HCI Group, Inc. (Form: 10-Q, Received: 08/07/2019 16:04:26)

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, 2019

☐	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)

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

Title of Each Class

Trading

Symbol

Name of Each Exchange

on Which Registered

Common Shares, no par value

HCI

New York Stock Exchange

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 31, 2019 was 8,180,174.

HCI GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
	PART I — FINANCIAL INFORMATION

Item 1	Financial Statements
	Consolidated Balance Sheets:
	June 30, 2019 (unaudited) and December 31, 2018		1-2
	Consolidated Statements of Income:
	Three and six months ended June 30, 2019 and 2018 (unaudited)		3
	Consolidated Statements of Comprehensive Income:
	Three and six months ended June 30, 2019 and 2018 (unaudited)		4
	Consolidated Statements of Stockholders’ Equity:
	Three and six months ended June 30, 2019 and 2018 (unaudited)		5-8
	Consolidated Statements of Cash Flows:
	Six months ended June 30, 2019 and 2018 (unaudited)		9-10
	Notes to Consolidated Financial Statements (unaudited)		11-42

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		43-56

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		59-60

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		62-69

Signatures			70
Certifications

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar amounts in thousands)


	June 30, 2019		December 31, 2018
	(Unaudited)
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $207,563 and $184,670, respectively)	$	209,914	$	182,723
Equity securities, at fair value (cost: $27,770 and $45,671, respectively)		29,861		41,143
Short-term investments, at fair value		508		66,479
Limited partnership investments, at equity		30,790		32,293
Investment in unconsolidated joint venture, at equity		791		845
Assets held for sale		10,025		9,810
Real estate investments		63,228		54,490

Total investments		345,117		387,783
Cash and cash equivalents		217,153		239,458
Restricted cash		700		700
Accrued interest and dividends receivable		1,682		1,792
Income taxes receivable		1,511		971
Premiums receivable		26,398		16,667
Prepaid reinsurance premiums		29,543		17,932
Reinsurance recoverable:
Paid losses and loss adjustment expenses		19,183		11,151
Unpaid losses and loss adjustment expenses		58,897		112,760
Deferred policy acquisition costs		20,851		16,507
Property and equipment, net		13,873		13,338
Intangible assets, net		4,498		4,800
Other assets		12,734		9,004

Total assets	$	752,140	$	832,863

(continued)

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets — continued

(Dollar amounts in thousands)


	June 30, 2019		December 31, 2018
	(Unaudited)
Liabilities and Stockholders’ Equity
Losses and loss adjustment expenses	$	154,242	$	207,586
Unearned premiums		193,426		157,729
Advance premiums		13,652		6,192
Assumed reinsurance balances payable		—		14
Accrued expenses		11,099		6,483
Deferred income taxes, net		2,750		1,068
Revolving credit facility		9,500		—
Long-term debt		162,293		250,150
Other liabilities		18,684		22,200

Total liabilities		565,646		651,422

Commitments and contingencies (Note 18)
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, 8,053,573 and 8,356,730 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)		—		—
Additional paid-in capital		—		—
Retained income		184,739		182,894
Accumulated other comprehensive income (loss), net of taxes		1,755		(1,453	)

Total stockholders’ equity		186,494		181,441

Total liabilities and stockholders’ equity	$	752,140	$	832,863

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue
Gross premiums earned	$	83,315		$	85,919		$	165,912		$	171,691
Premiums ceded		(31,317	)		(32,954	)		(62,730	)		(65,204	)

Net premiums earned		51,998			52,965			103,182			106,487
Net investment income		4,226			3,399			7,504			6,617
Net realized investment (losses) gains		(133	)		2,662			(505	)		4,894
Net unrealized investment gains (losses)		1,326			(1,557	)		6,619			(4,157	)
Net other-than-temporary impairment losses		—			(40	)		—			(80	)
Policy fee income		800			855			1,595			1,720
Other		413			529			869			1,071

Total revenue		58,630			58,813			119,264			116,552

Expenses
Losses and loss adjustment expenses		24,293			21,803			51,289			41,458
Policy acquisition and other underwriting expenses		10,077			9,959			19,750			19,319
General and administrative personnel expenses		7,998			7,840			15,362			14,123
Interest expense		2,884			4,505			7,221			8,975
Other operating expenses		3,063			3,186			6,044			6,353

Total expenses		48,315			47,293			99,666			90,228

Income before income taxes		10,315			11,520			19,598			26,324
Income tax expense		2,762			5,117			5,307			9,130

Net income	$	7,553		$	6,403		$	14,291		$	17,194

Basic earnings per share	$	0.93		$	0.96		$	1.75		$	2.21

Diluted earnings per share	$	0.90		$	0.92		$	1.72		$	2.03

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	7,553		$	6,403		$	14,291		$	17,194

Other comprehensive income (loss):
Change in unrealized gain (loss) on investments:
Net unrealized gain (loss) arising during the period		1,626			(65	)		4,330			(2,693	)
Other-than-temporary impairment loss charged to income		—			40			—			80
Call and repayment losses charged to investment income		1			3			1			4
Reclassification adjustment for net realized loss (gain)		—			35			(33	)		(661	)

Net change in unrealized gain (loss)		1,627			13			4,298			(3,270	)
Deferred income taxes on above change		(413	)		(3	)		(1,090	)		829

Total other comprehensive income (loss), net of income taxes		1,214			10			3,208			(2,441	)

Comprehensive income	$	8,767		$	6,413		$	17,499		$	14,753

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended June 30, 2019

(Unaudited)

(Dollar amounts in thousands, except per share amount)


	Common Stock					Additional Paid-In Capital			Retained Income			Accumulated Other Comprehensive Income Net of Tax		Total Stockholders’ Equity
	Shares			Amount		Additional Paid-In Capital			Retained Income			Accumulated Other Comprehensive Income Net of Tax		Total Stockholders’ Equity
Balance at March 31, 2019		8,359,889		$	—	$	103		$	186,396		$	541	$	187,040
Net income		—			—		—			7,553			—		7,553
Total other comprehensive income, net of income taxes		—			—		—			—			1,214		1,214
Exercise of common stock options		10,000			—		63			—			—		63
Issuance of restricted stock		133,160			—		—			—			—		—
Forfeiture of restricted stock		(264,211	)		—		—			—			—		—
Repurchase and retirement of common stock		(24,478	)		—		(1,005	)		—			—		(1,005	)
Repurchase and retirement of common stock under share repurchase plan		(160,787	)		—		(6,668	)		—			—		(6,668	)
Common stock dividends ($0.40 per share)		—			—		—			(3,192	)		—		(3,192	)
Stock-based compensation		—			—		1,489			—			—		1,489
Additional paid-in capital shortfall allocated to retained income		—			—		6,018			(6,018	)		—		—

Balance at June 30, 2019		8,053,573		$	—	$	—		$	184,739		$	1,755	$	186,494

See accompanying Notes to Consolidated Financial Statements.

