storm system that merges with a “Named Storm” shall be considered part of that “Named Storm.” A “Named Storm” shall be deemed to begin at the effective time and date of the first watch, warning or other official advisory applicable to such tropical storm or hurricane issued by the above referenced governmental meteorological agencies. A “Named Storm” shall be deemed to end 72 hours after the cancellation of the last watch, warning or other official advisory applicable to such tropical storm, hurricane or successor, issued by the above referenced governmental meteorological agencies irrespective of the duration of the timing or spacing between such watches, warnings or other official advisories. If two or more storms are assigned different names by the above referenced governmental meteorological agencies, each of those storms shall constitute a separate event for purposes of this definition.

As regards windstorm, hail, tornado, cyclone, including ensuing collapse and water damage other than “Named Storm,” all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event.

As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses that occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.


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As regards earthquake and fire following directly occasioned by the earthquake, those earthquake losses and individual fire losses that commence during the period of 168 consecutive hours may be included in the Company’s “Loss Occurrence”.

As regards any related weather conditions involving snow, sleet, freezing rain, freeze, ice, winter weather, and wind losses related to such conditions, all individual losses sustained by the Company, that occur during any period of 168 consecutive hours arising out of and directly occasioned by the same event.

As regards firestorms, brush fires and other fires or series of fires, irrespective of origin (except for fires covered in subparagraphs (c) and (d) above) which spread through trees, grassland or other vegetation, all individual losses sustained by the Company occurring during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Company’s “Loss Occurrence.” However, an individual loss subject to this subparagraph cannot be included in more than one “Loss Occurrence”.

Except as provided in subparagraph (1)(a) above:

The Company may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss.

Only one period of consecutive hours shall apply with respect to one event, except that, as respects those “Loss Occurrences” referred to in subparagraph (1)(c) above, if the disaster, accident or loss occasioned by the event is of greater duration than 96 consecutive hours, then the Company may divide that disaster, accident or loss into two or more “Loss Occurrences” provided no two periods overlap and no individual loss is included in more than one such period and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss.

Losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one “Loss Occurrence.” Furthermore, all losses arising from an event involving a combination of losses described in subparagraphs (1)(a) and (1)(b) may be considered as having arisen from one “Loss Occurrence.” Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and, except as respects those “Loss Occurrences” involving a “Named Storm” referred to in subparagraph (1)(a) above, no single “Loss Occurrence” shall encompass a time period greater than 168 consecutive hours.


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D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 12

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

This Contract shall cover Extra Contractual Obligations, as provided in the definition of Ultimate Net Loss. “Extra Contractual Obligations” shall be defined as those liabilities not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of Ultimate Net Loss. “Loss in Excess of Policy Limits” shall be defined as Loss in excess of the Policy limit, having been incurred because of, but not limited to, failure by the Company to settle within the Policy limit or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

C.	An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Company’s Policy, and shall constitute part of the original loss.

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

E.	Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.

However, this Article shall not apply where the loss has been incurred due to final legal adjudication of fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.


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G.	In no event shall coverage be provided to the extent not permitted under law.

ARTICLE 13

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts that may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

ARTICLE 14

OTHER REINSURANCE

The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.

ARTICLE 15

ORIGINAL CONDITIONS

All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

ARTICLE 16

NO THIRD PARTY RIGHTS

This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.


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ARTICLE 17

NOTICE OF LOSS AND LOSS SETTLEMENTS

The Company shall advise the Reinsurer promptly if paid and estimated Ultimate Net Loss is in excess of 75% of the Company’s retention, or if, in the opinion of the Company, such Ultimate Net Loss may result in a claim hereunder. Thereafter, the Company shall advise the Reinsurer, at least monthly, of all subsequent developments thereto that may materially affect the position of the Reinsurer.

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, and any Extra Contractual Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer. The Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurer’s payment, the Company shall report to the Reinsurer the Reinsurer’s payment, minus the Reinsurer’s share of losses subject to this Contract that the Company has paid, or become liable to pay, as of the date of the report. Any positive difference shall be remitted to the Reinsurer with the Company’s report.

ARTICLE 18

LATE PAYMENTS

In the event any payment due either party is not received by the Intermediary by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times

1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times

The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.


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B.	The due date shall, for purposes of this Article, be determined as follows:

Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter.

Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such reinstatement premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing.

If the information contained in the Company’s demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations.

D.	In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

E.	Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 19

OFFSET

Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any and all balances due from a party to the other arising under this Contract. In the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of any applicable law governing offset entitlement.


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ARTICLE 20

CURRENCY

A.	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars.

For purposes of this Contract, where the Company receives premiums or pays losses in currencies other than United States Dollars, such premiums or losses shall be converted into United States Dollars at the actual rates of exchange at which these premiums or losses are entered in the Company’s books.

ARTICLE 21

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

The Company agrees, in respect of its Policies or bonds falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The “Reinsurer’s Obligations” shall be defined as follows:

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.

The Reinsurer’s Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves.


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When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the “Trust Agreement Requirements Clause” attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves in an amount equal to the Reinsurer’s Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period.

The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement:

to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;

to make refund of any sum that is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract (or in excess of 102% of the Reinsurer’s Obligations, if funding is provided by a Trust Agreement);

to fund an account with the Company for the Reinsurer’s Obligations. Such cash deposit shall be held in an interest bearing account separate from the Company’s other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurer’s Obligations (or in excess of 102% of the Reinsurer’s Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer;

to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer.

G.	The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.


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H.	At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:

If the statement shows that the Reinsurer’s Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference.

If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of the LOC (or that 102% of the Reinsurer’s Obligations are less than the trust account balance if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess.

ARTICLE 22

TAXES

In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia.

Each Subscribing Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.

In the event of any return of premium becoming due hereunder, the Subscribing Reinsurer shall deduct the applicable percentage of the premium from the amount of the return, and the Company or its agent should take steps to recover the Tax from the U.S. Government.


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ARTICLE 23

ACCESS TO RECORDS

The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (“Records”) relating to business reinsured under this Contract during regular business hours after giving five working days’ prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company.

Notwithstanding the above, the Company reserves the right to withhold from the Reinsurer any Privileged Documents. However, the Company shall permit and not object to the Reinsurer’s access to Privileged Documents in connection with the underlying claim reinsured hereunder following final settlement or final adjudication of the case or cases involving such claim, with prejudice against all claimants and all parties to such adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Company’s defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer.

C.	For purposes of this Article:

“Privileged Documents” means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents.

“Attorney-Client Privilege Documents” means communications of a confidential nature between (a) the Company, or anyone retained by or at the direction of the Company, or its in-house or outside legal counsel, or anyone in the control of such legal counsel, and (b) any in-house or outside legal counsel, if such communications relate to legal advice being sought by the Company and/or contain legal advice being provided to the Company.

“Work Product Privilege Documents” means communications, written materials and tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company, in anticipation of or in connection with litigation, arbitration, or other dispute resolution proceedings.


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ARTICLE 24

CONFIDENTIALITY

The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (“Confidential Information”) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show:

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality; or

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except:

when required by retrocessionaires as respects business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.


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ARTICLE 25

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

the amount or amounts that it shall be proper for the Company to pay thereunder.

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

Any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery.

D.	Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract.

ARTICLE 26

INSOLVENCY

If more than one reinsured company is referenced within the definition of “Company” in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary state’s laws shall prevail.


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time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

C.	Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.

As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of such law have been met, if New York law applies) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy.

ARTICLE 27

RUN-OFF REINSURER

A.	“Run-off Reinsurer” means any Subscribing Reinsurer that:

has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

has ceased reinsurance underwriting operations; or

has transferred its claims-paying authority to an unaffiliated entity; or


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engages in a process of Scheme of Arrangement or similar procedure related to this Contract, including but not limited to an insurance business transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (U.K.), as may be amended from time to time; or

in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.

Notwithstanding the foregoing, agreement by a Lloyd’s syndicate to follow claim settlements procedures under Lloyd’s Claims Scheme (Combined) shall not constitute a transfer of its claims-paying authority, for purposes of subparagraphs (3) and (5) of this paragraph.

Notwithstanding any other provision of this Contract, in the event that a Subscribing Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurer’s participation hereunder:

Should the Run-off Reinsurer fail to pay amounts due hereunder, the interest penalty specified in the Late Payments Article shall be increased by 0.5% for each 30 days that a payment is past due, subject to a maximum increase of 7.0%.

The Run-off Reinsurer’s liability for losses for Policies covered by this Contract shall be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurer’s liability under such Policies, they shall appoint an actuary and/or appraiser to assess such liability and shall share equally any expense of the actuary and/or appraiser. If the Company and the Run-off Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Run-off Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract.

The Run-off Reinsurer shall have no right of access to the Records of the Company if the Run-off Reinsurer has denied payment of any claim hereunder or there is a pending arbitration between the Company and the Run-off Reinsurer regarding any claim hereunder. A reservation of rights shall be considered a denial of a claim. Notwithstanding the above, the Run-off Reinsurer shall continue to have access to Records of the Company for any claim for which it has raised a query within 30 days of its receipt of a billing, but any inspection of Records must be completed within 90 days of receipt of billing or access will be deemed waived.

The provisions of the Arbitration Article shall not apply.

C.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.


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ARTICLE 28

ARBITRATION

Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested.

One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days’ prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator.

If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society – U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue.

D.	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.

The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate.

The panel shall interpret this Contract as an honorable engagement rather than as merely a legal obligation and shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible after the hearings. Judgment upon an award may be entered in any court having jurisdiction thereof.

Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator. The remaining costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys’ fees, to the extent permitted by law.


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ARTICLE 29

SERVICE OF SUIT

A.	This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.

This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

In the event of the failure of the Reinsurer to perform its obligations hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal.

Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit.

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof.


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ARTICLE 30

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.

ARTICLE 31

ENTIRE AGREEMENT

This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties. However, this Article shall not be construed as limiting the admissibility of evidence regarding the formation, interpretation, purpose or intent of this Contract.

ARTICLE 32

NON-WAIVER

The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.

ARTICLE 33

AGENCY

For purposes of sending and receiving notices and payments required by this Contract, the reinsured company that is set forth first in the Preamble to this Contract shall be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, shall any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.


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ARTICLE 34

INTERMEDIARY

Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.

ARTICLE 35

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a person’s handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated.

B.	The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.


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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s), who also confirms the Company’s review of and agreement to be bound by the terms and conditions of the Interests and Liabilities Agreements attached to and forming part of this Contract, this day of , in the year of 2018.

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT


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and on this day of , in the year 2018.

TYPTAP INSURANCE COMPANY

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT


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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring property, whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage.

Section B:

This Contract excludes business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in, any Pool, Association or Syndicate, whether by way of insurance or reinsurance, formed for the purpose of writing any of the following:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above, other than as provided for under subparagraph (a).

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;


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All “FAIR Plan” and “Rural Risk Plan” business;

Louisiana Citizens Property Insurance Corporation;

California Earthquake Authority (“CEA”) or any similar entity.

Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any claim against a Residual Market Mechanism or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund (as defined in the Exclusions Article);

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above;

Any expenditure to purchase or retire bonds.

The Company may include in Ultimate Net Loss for any Loss Occurrence covered hereunder only the liability attributable to that Loss Occurrence. If the relevant entity does not specify what portion of an assessment is attributable to each Loss Occurrence, the Company may include in Ultimate Net Loss in respect of each Loss Occurrence a percentage of the Company’s assessments from the relevant entity related to the calendar year in which the Loss Occurrence commenced, regardless of when assessed, such percentage to be determined by dividing the relevant entity’s losses arising from the Loss Occurrence by its total losses for the calendar year.

The Company will deduct from Ultimate Net Loss amounts received as recoupment of any assessment that has been included in the Ultimate Net Loss, provided the recoupment is directly allocable to the assessment (“itemized recoupment”). The Company shall use commercially reasonable efforts to recoup such assessment. Any amount received as an itemized recoupment of any assessment (whether under this Contract or any predecessor contract), and therefore deductible from Ultimate Net Loss, shall not be included in the subject premium of this Contract.


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However, if a state levies assessments but does not allow itemized recoupment from policyholders, instead allowing the Company to file an overall increased rate, any such premium increased thereby shall not be deemed to be a recoupment that is deductible from Ultimate Net Loss. Any recoupment received as part of a general premium rate increase, not specifically itemized, shall be included as part of the subject premium of this Contract or a successor contract, as applicable.



NOTES:	Wherever used herein the terms:

	“Company”	shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

	“Contract”	shall be understood to mean “Agreement,” “Contract,” “Policy” or whatever other term is used to designate the attached reinsurance document.

	“Reinsurer”	shall be understood to mean “Reinsurer,” “Reinsurers,” “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - U.S.A.

1.	This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

Nuclear reactor power plants including all auxiliary property on the site, or

II.

Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III.

Installations for fabricating complete fuel elements or for processing substantial quantities of “special nuclear material”, and for reprocessing, salvaging, chemically separating, storing or disposing of “spent” nuclear fuel or waste materials, or

IV.

Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.


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5.	It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

6.	The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b)

with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

12/12/57

NMA 1119



NOTES:	Wherever used herein the terms:

	“Reassured”	shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

	“Agreement”	shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

	“Reinsurers”	shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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TERRORISM EXCLUSION

Notwithstanding any provision to the contrary within this Contract or any endorsement thereto, it is agreed that this Contract excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any Act of Terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

An “Act of Terrorism” includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological, or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or government(s) de jure or de facto, and which:

involves violence against one or more persons; or

involves damage to property; or

endangers life other than that of the person committing the action; or

creates a risk to health or safety of the public or a section of the public; or

is designed to interfere with or to disrupt an electronic system.

C.	This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism.

Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines, this Contract shall pay actual loss or damage (but not related cost or expense) caused by any Act of Terrorism, provided such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, radiological or nuclear pollution or contamination.


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TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), and certificates of deposit (issued by a United States bank and payable in United States legal tender), or any combination of the two, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company;

Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above.

Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments.


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Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.


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EXHIBIT 10.21

**** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

PROPERTY CATASTROPHE FIFTH EXCESS OF LOSS REINSURANCE CONTRACT

(ODYSSEY RE)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida


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PROPERTY CATASTROPHE FIFTH EXCESS OF LOSS REINSURANCE CONTRACT

(ODYSSEY RE)

TABLE OF CONTENTS


Article		Page
	Preamble		4
1	Business Covered		4
2	Retention and Limit		4
3	Florida Hurricane Catastrophe Fund		5
4	Term		6
5	Special Termination		6
6	Territory		8
7	Exclusions		8
8	Special Acceptance		9
9	Premium		9
10	Reinstatement		10
11	Definitions		11
12	Extra Contractual Obligations/Excess of Policy Limits		14
13	Net Retained Liability		15
14	Other Reinsurance		15
15	Original Conditions		15
16	No Third Party Rights		15
17	Notice of Loss and Loss Settlements		16
18	Late Payments		16
19	Offset		17
20	Currency		18
21	Unauthorized Reinsurance		18
22	Taxes		20
23	Access to Records		21
24	Confidentiality		22
25	Indemnification and Errors and Omissions		23
26	Insolvency		23
27	Run-Off Reinsurer		24
28	Arbitration		26
29	Service of Suit		27
30	Governing Law		28
31	Entire Agreement		28
32	Non-Waiver		28
33	Agency		28
34	Intermediary		29
35	Mode of Execution		29
	Company Signing Block		30


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PROPERTY CATASTROPHE FIFTH EXCESS OF LOSS REINSURANCE CONTRACT

(ODYSSEY RE)

TABLE OF CONTENTS


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PROPERTY CATASTROPHE FIFTH EXCESS OF LOSS REINSURANCE CONTRACT

(ODYSSEY RE)

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE

INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO

AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of its net excess liability as a result of any

ARTICLE 2

RETENTION AND LIMIT

The Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above the initial Ultimate Net Loss of **** each Loss Occurrence, subject to a limit of liability to the Reinsurer of **** each Loss Occurrence, and subject further to a limit of liability of **** for all Loss Occurrences commencing during the term of this Contract. Whether a Loss Occurrence results in an Ultimate Net Loss under this Contract or one or more of the third and fourth excess layers under the Company’s Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2018, the “Companion Contract,” the Company’s retention under the combination of this Contract and the Companion Contract will not exceed the first **** of Ultimate Net Loss arising out of such Loss Occurrence.


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In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article, recoveries under the Companion Contract shall inure to the benefit of this Contract. If there is any amount of Ultimate Net Loss arising out of a Loss Occurrence in excess of the Company’s retention under the Companion Contract that has not been recovered thereunder, such amount shall be subject to this Contract.

C.	No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract.

ARTICLE 3

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:


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B.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

C.	The Company has opted for a 45% coverage selection from the FHCF.

ARTICLE 4

TERM

ARTICLE 5

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.


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D.	The Company’s option to require commutation under paragraph C above shall survive the termination or expiration of this Contract.


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ARTICLE 6

TERRITORY

The territorial limits of this Contract shall be identical with those of the Company’s Policies.