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

For the Three Months Ended June 30, 2018

(Unaudited)

(Dollar amounts in thousands, except per share amount)


	Common Stock					Additional Paid-In Capital			Retained Income			Accumulated Other Comprehensive (Loss) Income, Net of Tax			Total Stockholders’ Equity
	Shares			Amount		Additional Paid-In Capital			Retained Income						Total Stockholders’ Equity
Balance at March 31, 2018		8,593,850		$	—	$	—		$	193,971		$	(1,069	)	$	192,902
Net income		—			—		—			6,403			—			6,403
Total other comprehensive income, net of income taxes		—			—		—			—			10			10
Issuance of restricted stock		143,360			—		—			—			—			—
Forfeiture of restricted stock		(27,115	)		—		—			—			—			—
Repurchase and retirement of common stock		(17,256	)		—		(730	)		—			—			(730	)
Repurchase and retirement of common stock under share repurchase plan		(174,951	)		—		(7,174	)		—			—			(7,174	)
Common stock dividends ($0.375 per share)		—			—		—			(1,423	)		—			(1,423	)
Stock-based compensation		—			—		1,033			—			—			1,033
Additional paid-in capital shortfall allocated to retained income		—			—		6,871			(6,871	)		—			—

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

For the Six Months Ended June 30, 2019

(Unaudited)

(Dollar amounts in thousands, except per share amount)


	Common Stock					Additional Paid-In Capital			Retained Income			Accumulated Other Comprehensive (Loss) Income, Net of Tax			Total Stockholders’ Equity
	Shares			Amount		Additional Paid-In Capital			Retained Income						Total Stockholders’ Equity
Balance at December 31, 2018		8,356,730		$	—	$	—		$	182,894		$	(1,453	)	$	181,441
Net income		—			—		—			14,291			—			14,291
Total other comprehensive income, net of income taxes		—			—		—			—			3,208			3,208
Exercise of common stock options		10,000			—		63			—			—			63
Issuance of restricted stock		173,160			—		—			—			—			—
Forfeiture of restricted stock		(268,892	)		—		—			—			—			—
Repurchase and retirement of common stock		(24,849	)		—		(1,023	)		—			—			(1,023	)
Repurchase and retirement of common stock under share repurchase plan		(192,576	)		—		(8,006	)		—			—			(8,006	)
Common stock dividends ($0.80 per share)		—			—		—			(6,428	)		—			(6,428	)
Stock-based compensation		—			—		2,948			—			—			2,948
Additional paid-in capital shortfall allocated to retained income		—			—		6,018			(6,018	)		—			—

Balance at June 30, 2019		8,053,573		$	—	$	—		$	184,739		$	1,755		$	186,494

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, except per share amount)


	Common Stock					Additional Paid-In Capital			Retained Income			Accumulated Other Comprehensive Income (Loss), Net of Tax			Total Stockholders’ Equity
	Shares			Amount		Additional Paid-In Capital			Retained Income						Total Stockholders’ 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 ($0.725 per share)		—			—		—			(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 Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	14,291		$	17,194
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		2,948			1,905
Net amortization of premiums on investments in fixed-maturity securities		127			528
Depreciation and amortization		4,702			5,439
Deferred income tax expense		592			1,932
Net realized investment losses (gains)		505			(4,894	)
Net unrealized investment (gains) losses		(6,619	)		4,157
Other-than-temporary impairment losses		—			80
Loss (income) from unconsolidated joint venture		54			(330	)
Net income from limited partnership interests		(832	)		(852	)
Distributions received from limited partnership interests		3,616			609
Foreign currency remeasurement (gain) loss		(5	)		115
Other		271			—
Changes in operating assets and liabilities:
Accrued interest and dividends receivable		110			511
Income taxes		(540	)		13,084
Premiums receivable		(9,731	)		(8,090	)
Prepaid reinsurance premiums		(11,611	)		(7,294	)
Reinsurance recoverable		45,831			7,203
Deferred policy acquisition costs		(4,344	)		(3,374	)
Other assets		(1,393	)		1,520
Losses and loss adjustment expenses		(53,344	)		(26,191	)
Unearned premiums		35,697			29,932
Advance premiums		7,460			8,202
Assumed reinsurance balances payable		(14	)		118
Reinsurance recovered in advance on unpaid losses		—			(13,885	)
Accrued expenses and other liabilities		1,063			(28	)

Net cash provided by operating activities		28,834			27,591

Cash flows from investing activities:
Investments in limited partnership interests		(1,751	)		(2,638	)
Distributions received from limited partnership interests		470			114
Purchase of property and equipment		(1,313	)		(1,045	)
Purchase of real estate investments		(9,892	)		(6,520	)
Purchase of intangible assets		—			(409	)
Purchase of fixed-maturity securities		(75,727	)		(50,976	)
Purchase of equity securities		(15,778	)		(20,832	)
Purchase of short-term and other investments		(684	)		(125,001	)
Proceeds from sales of fixed-maturity securities		2,985			77,769
Proceeds from calls, repayments and maturities of fixed-maturity securities		47,788			27,207
Proceeds from sales of equity securities		32,841			40,436
Proceeds from sales, redemptions and maturities of short-term and other investments		66,897			15,117

Net cash provided by (used in) investing activities		45,836			(46,778	)

HCI GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, continued

(Unaudited)

(Amounts in thousands)


	Six Months Ended June 30,
	2019			2018
Cash flows from financing activities:
Cash dividends paid		(6,581	)		(5,011	)
Cash dividends received under share repurchase forward contract		153			590
Proceeds from revolving credit facility		9,500			—
Proceeds from exercise of common stock options		63			—
Repayment of long-term debt		(90,647	)		(520	)
Repurchases of common stock		(1,023	)		(941	)
Repurchases of common stock under share repurchase plan		(8,006	)		(13,711	)
Purchase of non-controlling interest		—			(539	)
Debt issuance costs		(459	)		—

Net cash used in financing activities		(97,000	)		(20,132	)

Effect of exchange rate changes on cash		25			(112	)

Net decrease in cash, cash equivalents, and restricted cash		(22,305	)		(39,431	)
Cash, cash equivalents, and restricted cash at beginning of period		240,158			256,693

Cash, cash equivalents, and restricted cash at end of period	$	217,853		$	217,262

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	5,254		$	43

Cash paid for interest	$	5,453		$	5,309

Non-cash investing and financing activities:
Unrealized gain (loss) on investments in available-for-sale securities, net of tax	$	3,208		$	(2,441	)

Receivable from sales of equity securities	$	—		$	530

Receivable from maturities of fixed-maturity securities	$	2,000		$	15,000

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, 2019 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, 2019. 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, 2018 included in the Company’s Form 10-K, which was filed with the SEC on March 8, 2019.

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

In February 2016, the Financial Accounting Standards Board (“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 is effective for the Company January 1, 2019 and 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. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; ASU No. 2018-20, Narrow-Scope Improvements for Lessors; and ASU No.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

2019-01, Codification Improvements to Topic 842. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company was initially required to use a modified retrospective method and apply this standard at the beginning of the earliest comparative period presented in the financial statements. Subsequently, the FASB permitted the application of this standard at the beginning of the adoption period as an alternative.

Effective January 1, 2019, the Company adopted the new standard using the effective date as its date of initial application. As a result, financial information is not updated and the disclosures required under the new standard are not provided for dates and periods prior to January 1, 2019. The Company elected a package of practical expedients, which permits the Company to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. Upon adoption, the Company, as a lessee, recognized ROU assets of approximately $771 and lease liabilities of approximately $812 for all operating leases except for those that have a lease term of 12 months or less.

Leases

The Company leases office equipment, storage units, and office space from non-affiliates under terms ranging from one month up to ten years. In assessing whether a contract is or contains a lease, the Company first determines whether there is an identified asset in the contract. The Company then determines whether the contract conveys the right to obtain substantially all of the economic benefits from use of the identified asset or the right to direct the use of the identified asset. The Company elects not to record any lease with a term of 12 months or less on the consolidated balance sheet. For such short-term leases, the Company recognizes the lease payments in expense on a straight-line basis over the lease term.

If the contract is or contains a lease and the Company has the right to control the use of the identified asset, the ROU asset and the lease liability is measured from the lease component of the contract and recognized on the consolidated balance sheet. In measuring the lease liability, the Company uses its incremental borrowing rate for a loan secured by a similar asset that has a term similar to the lease term to discount the lease payments. The contract is further evaluated to determine the classification of the lease as to whether it is finance or operating. If the lease is a finance lease, the ROU asset is depreciated to depreciation expense over the shorter of the useful life of the asset or the lease term. Interest expense is recorded in connection with the lease liability using the effective interest method. If the lease is an operating lease, the ROU asset is amortized to lease expense on a straight-line basis over the lease term. For the presentation of finance leases on the Company’s consolidated balance sheet, ROU assets and corresponding lease liabilities are included with property and equipment, net, and long-term debt, respectively. For the presentation of operating leases on the Company’s consolidated balance sheet, ROU assets and corresponding lease liabilities are included with other assets and other liabilities, respectively.