ARTICLE 7

EXCLUSIONS

A.	This Contract shall not apply to and specifically excludes:

Flood when written as such.

Earthquake for standalone Policies where earthquake is the only named peril.

Hail damage to an insured’s growing or standing crops.

Pools, Associations & Syndicates, per the attached exclusion.

Losses excluded by the attached Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance – U.S.A.

Terrorism as defined in the attached Terrorism Exclusion.


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10.

Mold unless directly resulting from an otherwise covered peril.

11.

12.

Financial guarantee and insolvency.

13.

ARTICLE 8

SPECIAL ACCEPTANCE

ARTICLE 9

PREMIUM

A.	The Company shall pay the Reinsurer a deposit premium of ** for the term of this Contract. The Final Adjusted Premium to be paid to the Reinsurer shall be calculated at a rate of multiplied by the Company’s final Total Insured Value, subject to a minimum premium of **.


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B.	The deposit premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of **** on June 1, 2018, September 1, 2018, January 1, 2019 and April 1, 2019.

Within 45 days following the expiration of this Contract, the Company shall provide the Reinsurer with a report showing the Company’s final Total Insured Value. This final Total Insured Value shall be multiplied by the rate as stated in paragraph A above. Should this amount be greater than or equal to **** and less than or equal to **** of the Deposit Premium as set forth above, there shall be no additional or return premium due. Should the amount so calculated exceed **** of the Deposit Premium paid in accordance with paragraph A above, the Company shall immediately pay the Reinsurer the difference in excess of **** of the Deposit Premium. Should the amount so calculated be less than **** of the Deposit Premium paid in accordance with paragraph A of this Article, the Reinsurer shall immediately pay the Company the difference below **** of the Deposit Premium, subject to the Minimum Premium as set forth above.

D.	“Total Insured Value” means the Company’s aggregate wind exposures on September 30, 2018 for business covered hereunder.

E.	The estimated Total Insured Value is $37,650,955,560.

F.	The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurer’s financial statements.

ARTICLE 10

REINSTATEMENT

Loss payments under this Contract shall reduce the limit of coverage afforded by the amounts paid, but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for each amount so reinstated, the Company agrees to pay , simultaneously with the Reinsurer’s loss payment, an additional premium calculated at pro rata of the Reinsurer’s premium for the term of this Contract, being pro rata only as to the fraction of the Reinsurer’s limit of liability hereunder (i.e., the fraction of the Reinsurer’s limit of liability for each Loss Occurrence as set forth in the Retention and Limit Article) so reinstated. Nevertheless, the Reinsurer’s liability shall not exceed such limit(s) in respect of any one Loss Occurrence, nor the applicable limit(s) in respect of all Loss Occurrences commencing during the term of this Contract, as set forth in the Retention and Limit Article.


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B.	If at the time of a loss settlement hereon the reinsurance premium, as calculated in accordance with the Premium Article, is unknown, the above calculation of reinstatement premium shall be based upon the deposit premium, subject to adjustment when the reinsurance premium is finally established.

ARTICLE 11

DEFINITIONS

“Ultimate Net Loss” means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 100% of any Extra Contractual Obligation and 100% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article. In no event, however, shall more than 25% of “Ultimate Net Loss” for any one Loss Occurrence be comprised of Extra Contractual Obligations and Loss in Excess of Policy Limits.

Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Company’s “Ultimate Net Loss” has been ascertained.

B.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;


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pre-judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.

C.1.


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2.	Except as provided in subparagraph (1)(a) above:


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D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 12

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

C.	An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Company’s Policy, and shall constitute part of the original loss.

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

E.	Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.


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G.	In no event shall coverage be provided to the extent not permitted under law.

ARTICLE 13

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 14

OTHER REINSURANCE

The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.

ARTICLE 15

ORIGINAL CONDITIONS

ARTICLE 16

NO THIRD PARTY RIGHTS


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ARTICLE 17

NOTICE OF LOSS AND LOSS SETTLEMENTS

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 18

LATE PAYMENTS

The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times

1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times

The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.


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B.	The due date shall, for purposes of this Article, be determined as follows:

D.	In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

E.	Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 19

OFFSET


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ARTICLE 20

CURRENCY

A.	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars.

ARTICLE 21

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.


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to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;

to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

G.	The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.


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H.	At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:

ARTICLE 22

TAXES


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ARTICLE 23

ACCESS TO RECORDS

C.	For purposes of this Article:

“Privileged Documents” means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents.


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ARTICLE 24

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality; or

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

when required by retrocessionaires as respects business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.


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ARTICLE 25

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

the amount or amounts that it shall be proper for the Company to pay thereunder.

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

D.	Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract.

ARTICLE 26

INSOLVENCY


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C.	Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.

ARTICLE 27

RUN-OFF REINSURER

A.	“Run-off Reinsurer” means any Subscribing Reinsurer that:

has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

has ceased reinsurance underwriting operations; or

has transferred its claims-paying authority to an unaffiliated entity; or


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in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.

The provisions of the Arbitration Article shall not apply.

C.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.


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ARTICLE 28

ARBITRATION

D.	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.


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ARTICLE 29

SERVICE OF SUIT

A.	This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.


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ARTICLE 30

GOVERNING LAW

ARTICLE 31

ENTIRE AGREEMENT

ARTICLE 32

NON-WAIVER

ARTICLE 33

AGENCY


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ARTICLE 34

INTERMEDIARY

ARTICLE 35

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.


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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

PROPERTY CATASTROPHE FIFTH EXCESS OF LOSS REINSURANCE CONTRACT (ODYSSEY RE)


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and on this day of , in the year 2018.

TYPTAP INSURANCE COMPANY

PROPERTY CATASTROPHE FIFTH EXCESS OF LOSS REINSURANCE CONTRACT

(ODYSSEY RE)


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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Section B:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;


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All “FAIR Plan” and “Rural Risk Plan” business;

Louisiana Citizens Property Insurance Corporation;

California Earthquake Authority (“CEA”) or any similar entity.

Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above;

Any expenditure to purchase or retire bonds.


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NOTES:		Wherever used herein the terms:


“Company”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Contract”		shall be understood to mean “Agreement,” “Contract,” “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurer”		shall be understood to mean “Reinsurer,” “Reinsurers,” “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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NUCLEAR INCIDENT EXCLUSION CLAUSE—PHYSICAL DAMAGE—REINSURANCE—U.S.A.

1.	This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

Nuclear reactor power plants including all auxiliary property on the site, or

II.

Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III.

IV.

Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)


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5.	It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

6.	The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119


NOTES: Wherever used herein the terms:

“Reassured”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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TERRORISM EXCLUSION

involves violence against one or more persons; or

involves damage to property; or

endangers life other than that of the person committing the action; or

creates a risk to health or safety of the public or a section of the public; or

is designed to interfere with or to disrupt an electronic system.

C.	This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism.


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TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:


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Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.


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EXHIBIT 10.22

**** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE

CONTRACT (ENDURANCE)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida


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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)

TABLE OF CONTENTS


Article		Page
	Preamble		4
1	Business Covered		4
2	Retention and Limit		4
3	Florida Hurricane Catastrophe Fund		5
4	Term		6
5	Special Termination		6
6	Territory		7
7	Exclusions		7
8	Special Acceptance		9
9	Premium		9
10	Definitions		10
11	Extra Contractual Obligations/Excess of Policy Limits		13
12	Net Retained Liability		14
13	Other Reinsurance		14
14	Original Conditions		14
15	No Third Party Rights		15
16	Notice of Loss and Loss Settlements		15
17	Late Payments		15
18	Offset		16
19	Currency		17
20	Unauthorized Reinsurance		17
21	Taxes		19
22	Access to Records		20
23	Confidentiality		21
24	Indemnification and Errors and Omissions		22
25	Insolvency		22
26	Run-Off Reinsurer		23
27	Arbitration		25
28	Service of Suit		26
29	Governing Law		27
30	Entire Agreement		27
31	Non-Waiver		27
32	Agency		27
33	Intermediary		28
34	Mode of Execution		28
	Company Signing Block		29


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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)

TABLE OF CONTENTS


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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE

INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO

AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of its net excess liability as a result of any

ARTICLE 2

RETENTION AND LIMIT


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B.	No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract.

ARTICLE 3

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

B.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

C.	The Company has opted for a 45% coverage selection from the FHCF.


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ARTICLE 4

TERM

ARTICLE 5

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.


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8. The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

D.	The Company’s option to require commutation under paragraph C above shall survive the termination or expiration of this Contract.

ARTICLE 6

TERRITORY

The territorial limits of this Contract shall be identical with those of the Company’s Policies.

ARTICLE 7

EXCLUSIONS

A.	This Contract shall not apply to and specifically excludes:

Flood when written as such.

Earthquake for standalone Policies where earthquake is the only named peril.


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Hail damage to an insured’s growing or standing crops.

Pools, Associations & Syndicates, per the attached exclusion.

Losses excluded by the attached Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance – U.S.A.

Terrorism as defined in the attached Terrorism Exclusion.

10.

Mold unless directly resulting from an otherwise covered peril.

11.

12.

Financial guarantee and insolvency.

13.


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ARTICLE 8

SPECIAL ACCEPTANCE

ARTICLE 9

PREMIUM

A.	The Company shall pay the Reinsurer a deposit premium of ** for the term of this Contract. The Final Adjusted Premium to be paid to the Reinsurer shall be calculated at a rate of multiplied by the Company’s final Total Insured Value, subject to a minimum premium of **.

B.	The deposit premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of **** on June 1, 2018, September 1, 2018, January 1, 2019 and April 1, 2019.

Within 45 days following the expiration of this Contract, the Company shall provide the Reinsurer with a report showing the Company’s final Total Insured Value. This final Total Insured Value shall be multiplied by the rate as stated in paragraph A above. Should this amount be greater than or equal to **** and less than or equal to **** of the Deposit Premium as set forth above, there shall be no additional or return premium due. Should the amount so calculated exceed **** of the Deposit Premium paid in accordance with paragraph A above, the Company shall immediately pay the Reinsurer the difference in excess of **** of the Deposit Premium. Should the amount so calculated be less than **** of the Deposit Premium paid in accordance with paragraph A of this Article, the Reinsurer shall immediately pay the Company the difference below **** of the Deposit Premium, subject to the Minimum Premium as set forth above.


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D.	“Total Insured Value” means the Company’s aggregate wind exposures on September 30, 2018 for business covered hereunder.

E.	The estimated Total Insured Value is $37,650,955,560.

F.	The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurer’s financial statements.

ARTICLE 10

DEFINITIONS

Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Company’s “Ultimate Net Loss” has been ascertained.

B.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;


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monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


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Except as provided in subparagraph (1)(a) above:


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disaster, accident or loss into two or more “Loss Occurrences” provided no two periods overlap and no individual loss is included in more than one such period and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss.

“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 11

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

C.	An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Company’s Policy, and shall constitute part of the original loss.


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D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

E.	Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.

G.	In no event shall coverage be provided to the extent not permitted under law.

ARTICLE 12

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 13

OTHER REINSURANCE

The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.

ARTICLE 14

ORIGINAL CONDITIONS


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ARTICLE 15

NO THIRD PARTY RIGHTS

ARTICLE 16

NOTICE OF LOSS AND LOSS SETTLEMENTS

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 17

LATE PAYMENTS

The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times


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1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times

The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

B.	The due date shall, for purposes of this Article, be determined as follows:

D.	In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

E.	Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 18

OFFSET


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ARTICLE 19

CURRENCY

A.	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars.

ARTICLE 20

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.


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to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;

to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.


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G.	The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

H.	At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:

ARTICLE 21

TAXES


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ARTICLE 22

ACCESS TO RECORDS

C.	For purposes of this Article:

“Privileged Documents” means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents.


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ARTICLE 23

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality; or

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

when required by retrocessionaires as respects business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.


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ARTICLE 24

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

the amount or amounts that it shall be proper for the Company to pay thereunder.

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

D.	Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract.

ARTICLE 25

INSOLVENCY


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C.	Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.

ARTICLE 26

RUN-OFF REINSURER

A.	“Run-off Reinsurer” means any Subscribing Reinsurer that:

has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

has ceased reinsurance underwriting operations; or

has transferred its claims-paying authority to an unaffiliated entity; or


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in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.

The provisions of the Arbitration Article shall not apply.

C.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.


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ARTICLE 27

ARBITRATION

D.	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.


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ARTICLE 28

SERVICE OF SUIT

A.	This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.


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ARTICLE 29

GOVERNING LAW

ARTICLE 30

ENTIRE AGREEMENT

ARTICLE 31

NON-WAIVER

ARTICLE 32

AGENCY


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ARTICLE 33

INTERMEDIARY

ARTICLE 34

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.


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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)


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and on this day of , in the year 2018.

TYPTAP INSURANCE COMPANY

PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)


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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Section B:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;


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All “FAIR Plan” and “Rural Risk Plan” business;

Louisiana Citizens Property Insurance Corporation;

California Earthquake Authority (“CEA”) or any similar entity.

Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above;

Any expenditure to purchase or retire bonds.


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NOTES:	Wherever used herein the terms:

	“Company”	shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

	“Contract”	shall be understood to mean “Agreement,” “Contract,” “Policy” or whatever other term is used to designate the attached reinsurance document.

	“Reinsurer”	shall be understood to mean “Reinsurer,” “Reinsurers,” “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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NUCLEAR INCIDENT EXCLUSION CLAUS-PHYSICAL DAMAGE-REINSURANCE-U.S.A.

1.	This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

Nuclear reactor power plants including all auxiliary property on the site, or

II.

Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III.

IV.

Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)


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5.	It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

6.	The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119



NOTES:	Wherever used herein the terms:

	“Reassured”	shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

	“Agreement”	shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

	“Reinsurers”	shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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TERRORISM EXCLUSION

involves violence against one or more persons; or

involves damage to property; or

endangers life other than that of the person committing the action; or

creates a risk to health or safety of the public or a section of the public; or

is designed to interfere with or to disrupt an electronic system.

C.	This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism.


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TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:


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Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.


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EXHIBIT 10.25

**** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(REN RE)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida


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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(REN RE)

TABLE OF CONTENTS


Article		Page
	Preamble		4
1	Business Covered		4
2	Retention and Limit		4
3	Florida Hurricane Catastrophe Fund		5
4	Term		6
5	Special Termination		6
6	Territory		7
7	Exclusions		7
8	Special Acceptance		9
9	Premium		9
10	Reinstatement		10
11	Definitions		10
12	Extra Contractual Obligations/Excess of Policy Limits		14
13	Net Retained Liability		15
14	Other Reinsurance		15
15	Original Conditions		15
16	No Third Party Rights		15
17	Notice of Loss and Loss Settlements		15
18	Late Payments		16
19	Offset		17
20	Currency		17
21	Unauthorized Reinsurance		18
22	Taxes		20
23	Access to Records		20
24	Confidentiality		21
25	Indemnification and Errors and Omissions		22
26	Insolvency		23
27	Run-Off Reinsurer		24
28	Arbitration		25
29	Service of Suit		26
30	Governing Law		27
31	Entire Agreement		27
32	Non-Waiver		28
33	Agency		28
34	Intermediary		28
35	Mode of Execution		28
	Company Signing Block		29


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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(REN RE)

TABLE OF CONTENTS


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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(REN RE)

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE

INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO

AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of its net excess liability as a result of any

ARTICLE 2

RETENTION AND LIMIT


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B.	No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract.

ARTICLE 3

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

B.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

C.	The Company has opted for a 45% coverage selection from the FHCF.


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ARTICLE 4

TERM

ARTICLE 5

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.


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D.	The Company’s option to require commutation under paragraph C above shall survive the termination or expiration of this Contract.

ARTICLE 6

TERRITORY

The territorial limits of this Contract shall be identical with those of the Company’s Policies.

ARTICLE 7

EXCLUSIONS

A.	This Contract shall not apply to and specifically excludes:

Flood when written as such.

Earthquake for standalone Policies where earthquake is the only named peril.


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Hail damage to an insured’s growing or standing crops.

Pools, Associations & Syndicates, per the attached exclusion.

Losses excluded by the attached Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance – U.S.A.

Terrorism as defined in the attached Terrorism Exclusion.

10.

Mold unless directly resulting from an otherwise covered peril.

11.

12.

Financial guarantee and insolvency.

13.


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ARTICLE 8

SPECIAL ACCEPTANCE

ARTICLE 9

PREMIUM

A.	The Company shall pay the Reinsurer a deposit premium of ** for the term of this Contract. The Final Adjusted Premium to be paid to the Reinsurer shall be calculated at a rate of multiplied by the Company’s final Total Insured Value, subject to a minimum premium of **.

B.	The deposit premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of **** on June 1, 2018, September 1, 2018, January 1, 2019 and April 1, 2019.