The Company as a lessor leases its commercial and retail properties, boat slips, and docks to non-affiliates at various terms. If the contract gives the Company’s customer the right to control the use of the identified asset, revenue is recognized on a straight-line basis over the lease term. Initial direct costs incurred by the Company are deferred and amortized on a straight-line basis over the lease term. The Company also records an unbilled receivable, which is the amount by which straight-line revenue exceeds the amount billed in accordance with the lease.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Reclassification

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

Note 2 — Recent Accounting Pronouncements

Accounting Standard to be Adopted in Fiscal Year 2020

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (“ASU 2016-13”), Financial Instruments—Credit Losses (Topic 326), effective January 1, 2020. This update amends guidance on the recognition and measurement of credit losses for assets held at amortized cost and available-for-sale debt securities. For assets held at amortized cost, ASU 2016-13 eliminates the probable initial recognition threshold and, instead, requires credit losses to be measured using the Current Expected Credit Loss (“CECL”) model. The CECL model requires the measurement of all expected credit losses based on historical experience, current conditions, and reasonable and supportable forecasts which incorporate forward-looking information. For available-for-sale debt securities, credit losses will continue to be measured in a manner similar to the current standard. ASU 2016-13 requires a valuation allowance, rather than a write-down, to be recognized for the Company’s expected credit losses. The valuation allowance account is a deduction from the amortized cost basis of the financial assets to reflect the net amount expected to be collected. Any subsequent changes to the expected credit losses of the financial assets will be recorded in earnings. The Company is required to use the modified-retrospective method by recognizing a cumulative-effect adjustment to the beginning retained income of fiscal year 2020. As for debt securities in which an other-than-temporary impairment had been recognized before the effective date, the prospective transition method will be used. The Company does not anticipate a material impact on its financial position as a result of adopting this update.

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, 2019		December 31, 2018
Cash and cash equivalents	$	217,153	$	239,458
Restricted cash		700		700

Total	$	217,853	$	240,158

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

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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, 2019 and December 31, 2018, 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, 2019*
U.S. Treasury and U.S. government agencies	$	26,577	$	88	$	(13	)	$	26,652
Corporate bonds		162,512		2,049		(288	)		164,273
State, municipalities, and political subdivisions		10,012		188		—			10,200
Exchange-traded debt		8,344		328		(5	)		8,667
Redeemable preferred stock		118		4		—			122

Total	$	207,563	$	2,657	$	(306	)	$	209,914

*As of December 31, 2018*
U.S. Treasury and U.S. government agencies	$	61,979	$	24	$	(206	)	$	61,797
Corporate bonds		103,580		134		(1,809	)		101,905
State, municipalities, and political subdivisions		10,567		98		(3	)		10,662
Exchange-traded debt		8,426		82		(261	)		8,247
Redeemable preferred stock		118		—		(6	)		112

Total	$	184,670	$	338	$	(2,285	)	$	182,723

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, 2019 and December 31, 2018 are as follows:


	Amortized Cost		Estimated Fair Value
*As of June 30, 2019*
Due in one year or less	$	43,816	$	44,011
Due after one year through five years		151,617		153,201
Due after five years through ten years		7,576		7,916
Due after ten years		4,554		4,786

	$	207,563	$	209,914


	Amortized Cost		Estimated Fair Value
*As of December 31, 2018*
Due in one year or less	$	50,659	$	50,574
Due after one year through five years		117,826		116,498
Due after five years through ten years		11,602		11,253
Due after ten years		4,583		4,398

	$	184,670	$	182,723

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 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, 2019 and 2018 were as follows:


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2019	$	74	$	—	$	—

Three months ended June 30, 2018	$	559	$	—	$	(35	)

Six months ended June 30, 2019	$	2,985	$	34	$	(1	)

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

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including-

•

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

•

the length of time and the extent to which the market value of the security has been below its cost or amortized cost;

•

general market conditions and industry or sector specific factors 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.

There was no impairment loss recognized for the three and six months ended June 30, 2019. 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. At June 30, 2019, none of the fixed-maturity securities were considered other-than-temporarily impaired versus one fixed-maturity security at June 30, 2018.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Securities with gross unrealized loss positions at June 30, 2019 and December 31, 2018, 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
As of June 30, 2019	Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value
U.S. Treasury and U.S. government agencies	$	—		$	—	$	(13	)	$	2,675	$	(13	)	$	2,675
Corporate bonds		—			—		(288	)		31,727		(288	)		31,727
Exchange-traded debt		(5	)		1,060		—			—		(5	)		1,060

Total	$	(5	)	$	1,060	$	(301	)	$	34,402	$	(306	)	$	35,462

At June 30, 2019, there were 22 securities in an unrealized loss position. Of these securities, 19 securities had been in an unrealized loss position for 12 months or longer.


	Less Than Twelve Months					Twelve Months or Longer					Total
As of December 31, 2018	Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value
U.S. Treasury and U.S. government agencies	$	(59	)	$	21,031	$	(147	)	$	35,393	$	(206	)	$	56,424
Corporate bonds		(542	)		19,932		(1,267	)		36,682		(1,809	)		56,614
State, municipalities, and political subdivisions		(3	)		715		—			—		(3	)		715
Exchange-traded debt		(261	)		5,275		—			—		(261	)		5,275
Redeemable preferred stock		(6	)		112		—			—		(6	)		112

Total	$	(871	)	$	47,065	$	(1,414	)	$	72,075	$	(2,285	)	$	119,140

At December 31, 2018, there were 82 securities in an unrealized loss position. Of these securities, 35 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, 2019 and December 31, 2018, the cost, gross unrealized gains and losses, and estimated fair value of the Company’s equity securities were as follows:


	Cost		Gross Unrealized Gain		Gross Unrealized Loss			Estimated Fair Value
June 30, 2019	$	27,770	$	2,421	$	(330	)	$	29,861
December 31, 2018	$	45,671	$	1,059	$	(5,587	)	$	41,143

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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,						Six Months Ended June 30,
	2019			2018			2019			2018
Net gains recognized	$	1,193		$	1,134		$	6,030		$	70
Exclude: Net realized (losses) gains recognized for securities sold		(133	)		2,691			(589	)		4,227

Net unrealized gains (losses) recognized	$	1,326		$	(1,557	)	$	6,619		$	(4,157	)

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, 2019 and 2018 were as follows:


	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2019	$	4,967	$	113	$	(246	)

Three months ended June 30, 2018	$	16,003	$	2,794	$	(103	)

Six months ended June 30, 2019	$	32,841	$	2,187	$	(2,776	)

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

c) Short-Term Investments

Short-term investments consist of the following at June 30, 2019 and December 31, 2018.


	June 30, 2019		December 31, 2018
Certificates of deposit	$	508	$	56,519
Zero-coupon commercial paper		—		9,960

Total	$	508	$	66,479

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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. The following table provides information related to the Company’s investments in limited partnerships:


	June 30, 2019						December 31, 2018
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)	$	10,088	$	2,085		15.37	$	10,169	$	2,577		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)		7,240		—		1.76		9,219		—		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)		9,039		1,567		0.18		9,023		2,329		0.18
Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(h)(i)		1,462		3,270		0.47		1,156		3,706		0.47
Value-oriented investments in mature real estate private equity funds and portfolio globally. (b)(j)		2,961		7,630		2.24		2,726		7,692		3.28

Total	$	30,790	$	14,552			$	32,293	$	16,304

(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. Although the capital commitment period already ended, the general partner could still request an additional funding of approximately $843 under certain circumstances.