Within 45 days following the expiration of this Contract, the Company shall provide the Reinsurer with a report showing the Company’s final Total Insured Value. This final Total Insured Value shall be multiplied by the rate as stated in paragraph A above. Should this amount be greater than or equal to **** and less than or equal to **** of the Deposit Premium as set forth above, there shall be no additional or return premium due. Should the amount so calculated exceed **** of the Deposit Premium paid in accordance with paragraph A above, the Company shall immediately pay the Reinsurer the difference in excess of **** of the Deposit Premium. Should the amount so calculated be less than **** of the Deposit Premium paid in accordance with paragraph A of this Article, the Reinsurer shall immediately pay the Company the difference below **** of the Deposit Premium, subject to the Minimum Premium as set forth above.


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D.	“Total Insured Value” means the Company’s aggregate wind exposures on September 30, 2018 for business covered hereunder.

E.	The estimated Total Insured Value is $37,650,955,560.

F.	The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurer’s financial statements.

ARTICLE 10

REINSTATEMENT

B.	If at the time of a loss settlement hereon the reinsurance premium, as calculated in accordance with the Premium Article, is unknown, the above calculation of reinstatement premium shall be based upon the deposit premium, subject to adjustment when the reinsurance premium is finally established.

ARTICLE 11

DEFINITIONS


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Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Company’s “Ultimate Net Loss” has been ascertained.

B.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


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Except as provided in subparagraph (1)(a) above:

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.


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ARTICLE 12

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

C.	An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Company’s Policy, and shall constitute part of the original loss.

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

E.	Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.

G.	In no event shall coverage be provided to the extent not permitted under law.


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ARTICLE 13

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 14

OTHER REINSURANCE

The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.

ARTICLE 15

ORIGINAL CONDITIONS

ARTICLE 16

NO THIRD PARTY RIGHTS

ARTICLE 17

NOTICE OF LOSS AND LOSS SETTLEMENTS


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B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 18

LATE PAYMENTS

The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times

1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times

The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

B.	The due date shall, for purposes of this Article, be determined as follows:


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D.	In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

E.	Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 19

OFFSET

ARTICLE 20

CURRENCY

A.	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars.


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ARTICLE 21

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.


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to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;

to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

G.	The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

H.	At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:


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ARTICLE 22

TAXES

B. 1.

ARTICLE 23

ACCESS TO RECORDS


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adjudications; the Company may defer release of such Privileged Documents if there are subrogation, contribution, or other third party actions with respect to that claim or case, and the Company’s defense might be jeopardized by release of such Privileged Documents. In the event that the Company seeks to defer release of such Privileged Documents, it shall, in consultation with the Reinsurer, take other steps as reasonably necessary to provide the Reinsurer with the information it reasonably requires to indemnify the Company without causing a loss of such privileges or protections. The Reinsurer shall not have access to Privileged Documents relating to any dispute between the Company and the Reinsurer.

C.	For purposes of this Article:

“Privileged Documents” means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents.

ARTICLE 24

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality; or

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.


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when required by retrocessionaires as respects business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 25

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

the amount or amounts that it shall be proper for the Company to pay thereunder.

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.


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D.	Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract.

ARTICLE 26

INSOLVENCY

In the event of the insolvency of the Company, this reinsurance (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

C.	Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.


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(1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy.

ARTICLE 27

RUN-OFF REINSURER

A.	“Run-off Reinsurer” means any Subscribing Reinsurer that:

has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

has ceased reinsurance underwriting operations; or

has transferred its claims-paying authority to an unaffiliated entity; or

in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.


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The provisions of the Arbitration Article shall not apply.

C.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE 28

ARBITRATION


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D.	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.

ARTICLE 29

SERVICE OF SUIT

A.	This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.


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United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal.

ARTICLE 30

GOVERNING LAW

ARTICLE 31

ENTIRE AGREEMENT


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ARTICLE 32

NON-WAIVER

ARTICLE 33

AGENCY

ARTICLE 34

INTERMEDIARY

ARTICLE 35

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;


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B.	The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(REN RE)


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and on this day of , in the year 2018.

TYPTAP INSURANCE COMPANY

PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

(REN RE)


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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Section B:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;


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All “FAIR Plan” and “Rural Risk Plan” business;

Louisiana Citizens Property Insurance Corporation;

California Earthquake Authority (“CEA”) or any similar entity.

Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above;

Any expenditure to purchase or retire bonds.


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NOTES:	Wherever used herein the terms:

	“Company”	shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

	“Contract”	shall be understood to mean “Agreement,” “Contract,” “Policy” or whatever other term is used to designate the attached reinsurance document.

	“Reinsurer”	shall be understood to mean “Reinsurer,” “Reinsurers,” “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - U.S.A.

1.	This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

Nuclear reactor power plants including all auxiliary property on the site, or

II.

Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III.

IV.

Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)


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5.	It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

6.	The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119



NOTES:	Wherever used herein the terms:

	“Reassured”	shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

	“Agreement”	shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

	“Reinsurers”	shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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TERRORISM EXCLUSION

involves violence against one or more persons; or

involves damage to property; or

endangers life other than that of the person committing the action; or

creates a risk to health or safety of the public or a section of the public; or

is designed to interfere with or to disrupt an electronic system.

C.	This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism.


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TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:


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Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.


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EXHIBIT 10.26

**** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR0006)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida


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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR0006)

TABLE OF CONTENTS


Article		Page
	Preamble		3
1	Business Covered		3
2	Coverage		3
3	Term		4
4	Special Termination		4
5	Territory		5
6	Exclusions		5
7	Premium		5
8	Definitions		6
9	Original Conditions		6
10	No Third Party Rights		7
11	Notice of Loss and Loss Settlements		7
12	Late Payments		7
13	Offset		8
14	Currency		9
15	Unauthorized Reinsurance		9
16	Taxes		11
17	Access to Records		11
18	Confidentiality		12
19	Errors and Omissions		13
20	Insolvency		13
21	Run-Off Reinsurer		14
22	Arbitration		16
23	Service of Suit		17
24	Governing Law		18
25	Entire Agreement		18
26	Non-Waiver		18
27	Agency		18
28	Intermediary		19
29	Mode of Execution		19
	Company Signing Block		20
Attachments
	Trust Agreement Requirements Clause		22


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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR0006)

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of Reinstatement Premium the Company may become liable to pay under the reinstatement provisions of the Property Catastrophe First Excess of Loss Reinsurance Contract, effective at 12:01 a.m., Standard Time, June 1, 2018 and expiring 12:01 a.m., Standard Time, June 1, 2019, Document Number: U8GR0006 (the “Original Contract”), subject to the terms and conditions herein contained. The Original Contract covers losses under Policies not covered by the Company’s Flood Tower, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, in force at the inception of this Contract, or issued or renewed during the term of this Contract. A copy of the Original Contract is attached to and forms part of this Contract.

ARTICLE 2

COVERAGE

The Reinsurer shall be liable to pay the Reinstatement Premium obligations under the Original Contract.


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ARTICLE 3

TERM

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.


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The Subscribing Reinsurer shall have no liability for Reinstatement Premium arising from Loss Occurrences commencing after termination. The premium due the Subscribing Reinsurer hereunder (including any minimum premium) shall be prorated based on the period of the Subscribing Reinsurer’s participation hereon, and the Subscribing Reinsurer shall immediately return any excess premium received.

ARTICLE 5

TERRITORY

The territorial limits of this Contract shall be identical with those of the Original Contract.

ARTICLE 6

EXCLUSIONS

This Contract shall follow the exclusions set forth in the Original Contract.

ARTICLE 7

PREMIUM

A.	The Company shall pay the Reinsurer a deposit premium of ** for the term of this Contract. The adjusted premium to be paid to the Reinsurer for the reinsurance provided under this Contract shall be calculated as the Rate on Line of ** multiplied by the Final Premium.

B.	The deposit premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of **** on June 1, 2018, September 1, 2018, January 1, 2019 and April 1, 2019.

By April 1, 2019, the Company shall calculate and report the Final Premium in accordance with paragraph A above. If the Final Premium is less than the deposit premium payable hereunder (including the fourth deposit premium installment), the fourth quarterly deposit premium installment shall be waived, and any amount in excess of the sum of the previously paid three deposit premium installments shall be remitted to the Reinsurer with the Company’s report. If the Final Premium is less than the sum of the previously paid three deposit premium installments, the Reinsurer shall remit the difference to the Company. Notwithstanding the foregoing, if the Final Premium is greater than the deposit premium payable hereunder (including the fourth deposit premium installment), the Company shall remit to the Reinsurer the difference between the Final Premium and the full deposit premium within 45 days after the expiration of this Contract.


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D.	The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurer’s financial statements.

ARTICLE 8

DEFINITIONS

“Reinstatement Premium” means premium paid by the Company under the provisions of the Reinstatement Article of the Original Contract. Reinstatement Premium shall be calculated at pro rata of the original reinsurance premium, being pro rata only for the amount being reinstated. If, at the time of a loss settlement under the Original Contract, the reinsurance premium thereunder is not yet known, Reinstatement Premium shall be based upon the deposit premium, subject to adjustment when said reinsurance premium is finally established. Nothing in this clause shall be construed to mean that amounts are not recoverable hereunder until the Company’s final Reinstatement Premium has been ascertained. All recoveries received subsequent to reimbursement hereunder shall be applied as if received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto.

B.	“Loss Occurrence” shall follow the definition set forth in the Original Contract.

C.	“Final Premium” means the total reinsurance premium except for Reinstatement Premium.

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 9

ORIGINAL CONDITIONS

All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the Original Contract. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.


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ARTICLE 10

NO THIRD PARTY RIGHTS

ARTICLE 11

NOTICE OF LOSS AND LOSS SETTLEMENTS

A.	The Company shall advise the Reinsurer promptly of all losses that, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto that may materially affect the position of the Reinsurer.

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

As respects losses subject to the Original Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of reasonable evidence of the amount paid by the Company or that the Company estimates it will pay within the next 14 days. Within 30 days after receipt of the Reinsurer’s payment, the Company shall report to the Reinsurer the positive difference, if any, of the Reinsurer’s payment, minus the Reinsurer’s share of losses subject to this Contract that the Company has paid, or becomes liable to pay, as of the date of the report. Any such positive difference shall be remitted to the Reinsurer with the Company’s report.

ARTICLE 12

LATE PAYMENTS

The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times


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1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times

The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

B.	The due date shall, for purposes of this Article, be determined as follows:

Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement Premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such Reinstatement Premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing.

D.	In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

E.	Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 13

OFFSET


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ARTICLE 14

CURRENCY

A.	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars.

B.	For purposes of this Contract, where the Company receives or pays amounts in currencies other than United States Dollars, such amounts shall be converted into United States Dollars at the actual rates of exchange at which these amounts are entered in the Company’s books.

ARTICLE 15

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

The Company agrees, in respect of business falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The “Reinsurer’s Obligations” shall be defined as any amounts due the Company under this Contract, as set up on the Company’s books.


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to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;

to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

G.	The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

H.	At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:


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If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of the LOC (or that 102% of the Reinsurer’s Obligations are less than the trust account if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess.

ARTICLE 16

TAXES

ARTICLE 17

ACCESS TO RECORDS


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C.	For purposes of this Article:

“Privileged Documents” means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents.

ARTICLE 18

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality; or


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were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

when required by retrocessionaires as respects business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 19

ERRORS AND OMISSIONS

ARTICLE 20

INSOLVENCY

A. If more than one company is referenced within the definition of “Company” in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary state’s laws shall prevail.


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In the event of the insolvency of the Company, this coverage (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

C.	Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.

ARTICLE 21

RUN-OFF REINSURER

A.	“Run-off Reinsurer” means any Subscribing Reinsurer that:

has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

has ceased reinsurance underwriting operations; or

has transferred its claims-paying authority to an unaffiliated entity; or


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in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.

The provisions of the Arbitration Article shall not apply.

C.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.


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ARTICLE 22

ARBITRATION

D.	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.


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ARTICLE 23

SERVICE OF SUIT

A.	This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.


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ARTICLE 24

GOVERNING LAW

ARTICLE 25

ENTIRE AGREEMENT

ARTICLE 26

NON-WAIVER

ARTICLE 27

AGENCY


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ARTICLE 28

INTERMEDIARY

ARTICLE 29

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.


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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR0006)


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and on this day of , in the year 2018.

TYPTAP INSURANCE COMPANY

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR0006)


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TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:


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Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.


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EXHIBIT 10.27

**** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR WORKING LAYER CAT U8GR0008)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida


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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR WORKING LAYER CAT U8GR0008)

TABLE OF CONTENTS


Article		Page

	Preamble		3
1	Business Covered		3
2	Coverage		3
3	Term		4
4	Special Termination		4
5	Territory		5
6	Exclusions		5
7	Premium		5
8	Definitions		6
9	Original Conditions		6
10	No Third Party Rights		7
11	Notice of Loss and Loss Settlements		7
12	Late Payments		7
13	Offset		8
14	Currency		9
15	Unauthorized Reinsurance		9
16	Taxes		11
17	Access to Records		11
18	Confidentiality		12
19	Errors and Omissions		13
20	Insolvency		13
21	Run-Off Reinsurer		14
22	Arbitration		16
23	Service of Suit		17
24	Governing Law		18
25	Entire Agreement		18
26	Non-Waiver		18
27	Agency		18
28	Intermediary		19
29	Mode of Execution		19
	Company Signing Block		20

Attachments
	Trust Agreement Requirements Clause		22


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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR WORKING LAYER CAT U8GR0008)

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of Reinstatement Premium the Company may become liable to pay under the reinstatement provisions of the Working Layer Catastrophe Excess of Loss Reinsurance Contract, effective at 12:01 a.m., Standard Time, June 1, 2018 and expiring 12:01 a.m., Standard Time, June 1, 2019, Document Number: U8GR0008 (the “Original Contract”), subject to the terms and conditions herein contained. The Original Contract covers losses under Policies not covered by the Company’s Flood Tower, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, in force at the inception of this Contract, or issued or renewed during the term of this Contract. A copy of the Original Contract is attached to and forms part of this Contract.

ARTICLE 2

COVERAGE

The Reinsurer shall be liable to pay the Reinstatement Premium obligations under the Original Contract.


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ARTICLE 3

TERM

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.


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ARTICLE 5

TERRITORY

The territorial limits of this Contract shall be identical with those of the Original Contract.

ARTICLE 6

EXCLUSIONS

This Contract shall follow the exclusions set forth in the Original Contract.

ARTICLE 7

PREMIUM

A.	The Company shall pay the Reinsurer a deposit premium of ** for the term of this Contract. The adjusted premium to be paid to the Reinsurer for the reinsurance provided under this Contract shall be calculated as the Rate on Line of ** multiplied by the Final Premium.

B.	The deposit premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of **** on June 1, 2018, September 1, 2018, January 1, 2019 and April 1, 2019.


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Company. Notwithstanding the foregoing, if the Final Premium is greater than the deposit premium payable hereunder (including the fourth deposit premium installment), the Company shall remit to the Reinsurer the difference between the Final Premium and the full deposit premium within 45 days after the expiration of this Contract.

D.	The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurer’s financial statements.

ARTICLE 8

DEFINITIONS

B.	“Loss Occurrence” shall follow the definition set forth in the Original Contract.

C.	“Final Premium” means the total reinsurance premium except for Reinstatement Premium.

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 9

ORIGINAL CONDITIONS


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ARTICLE 10

NO THIRD PARTY RIGHTS

ARTICLE 11

NOTICE OF LOSS AND LOSS SETTLEMENTS

A.	The Company shall advise the Reinsurer promptly of all losses that, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto that may materially affect the position of the Reinsurer.

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 12

LATE PAYMENTS

The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times


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1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times

The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

B.	The due date shall, for purposes of this Article, be determined as follows:

Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement Premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such Reinstatement Premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing.

D.	In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

E.	Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 13

OFFSET


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ARTICLE 14

CURRENCY

A.	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars.

B.	For purposes of this Contract, where the Company receives or pays amounts in currencies other than United States Dollars, such amounts shall be converted into United States Dollars at the actual rates of exchange at which these amounts are entered in the Company’s books.

ARTICLE 15

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.


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to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;

to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

G.	The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

H.	At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:


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If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of the LOC (or that 102% of the Reinsurer’s Obligations are less than the trust account if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess.

ARTICLE 16

TAXES

B. 1.

ARTICLE 17

ACCESS TO RECORDS


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C.	For purposes of this Article:

“Privileged Documents” means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents.

ARTICLE 18

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality; or


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were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

when required by retrocessionaires as respects business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 19

ERRORS AND OMISSIONS

ARTICLE 20

INSOLVENCY

If more than one company is referenced within the definition of “Company” in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary state’s laws shall prevail.


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C.	Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.

ARTICLE 21

RUN-OFF REINSURER

A.	“Run-off Reinsurer” means any Subscribing Reinsurer that:

has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

has ceased reinsurance underwriting operations; or

has transferred its claims-paying authority to an unaffiliated entity; or


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in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.

The provisions of the Arbitration Article shall not apply.

C.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.


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ARTICLE 22

ARBITRATION

D.	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.


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ARTICLE 23

SERVICE OF SUIT

A.	This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.


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ARTICLE 24

GOVERNING LAW

ARTICLE 25

ENTIRE AGREEMENT

ARTICLE 26

NON-WAIVER

ARTICLE 27

AGENCY


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ARTICLE 28

INTERMEDIARY

ARTICLE 29

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.


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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR WORKING LAYER CAT U8GR0008)


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and on this day of , in the year 2018.

TYPTAP INSURANCE COMPANY

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR WORKING LAYER CAT U8GR0008)


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TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:


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Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.


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EXHIBIT 10.28

**** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida


Effective: June 1, 2018
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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

TABLE OF CONTENTS


Article		Page
	Preamble		4
1	Business Covered		4
2	Coverage		4
3	Term		5
4	Special Termination		5
5	Territory		6
6	Exclusions		6
7	Premium		6
8	Definitions		7
9	Original Conditions		8
10	No Third Party Rights		8
11	Notice of Loss and Loss Settlements		8
12	Late Payments		9
13	Offset		10
14	Currency		10
15	Unauthorized Reinsurance		10
16	Taxes		12
17	Access to Records		13
18	Confidentiality		14


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19	Errors and Omissions	15
20	Insolvency	15
21	Run-Off Reinsurer	16
22	Arbitration	17
23	Service of Suit	18
24	Governing Law	19
25	Entire Agreement	19
26	Non-Waiver	19
27	Agency	20
28	Intermediary	20
29	Mode of Execution	20
	Company Signing Block	20
Attachments
	Trust Agreement Requirements Clause	23


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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of Reinstatement Premium the Company may become liable to pay under the reinstatement provisions of the Property Catastrophe Excess of Loss Reinsurance Contract, effective at 12:01 a.m., Standard Time, June 1, 2018 and expiring 12:01 a.m., Standard Time, June 1, 2019, Document Number: U8GR0001 (the “Original Contract”), subject to the terms and conditions herein contained. The Original Contract covers losses under Policies not covered by the Company’s Flood Tower, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, in force at the inception of this Contract, or issued or renewed during the term of this Contract. A copy of the Original Contract is attached to and forms part of this Contract.

ARTICLE 2

COVERAGE

The Reinsurer shall be liable to pay the Reinstatement Premium obligations under the Original Contract.


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ARTICLE 3

TERM

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.


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ARTICLE 5

TERRITORY

The territorial limits of this Contract shall be identical with those of the Original Contract.

ARTICLE 6

EXCLUSIONS

This Contract shall follow the exclusions set forth in the Original Contract.

ARTICLE 7

PREMIUM

The premium for this Contract shall be based on the Layers of the Original Contract. The Company shall pay the Reinsurer a deposit premium in accordance with the schedule set forth below. The adjusted premium to be paid to the Reinsurer for the reinsurance provided under each Layer shall be calculated as the Rate on Line set out below multiplied by the Final Premium for that Layer:


*PREMIUM SCHEDULE*
Layer	Rate on Line	Deposit Premium
Third Layer	****	****

Fourth Layer	****	****

Fifth Layer	****	****


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B.	The deposit premiums set forth in paragraph A above shall be payable to the Reinsurer by the Company in installments as follows:


*DEPOSIT INSTALLMENT SCHEDULE*
Layer	June 1, 2018	September 1, 2018	January 1, 2019	April 1, 2019
Third Layer	****	****	****	****

Fourth Layer	****	****	****	****

Fifth Layer	****	****	****	****

By April 1, 2019, the Company shall calculate and report the Final Premium in accordance with paragraph A above. If the Final Premium for a Layer is less than the deposit premium payable hereunder (including the fourth deposit premium installment), the fourth quarterly deposit premium installment shall be waived, and any amount in excess of the sum of the previously paid three deposit premium installments shall be remitted to the Reinsurer with the Company’s report. If the Final Premium is less than the sum of the previously paid three deposit premium installments, the Reinsurer shall remit the difference to the Company. Notwithstanding the foregoing, if the Final Premium for a Layer is greater than the deposit premium payable hereunder (including the fourth deposit premium installment), the Company shall remit to the Reinsurer the difference between the Final Premium and the full deposit premium within 45 days after the expiration of this Contract.

D.	The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurer’s financial statements.

ARTICLE 8

DEFINITIONS

“Reinstatement Premium” means premium paid by the Company for each Layer under the provisions of the Reinstatement Article of the Original Contract. Reinstatement Premium shall be calculated at pro rata of the original reinsurance premium, being pro rata only for the amount being reinstated. If, at the time of a loss settlement under the Original Contract, the reinsurance premium thereunder is not yet known, Reinstatement Premium shall be based upon the deposit premium, subject to adjustment when said reinsurance premium is finally established. Nothing in this clause shall be construed to mean that amounts are not recoverable hereunder until the Company’s final Reinstatement Premium has been ascertained. All recoveries received subsequent to reimbursement hereunder shall be applied as if received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto.


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B.	“Loss Occurrence” shall follow the definition set forth in the Original Contract.

C.	“Final Premium” means the total reinsurance premium except for Reinstatement Premium.

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 9

ORIGINAL CONDITIONS

ARTICLE 10

NO THIRD PARTY RIGHTS

ARTICLE 11

NOTICE OF LOSS AND LOSS SETTLEMENTS

A.	The Company shall advise the Reinsurer promptly of all losses that, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto that may materially affect the position of the Reinsurer.

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.


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ARTICLE 12

LATE PAYMENTS

The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times

1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times

The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

B.	The due date shall, for purposes of this Article, be determined as follows:

Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement Premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such Reinstatement Premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing.


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D.	In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

E.	Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 13

OFFSET

ARTICLE 14

CURRENCY

A.	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars.

B.	For purposes of this Contract, where the Company receives or pays amounts in currencies other than United States Dollars, such amounts shall be converted into United States Dollars at the actual rates of exchange at which these amounts are entered in the Company’s books.

ARTICLE 15

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.


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to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;

to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

G.	The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.


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H.	At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:

If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of the LOC (or that 102% of the Reinsurer’s Obligations are less than the trust account if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess.

ARTICLE 16

TAXES


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ARTICLE 17

ACCESS TO RECORDS

C.	For purposes of this Article:

“Privileged Documents” means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents.


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ARTICLE 18

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality; or

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

when required by retrocessionaires as respects business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.


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ARTICLE 19

ERRORS AND OMISSIONS

ARTICLE 20

INSOLVENCY

C.	Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.


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ARTICLE 21

RUN-OFF REINSURER

A.	“Run-off Reinsurer” means any Subscribing Reinsurer that:

has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

has ceased reinsurance underwriting operations; or

has transferred its claims-paying authority to an unaffiliated entity; or

in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.


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The provisions of the Arbitration Article shall not apply.

C.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE 22

ARBITRATION

D.	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.


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parties that is related to this Contract. The arbitration shall take place in Tampa, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate.

ARTICLE 23

SERVICE OF SUIT

A.	This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.


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ARTICLE 24

GOVERNING LAW

ARTICLE 25

ENTIRE AGREEMENT

ARTICLE 26

NON-WAIVER


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ARTICLE 27

AGENCY

ARTICLE 28

INTERMEDIARY

ARTICLE 29

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.


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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT


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and on this day of , in the year 2018.

TYPTAP INSURANCE COMPANY

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT


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TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:


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Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.


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EXHIBIT 10.29

**** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

WORKING LAYER CATASTROPHE EXCESS OF LOSS REINSURANCE

CONTRACT (ENDURANCE)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida


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WORKING LAYER CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)

TABLE OF CONTENTS


Article		Page
	Preamble		4
1	Business Covered		4
2	Retention and Limit		4
3	Florida Hurricane Catastrophe Fund		5
4	Term		6
5	Special Termination		6
6	Territory		7
7	Exclusions		7
8	Special Acceptance		9
9	Premium		9
10	Reinstatement		10
11	Definitions		10
12	Extra Contractual Obligations/Excess of Policy Limits		14
13	Net Retained Liability		15
14	Other Reinsurance		15
15	Original Conditions		15
16	No Third Party Rights		15
17	Notice of Loss and Loss Settlements		15
18	Late Payments		16
19	Offset		17
20	Currency		17
21	Unauthorized Reinsurance		18
22	Taxes		20
23	Access to Records		20
24	Confidentiality		21
25	Indemnification and Errors and Omissions		22
26	Insolvency		23
27	Run-Off Reinsurer		24
28	Arbitration		25
29	Service of Suit		26
30	Governing Law		27
31	Entire Agreement		27
32	Non-Waiver		28
33	Agency		28
34	Intermediary		28
35	Mode of Execution		28
	Company Signing Block		29


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WORKING LAYER CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)

TABLE OF CONTENTS


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WORKING LAYER CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED IN THE

INTERESTS AND LIABILITIES AGREEMENT(S) ATTACHED TO

AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any Policies not covered by the Company’s Flood Tower, in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Company as the property perils of Homeowners, Condominium Owners, Renters and Dwelling, subject to the terms and conditions herein contained.

ARTICLE 2

RETENTION AND LIMIT


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B.	No Loss Occurrence shall be covered hereunder unless it involves two or more risks subject to this Contract. The Company shall be the sole judge of what constitutes one risk for purposes of this Contract.

ARTICLE 3

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

B.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

C.	The Company has opted for a 45% coverage selection from the FHCF.


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ARTICLE 4

TERM

ARTICLE 5

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.


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D.	The Company’s option to require commutation under paragraph C above shall survive the termination or expiration of this Contract.

ARTICLE 6

TERRITORY

The territorial limits of this Contract shall be identical with those of the Company’s Policies.

ARTICLE 7

EXCLUSIONS

A.	This Contract shall not apply to and specifically excludes:

Flood when written as such.

Earthquake for standalone Policies where earthquake is the only named peril.


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Hail damage to an insured’s growing or standing crops.

Pools, Associations & Syndicates, per the attached exclusion.

Losses excluded by the attached Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance – U.S.A.

Terrorism as defined in the attached Terrorism Exclusion.

10.

Mold unless directly resulting from an otherwise covered peril.

11.

12.

Financial guarantee and insolvency.

13.


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ARTICLE 8

SPECIAL ACCEPTANCE

ARTICLE 9

PREMIUM

A.	The Company shall pay the Reinsurer a deposit premium of ** for the term of this Contract. The Final Adjusted Premium to be paid to the Reinsurer shall be calculated at a rate of multiplied by the Company’s final Total Insured Value, subject to a minimum premium of **.

B.	The deposit premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of **** on June 1, 2018, September 1, 2018, January 1, 2019 and April 1, 2019.

Within 45 days following the expiration of this Contract, the Company shall provide the Reinsurer with a report showing the Company’s final Total Insured Value. This final Total Insured Value shall be multiplied by the rate as stated in paragraph A above. Should this amount be greater than or equal to **** and less than or equal to **** of the Deposit Premium as set forth above, there shall be no additional or return premium due. Should the amount so calculated exceed **** of the Deposit Premium paid in accordance with paragraph A above, the Company shall immediately pay the Reinsurer the difference in excess of **** of the Deposit Premium. Should the amount so calculated be less than **** of the Deposit Premium paid in accordance with paragraph A of this Article, the Reinsurer shall immediately pay the Company the difference below **** of the Deposit Premium, subject to the Minimum Premium as set forth above.


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D.	“Total Insured Value” means the Company’s aggregate wind exposures on September 30, 2018 for business covered hereunder.

E.	The estimated Total Insured Value is $37,650,955,560.

F.	The Company shall furnish the Reinsurer with such reasonably available information as may be reasonably required by the Reinsurer for completion of the Reinsurer’s financial statements.

ARTICLE 10

REINSTATEMENT

B.	If at the time of a loss settlement hereon the reinsurance premium, as calculated in accordance with the Premium Article, is unknown, the above calculation of reinstatement premium shall be based upon the deposit premium, subject to adjustment when the reinsurance premium is finally established.

ARTICLE 11

DEFINITIONS


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Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Company’s “Ultimate Net Loss” has been ascertained.

B.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


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Except as provided in subparagraph (1)(a) above:

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.


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ARTICLE 12

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

C.	An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Company’s Policy, and shall constitute part of the original loss.

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

E.	Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.

G.	In no event shall coverage be provided to the extent not permitted under law.


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ARTICLE 13

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 14

OTHER REINSURANCE

The Company shall be permitted to carry in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.

ARTICLE 15

ORIGINAL CONDITIONS

ARTICLE 16

NO THIRD PARTY RIGHTS

ARTICLE 17

NOTICE OF LOSS AND LOSS SETTLEMENTS


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B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 18

LATE PAYMENTS

The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times

1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times

The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

B.	The due date shall, for purposes of this Article, be determined as follows:


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D.	In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

E.	Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 19

OFFSET

ARTICLE 20

CURRENCY

A.	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars, and all payments hereunder shall be in United States Dollars.


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ARTICLE 21

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.


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to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;

to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

G.	The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

H.	At annual intervals, or more frequently at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:


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ARTICLE 22

TAXES

ARTICLE 23

ACCESS TO RECORDS


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C.	For purposes of this Article:

“Privileged Documents” means any documents that are Attorney-Client Privilege Documents and/or Work Product Privilege Documents.

ARTICLE 24

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality; or

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.


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when required by retrocessionaires as respects business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 25

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

the amount or amounts that it shall be proper for the Company to pay thereunder.

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.


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D.	Nothing in this Article shall be construed to override any of the other terms and conditions of this Contract.

ARTICLE 26

INSOLVENCY

C.	Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.


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ARTICLE 27

RUN-OFF REINSURER

A.	“Run-off Reinsurer” means any Subscribing Reinsurer that:

has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

has ceased reinsurance underwriting operations; or

has transferred its claims-paying authority to an unaffiliated entity; or

in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.


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The provisions of the Arbitration Article shall not apply.

C.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE 28

ARBITRATION


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D.	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules of hearings.

ARTICLE 29

SERVICE OF SUIT

A.	This Article applies only to those Subscribing Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.


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ARTICLE 30

GOVERNING LAW

ARTICLE 31

ENTIRE AGREEMENT


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ARTICLE 32

NON-WAIVER

ARTICLE 33

AGENCY

ARTICLE 34

INTERMEDIARY

ARTICLE 35

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;


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B.	The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

WORKING LAYER CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)


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and on this day of , in the year 2018.

TYPTAP INSURANCE COMPANY

WORKING LAYER CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(ENDURANCE)


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POOLS, ASSOCIATIONS & SYNDICATES EXCLUSIONS CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Section B:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;


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All “FAIR Plan” and “Rural Risk Plan” business;

Louisiana Citizens Property Insurance Corporation;

California Earthquake Authority (“CEA”) or any similar entity.

Notwithstanding the above, assessments related to the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation (Florida) shall be excluded hereunder.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above;

Any expenditure to purchase or retire bonds.


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NOTES:	Wherever used herein the terms:

	“Company”	shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

	“Contract”	shall be understood to mean “Agreement,” “Contract,” “Policy” or whatever other term is used to designate the attached reinsurance document.

	“Reinsurer”	shall be understood to mean “Reinsurer,” “Reinsurers,” “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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NUCLEAR INCIDENT EXCLUSION CLAUSE-PHYSICAL DAMAGE-REINSURANCE-U.S.A.

1.	This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

Nuclear reactor power plants including all auxiliary property on the site, or

II.

Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III.

IV.

Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)


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5.	It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

6.	The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119


NOTES:	Wherever used herein the terms:

	“Reassured”	shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

	“Agreement”	shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

	“Reinsurers”	shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.


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LOGO

TERRORISM EXCLUSION

involves violence against one or more persons; or

involves damage to property; or

endangers life other than that of the person committing the action; or

creates a risk to health or safety of the public or a section of the public; or

is designed to interfere with or to disrupt an electronic system.

C.	This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any Act of Terrorism.


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LOGO

TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:


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Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.


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Exhibit 10.30


		STATE BOARD OF ADMINISTRATION OF FLORIDA		RICK SCOTT GOVERNOR
				CHAIR
		1801 HERMITAGE BOULEVARD		JIMMY PATRONIS
		TALLAHASSEE, FLORIDA 32308		CHIEF FINANCIAL OFFICER
		(850) 488-4406
				PAM BONDI
				ATTORNEY GENERAL

		POST OFFICE BOX 13300		ASH WILLIAMS
		32317-3300		EXECUTIVE DIRECTOR & CIO

REIMBURSEMENT CONTRACT

Effective: June 1, 2018

(Contract)

between

HOMEOWNERS CHOICE PROPERTY AND CASUALTY INSURANCE COMPANY

(Company)

NAIC # 12944

and

THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)

WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

PREAMBLE

The Legislature of the State of Florida has enacted Section 215.555, Florida Statutes (Statute), which directs the SBA to administer the FHCF. This Contract, consisting of the principal document entitled Reimbursement Contract, addressing the mandatory FHCF coverage, and Addenda, is subject to the Statute and to any administrative rule adopted pursuant thereto, and is not intended to be in conflict therewith. All provisions in the principal document are equally applicable to each Addendum unless specifically superseded by one of the Addenda.