(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, 2019.

(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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Operating results:
Total income	$	338,414		$	51,074		$	247,901		$	209,030
Total expenses		(32,140	)		(27,951	)		(81,173	)		(85,695	)

Net income	$	306,274		$	23,123		$	166,728		$	123,335


	June 30, 2019		December 31, 2018
Balance Sheet:
Total assets	$	7,381,073	$	6,689,792
Total liabilities	$	580,840	$	394,029

For the three and six months ended June 30, 2019, the Company recognized net investment income of $1,043 and $832, respectively, for these investments. During the three and six months ended June 30, 2019, the Company received total cash distributions of $3,073 and $4,086, respectively. Cash distributions representing return on investment were $2,603 and $3,616 for the three and six months ended June 30, 2019, respectively.

For the three and six months ended June 30, 2018, the Company recognized net investment income of $247 and $852, respectively. During the three months ended June 30, 2018, the Company received total cash distributions of $595, representing $114 of returned capital and $481 of return on investment. During the six months ended June 30, 2018, the Company received total cash distributions of $723, representing $114 of returned capital and $609 of return on investment. At June 30, 2019 and December 31, 2018, the Company’s cumulative contributed capital to the partnerships at each respective balance sheet date totaled $30,106 and $28,354, respectively, and the Company’s maximum exposure to loss aggregated $30,790 and $32,293, respectively.

e) Investment in Unconsolidated Joint Venture

Melbourne FMA, LLC, a wholly owned subsidiary, currently has an equity investment in FMKT Mel JV, a Florida limited liability company treated as a joint venture under U.S. GAAP. At June 30, 2019 and December 31, 2018, the Company’s maximum exposure to loss relating to the variable interest entity was $791 and $845, respectively, representing the carrying value of the investment. There was no cash distribution during the six months ended June 30, 2019 and 2018. At June 30, 2019 and December 31, 2018, there was no undistributed income from this equity method investment. The following tables provide FMJV’s summarized unaudited financial results and the 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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Operating results:
Total revenues and gain	$	—		$	438		$	2		$	438
Total expenses		(24	)		(14	)		(62	)		(71	)

Net (loss) income	$	(24	)	$	424		$	(60	)	$	367

The Company’s share of net (loss) income*	$	(21	)	$	381		$	(54	)	$	330

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


	June 30, 2019		December 31, 2018
Balance Sheet:
Property and equipment, net	$	763	$	787
Cash		124		149
Other		—		5

Total assets	$	887	$	941

Other liabilities	$	9	$	3
Members’ capital		878		938

Total liabilities and members’ capital	$	887	$	941

Investment in unconsolidated joint venture, at equity**	$	791	$	845

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

f) Real Estate Investments

Real estate investments consist of the following as of June 30, 2019 and December 31, 2018.


	June 30, 2019			December 31, 2018
Land	$	32,384		$	23,884
Land improvements		10,249			8,717
Buildings		19,207			19,201
Tenant and leasehold improvements		1,379			1,261
Other		4,602			5,266

Total, at cost		67,821			58,329
Less: accumulated depreciation and amortization		(4,593	)		(3,839	)

Real estate investments	$	63,228		$	54,490

On February 27, 2019, the Company acquired approximately nine acres of undeveloped land located near its current headquarters in Tampa, Florida for a purchase price of $8,500, which was primarily financed by the Company’s revolving credit facility. The transaction was accounted for as an asset acquisition. As such, all acquisition-related costs were capitalized.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Depreciation and amortization expense related to real estate investments was $422 and $402 for the three months ended June 30, 2019 and 2018, respectively, and $754 and $796 for the six months ended June 30, 2019 and 2018, respectively.

g) Net Investment Income

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Available-for-sale fixed-maturity securities	$	1,622		$	1,119		$	3,157		$	2,258
Equity securities		293			534			674			1,155
Investment expense		(106	)		(140	)		(235	)		(310	)
Limited partnership investments		1,043			247			832			852
Real estate investments		(105	)		14			201			217
Loss (income) from unconsolidated joint venture		(21	)		381			(54	)		330
Cash and cash equivalents		1,495			818			2,571			1,642
Short-term investments		5			426			358			473

Net investment income	$	4,226		$	3,399		$	7,504		$	6,617

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 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 June 30, 2019						Three Months Ended June 30, 2018
			Income Tax							Income Tax
	Before Tax		Expense (Benefit)		Net of Tax		Before Tax			Expense (Benefit)			Net of Tax
Unrealized gain (loss) arising during the period	$	1,626	$	413	$	1,213	$	(65	)	$	(16	)	$	(49	)
Other-than-temporary impairment loss		—		—		—		40			10			30
Call and repayment losses charged to investment income		1		—		1		3			1			2
Reclassification adjustment for realized losses		—		—		—		35			8			27

Total other comprehensive gain (loss)	$	1,627	$	413	$	1,214	$	13		$	3		$	10

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 June 30, 2019									Six Months Ended June 30, 2018
				Income Tax									Income Tax
	Before Tax			Expense (Benefit)			Net of Tax			Before Tax			Expense (Benefit)			Net of Tax
Unrealized gain (loss) arising during the period	$	4,330		$	1,098		$	3,232		$	(2,693	)	$	(682	)	$	(2,011	)
Other-than-temporary impairment loss		—			—			—			80			20			60
Call and repayment losses charged to investment income		1			—			1			4			1			3
Reclassification adjustment for realized losses		(33	)		(8	)		(25	)		(661	)		(168	)		(493	)

Total other comprehensive gain (loss)	$	4,298		$	1,090		$	3,208		$	(3,270	)	$	(829	)	$	(2,441	)

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:


Level 1	—	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2	—	Other inputs that are observable for the asset, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset.
Level 3	—	Inputs that are unobservable.

Valuation Methodology

Cash and cash equivalents

Cash and cash equivalents primarily consist of money-market funds and certificates of deposit maturing within 90 days. 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 with maturities of 91 to 365 days. Due to their short maturity, the carrying value approximates fair value.

Fixed-maturity and equity securities

Estimated fair values of the Company’s fixed-maturity and equity securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, 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.

Revolving Credit Facility

The Company’s revolving credit facility is a variable-rate loan. The interest rate is periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, its carrying value approximates fair value.

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% Callable promissory note	2036	Discounted cash flow method/Level 3 inputs
4.55% 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, 2019 and December 31, 2018:


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
*As of June 30, 2019*
Financial Assets:
Cash and cash equivalents	$	217,153	$	—	$	—	$	217,153
Restricted cash	$	700	$	—	$	—	$	700
Short-term investments	$	508		—		—		508
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies	$	25,151	$	1,501	$	—	$	26,652
Corporate bonds		164,273		—		—		164,273
State, municipalities, and political subdivisions		—		10,200		—		10,200
Exchange-traded debt		8,667		—		—		8,667
Redeemable preferred stock		122		—		—		122

Total available-for-sale securities		198,213		11,701		—		209,914

Equity securities	$	29,861	$	—	$	—	$	29,861


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
As of December 31, 2018
Financial Assets:
Cash and cash equivalents	$	239,458	$	—	$	—	$	239,458
Restricted cash	$	700	$	—	$	—	$	700
Short-term investments	$	66,479	$	—	$	—	$	66,479
Fixed-maturity securities:
U.S. Treasury and U.S. government agencies	$	60,297	$	1,500	$	—	$	61,797
Corporate bonds		101,905		—		—		101,905
State, municipalities, and political subdivisions		—		10,662		—		10,662
Exchange-traded debt		8,247		—		—		8,247
Redeemable preferred stock		112		—		—		112

Total available-for-sale securities	$	170,561	$	12,162	$	—	$	182,723

Equity securities	$	41,143	$	—	$	—	$	41,143

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, 2019 and December 31, 2018:


	Carrying Value		Fair Value Measurements Using						Estimated Fair Value
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Estimated Fair Value
*As of June 30, 2019*
Financial Assets:
Limited partnership investments	$	30,790	$	—	$	—	$	30,790	$	30,790

Financial Liabilities:
Revolving credit facility	$	9,500	$	9,500	$	—	$	—	$	9,500
Long-term debt:
4.25% Convertible senior notes	$	132,060	$	—	$	141,953	$	—	$	141,953
3.95% Promissory note		8,977		—		—		9,013		9,013
4% Promissory note		7,487		—		—		7,582		7,582
3.75% Callable promissory note		8,000		—		—		7,788		7,788
4.55% Promissory note		5,719		—		—		5,825		5,825

Total long-term debt	$	162,243	$	—	$	141,953	$	30,208	$	172,161


	Carrying Value		Fair Value Measurements Using						Estimated Fair Value
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Estimated Fair Value
*As of December 31, 2018*
Financial Assets:
Limited partnership investments	$	32,293	$	—	$	—	$	32,293	$	32,293

Financial Liabilities:
Long-term debt:
3.875% Convertible senior notes	$	89,181	$	—	$	89,824	$	—	$	89,824
4.25% Convertible senior notes		130,120		—		145,617		—		145,617
3.95% Promissory note		9,077		—		—		9,128		9,128
4% Promissory note		7,732		—		—		7,788		7,788
3.75% Callable promissory note		8,159		—		—		8,001		8,001
4.55% Promissory note		5,826		—		—		6,025		6,025

Total long-term debt	$	250,095	$	—	$	235,441	$	30,942	$	266,383

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, 2019		December 31, 2018
Benefits receivable related to retrospective reinsurance contract	$	4,440	$	3,136
Prepaid expenses		2,361		2,069
Deposits		1,431		1,413
Lease acquisition costs, net		570		620
Right-of-use assets – operating leases		629		—
Other		3,303		1,766

Total other assets	$	12,734	$	9,004

Note 8 – Revolving Credit Facility

In February 2019, the Company borrowed $8,000 to fund the purchase of the undeveloped land as described in Note 4 — “Investments” under Real Estate Investments . The Company incurred and capitalized $459 of issuance costs in other assets. During the second quarter of 2019, the Company borrowed an additional amount of $1,500 for general corporate purposes. For the three months ended June 30, 2019, interest expense was $127 including $40 of amortization of issuance costs. For the six months ended June 30, 2019, interest expense totaled $196, which included $79 of amortized issuance costs. At June 30, 2019, the Company was in compliance with all required covenants, and there were $9,500 of borrowings outstanding.

Note 9 — Long-Term Debt

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


	June 30, 2019			December 31, 2018
3.875% Convertible senior notes, due March 15, 2019	$	—		$	89,990
4.25% Convertible senior notes, due March 1, 2037		143,750			143,750
3.95% Promissory note, due through February 17, 2020		9,004			9,125
4% Promissory note, due through February 1, 2031		7,603			7,857
3.75% Callable promissory note, due through September 1, 2036		8,124			8,290
4.55% Promissory note, due through August 1, 2036		5,817			5,928
Finance lease liability, due through August 15, 2023		50			55

Total principal amount		174,348			264,995
Less: unamortized discount and issuance costs		(12,055	)		(14,845	)

Total long-term debt	$	162,293		$	250,150

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 summarizes future maturities of long-term debt as of June 30, 2019, 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, 2019	$	10,107
2020		1,149
2021		144,946
2022		1,245
2023		1,287
Thereafter		15,614

Total	$	174,348

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


	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
Interest Expense:
Contractual interest	$	1,837		$	2,653	$	4,394		$	5,307
Non-cash expense (a)		999			1,852		2,789			3,668
Capitalized interest (b)		(79	)		—		(158	)		—

	$	2,757		$	4,505	$	7,025		$	8,975

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

(b)	Interest was capitalized for a construction project.

Convertible Senior Notes

On March 15, 2019, the Company repaid the remaining principal balance of its 3.875% Convertible Notes totaling $89,990 plus accrued interest of $1,744. Prior to the repayment, the conversion rate of the 3.875% Convertible Notes was 16.4074 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $60.95 per share.

4.25% Convertible Notes . Since May 2018, the Company’s cash dividends on common stock have exceeded $0.35 per share, resulting in adjustments to the conversion rate of the 4.25% Convertible Notes. Accordingly, as of June 30, 2019, the conversion rate of the Company’s 4.25% Convertible Notes was 16.3280 shares of common stock for each $1 in principal amount, which was the equivalent of approximately $61.24 per share.

As of June 30, 2019, the remaining amortization period of the debt discount for 4.25% Convertible Notes was expected to be 2.75 years.

Note 10 — 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 agreement. 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

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

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.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Premiums Written:
Direct	$	133,441		$	132,391		$	201,053		$	202,616
Assumed		—			(19	)		(2	)		(97	)

Gross written		133,441			132,372			201,051			202,519
Ceded		(31,317	)		(32,954	)		(62,730	)		(65,204	)

Net premiums written	$	102,124		$	99,418		$	138,321		$	137,315

Premiums Earned:
Direct	$	83,315		$	85,207		$	165,914		$	170,036
Assumed		—			712			(2	)		1,655

Gross earned		83,315			85,919			165,912			171,691
Ceded		(31,317	)		(32,954	)		(62,730	)		(65,204	)

Net premiums earned	$	51,998		$	52,965		$	103,182		$	106,487

There were no ceded losses recognized during the three and six months ended June 30, 2019. 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 losses adjustment expenses. At June 30, 2019 and December 31, 2018, there were 31 and 38 reinsurers, respectively, participating in the Company’s reinsurance program. Total amounts recoverable and receivable from reinsurers at June 30, 2019 and December 31, 2018 were $78,080 and $123,911, respectively. Approximately 36.0% of the reinsurance recoverable balance at June 30, 2019 was concentrated in five 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, 2019.

One of the reinsurance contracts includes retrospective provisions that adjust premiums in the event losses are minimal or zero. For the three and six months ended June 30, 2019, the Company recognized reductions in premiums ceded of $1,226 and $1,738, respectively, related to these adjustments. In contrast, these adjustments were reflected in the consolidated statements of income as net increases in ceded premiums of $378 and $715 for the three and six months ended June 30, 2018, respectively, of which $400 and $448 related to the Company’s contract with Oxbridge Reinsurance Limited, a related party, which was terminated effective June 1, 2018.

In addition, adjustments related to retrospective provisions are reflected in other assets. At June 30, 2019 and December 31, 2018, other assets included $4,440 and $3,136, respectively. 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 11 — 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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net balance, beginning of period*	$	98,453		$	91,403		$	94,826		$	97,818
Incurred, net of reinsurance, related to:
Current period		21,416			20,917			45,737			40,407
Prior period		2,877			886			5,552			1,051

Total incurred, net of reinsurance		24,293			21,803			51,289			41,458

Paid, net of reinsurance, related to:
Current period		(13,778	)		(9,710	)		(17,708	)		(14,157	)
Prior period		(13,623	)		(14,107	)		(33,062	)		(35,730	)

Total paid, net of reinsurance		(27,401	)		(23,817	)		(50,770	)		(49,887	)

Net balance, end of period		95,345			89,389			95,345			89,389
Add: reinsurance recoverable		58,897			82,998			58,897			82,998

Gross balance, end of period	$	154,242		$	172,387		$	154,242		$	172,387

*	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, 2019, the Company recognized losses related to prior periods of $2,877 and $5,552, respectively, which were primarily attributable to unfavorable development resulting from litigation. Included in adverse development for the three and six months ended June 30, 2019 were losses related to Hurricane Matthew of $242 and $1,052, respectively. Losses for the 2019 loss year included estimated losses of $5,250 related to one severe storm event during the first quarter.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 12 — 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 and qualitative 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, 2019 and 2018, revenues from the Company’s insurance operations before intracompany elimination represented 95.2% and 95.6%, respectively, of total revenues of all operating segments. For the six months ended June 30, 2019 and 2018, revenues from the Company’s insurance operations before intracompany elimination represented 94.9% and 95.2%, respectively, of total revenues of all operating segments. At June 30, 2019 and December 31, 2018, insurance operations’ total assets represented 84.6% and 85.9%, respectively, of the combined assets of all operating segments. 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)