In consideration of the promises set forth in this Contract, the parties agree as follows:

ARTICLE I—SCOPE OF AGREEMENT

As a condition precedent to the SBA’s obligations under this Contract, the Company, an Authorized Insurer or an entity writing Covered Policies under Section 627.351, Florida Statutes, in the State of Florida, shall report to the SBA in a specified format the business it writes which is described in this Contract as Covered Policies.

The terms of this Contract shall determine the rights and obligations of the parties. This Contract provides reimbursement to the Company under certain circumstances, as described herein, and does not provide or extend insurance or reinsurance coverage to any person, firm, corporation or other entity. The SBA shall reimburse the Company for its Ultimate Net Loss on Covered Policies, which were in force and in effect at the time of the Covered Event(s) causing the Loss, in excess of the Company’s Retention as a result of each Covered Event commencing during the Contract Year, to the extent funds are available, all as hereinafter defined.


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ARTICLE II—PARTIES TO THE CONTRACT

This Contract is solely between the Company and the SBA which administers the FHCF. In no instance shall any insured of the Company or any claimant against an insured of the Company, or any other third party, have any rights under this Contract, except as provided in Article XV. The SBA will only disburse funds to the Company, except as provided for in Article XV. The Company shall not, without the prior approval of the Office of Insurance Regulation, sell, assign, or transfer to any third party, in return for a fee or other consideration any sums the FHCF pays under this Contract or the right to receive such sums.

ARTICLE III—TERM; EXECUTION

(1)

Term

This Contract applies to Losses from Covered Events which commence during the period from 12:00:01 a.m., Eastern Time, June 1, 2018, to 12:00 midnight, Eastern Time, May 31, 2019 (Contract Year). The SBA shall not be liable for Losses from Covered Events which commence after the effective time and date of expiration or termination. Should this Contract expire or terminate while a Covered Event is in progress, the SBA shall be responsible for such Covered Event in progress in the same manner and to the same extent it would have been responsible had the Contract expired the day following the conclusion of the Covered Event in progress.

(2)	Mandatory Nature of this Contract

(a)

Statutory Requirement

This Contract has been adopted as part of Rule 19-8.010, Florida Administrative Code, in fulfi llm ent of the statutory requirement that the SBA enter into a reimbursement contract with each Company writing Covered Policies in Florida. Under Section 215.555(4)(a), Florida Statutes, the SBA must enter into such a contract with each such Company, and each such Company must enter into the reimbursement contract as a condition of doing business in Florida. Under Section 215.555(16)(c), Florida Statutes, Companies writing Covered Policies must execute the reimbursement contract by March 1 of the immediately preceding Contract Year.

(b)

Duty to Provide a Fully and Timely Executed Copy of this Contract to the FHCF Administrator

The Company must provide a fully executed copy of this Contract in electronic form to the Administrator no later than the March 1 statutory deadline for execution, or, in the case of a New Participant, no later than 30 days after the New Participant began writing Covered Policies.

(3)	Contract Deemed Executed Notwithstanding Execution Errors

Except with respect to New Participants, this Contract is deemed to have been executed by the Company as of the March 1 statutory deadline, notwithstanding the fact that the reimbursement percentage election in Article XX(1)(b) may be invalid, and notwithstanding the fact that the person purporting to execute the Contract on the part of the Company may have lacked the requisite authority. With respect to New Participants, this Contract is deemed to have been executed by the New Participant as of the date on which the New Participant began writing Covered Policies; coverage shall be determined as provided in paragraphs (c) and (d) below. Execution of this Contract by or on behalf of an entity that does not write Covered Policies is void. If the Company failed to timely submit an executed copy of this Contract, or if the executed Contract includes an invalid Reimbursement Percentage Election under Article XX, the Company’s reimbursement percentage shall be deemed as follows:

(a)

For Companies that are a member of a National Association of Insurance Commissioners (NAIC) group, the same coverage level selected by the other Companies of the same NAIC group shall be deemed. If executed Contracts for none of the members of an NAIC group have been received by the FHCF Administrator, the coverage level from the prior Contract Year shall be deemed.


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(b)

For Companies that are not a member of an NAIC group under which other Companies are active participants in the FHCF, the coverage level from the prior Contract Year shall be deemed.

(c)

For New Participants that are a member of an NAIC group, the same coverage level selected by the other Companies of the same NAIC group shall be deemed.

(d)

For New Participants that are not a member of an NAIC group under which other Companies are active participants in the FHCF, the 45%, 75% or 90% coverage levels may be selected providing that the FHCF Administrator receives executed Contracts within 30 calendar days after the effective date of the first Covered Policy, otherwise, the 45% coverage level shall be deemed to have been selected.

ARTICLE IV—LIABILITY OF THE FHCF

(1)

The SBA shall reimburse the Company, with respect to each Covered Event commencing during the Contract Year for the “Reimbursement Percentage” elected, this percentage times the amount of Ultimate Net Loss paid by the Company in excess of the Company’s Retention, as adjusted pursuant to Article V(28), plus 5% of the reimbursed Losses for Loss Adjustment Expense Reimbursement.

(2)	The Reimbursement Percentage will be 45% or 75% or 90%, at the Company’s option as elected under Article XX.

(3)	The aggregate liability of the FHCF with respect to all Reimbursement Contracts covering this Contract Year shall not exceed the limit set forth under Section 215.555(4)(c)1., Florida Statutes. For specifics regarding reimbursement calculations, sec section (3)(c) of Article X.

(4)

Upon the occurrence of a Covered Event, the SBA shall evaluate the potential Losses to the FHCF and the FHCF’s capacity at the time of the event. The initial Projected Payout Multiple used to reimburse the Company for its Losses shall not exceed the Projected Payout Multiple as calculated based on the capacity needed to provide the FHCF’s coverage. If it appears that the Estimated Claims-Paying Capacity may be exceeded, the SBA shall reduce the projected payout factors or multiples for determining each participating insurer’s projected payout uniformly among all insurers to reflect the Estimated Claims-Paying Capacity.

(5)	Reimbursement amounts shall not be reduced by reinsurance paid or payable to the Company from other sources. Once the Company’s limit of coverage has been exhausted, the Company will not be entitled to further reimbursements.

(6)

After the end of the calendar year, the SBA shall notify insurers of the estimated Borrowing Capacity and the Balance of the Fund as of December 31. In May and October of each year, the SBA shall publish in the Florida Administrative Register a statement of the FHCF’s estimated Borrowing Capacity, Estimated Claims-Paying Capacity, and the projected Balance of the Fund as of December 31.

(7)

The obligation of the SBA with respect to all Contracts covering a particular Contract Year shall not exceed the Balance of the Fund as of December 31 of that Contract Year, together with the maximum amount the SBA is able to raise through the issuance of revenue bonds or through other means available to the SBA under Section 215.555, Florida Statutes, up to the limit in accordance with Section 215.555(4)(c)1. and (6), Florida Statutes. The obligations and the liability of the SBA are more fully described in Rule 19-8.013, Florida Administrative Code (F.A.C.).

ARTICLE V—DEFINITIONS

(1)

Actual Claims-Paying Capacity of the FHCF

This term means the sum of the Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the amount the SBA is able to raise through the issuance of revenue bonds, or through other means available by law to the SBA, up to the limit in accordance with Section 215.555(4)(c)1. and (6), Florida Statutes.


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(2)	Actuarially Indicated

This term means, with respect to Premiums paid by Companies for reimbursement provided by the FHCF, an amount determined in accordance with the definition provided in Section 215.555(2)(a), Florida Statutes.

(3)	Additional Living Expense (ALE)

ALE Losses covered by the FHCF are not to exceed 40 percent of the insured value of a Residential Structure or its contents based on the coverage provided in the policy. Fair rental value, loss of rents, or business interruption losses are not covered by the FHCF.

(4)	Administrator

This term means the entity with which the SBA contracts to perform administrative tasks associated with the operations of the FHCF. The current Administrator is Paragon Strategic Solutions Inc., 8200 Tower, 5600 West 83 ^rd Street, Suite 1100, Minneapolis, Minnesota 55437. The telephone number is (800) 689-3863, and the facsimile number is (800) 264-0492.

(5)	Authorized Insurer

This term is defined in Section 624.09(1), Florida Statutes.

(6)	Borrowing Capacity

This term means the amount of funds which are able to be raised by the issuance of revenue bonds or through other financing mechanisms, less bond issuance expenses and reserves.

(7)	Citizens Property Insurance Corporation (Citizens)

This term means Citizens Property Insurance Corporation as created under Section 627.351(6), Florida Statutes. For the purposes of the FHCF, Citizens Property Insurance Corporation incorporates two accounts, (a) the coastal account and (b) the personal lines and commercial lines accounts. Each account is treated by the FHCF as if it were a separate participating insurer with its own reportable exposures, Reimbursement Premium, Retention, and Ultimate Net Loss.

(8)	Contract

This term means this Reimbursement Contract for the current Contract Year.

(9)	Covered Event

This term means any one storm declared to be a hurricane by the National Hurricane Center which causes insured losses in Florida. A Covered Event begins when a hurricane causes damage in Florida while it is a hurricane and continues throughout any subsequent downgrades in storm status by the National Hurricane Center regardless of whether the hurricane makes landfall. Any storm, including a tropical storm, which does not become a hurricane is not a Covered Event.

(10)	Covered Policy or Covered Policies

(a)

Covered Policy, as defined in Section 215.555(2)(c), Florida Statutes, is further clarified to mean only that portion of a binder, policy or contract of insurance that insures real or personal property located in the State of Florida to the extent such policy insures a Residential Structure or the contents of a Residential Structure, located in the State of Florida.

(b)

Due to the specialized nature of the definition of Covered Policies, Covered Policies are not limited to only one line of business in the Company’s annual statement required to be filed by Section 624.424, Florida Statutes. Instead, Covered Policies are found in several lines of business on the Company’s annual statement. Covered Policies will at a minimum be reported in the Company’s statutory annual statement as:

Fire

Allied Lines

Farmowners Multiple Peril

Homeowners Multiple Peril


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Commercial Multiple Peril (non liability portion, covering condominiums and apartments)

Inland Marine

Note that where particular insurance exposures, e.g., mobile homes, are reported on an annual statement is not dispositive of whether or not the exposure is a Covered Policy.

(c)

This definition applies only to the first-party property section of a policy pertaining strictly to the structure, its contents, appurtenant structures, or ALE coverage.

(d)

Covered Policy also includes any collateral protection insurance policy covering personal residences which protects both the borrower’s and the lender’s financial interest, in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy, if such policy can be accurately reported as required in Section 215.555(5), Florida Statutes. A Company will be deemed to be able to accurately report data if the required data, as specified in the Premium Formula adopted in Section 215.555(5), Florida Statutes, is available.

(e)

See Article VI for specific exclusions.

(11)	Deductible Buy-Back Policy

This term means a specific policy that provides coverage to a policyholder for some portion of the policyholder’s deductible under a policy issued by another insurer.

(12)	Estimated Claims-Paying Capacity of the FHCF

This term means the sum of the projected Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the most recent estimate of the Borrowing Capacity of the FHCF, determined pursuant to Section 215.555(4)(c), Florida Statutes.

(13)	Excess Policy

This term, for the purposes of this Contract, means a policy that provides insurance protection for large commercial property risks and that provides a layer of coverage above a primary layer (which is insured by a different insurer) that acts much the same as a very large deductible.

(14)	Florida Department of Financial Services

This term means the Florida regulatory agency, created pursuant to Section 20.121, Florida Statutes, which is charged with regulating the Florida insurance market and administering the Florida Insurance Code.

(15)	Florida Insurance Code

This term means those chapters identified in Section 624.01, Florida Statutes, which are designated as the Florida Insurance Code.

(16)	Formula or the Premium Formula

This term means the Formula approved by the SBA for the purpose of determining the Actuarially Indicated Premium to be paid to the FHCF. The Premium Formula is defined as an approach or methodology which leads to the creation of premium rates. The Formula shall, pursuant to Section 215.555(5)(b), Florida Statutes, include a cash build-up factor in the amount specified therein.

(17)	Fund Balance or Balance of the Fund as of December 31

These terms mean the amount of assets available to pay claims, not including any bonding proceeds, resulting from Covered Events which occurred during the Contract Year.

(18)	Insurer Group

For purposes of the coverage option election in Section 215.555(4)(b), Florida Statutes, Insurer Group means the group designation assigned by the National Association of Insurance Commissioners (NAIC) for purposes of filing consolidated financial statements. A Company is a member of a group as designated by the NAIC until such Company is assigned another group designation or is no longer a member of a group recognized by the NAIC.


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(19)

Loss

“Loss” or “Losses” means incurred losses under a Covered Policy from a Covered Event, including Additional Living Expenses not to exceed 40 percent of the insured value of a Residential Structure or its contents and amounts paid as fees on behalf of or inuring to the benefit of a policyholder. “Loss” excludes allocated or unallocated loss adjustment expenses and also excludes any item for which this Contract does not provide reimbursement pursuant to the exclusions in Article VI.

(20)	Loss Adjustment Expense Reimbursement

(a)

Loss Adjustment Expense Reimbursement shall be 5% of the reimbursed Losses under this Contract as provided in Article IV, pursuant to Section 215.555(4)(b)1., Florida Statutes.

(b)

The 5% Loss Adjustment Expense Reimbursement is included in the total Payout Multiple applied to each Company.

(21)	New Participant(s)

This term means all Companies which begin writing Covered Policies on or after the beginning of the Contract Year. A Company that removes Covered Policies from Citizens pursuant to an assumption agreement effective on or after June 1 and had written no other Covered Policies before June 1 is also considered a New Participant.

(22)	Office of Insurance Regulation

This term means that office within the Department of Financial Services and which was created in Section 20.121(3), Florida Statutes.

(23)	Payout Multiple

This term means the multiple as calculated in accordance with Section 215.555(4)(c), Florida Statutes, which is derived by dividing the single season Claims-Paying Capacity of the FHCF by the total aggregate industry Reimbursement Premium for the FHCF for the Contract Year billed as of December 31 of the Contract Year. The final Payout Multiple is determined once Reimbursement Premiums have been billed as of December 31 and the amount of bond proceeds has been determined.

(24)	Premium

This term means the same as Reimbursement Premium.

(25)	Projected Payout Multiple

The Projected Payout Multiple is used to calculate a Company’s projected payout pursuant to Section 215.555(4)(d)2., Florida Statutes. The Projected Payout Multiple is derived by dividing the estimated single season Claims-Paying Capacity of the FHCF by the estimated total aggregate industry Reimbursement Premium for the FHCF for the Contract Year. The Company’s Reimbursement Premium as paid to the SBA for the Contract Year is multiplied by the Projected Payout Multiple to estimate the Company’s coverage from the FHCF for the Contract Year.

(26)	Reimbursement Premium

This term means the Premium determined by multiplying each $1,000 of insured value reported by the Company in accordance with Section 215.555(5)(b), Florida Statutes, by the rate as derived from the Premium Formula, as described in Rule 19-8.028, F.A.C.

(27)	Residential Structures

This term means units or buildings used exclusively or predominantly for dwelling or habitational occupancies, including the primary structure and appurtenant structures insured under the same policy and any other structures covered under endorsements associated with a policy covering a residential structure. For the purpose of this Contract, a single structure which includes a mix of commercial habitational and commercial non-habitational occupancies, and which is insured under a commercial policy, is considered a Residential Structure if 50% or more of the total insured value of the structure is used for habitational occupancies. Covered Residential Structures do not include any structures listed under Article VI.


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(28)	Retention

This term means the amount of Losses from a Covered Event which must be incurred by the Company before it is eligible for reimbursement from the FHCF.

(a)

When the Company incurs Losses from one or two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the Covered Events.

(b)

When the Company incurs Losses from more than two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the two Covered Events causing the largest Losses for the Company. For each other Covered Event resulting in Losses, the Company’s Retention shall be reduced to one-third of its full Retention.

All reimbursement of Losses for each Covered Event shall be based on the Company’s full Retention until December 31 of the Contract Year. Adjustments to reflect a reduction to one-third of the full Retention shall be made on or after January 1 of the Contract Year provided the Company reports its Losses as specified in this Contract.

Adjustments to the Company’s Retention shall be based upon its paid and outstanding Losses as reported on the Company’s Proof of Loss Reports, but shall not include incurred but not reported Losses. The Company’s Proof of Loss Reports shall be used to determine which Covered Events constitute the Company’s two largest Covered Events. After this initial determination, any subsequent adjustments shall be made quarterly by the SBA only if the Proof of Loss Reports reveal that loss development patterns have resulted in a change in the order of Covered Events entitled to the reduction to one-third of the full Retention.

(c)

The Company’s full Retention is established in accordance with the provisions of Section 215.555(2)(e), Florida Statutes, and shall be determined by multiplying the Retention Multiple by the Company’s Reimbursement Premium for the Contract Year.