For Three Months Ended June 30, 2019	Insurance Operations			Real Estate(a)			Corporate/ Other(b)			Reclassification/ Elimination			Consolidated
Revenue:
Net premiums earned	$	51,998		$	—		$	—		$	—		$	51,998
Net investment income		3,388			—			1,096			(258	)		4,226
Net realized investment losses		(132	)		—			(1	)		—			(133	)
Net unrealized investment gains		1,108			—			218			—			1,326
Policy fee income		800			—			—			—			800
Other		162			2,380			1,698			(3,827	)		413

Total revenue		57,324			2,380			3,011			(4,085	)		58,630

Expenses:
Losses and loss adjustment expenses		24,293			—			—			—			24,293
Amortization of deferred policy acquisition costs		8,770			—			—			—			8,770
Interest expense		—			382			2,632			(130	)		2,884
Depreciation and amortization		26			668			262			(572	)		384
Other		7,774			1,466			6,127			(3,383	)		11,984

Total expenses		40,863			2,516			9,021			(4,085	)		48,315

Income (loss) before income taxes	$	16,461		$	(136	)	$	(6,010	)	$	—		$	10,315

Total revenue from non-affiliates(c)	$	57,324		$	1,974		$	2,562

(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)


For Three Months Ended June 30, 2018	Insurance Operations			Real Estate(a)		Corporate/ Other(b)			Reclassification/ 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)


For Six Months Ended June 30, 2019	Insurance Operations		Real Estate(a)		Corporate/ Other(b)			Reclassification/ Elimination			Consolidated
Revenue:
Net premiums earned	$	103,182	$	—	$	—		$	—		$	103,182
Net investment income		6,016		—		1,603			(115	)		7,504
Net realized investment gains (losses)		66		—		(571	)		—			(505	)
Net unrealized investment gains		5,418		—		1,201			—			6,619
Policy fee income		1,595		—		—			—			1,595
Other		338		4,692		3,249			(7,410	)		869

Total revenue		116,615		4,692		5,482			(7,525	)		119,264

Expenses:
Losses and loss adjustment expenses		51,289		—		—			—			51,289
Amortization of deferred policy acquisition costs		17,426		—		—			—			17,426
Interest expense		1		765		6,715			(260	)		7,221
Depreciation and amortization		53		1,251		530			(1,056	)		778
Other		14,864		2,574		11,723			(6,209	)		22,952

Total expenses		83,633		4,590		18,968			(7,525	)		99,666

Income (loss) before income taxes	$	32,982	$	102	$	(13,486	)	$	—		$	19,598

Total revenue from non-affiliates(c)	$	116,615	$	3,877	$	4,622

(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)


For Six Months Ended June 30, 2018	Insurance Operations			Real Estate(a)		Corporate/ Other(b)			Reclassification/ 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)

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


	June 30, 2019			December 31, 2018
Segment:
Insurance Operations	$	607,135		$	615,983
Real Estate Operations		92,938			83,828
Corporate and Other		67,969			146,651
Consolidation and Elimination		(15,902	)		(13,599	)

Total assets	$	752,140		$	832,863

Note 13 — Leases

At June 30, 2019, the Company had operating leases’ ROU assets and corresponding liabilities of $629 and $672, respectively. In addition, the Company had one finance lease with a ROU asset of $61 and a corresponding lease liability of $50 at June 30, 2019. The following table summarizes the Company’s operating and finance leases in which the Company is a lessee:

Class of Assets

Initial Term

Renewal Option

Other Terms and
Conditions

Operating lease:

Office equipment

1 to 63 months

Yes

(a), (b)

Storage units

2 years

Yes

(b)

Office space

3 to 10 years

Yes

(b), (c)

Finance lease:

Office equipment

5 years

Not applicable

(d)

(a)	At the end of the lease term, the Company can purchase the equipment at fair market value.

(b)	There are no variable lease payments.

(c)	Rent escalation provisions exist.

(d)	There is a bargain purchase option.

As of June 30, 2019, maturities of lease liabilities were as follows:


	Leases
	Operating		Finance
Due in 12 months following June 30,
2019	$	336	$	13
2020		289		13
2021		93		13
2022		—		12
2023		—		3

Total lease payments		718		54
Less: interest and foreign taxes		46		4

Total lease obligations	$	672	$	50

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 provides quantitative information with regard to the Company’s operating and finance leases.


	Three Months Ended			Six Months Ended
	June 30, 2019			June 30, 2019
Lease costs:
Finance lease costs:
Amortization — ROU assets*	$	3		$	6
Interest expense		—			1
Operating lease costs*		73			154
Short-term lease costs*		59			104

Total lease costs	$	135		$	265

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows — finance leases	$	—		$	1
Operating cash flows — operating leases	$	81		$	159
Financing cash flows — finance leases	$	3		$	5

	June 30, 2019
Weighted-average remaining lease term:
Finance leases (in years)		3.1
Operating leases (in years)		2.2
Weighted-average discount rate:
Finance leases		3.8	%
Operating leases		4.0	%

*	Included in other operating expenses of the consolidated statement of income.

The following table summarizes the Company’s operating leases in which the Company is a lessor:

Class of Assets

Initial Term

Renewal
Option

Other Terms and
Conditions

Operating lease:

Office space

1 to 3 years

Yes

(e)

Retail space

3 to 20 years

Yes

(e)

Boat docks/wet slips

1 to 12 months

Yes

(e)

(e)	There are no purchase options.

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 — Income Taxes

During the three months ended June 30, 2019 and 2018, the Company recorded approximately $2,762 and $5,117 respectively, of income taxes, which resulted in effective tax rates of 26.8% and 44.4%, respectively. The decrease in the effective tax rate was primarily attributable to the derecognition of deferred tax assets of $1,620 for restricted stock awards with market-based vesting conditions that would not vest and the disallowance of the deductibility of the $1,727 expense representing dividends cumulatively paid on such restricted stock awards, both of which occurred in the second quarter of 2018 (see Restricted Stock Awards in Note 17 — “Stock-Based Compensation”). During the six months ended June 30, 2019 and 2018, the Company recorded approximately $5,307 and $9,130, respectively, of income taxes, which resulted in effective tax rates of 27.1% and 34.7%, respectively. The decrease in the effective tax rate in 2019 as compared with the corresponding period in the prior year was primarily attributable to the negative effect of the aforementioned derecognition of deferred tax assets and the nondeductible expense related to reclassified dividends. 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 15 — 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.

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


	Three Months Ended June 30, 2019							Three Months Ended June 30, 2018
	Income (Numerator)			Shares (Denominator)		Per Share Amount		Income (Numerator)		Shares (Denominator)		Per Share Amount
Net income	$	7,553						$	6,403
Less: (Income) loss attributable to participating securities*		(405	)						1,202


Basic Earnings Per Share:
Income allocated to common stockholders		7,148			7,666	$	0.93		7,605		7,923	$	0.96


Effect of Dilutive Securities:
Stock options		—			15				—		17
Convertible senior notes		1,871			2,346				3,160		3,803


Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions	$	9,019			10,027	$	0.90	$	10,765		11,743	$	0.92

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 June 30, 2019							Six Months Ended June 30, 2018
	Income (Numerator)			Shares (Denominator)		Per Share Amount		Income (Numerator)		Shares (Denominator)		Per Share Amount
Net income	$	14,291						$	17,194
Less: (Income) loss attributable to participating securities*		(821	)						501

Basic Earnings Per Share:
Income allocated to common stockholders		13,470			7,701	$	1.75		17,695		8,002	$	2.21

Effect of Dilutive Securities:
Stock options		—			16				—		17
Convertible senior notes		4,868			2,947				6,294		3,801

Diluted Earnings Per Share:
Income available to common stockholders and assumed conversions	$	18,338			10,664	$	1.72	$	23,989		11,820	$	2.03

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 17 — “Stock-Based Compensation” for additional information.