(29)	Retention Multiple

(a)

The Retention Multiple is applied to the Company’s Reimbursement Premium to determine the Company’s Retention. The Retention Multiple for the 2018/2019 Contract Year shall be equal to $4.5 billion, adjusted based upon the reported exposure for the 2016/2017 Contract Year to reflect the percentage growth in exposure to the FHCF since 2004, divided by the estimated total industry Reimbursement Premium at the 90% reimbursement percentage level for the Contract Year as determined by the SBA.

(b)

The Retention Multiple shall be adjusted to reflect the reimbursement percentage elected by the Company under this Contract as follows:

If the Company elects a 90% reimbursement percentage, the adjusted Retention Multiple is 100% of the amount determined under (29)(a) above;

If the Company elects a 75% reimbursement percentage, the adjusted Retention Multiple is 120% of the amount determined under (29)(a) above; or

If the Company elects a 45% reimbursement percentage, the adjusted Retention Multiple is 200% of the amount determined under (29)(a) above.

(30)	Ultimate Net Loss

(a)

This term means all Losses under Covered Policies in force at the time of a Covered Event prior to the application of the Company’s Retention and reimbursement percentage, and excluding loss adjustment expense and any exclusions under Article VI.

(b)

The Company’s Ultimate Net Loss shall be determined in accordance with the deductible level as specified under the policy sustaining the Loss without taking into consideration any deductible discounts or deductible waivers.

(c)

Salvages and all other recoveries, excluding reinsurance recoveries, shall be first deducted from such Loss to arrive at the amount of liability attaching hereunder.


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(d)

All salvages, recoveries or payments recovered or received subsequent to a Loss settlement under this Contract shall be applied as if recovered or received prior to the aforesaid settlement and all necessary adjustments shall be made by the parties hereto.

(e)

Nothing in this clause shall be construed to mean that Losses under this Contract are not recoverable until the Company’s Ultimate Net Loss has been ascertained.

(f)

The SBA shall be subrogated to the rights of the Company to the extent of its reimbursement of the Company. The Company agrees to assist and cooperate with the SBA in all respects as regards such subrogation. The Company further agrees to undertake such actions as may be necessary to enforce its rights of salvage and subrogation, and its rights, if any, against other insurers as respects any claim, loss, or payment arising out of a Covered Event.

ARTICLE VI – EXCLUSIONS

This Contract does not provide reimbursement for:

(1)	Any losses not defined as being within the scope of a Covered Policy.

(2)	Any policy which excludes wind or hurricane coverage.

(3)	Any Excess Policy or Deductible Buy-Back Policy that requires individual ratemaking, as determined by the FHCF.

(4)

(a)

Any policy for Residential Structures that provides a layer of coverage underneath an Excess Policy issued by a different insurer;

(b)

Any policy providing a layer of windstorm or hurricane coverage for a particular structure above or below a layer of windstorm or hurricane coverage under a separate policy issued by a different insurer, or any other circumstance in which two or more insurers provide primary windstorm or hurricane coverage for a single structure using separate policy forms;

(c)

Any other policy providing a layer of windstorm or hurricane coverage for a particular structure below a layer of self-insured windstorm or hurricane coverage for the same structure; or

(d)

The exclusions in this subsection do not apply to primary quota share policies written by Citizens Property Insurance Corporation under Section 627.351(6)(c)2., Florida Statutes.

(5)	Any liability of the Company attributable to losses for fair rental value, loss of rent or rental income, or business interruption.

(6)	Any collateral protection policy that does not meet the definition of Covered Policy as defined in Article V(10)(d).

(7)	Any reinsurance assumed by the Company.

(8)	Any exposure for hotels, motels, timeshares, shelters, camps, retreats, and any other rental property used solely for commercial purposes.

(9)	Any exposure for homeowner associations if no habitational structures are insured under the policy.

(10)	Any exposure for homes and condominium structures or units that arc non-owner occupied and rented for 6 or more rental periods by different parties during the course of a 12-month period.

(11)	Commercial healthcare facilities and nursing homes; however, a nursing home which is an integral part of a retirement community consisting primarily of habitational structures that are not nursing homes will not be subject to this exclusion.

(12)	Any exposure under commercial policies covering only appurtenant structures or structures that do not function as a habitational structure (e.g., a policy covering only the pool of an apartment complex).

(13)	Policies covering only Additional Living Expense.

(14)	Any exposure for barns or barns with apartments or living quarters.

(15)	Any exposure for builders risk coverage or new Residential Structures still under construction.


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(16)	Any exposure for vehicles, recreational vehicles, golf carts, or boats (including boat related equipment) requiring licensing.

(17)

Any liability of the Company for extra contractual obligations or liabilities in excess of original policy limits. This exclusion includes, but is not limited to, amounts paid as bad faith awards, punitive damages awards, or other court-imposed fines, sanctions, or penalties; or other amounts in excess of the coverage limits under the Covered Policy.

(18)

Any losses paid in excess of a policy’s hurricane limit in force at the time of each Covered Event, including individual coverage limits (i.e., building, appurtenant structures, contents, and additional living expense), or other amounts paid as the result of a voluntary expansion of coverage by the insurer, including, but not limited to, a discount on or waiver of an applicable deductible. This exclusion includes overpayments of a specific individual coverage limit even if total payments under the policy are within the aggregate policy limit.

(19)

Any losses paid under a policy for Additional Living Expense, written as a time element coverage, in excess of the Additional Living Expense exposure reported for that policy under the Data Call for the applicable Contract Year (unless policy limits have changed effective after June 30 of the Contract Year).

(20)	Any losses which the Company’s claims files do not adequately support. Claim file support shall be deemed adequate if in compliance with the Records Retention Requirements outlined on the Form FHCF-L1B (Proof of Loss Report) applicable to the Contract Year.

(21)	Any exposure for, or amounts paid to reimburse a policyholder for, condominium association loss assessments or under similar coverages for contractual liabilities.

(22)	Losses in excess of the sum of the Balance of the Fund as of December 31 of the Contract Year and the amount the SBA is able to raise through the issuance of revenue bonds or by the use of other financing mechanisms, up to the limit pursuant to Section 215.555(4)(c), Florida Statutes.

(23)	Any liability assumed by the Company from Pools, Associations, and Syndicates. Exception: Covered Policies assumed from Citizens under the terms and conditions of an executed assumption agreement between the Authorized Insurer and Citizens are covered by this Contract.

(24)

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

(25)

Property losses that are proximately caused by any peril other than a Covered Event, including, but not limited to, fire, theft, flood or rising water, or windstorm that does not constitute a Covered Event, or any liability of the Company for loss or damage caused by or resulting from nuclear reaction, nuclear radiation, or radioactive contamination from any cause, whether direct or indirect, proximate or remote, and regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

(26)	The FHCF does not provide coverage for water damage which is generally excluded under property insurance contracts and has been defined to mean flood, surface water, waves, tidal water, overflow of a body of water, storm surge, or spray from any of these, whether or not driven by wind.

(27)	Policies and endorsements predominantly covering Specialized Fine Arts Risks or collectible types of property meeting the following requirements:


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(a)

A policy or endorsement predominantly covering Specialized Fine Arts Risks and not covering any Residential Structure if it meets the description in subparagraph 1 and if the conditions in subparagraph 2 are met.

For purposes of this exemption, a Specialized Fine Arts Risk policy or endorsement is a policy or endorsement that:

Insures works of art, of rarity, or of historic value, such as paintings, works on paper, etchings, art glass windows, pictures, statuary, sculptures, tapestries, antique furniture, antique silver, antique rugs, rare books or manuscripts, jewelry, or other similar items;

Charges a minimum premium of $500; and

Insures scheduled items valued, in the aggregate, at no less than $100,000.

The insurer offers specialized loss prevention services or other collector services designed to prevent or minimize loss, or to value or inventory the Specialized Fine Arts for insurance purposes, such as:

Collection risk assessments;

Fire and security loss prevention;

Warehouse inspections to protect items stored off-site;

Assistance with collection inventory management; or

Collection valuation reviews.

(b)

A policy form or endorsement generally used by the Company to cover personal property which could include property of a collectible nature, including fine arts, as further described in this paragraph, either on a scheduled basis or written under a blanket limit, and not covering anything other than personal property. All such policy forms or endorsements are subject to the exclusion provided in this paragraph when the policy or endorsement limit equals or exceeds $500,000. Generally such collectible property has unusually high values due to its investible, artistic, or unique intrinsic nature. The class of property covered under such a policy or endorsement represents an unusually high exposure value and such policy is intended to provide coverage for a class or classes of property that is not typical for the contents coverage under residential property insurance policies. In many cases property may be located at various locations either in or outside the state of Florida or the location of the property may change from time to time. The investment nature of such property distinguishes this type of exposure from the typical contents associated with a Covered Policy.

(28)	Any losses under liability coverages.

(29)	Any exposure for a condominium structure insured on a commercial policy in which more than 50% of the individual units are non-owner occupied and rented for 6 or more rental periods by different parties during the course of a 12-month period.

(30)	Any structure used exclusively or predominantly for non-dwelling or non-habitational occupancies.

ARTICLE VII—MANAGEMENT OF CLAIMS AND LOSSES

The Company shall investigate and settle or defend all claims and Losses. All payments of claims or Losses by the Company within the terms and limits of the appropriate coverage parts of Covered Policies shall be binding on the SBA, subject to the terms of this Contract, including the provisions in Article XIII relating to inspection of records and examinations.

ARTICLE VIII -REIMBURSEMENT ADJUSTMENTS

Section 215.555(4)(d) and (e), Florida Statutes, provides the SBA with the right to seek the return of excess reimbursements which have been paid to the Company along with interest thereon. Excess reimbursements are those payments made to the Company by the SBA that are in excess of the


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Company’s coverage under the Contract Year. Excess reimbursements may result from adjustments to the Projected Payout Multiple or the Payout Multiple, incorrect exposure (Data Call) submissions or resubmissions, incorrect calculations of Reimbursement Premiums or Retentions, incorrect Proof of Loss Reports, incorrect calculation of reinsurance recoveries, or subsequent readjustment of policyholder claims, including subrogation and salvage, or any combination of the foregoing. The Company will be sent an invoice showing the due date for adjustments along with the interest due thereon through the due date. The applicable interest rate for interest credits, and for interest charges for adjustments beyond the Company’s control, will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges on excess reimbursements due to adjustments resulting from incorrect exposure submissions or Proof of Loss Reports will accrue at this rate plus 5%. All interest will continue to accrue if not paid by the due date.

ARTICLE IX—REIMBURSEMENT PREMIUM

(1)	The Company shall, in a timely manner, pay the SBA its Reimbursement Premium for the Contract Year. The Reimbursement Premium for the Contract Year shall be calculated in accordance with Section 215.555, Florida Statutes, with any rules promulgated thereunder, and with Article X(2).

(2)

The Company’s Reimbursement Premium is based on its June 30 exposure in accordance with Article X, except as provided for New Participants under Article X, and is not adjusted to reflect an increase or decrease in exposure for Covered Policies effective after June 30 nor is the Reimbursement Premium adjusted when the Company cancels policies or is liquidated or otherwise changes its business status (merger, acquisition, or termination) or stops writing new business (continues in business with its policies in a runoff mode). Similarly, new business written after June 30 will not increase or decrease the Company’s FHCF Reimbursement Premium or impact its FHCF coverage. FHCF Reimbursement Premiums are required of all Companies based on their writing Covered Policies in Florida as of June 30, and each Company’s FHCF coverage as based on the definition in Section 215.555(2)(m), Florida Statutes, shall exist for the entirety of the Contract Year regardless of exposure changes, except as provided for New Participants under Article X.

(3)

Since the calculation of the Actuarially Indicated Premium assumes that the Companies will pay their Reimbursement Premiums timely, interest charges will accrue under the following circumstances. A Company may choose to estimate its own Premium installments. However, if the Company’s estimation is less than the provisional Premium billed, an interest charge will accrue on the difference between the estimated Premium and the final Premium. If a Company estimates its first installment, the Administrator shall bill that estimated Premium as the second installment as well, which will be considered as an estimate by the Company. No interest will accrue regarding any provisional Premium if paid as billed by the FHCF’s Administrator, except in the case of an estimated second installment as set forth in this Article. Also, if a Company makes an estimation that is higher than the provisional Premium billed but is less than the final Premium, interest will not accrue. If the Premium payment is not received from a Company when it is due, an interest charge will accrue on a daily basis until the payment is received. Interest will also accrue on Premiums resulting from submissions or resubmissions finalized after December 1 of the Contract Year. An interest credit will be applied for any Premium which is overpaid as either an estimate or as a provisional Premium. Interest shall not be credited past December 1 of the Contract Year. The applicable interest rate for interest credits will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges will accrue at this rate plus 5%.


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ARTICLE X - REPORTS AND REMITTANCES

(1)	Exposures

(a)

If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall report to the SBA, unless otherwise provided in Rule 19-8.029, F.A.C., no later than the statutorily required date of September 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of June 30 of the Contract Year as outlined in the annual reporting of insured values form, FHCF-D1A (Data Call) adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA.

(b)

If the Company first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year, the Company shall report to the SBA, no later than February 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of November 30 of the Contract Year as outlined in the Supplemental Instructions for New Participants section of the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA.

(c)

If the Company first begins writing Covered Policies on December 1 through and including May 31 of the Contract Year, the Company shall not report its exposure data for the Contract Year to the SBA.

(d)

The requirement that a report is due on a certain date means that the report shall be received by the SBA no later than 4 p.m. Eastern Time on the due date. Reports sent to the FHCF Administrator in Minneapolis, Minnesota, will be returned to the sender. Reports not in the physical possession of the SBA by 4 p.m., Eastern Time, on the applicable due date are late.

(2)	Reimbursement Premium

(a)

If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall pay the FHCF its Reimbursement Premium in in stallments due on or before August 1, October 1, and December 1 of the Contract Year in amounts to be determined by the FHCF. However, if the Company’s Reimbursement Premium for the prior Contract Year was less than $5,000, the Company’s full provisional Reimbursement Premium, in an amount equal to the Reimbursement Premium paid in the prior year, shall be due in full on or before August 1 of the Contract Year. The Company will be invoiced for amounts due, if any, beyond the provisional Reimbursement Pre mi um payment, on or before December 1 of the Contract Year.

(b)

If the Company is under administrative supervision, or if any control or oversight of the Company has been transferred through any legal or regulatory action to a state regulator or court appointed receiver or rehabilitator (referred to in the aggregate as “state action”):

The full annual provisional Reimbursement Premium as billed and any outstanding balances will be due and payable on August 1, or the date that such State action occurs after August 1 of the Contract Year.

Failure by such Company to pay the full annual provisional Reimbursement Premium as specified in 1. above by the applicable due date(s) shall result in the 45% coverage level being deemed for the complete Contract Year regardless of the level selected for the Company through the execution of this Contract and regardless of whether a hurricane event occurred or triggered coverage.

The provisions required in 1. and 2. above will not apply when the state regulator, receiver, or rehabilitator provides a letter of assurance to the FHCF that the Company will have the resources and will pay the full Reimbursement Premium for the coverage level selected through the execution of this Contract.


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When control or oversight has been transferred, in whole or in part, through a legal or regulatory action, the controlling management of the Company shall specify by August 1 or as soon thereafter as possible (but not to exceed two weeks after any regulatory or legal action) in a letter to the FHCF as to the Company’s intentions to either pay the full FHCF Reimbursement Premium as specified in 1. above, to default to the 45% coverage being deemed as specified in 2. above, or to provide the assurances as specified in 3. above.

(c)

A New Participant that first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year shall pay the FHCF a provisional Reimbursement Premium of $1,000 no later than 30 days from the date the New Participant began writing Covered Policies. The Administrator shall calculate the Company’s actual Reimbursement Premium for the period based on its actual exposure as of November 30 of the Contract Year, as reported on or before February 1 of the Contract Year. To recognize that New Participants have limited exposure during this period, the actual Premium as determined by processing the Company’s exposure data shall then be divided in half, the provisional Premium shall be credited, and the resulting amount shall be the total Premium due for the Company for the remainder of the Contract Year. However, if that amount is less than $1,000, then the Company shall pay $1,000. The Premium payment is due no later than April 1 of the Contract Year. The Company’s Retention and coverage will be determined based on the total Premium due as calculated above.

(d)

A New Participant that first begins writing Covered Policies on or after December 1 through and including May 31 of the Contract Year shall pay the FHCF a Reimbursement Premium of $1,000 no later than 30 days from the date the New Participant began writing Covered Policies.

(e)

The requirement that the Reimbursement Premium is due on a certain date means that the Premium shall be remitted by wire transfer or ACH and shall have been credited to the FHCF’s account, as set out on the invoice sent to the Company, on the due date applicable to the particular installment.