Note 16 — Stockholders’ Equity

Common Stock

In December 2018, 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, 2019, the Company repurchased and retired a total of 160,787 shares at a weighted average price per share of $41.44 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the three months ended June 30, 2019 was $6,668 or $41.47 per share. During the six months ended June 30, 2019, the Company repurchased and retired a total of 192,576 shares at a weighted average price per share of $41.54 under this authorized repurchase plan. The total cost of shares repurchased, inclusive of fees and commissions, during the six months ended June 30, 2019 was $8,006, or $41.57 per share.

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.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

On April 8, 2019, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends were paid on June 21, 2019 to stockholders of record on May 17, 2019.

Note 17 — 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, 2019, there were 1,738,164 shares available for grant.

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, 2019 and 2018 is as follows (option amounts not in thousands):


	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2019		240,000	$	37.19	8.8 years	$	3,278
Granted		110,000	$	53.00

Outstanding at March 31, 2019		350,000	$	42.16	8.5 years	$	1,329

Exercised		10,000	$	6.30

Outstanding at June 30, 2019		340,000	$	43.21	8.4 years	$	445

Exercisable at June 30, 2019		92,500	$	36.36	7.3 years	$	380

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

There were 10,000 options exercised during the three and six months ended June 30, 2019. Tax benefits realized for the exercise of common stock options totaled $88 for the three and six months ended June 30, 2019. For the three months ended June 30, 2019 and 2018, the Company recognized $200 and $136, respectively, of compensation expense which was included in general and administrative personnel expenses. For the six months ended June 30, 2019 and 2018, the Company recognized $425 and $246, respectively, of compensation expense. Deferred tax benefits related to stock options were $20 for each of the three months ended June 30, 2019 and 2018, and $39 for each of the six months ended June 30, 2019 and 2018. At June 30, 2019 and December 31, 2018, there was $2,280 and $1,359, 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 2.9 years.

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 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, 2019 and 2018:


	2019			2018
Expected dividend yield		3.34	%		4.00	%
Expected volatility		40.17	%		42.22	%
Risk-free interest rate		2.53	%		2.57	%
Expected life (in years)		5			5

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, 2019 and 2018 is as follows:


	Number of Restricted Stock Awards			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2019		632,296		$	33.33
Granted		40,000		$	47.94
Vested		(21,250	)	$	37.69
Forfeited		(4,681	)	$	42.79

Nonvested at March 31, 2019		646,365		$	34.03

Granted		133,160		$	41.30
Vested		(84,914	)	$	41.58
Forfeited		(264,211	)	$	23.81

Nonvested at June 30, 2019		430,400		$	41.06

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

The Company recognized compensation expense related to restricted stock, which is included

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

in general and administrative personnel expenses, of $1,269 and $897 for the three months ended June 30, 2019 and 2018, respectively, and $2,523 and $1,659 for the six months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, there was approximately $15,712 and $11,199, 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 2.9 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, 2019 and 2018.


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Deferred tax benefits recognized	$	244	$	180	$	490	$	336
Tax benefits realized for restricted stock and paid dividends	$	924	$	652	$	985	$	848
Fair value of vested restricted stock	$	3,530	$	2,404	$	4,331	$	3,698

In May 2019, 260,000 shares of the Company’s restricted stock awards granted to employee and nonemployee directors were forfeited for not meeting their market-based vesting conditions. For the same reason, the Company expects another 24,000 shares of restricted stock awards with similar vesting conditions to be forfeited in November 2019. Any dividend payment associated with these awards was expensed when declared. As a result, for the three months ended June 30, 2019, the Company recognized dividends of $113 related to these awards in general and administrative personnel expenses for $85 and in other operating expenses for $28. For the six months ended June 30, 2019, the Company recognized dividends of $227 in general and administrative personnel expenses for $170 and in other operating expenses for $57. 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.

Note 18 — Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contract

As of June 30, 2019, 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, 2019*		$	3,759

*	Premiums payable after September 30, 2019 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, 2019, there was an aggregate unfunded balance of $14,552.

HCI GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

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

Note 19 — Subsequent Events

On July 2, 2019, the Company’s Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on September 20, 2019 to stockholders of record on August 16, 2019.

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 8, 2019. 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 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 operations:

Insurance Operations

•

Property and casualty insurance

•

Reinsurance

Real Estate Operations

Other Operations

•

Information technology

•

Other auxiliary operations

For the three months ended June 30, 2019 and 2018, revenues from insurance operations before intracompany elimination represented 95.2% and 95.6%, respectively, of total revenues of all operating segments. For the six months ended June 30, 2019 and 2018, revenues from insurance operations before intracompany elimination represented 94.9% and 95.2%, respectively, of total revenues of all operating segments. At June 30, 2019 and December 31, 2018, insurance operations’ total assets represented 84.6% and 85.9%, respectively, of the combined assets of all operating segments. See Note 12 — “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. Currently, Florida is our primary market.

Since the beginning of 2019, TypTap business has expanded rapidly. We expect this expansion to continue and contribute to our future growth.

Reinsurance

We have a Bermuda domiciled wholly-owned reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd. We selectively retain risk in Claddaugh, reducing the cost of third party reinsurance. 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 retrocession contracts. Currently, Claddaugh does not provide reinsurance to non-affiliates.

Real Estate Operations

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. Our investment properties include one full-service restaurant, retail shopping centers, one office building, two marinas, and undeveloped land near our headquarters in Tampa, Florida which we acquired in February 2019. See Note 4 — “Investments” under Real Estate Investments to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for additional information.

Other Operations

Information Technology

Our information technology operations include a team of experienced software developers with extensive knowledge in developing web-based products and applications for mobile devices. The operations, which are in 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 TypTap ^TM , SAMS ^TM , Harmony , CasaClue ^TM , Exzeo ^® , and Atlas Viewer ^TM .

Recent Events

On July 2, 2019, our Board of Directors declared a quarterly dividend of $0.40 per common share. The dividends are payable on September 20, 2019 to stockholders of record on August 16, 2019.

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three and six months ended June 30, 2019 and 2018 (dollar amounts in thousands, except per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Operating Revenue
Gross premiums earned	$	83,315		$	85,919		$	165,912		$	171,691
Premiums ceded		(31,317	)		(32,954	)		(62,730	)		(65,204	)

Net premiums earned		51,998			52,965			103,182			106,487
Net investment income		4,226			3,399			7,504			6,617
Net realized investment (losses) gains		(133	)		2,662			(505	)		4,894
Net unrealized investment gains (losses)		1,326			(1,557	)		6,619			(4,157	)
Net other-than-temporary impairment losses		—			(40	)		—			(80	)
Policy fee income		800			855			1,595			1,720
Other income		413			529			869			1,071

Total operating revenue		58,630			58,813			119,264			116,552

Operating Expenses
Losses and loss adjustment expenses		24,293			21,803			51,289			41,458
Policy acquisition and other underwriting expenses		10,077			9,959			19,750			19,319
General and administrative personnel expenses		7,998			7,840			15,362			14,123
Interest expense		2,884			4,505			7,221			8,975
Other operating expenses		3,063			3,186			6,044			6,353

Total operating expenses		48,315			47,293			99,666			90,228

Income before income taxes		10,315			11,520			19,598			26,324
Income tax expense		2,762			5,117			5,307			9,130