(f)

Except as required by Section 215.555(7)(c), Florida Statutes, or as described in the following sentence, Reimbursement Premiums, together with earnings thereon, received in a given Contract Year will be used only to pay for Losses attributable to Covered Events occurring in that Contract Year or for Losses attributable to Covered Events in subsequent Contract Years and will not be used to pay for past Losses or for debt service on post-event revenue bonds issued pursuant to Section 215.555(6)(a)l., Florida Statutes. Reimbursement Premiums and earnings thereon may be used for payments relating to such revenue bonds in the event emergency assessments are insufficient. If Reimbursement Premiums or earnings thereon are used for debt service on post-event revenue bonds, then the amount of the Reimbursement Premiums or earnings thereon so used shall be returned, without interest, to the Fund when emergency assessments or other legally available funds remain available after making payment relating to the post-event revenue bonds and any other purposes for which emergency assessments were levied.

(3)

Losses

(a)

In General

Losses resulting from a Covered Event commencing during the Contract Year shall be reported by the Company and reimbursed by the FHCF as provided herein and in accordance with the Statute, this Contract, and any rules adopted pursuant to the Statute. For a Company participating in a quota share primary insurance agreement(s) with Citizens Property Insurance Corporation Coastal Account, Citizens and the Company shall report only their respective portion of Losses under the quota share primary insurance agreement(s). Pursuant to Section 215.555(4)(c), Florida Statutes, the SBA is obligated to pay for Losses not to exceed the Actual Claims-Paying Capacity of the FHCF, up to the limit in accordance with Section 215.555(4)(c)1., Florida Statutes, for any one Contract Year.


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(b)

Loss Reports

At the direction of the SBA, the Company shall report its projected Ultimate Net Loss from each Covered Event to provide information to the SBA in determining any potential liability for possible reimbursable Losses under the Contract on the Interim Loss Report, Form FHCF-L1A, adopted for the Contract Year under Rule 19-8.029, F.A.C. Interim Loss Reports (including subsequent Interim Loss Reports if required by the SBA) will be due in no less than fourteen days from the date of the notice from the SBA that such a report is required.

FHCF reimbursements will be issued based on Ultimate Net Loss information reported by the Company on the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C.

To qualify for reimbursement, the Proof of Loss Report must have the electronic signatures of two executive officers authorized by the Company to sign or submit the report.

The Company must also submit a Detailed Claims Listing, Form FHCF-DCL, adopted for the Contract Year under Rule 19-8.029, F.A.C., at the same time it submits its first Proof of Loss Report for a specific Covered Event that qualifies the Company for reimbursement under that Covered Event, and must be prepared to supply a Detailed Claims Listing for any subsequent Proof of Loss Report upon request.

While the Company may submit a Proof of Loss Report requesting reimbursement at any time following a Covered Event, the Company shall submit a mandatory Proof of Loss Report for each Covered Event no earlier than December 1 and no later than December 31 of the Contract Year during which the Covered Event occurs using the most current data available, regardless of the amount of Ultimate Net Loss or the amount of reimbursements or advances already received.

For the Proof of Loss Reports due by December 31 of the Contract Year, and the required subsequent quarterly and annual reports required under subparagraphs 3. and 4. below, the Company shall submit its Proof of Loss Reports by each quarter-end or year-end using the most current data available. However, the date of such data shall not be more than sixty days prior to the applicable quarter-end or year-end date.

For the Proof of Loss Reports due by December 31 of the Contract Year and the required subsequent annual reports required under subparagraph 4. below, the Company shall include a Detailed Claims Listing if requested by the SBA.

Updated Proof of Loss Reports for each Covered Event are due quarterly thereafter until all Losses resulting from a Covered Event are fully discharged including any adjustments to such Losses due to salvage or other recoveries, or the Company has received its full coverage under the Contract Year in which the Covered Event occurred. Guidelines follow:

Quarterly Proof of Loss Reports are due by March 31 from a Company whose Losses exceed, or are expected to exceed, 50% of its FHCF Retention for a specific Covered Event.

Quarterly Proof of Loss Reports are due by June 30 from a Company whose Losses exceed, or are expected to exceed, 75% of its FHCF Retention for a specific Covered Event.

Quarterly Proof of Loss Reports are due by September 30 and quarterly thereafter from a Company whose Losses exceed, or are expected to exceed, its FHCF Retention for a specific Covered Event.

If the Company’s Retention must be recalculated as the result of an exposure resubmission, and if the recalculated Retention changes the FHCF’s reimbursement obligations, then the Company shall submit additional Proof of Loss Reports for recalculation of the FHCF’s obligations.


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Annually after December 31 of the Contract Year, all Companies shall submit a mandatory year-end Proof of Loss Report for each Covered Event, as applicable, using the most current data available. This Proof of Loss Report shall be filed no earlier than December 1 and no later than December 31 of each year and shall continue until the earlier of the commutation process described in paragraph (3)(d) below or until all Losses resulting from the Covered Event are fully discharged including any adjustments to such Losses due to salvage or other recoveries.

The SBA, except as noted below, will determine and pay, within 30 days or as soon as practicable after receiving Proof of Loss Reports, the reimbursement amount due based on Losses paid by the Company to date and adjustments to this amount based on subsequent quarterly information. The adjustments to reimbursement amounts shall require the SBA to pay, or the Company to return, amounts reflecting the most recent determination of Losses.

The SBA shall have the right to consult with all relevant regulatory agencies to seek all relevant information, and shall consider any other factors deemed relevant, prior to the issuance of reimbursements.

The SBA shall require commercial self-insurance funds established under Section 624.462, Florida Statutes, to submit contractor receipts to support paid Losses reported on a Proof of Loss Report, and the SBA may hire an independent consultant to confirm Losses, prior to the issuance of reimbursements.

The SBA shall have the right to conduct a loss examination prior to the issuance of any advances or reimbursements requested by Companies that have been placed under regulatory supervision by a State or where control has been transferred through any legal or regulatory proceeding to a state regulator or court appointed receiver or rehabilitator.

All Proof of Loss Reports received will be compared with the FHCF’s exposure data to establish the facial reasonableness of the reports. The SBA may also review the results of current and prior Contract Year exposure and loss examinations to determine the reasonableness of the reported Losses. Except as noted in subparagraph 5. above, Companies meeting these tests for reasonableness will be scheduled for reimbursement. Companies not meeting these tests for reasonableness will be handled on a case-by-case basis and will be contacted to provide specific information regarding their individual book of business. The discovery of errors in a Company’s reported exposure under the Data Call may require a resubmission of the current Contract Year Data Call which, as the Data Call impacts the Company’s Premium, Retention, and coverage for the Contract Year, will be required before the Company’s request for reimbursement or an advance will be fully processed by the Administrator.

(c)

Loss Reimbursement Calculations

In general, the Company’s paid Ultimate Net Losses must exceed its full FHCF Retention for a specific Covered Event before any reimbursement is payable from the FHCF for that Covered Event. As described in Article V(28)(b), Retention adjustments will be made on or after January 1 of the Contract Year. No interest is payable on additional payments to the Company due to this type of Retention adjustment. Each Company, including entities created pursuant to Section 627.351(6), Florida Statutes, incurring reimbursable Losses will receive the amount of reimbursement due under the individual Company’s Contract up to the amount of the Company’s payout. If more than one Covered Event occurs in any one Contract Year, any reimbursements due from the FHCF shall take into account the Company’s Retention for each Covered Event. However, the Company’s reimbursements from the FHCF for all Covered Events occurring during the Contract Year shall not exceed, in aggregate, the Projected Payout Multiple or Payout Multiple, as applicable, times the individual Company’s Reimbursement Premium for the Contract Year.


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Reserve established. When a Covered Event occurs in a subsequent Contract Year when reimbursable Losses are still being paid for a Covered Event in a previous Contract Year, the SBA will establish a reserve for the outstanding reimbursable Losses for the previous Contract Year, based on the length of time the Losses have been outstanding, the amount of Losses already paid, the percentage of incurred Losses still unpaid, and any other factors specific to the loss development of the Covered Events involved.

(d)

Commutation

Except as provided in subparagraph 3. below, not less than 36 months or more than 60 months after the end of the Contract Year, the Company shall file a final Proof of Loss Report(s), with the exception of Companies having no reportable Losses as described in sub-subparagraph a. below. Otherwise, the final Proof of Loss Report(s) is required as specified in sub-subparagraph b. below. The Company and SBA may mutually agree to initiate commutation after 36 months and prior to 60 months after the end of the Contract Year. The commutation negotiations shall begin at the later of 60 months after the end of the Contract Year or upon completion of the FHCF loss examination for the Company and the resolution of all outstanding examination issues.

If the Company’s most recently submitted Proof of Loss Report(s) indicates that it has no Losses resulting from Covered Events during the Contract Year, the SBA shall after 36 months request that the Company execute a final commutation agreement. The final commutation agreement shall constitute a complete and final release of all obligations of the SBA with respect to Losses. If the Company chooses not to execute a final commutation agreement, the SBA shall be released from all obligations 60 months following the end of the Contract Year if no Proof of Loss Report indicating reimbursable Losses had been filed and the commutation shall be deemed concluded. However during this time, if the Company determines that it does have Losses to report for FHCF reimbursement, the Company must submit an updated Proof of Loss Report prior to the end of 60 months after the Contract Year and the Company shall be required to follow the commutation provisions and time frames otherwise specified in this section.

If the Company has submitted a Proof of Loss Report indicating that it does have Losses resulting from a Covered Event during the Contract Year, the SBA may require the Company to submit within 30 days an updated, current Proof of Loss Report for each Covered Event during the Contract Year. The Proof of Loss Report must include all paid Losses as well as all outstanding Losses and incurred but not reported Losses, which are not finally settled and which may be reimbursable Losses under this Contract, and must be accompanied by supporting documentation (at a minimum an adjuster’s summary report or equivalent details) and a copy of a written opinion on the present value of the outstanding Losses and incurred but not reported Losses by the Company’s certifying actuary. Failure of the Company to provide an updated current Proof of Loss Report, supporting documentation, and an opinion by the date requested by the SBA may result in referral to the Office of Insurance Regulation for a violation of the Contract. Increases in reported paid, outstanding, or incurred but not reported Losses on original or corrected Proof of Loss Report filings received later than 60 months after the end of the Contract Year shall not be eligible for reimbursement or commutation.


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Determining the present value of outstanding Losses.

If the Company exceeds or expects to exceed its Retention, the Company and the SBA or their respective representatives shall attempt, by mutual agreement, to agree upon the present value of all outstanding Losses, both reported and incurred but not reported, resulting from Covered Events during the Contract Year. Payment by the SBA of its portion of any amount or amounts so mutually agreed and certified by the Company’s certifying actuary shall constitute a complete and final release of the SBA in respect of all Losses, both reported and unreported, under this Contract.

If agreement on present value cannot be reached within 90 days of the FHCF’s receipt of the final Proof of Loss Report and supporting documentation, the Company and the SBA may mutually appoint an actuary, adjuster, or appraiser to investigate and determine such Losses. If both parties then agree, the SBA shall pay its portion of the amount so determined to be the present value of such Losses.

If the parties fail to agree, then any difference shall be settled by a panel of three actuaries, as provided in this paragraph.

One actuary shall be chosen by each party, and the third actuary shall be chosen by those two actuaries. If either party does not appoint an actuary within 30 days, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of an independent third actuary within 30 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.

ii.

All of the actuaries shall be regularly engaged in the valuation of property claims and losses and shall be members of the Casualty Actuarial Society and of the American Academy of Actuaries.

iii.

None of the actuaries shall be under the control of either party to this Contract.

iv.

Each party shall submit its case to the panel in writing on the 30 ^th day after the appointment of the third actuary. Following the submission of the case to the panel, the parties are prohibited from providing any further information or other communication except at the request of the panel. Such responses to requests from the panel must be in writing and simultaneously provided to the other party and all members of the panel, except that the panel may require the response to be provided in a meeting or teleconference attended by both parties and all members of the panel.

The decision in writing of any two actuaries, when filed with the parties hereto, shall be final and binding on both parties.

The reasonable and customary expense of the actuaries and of the commutation (as a result of sub-subparagraphs 2.b. and c. above) shall be equally divided between the two parties. Said commutation shall take place in Tallahassee, Florida, unless some other place is mutually agreed upon by the Company and the SBA.

The Company and SBA may mutually agree to initiate and complete a commutation for zero dollars prior to the 36 months provided in subparagraph (d)l. above. Such early commutation, once completed, eliminates the mandatory Proof of Loss Report requirements required under subparagraphs (b)3. and 4. above for all reporting periods subsequent to the completion of the commutation.


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(4)	Advances

(a)

The SBA may make advances for loss reimbursements as defined herein, at market interest rates, to the Company in accordance with Section 215.555(4)(e), Florida Statutes. An advance is an early reimbursement which allows the Company to continue to pay claims in a timely manner. Advances will be made based on the Company’s paid and reported outstanding Losses for Covered Policies (excluding all incurred but not reported Losses) as reported on a Proof of Loss Report, and shall include Loss Adjustment Expense Reimbursement as calculated by the FHCF. In order to be eligible for an advance, the Company must submit its exposure data for the Contract Year as required under subsection (1) of this Article. Except as noted below, advances, if approved, will be made as soon as practicable after the SBA receives a written request, signed by two officers of the Company, for an advance of a specific amount and any other information required for the specific type of advance under paragraphs (c) and (d) below. All reimbursements due to the Company shall be offset against any amount of outstanding advances plus the interest due thereon.

(b)

For advances or excess advances, which are advances that are in excess of the amount to which the Company is entitled, the market interest rate shall be the prime rate as published in the Wall Street Journal on the first business day of the Contract Year. This rate will be adjusted annually on the first business day of each subsequent Contract Year, regardless of whether the Company executes subsequent Contracts. In addition to the prime rate, an additional 5% interest charge will apply on excess advances. All interest charged will commence on the date the SBA issues a check for an advance and will cease on the date upon which the FHCF has received the Company’s Proof of Loss Report for the Covered Event for which the Company qualifies for reimbursement. If such reimbursement is less than the amount of outstanding advances issued to the Company, interest will continue to accrue on the outstanding balance of the advances until subsequent Proof of Loss Reports qualify the Company for reimbursement under any Covered Event equal to or exceeding the amount of any outstanding advances. Interest shall be billed on a periodic basis. If it is determined that the Company received funds in excess of those to which it was entitled, the interest as to those sums will not cease on the date of the receipt of the Proof of Loss Report but will continue until the Company reimburses the FHCF for the overpayment.

(c)

If the Company has an outstanding advance balance as of December 31 of this or any other Contract Year, the Company is required to have an actuary certify outstanding and incurred but not reported Losses as reported on the applicable December Proof of Loss Report.

(d)

The specific type of advances enumerated in Section 215.555, Florida Statutes, follow.

Advances to Companies to prevent insolvency, as defined under Article XV.

Section 215.555(4)(e)1., Florida Statutes, provides that the SBA shall advance to the Company amounts necessary to maintain the solvency of the Company, up to 50 percent of the SBA’s estimate of the reimbursement due to the Company.

In addition to the requirements outlined in subparagraph (4)(a) above, the requirements for an advance to a Company to prevent insolvency are that the Company demonstrates it is likely to qualify for reimbursement and that the immediate receipt of moneys from the SBA is likely to prevent the Company from becoming insolvent, and the Company provides the following information:

Current assets;

ii.

Current liabilities other than liabilities due to the Covered Event;

iii.

Current surplus as to policyholders;

iv.

Estimate of other expected liabilities not due to the Covered Event; and

Amount of reinsurance available to pay claims for the Covered Event under other reinsurance treaties.

The SBA’s final decision regarding an application for an advance to prevent insolvency shall be based on whether or not, considering the totality of the circumstances, including the SBA’s obligations to provide reimbursement for all Covered Events occurring during the Contract Year, granting an advance is essential to allowing the entity to continue to pay additional claims for a Covered Event in a timely manner.


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Advances to entities created pursuant to Section 627.351 (6), Florida Statutes.

Section 215.555(4)(e)2., Florida Statutes, provides that the SBA may advance to an entity created pursuant to Section 627.351(6), Florida Statutes, up to 90% of the lesser of the SBA’s estimate of the reimbursement due or the entity’s share of the actual aggregate Reimbursement Premium for that Contract Year, multiplied by the current available liquid assets of the FHCF.

In addition to the requirements outlined in paragraph (4)(a) above, the requirements for an advance to entities created pursuant to Section 627.351(6), Florida Statutes, are that the entity must demonstrate to the SBA that the advance is essential to allow the entity to pay claims for a Covered Event.

Advances to limited apportionment companies.

Section 215.555(4)(e)3., Florida Statutes, provides that the SBA may advance the amount of estimated reimbursement payable to limited apportionment companies.

(e)

In determining whether or not to grant an advance and the amount of an advance, the SBA:

Shall determine whether its assets available for the payment of obligations are sufficient and sufficiently liquid to fulfill its obligations to other Companies prior to granting an advance;

Shall review and consider all the information submitted by such Companies;

Shall review such Companies’ compliance with all requirements of Section 215.555, Florida Statutes;

Shall consult with all relevant regulatory agencies to seek all relevant information;

Shall review the damage caused by the Covered Event and when that Covered Event occurred;

Shall consider whether the Company has substantially exhausted amounts previously advanced;

Shall consider any other factors deemed relevant; and

Shall require commercial self-insurance funds established under section 624.462, Florida Statutes, to submit a copy of written estimates of expenses in support of the amount of advance requested.

(f)

Any amount advanced by the SBA shall be used by the Company only to pay claims of its policyholders for the Covered Event which has precipitated the immediate need to continue to pay additional claims as they become due.

(5)	Inadequate Data Submissions

If exposure data or other information required to be reported by the Company under the terms of this Contract is not received by the FHCF in the format specified by the FHCF or is inadequate to the extent that the FHCF requires resubmission of data, the Company will be required to pay the FHCF a resubmission fee of $1,000 for resubmissions that are not a result of an examination by the SBA. If a resubmission is necessary as a result of an examination report issued by the SBA, the first resubmission fee will be $2,000. If the Company’s examination-required resubmission is inadequate and the SBA requires an additional resubmission(s), the resubmission fee for each subsequent resubmission shall be $2,000. A resubmission of exposure data may delay the processing of the Company’s request for reimbursement or an advance.


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(6)	Confidential Information/Trade Secret Information

Pursuant to the provisions of Section 215.557, Florida Statutes, the reports of insured values under Covered Policies by ZIP Code submitted to the SBA pursuant to Section 215.555, Florida Statutes, are confidential and exempt from the provisions of Section 119.07(1), Florida Statutes, and Section 24(a), Art. I of the State Constitution. If other information submitted by the Company to the FHCF could reasonably be ruled a “trade secret” as defined in Section 812.081, Florida Statutes, such information must be clearly marked “Trade Secret Information.”

ARTICLE XI—TAXES

In consideration of the terms under which this Contract is issued, the Company agrees to make no deduction in respect of the Premium herein when making premium tax returns to the appropriate authorities. Should any taxes be levied on the Company in respect of the Premium herein, the Company agrees to make no claim upon the SBA for reimbursement in respect of such taxes.

ARTICLE XII—ERRORS AND OMISSIONS

Any inadvertent delay, omission, or error on the part of the SBA shall not be held to relieve the Company from any liability which would attach to it hereunder if such delay, omission, or error had not been made.

ARTICLE XIII—INSPECTION OF RECORDS

The Company shall allow the SBA to inspect, examine, and verify, at reasonable times, all records of the Company relating to the Covered Policies under this Contract, including Company files concerning claims, Losses, or legal proceedings regarding subrogation or claims recoveries which involve this Contract, including premium, loss records and reports involving exposure data or Losses under Covered Policies. This right by the SBA to inspect, examine, and verify shall survive the completion and closure of an exposure examination or loss examination file and the termination of the Contract. The Company shall have no right to re-open an exposure or loss examination once closed and the findings have been accepted by the Company; any re-opening shall be at the sole discretion of the SBA. If the State Board of Administration Finance Corporation has issued revenue bonds and relied upon the exposure and Loss data submitted and certified by the Company as accurate to determine the amount of bonding needed, the SBA may choose not to require, or accept, a resubmission if the resubmission will result in additional reimbursements to the Company. The SBA may require any discovered errors, inadvertent omissions, and typographical errors associated with the data reporting of insured values, discovered prior to the closing of the file and acceptance of the examination findings by the Company, to be corrected to reflect the proper values. The Company shall retain its records in accordance with the requirements for records retention regarding exposure reports and claims reports outlined herein, and in any administrative rules adopted pursuant to Section 215.555, Florida Statutes. Companies writing covered collateral protection policies, as defined in definition (10)(d) of Article V, must be able to provide documentation that the policy covers personal residences, protects both the borrower’s and lender’s interest, and that the coverage is in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy.

(1)	Purpose of FHCF Examination

The purpose of the examinations conducted by the SBA is to evaluate the accuracy of the FHCF exposure or Loss data reported by the Company. However, due to the limited nature of the examination, it cannot be relied upon as an assurance that a Company’s data is reported accurately or in its entirety. The Company should not rely on the FHCF to identify every type of reporting error in its data. In addition, the reporting requirements are subject to change each Contract Year so it is the Company’s responsibility to be familiar with the applicable Contract Year requirements and to incorporate any changes into its data for that Contract Year. It is also the Company’s responsibility to ensure that its data is reported accurately and to comply with Florida Statutes and any applicable rules when reporting exposure data. The examination report is not intended to provide a legal determination of the Company’s compliance.


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(2)	Examination Requirements for Exposure Verification

The Company shall retain complete and accurate records, in policy level detail, of all exposure data submitted to the SBA in any Contract Year until the SBA has completed its examination of the Company’s exposure submissions. The Company shall also retain complete and accurate records of any completed exposure examination for any Contract Year in which the Company incurred Losses until the completion of the loss reimbursement examination and commutation for that Contract Year. The records to be retained are outlined in the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C. A complete list of records to be retained for the exposure examination is set forth in Form FHCF-EAP1, adopted for the Contract Year under Rule 19-8.029, F.A.C.

(3)	Examination Requirements for Loss Reports

The Company shall retain complete and accurate records of all reported Losses and/or advances submitted to the SBA until the SBA has completed its examination of the Company’s reimbursable Losses and commutation for the Contract Year (if applicable) has been concluded. The records to be retained arc set forth as part of the Proof of Loss Report, Form FHCF-L1B and Form FHCF-LAP1, both adopted for the Contract Year under Rule 19-8.029, F.A.C.

(4)	Examination Procedures

(a)

The FHCF will send an examination notice letter to the Company providing the commencement date of the examination, the site of the examination, any accommodation requirements of the examiner, and the reports and data which must be assembled by the Company and forwarded to the FHCF. The Company shall be prepared to choose one location in which to be examined, unless otherwise specified by the SBA.

(b)

The reports and data are required to be forwarded to the FHCF as set forth in an examination notice letter. The information is then forwarded to the examiner. If the FHCF receives accurate and complete records as requested, the examiner will contact the Company to inform the Company as to what policies or other documentation will be required once the examiner is on site. Any records not required to be provided to the examiner in advance shall be made available at the time the examiner arrives on site. Any records to support reported exposure or Losses which are provided after the examiner has left the work-site will, at the SBA’s discretion, result in an additional examination of exposure and/or Loss records or an extension or expansion of the examination already in progress. All costs associated with such additional examination or with the extension or expansion of the original examination shall be borne by the Company.

(c)

At the conclusion of the examiner’s work and the management review of the examiner’s report, findings, recommendations, and work papers, the FHCF will forward an examination report to the Company.

(d)

Within 30 days from the date of the letter accompanying the examination report, the Company must provide a written response to the FHCF. The response must indicate whether the Company agrees with the findings and recommendations of the examination report. If the Company disagrees with any examination findings or recommendations, the reason for the disagreement must be outlined in the response and the Company must provide supporting information to support its objection. An extension of 30 days may be granted if the Company can show that the need for additional time is due to circumstances beyond the reasonable control of the Company. No response is required if the examination report does not include any findings or recommendations.


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(e)

If the Company accepts the examination findings and recommendations, and there is no recommendation for additional information, the examination report will be finalized and the exam file closed.

(f)

If the Company disputes the examiner’s findings, the areas in dispute will be resolved by a meeting or a conference call between the Company and FHCF management.

(g) 1. If

the recommendation of the examiner is to resubmit the Company’s exposure data for the

Contract Year in question, then the FHCF will send the Company a letter outlining the process for resubmission and including a deadline to resubmit. Once the resubmission is received, the FHCF’s Administrator calculates a revised Reimbursement Premium for the Contract Year which has been examined. The SBA shall then review the resubmission with respect to the examiner’s findings, and accept the resubmission or contact the Company with any questions regarding the resubmission. Once the SBA has accepted the resubmission as a sufficient response to the examiner’s findings, the exam is closed.

If the recommendation of the examiner is to give the Company the option to either resubmit the exposure data or to pay the estimated Premium difference, then the FHCF will send the Company a letter outlining the process for resubmission or for paying the estimated Premium difference and including a deadline for the resubmission or the payment to be received by the FHCF’s Administrator. If the Company chooses to resubmit, the same procedures outlined in Article XIII(4) apply.

(h)

If the recommendation of the examiner is to update the Company’s Proof of Loss Report(s) for the Contract Year under review, the FHCF will send the Company a letter outlining the process for submitting the Proof of Loss Report(s) and including a deadline to file. Once the Proof of Loss Report(s) is received by the FHCF Administrator, the FHCF’s Administrator will calculate a revised reimbursement. The SBA shall then review the submitted Proof of Loss Report(s) with respect to the examiner’s findings, and accept the Proof of Loss Report(s) as filed or contact the Company with any questions. Once the SBA has accepted the corrected Proof of Loss Report(s) as a sufficient response to the examiner’s findings, the exam is closed.

(i)

The examiner’s list of errors is made available in the examination report sent to the Company. Given that the examination was based on a sample of the Company’s policies or claims rather than the whole universe of the Company’s Covered Policies or reported claims, the error list is not intended to provide a complete list of errors but is intended to indicate what information needs to be reviewed and corrected throughout the Company’s book of Covered Policy business or claims information to ensure more complete and accurate reporting to the FHCF.

(5)	Costs of the Examinations

The costs of the examinations shall be borne by the SBA. However, in order to remove any incentive for a Company to delay preparations for an examination, the SBA shall be reimbursed by the Company for any examination expenses incurred in addition to the usual and customary costs, which additional expenses were incurred as a result of the Company’s failure, despite proper notice, to be prepared for the examination or as a result of a Company’s failure to provide requested information. All requested information must be complete and accurate.

ARTICLE XIV – OFFSETS

The SBA reserves the right to offset amounts payable to the SBA from the Company, including amounts payable under the Reimbursement Contract for any Contract Year and also including the Company’s full Premium for the current Contract Year (regardless of installment due dates), against any (1) premium refunds under any Contract Year, (2) reimbursement or advance amounts, or (3) amounts agreed to in a commutation agreement, which are due and payable to the Company from the SBA as a result of the liability of the SBA.


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ARTICLE XV - INSOLVENCY OF THE COMPANY

Company shall notify the FHCF immediately upon becoming insolvent. Except as otherwise provided below, no reimbursements will be made until the FHCF has completed and closed its examination of the insolvent Company’s Losses, unless an agreement is entered into by the court appointed receiver specifying that all data and computer systems required for FHCF exposure and loss examinations will be maintained until completion of the Company’s exposure and loss examinations. Except as otherwise provided below, in order to account for potential erroneous reporting, the SBA shall hold back 25% of requested reimbursements until the exposure and loss examinations for the Company are completed. Only those Losses supported by the examination will be reimbursed. Pursuant to Section 215.555(4)(g), Florida Statutes, the FHCF is required to pay the “net amount of all reimbursement moneys” due an insolvent insurer to the Florida Insurance Guaranty Association (FIGA) for the benefit of Florida policyholders. For the purpose of this Contract, a Company is insolvent when an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction. In light of the need for an immediate infusion of funds to enable policyholders of insolvent companies to be paid for their claims, the SBA may enter into agreements with FIGA allowing exposure and loss examinations to take place immediately without the usual notice and response time limitations and allowing the FHCF to make reimbursements (net of any amounts payable to the SBA from the Company or FIGA) to FIGA before the examinations are completed and before the response time expires for claims filing by reinsurers and financial institutions, which have a priority interest in those funds pursuant to Section 215.555(4)(g), Florida Statutes. Such agreements must ensure the availability of the necessary records and adequate security must be provided so that if the FHCF determines that it overpaid FIGA on behalf of the Company, or if claims are filed by reinsurers or financial institutions having a priority interest in these funds, that the funds will be repaid to the FHCF by FIGA within a reasonable time.

ARTICLE XVI - TERMINATION

The FHCF and the obligations of both parties under this Contract can be terminated only as may be provided by law or applicable rules.

ARTICLE XVII - VIOLATIONS

(1)	Statutory Provisions

(a)

Section 215.555(10), Florida Statutes, provides that any violation of Section 215.555, Florida Statutes, or of rules adopted under that section, constitutes a violation of the Florida Insurance Code. This Contract has been adopted as part of Rule 19-8.010, Florida Administrative Code, under the authority of that section of Florida Statutes.

(b)

Section 215.555(11), Florida Statutes, authorizes the SBA to take any action necessary to enforce the rules and the provisions and requirements of this Contract, required by and adopted pursuant to Section 215.555, Florida Statutes.

(2)	Noncompliance

(a)

As used in this Article, the term “noncompliance” means the failure of the Company to meet any applicable requirement of Section 215.555, Florida Statutes, or of any rule adopted under the authority of that section of Florida Statutes, including, but not limited to, any failure to meet a deadline for an FHCF payment, Data Call submissions or resubmissions, Loss reporting or commutation documentation, or a deadline related to SBA examination requirements. The Company remains in a state of noncompliance as long as the Company fails to meet the applicable requirement(s).

(b)

If the Company is in a state of noncompliance, the SBA reserves the right to withhold any payments or advances due the Company until the SBA determines that the Company is no longer in a state of noncompliance.


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ARTICLE XVIII - APPLICABLE LAW

This Contract shall be governed by and construed according to the laws of the State of Florida in respect of any matter relating to or arising out of this Contract.

ARTICLE XIX – DUE DATES

If any due date provided in this Contract is a Saturday, Sunday or a legal State of Florida or federal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or a legal State of Florida or federal holiday.

ARTICLE XX – REIMBURSEMENT CONTRACT ELECTIONS

(1)	Reimbursement Percentage

For purposes of determining reimbursement (if any) due the Company under this Contract and in accordance with the Statute, the Company has the option to elect a 45% or 75% or 90% reimbursement percentage under this Contract. If the Company is a member of an NAIC group, all members must elect the same reimbursement percentage, and the individual executing this Contract on behalf of the Company, by placing his or her initials in the box under (a) below, affirms that the Company has elected the same reimbursement percentage as all members of its NAIC group. If the Company is an entity created pursuant to Section 627.351, Florida Statutes, the Company must elect the 90% reimbursement percentage. The Company shall not be permitted to change its reimbursement percentage during the Contract Year. The Company shall be permitted to change its reimbursement percentage at the beginning of a new Contract Year, but may not reduce its reimbursement percentage if a Covered Event required the issuance of revenue bonds, until the bonds are no longer outstanding.

The Reimbursement Percentage elected by the Company for the prior Contract Year effective June 1, 2017 was as follows: Homeowners Choice Property and Casualty Insurance Company - 45%

(a)

NAIC Group Affirmation: Initial the following box if the Company is part of an NAIC Group:

LOGO

(b)

Reimbursement Percentage Election: The Company hereby elects the following Reimbursement Percentage for the Contract Year from 12:00:01 a.m., Eastern Time, June 1, 2018, to 12:00 a.m., Eastern Time, May 31, 2019, (the individual executing this Contract on behalf of the Company shall place his or her initials in the box to the left of the percentage elected for the Company):

45%

75%

90%


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(2)	Additional Living Expense (ALE) Written as Time Element Coverage

If your Company writes Covered Policies that provide ALE coverage on a time element basis (i.e., coverage is based on a specific period of time as opposed to a stated dollar limit), you must initial the ‘Yes – Time Element ALE’ box below. If your Company does not write time element ALE coverage, initial ‘No – Time Element ALE’ box below.

Yes – Time

Element ALE

No – Time

Element ALE


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ARTICLE XXI – SIGNATURES

Approved by:

Paragon Strategic Solutions Inc., on Behalf of the State Board of Administration of the State of Florida and as Administrator of the Florida Hurricane Catastrophe Fund.


By:	/s/ Martin K. Helgested	3-30-18
		Date

Authority to sign on behalf of the Company:

The person signing this Contract on behalf of the Company hereby represents that he or she is an officer of the Company, acting within his or her authority to enter into this Contract on behalf of the Company, with the requisite authority to bind the Company and make the representations on behalf of the Company as set forth in this Contract.

Homeowners Choice Property and Casualty Insurance Company

PARESHBHAI PATEL CHAIRMAN

Printed Name and Title


By:	/s/ Pareshbhai Patel	2/23/2018
	Signature	Date


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Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Paresh Patel, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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.


				/s/ PARESH PATEL
August 3, 2018				Paresh Patel
				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.

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James Mark Harmsworth, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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.


		/s/ JAMES MARK HARMSWORTH
August 3, 2018		James Mark Harmsworth
		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.

Exhibit 32.1

Written Statement of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

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 Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2018 as filed with the Securities and Exchange Commission on August 3, 2018 (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.

/s/ PARESH PATEL

Paresh Patel

Chief Executive Officer

August 3, 2018

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.

Exhibit 32.2

Written Statement of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Financial Officer of HCI Group, Inc. (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2018 as filed with the Securities and Exchange Commission on August 3, 2018 (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.

/s/ JAMES MARK HARMSWORTH

James Mark Harmsworth

Chief Financial Officer

August 3, 2018

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.