Net income	$	7,553		$	6,403		$	14,291		$	17,194

Ratios to Net Premiums Earned:
Loss Ratio		46.72	%		41.16	%		49.71	%		38.93	%
Expense Ratio		46.20	%		48.13	%		46.88	%		45.80	%

Combined Ratio		92.92	%		89.29	%		96.59	%		84.73	%

Ratios to Gross Premiums Earned:
Loss Ratio		29.16	%		25.38	%		30.91	%		24.15	%
Expense Ratio		28.83	%		29.66	%		29.16	%		28.40	%

Combined Ratio		57.99	%		55.04	%		60.07	%		52.55	%

Earnings Per Share Data:
Basic	$	0.93		$	0.96		$	1.75		$	2.21

Diluted	$	0.90		$	0.92		$	1.72		$	2.03

Comparison of the Three Months ended June 30, 2019 to the Three Months ended June 30, 2018

Our results of operations for the three months ended June 30, 2019 reflect income available to common stockholders of approximately $7,553,000, or $0.90 earnings per diluted common share, compared with approximately $6,403,000, or $0.92 earnings per diluted common share, for the three months ended June 30, 2018. The quarter-over-quarter increase in net income was primarily due to a decrease in income tax expense of approximately $2,355,000, a $1,621,000 decrease in interest expense, and a net increase in income from our investment portfolio of $955,000, offset by a $967,000 decrease in net premiums earned and an increase in losses and loss adjustment expenses of $2,490,000. Our income tax expense in 2018 was negatively impacted by the derecognition of deferred tax assets and the nondeductible expense associated with reclassified dividends as described in Note 14 — “Income Taxes” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Revenue

Gross Premiums Earned for the three months ended June 30, 2019 and 2018 were approximately $83,315,000 and $85,919,000, respectively. The $2,604,000 decrease in 2019 was primarily attributable to a net decrease in policies in force.

Premiums Ceded for the three months ended June 30, 2019 and 2018 were approximately $31,317,000 and $32,954,000, respectively, representing 37.6% and 38.4%, respectively, of gross premiums earned. The $1,637,000 decrease was primarily attributable to a reduction in premiums ceded attributable to retrospective provisions under one reinsurance contract as opposed to a net increase in premiums ceded in the corresponding period in 2018. The decrease was offset in part by an increase in premiums ceded attributable to a lower retention level effective June 1, 2018. In addition, we incurred additional premiums ceded of approximately $1,222,000 resulting from the termination of our contract with Oxbridge Reinsurance Limited, a related party, during the second quarter of 2018.

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, 2019, premiums ceded included a decrease of approximately $1,226,000 related to retrospective provisions. For the three months ended June 30, 2018, premiums ceded reflected a net increase of approximately $378,000. 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, 2019 and 2018 totaled approximately $102,124,000 and $99,418,000, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs. The increase in 2019 resulted from the decrease in premiums ceded as described above combined with an increase in gross premiums written during the period. We had approximately 124,000 policies in force at June 30, 2019 as compared with approximately 132,000 policies in force at June 30, 2018.

Net Premiums Earned for the three months ended June 30, 2019 and 2018 were approximately $51,998,000 and $52,965,000, 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, 2019 and 2018 (amounts in thousands):


	Three Months Ended June 30,
	2019			2018
Net Premiums Written	$	102,124		$	99,418
Increase in Unearned Premiums		(50,126	)		(46,453	)

Net Premiums Earned	$	51,998		$	52,965

Net Realized Investment Losses for the three months ended June 30, 2019 were approximately $133,000 versus approximately $2,662,000 of net realized investment gains for the three months ended June 30, 2018. The gains in 2018 resulted primarily from sales intended to rebalance our investment portfolio.

Net Unrealized Investment Gains for the three months ended June 30, 2019 were approximately $1,326,000 in contrast to approximately $1,557,000 of net unrealized investment losses for the three months ended June 30, 2018, reflecting a net favorable change in the fair value of equity securities.

Expenses

Our Losses and Loss Adjustment Expenses amounted to approximately $24,293,000 and $21,803,000 for the three months ended June 30, 2019 and 2018, respectively. The $2,490,000 increase primarily resulted from the strengthening of loss reserves pertaining to non-catastrophe claims in the prior loss years in response to an upward trend in litigation. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”

Interest Expense for the three months ended June 30, 2019 and 2018 was approximately $2,884,000 and $4,505,000, respectively. The $1,621,000 decrease resulted from the repayment of our 3.875% Convertible Senior Notes in March 2019.

Income Tax Expense for the three months ended June 30, 2019 and 2018 was approximately $2,762,000 and $5,117,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 26.8% for 2019 and 44.4% for 2018. The decrease was primarily attributable to the derecognition of deferred tax assets and the disallowance of the deductibility of dividends reclassified to expense from retained income, which occurred in the second quarter of 2018. See Note 14 — “Income Taxes” to our unaudited consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q.

Ratios:

The loss ratio applicable to the three months ended June 30, 2019 (losses and loss adjustment expenses incurred related to net premiums earned) was 46.7% compared with 41.2% for the three months ended June 30, 2018. The increase was primarily due to an increase in losses and loss adjustment expenses as described previously.

The expense ratio applicable to the three months ended June 30, 2019 (defined as underwriting expenses, general and administrative personnel expenses, interest and other operating expenses related to net premiums earned) was 46.2% compared with 48.1% for the three months ended June 30, 2018. The decrease in our expense ratio was primarily attributable to the decrease in interest expense.

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, 2019 was 92.9% compared with 89.3% for the three months ended June 30, 2018. The increase was attributable to the decrease in net premiums earned combined with a net increase in total expenses.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined ratio to gross premiums earned for the three months ended June 30, 2019 was 58.0% compared with 55.0% for the three months ended June 30, 2018. The increase in 2019 was attributable to the factors described above.

Comparison of the Six Months ended June 30, 2019 to the Six Months ended June 30, 2018

Our results of operations for the six months ended June 30, 2019 reflect income available to common stockholders of approximately $14,291,000, or $1.72 earnings per diluted common share, compared with approximately $17,194,000, or $2.03 earnings per diluted common share, for the six months ended June 30, 2018. The period-over-period decrease was primarily due to a $3,305,000 decrease in net premiums earned and $9,831,000 increase in losses and loss adjustment expenses, offset by a net increase in income from our investment portfolio of $6,344,000, which contributed to a decrease in pre-tax income of $6,726,000. In addition, our income tax expense in 2018 was negatively impacted by the factors described previously.

Revenue

Gross Premiums Earned for the six months ended June 30, 2019 and 2018 were approximately $165,912,000 and $171,691,000, respectively. The decrease in 2019 compared with the corresponding period in 2018 was primarily attributable to a net decrease in policies in force.

Premiums Ceded for the six months ended June 30, 2019 and 2018 were approximately $62,730,000 and $65,204,000, respectively, representing 37.8% and 38.0%, respectively, of gross premiums earned. The $2,474,000 decrease was primarily attributable to a reduction in premiums ceded attributable to retrospective provisions under one reinsurance contract as opposed to a net increase of premiums ceded associated with retrospective provisions and the recognition of additional premiums ceded resulting from the termination of the reinsurance contract in the corresponding period in 2018 as described earlier.

For the six months ended June 30, 2019, premiums ceded included a reduction of approximately $1,738,000 related to retrospective provisions. For the six months ended June 30, 2018, premiums ceded included a net increase of approximately $715,000 related to retrospective provisions. 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, 2019 and 2018 totaled approximately $138,321,000 and $137,315,000, respectively. The $1,006,000 increase in 2019 resulted primarily from the decrease in premiums ceded as described above offset by a decrease in gross premiums written during the period.

Net Premiums Earned for the six months ended June 30, 2019 and 2018 were approximately $103,182,000 and $106,487,000, respectively, and reflect 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, 2019 and 2018 (amounts in thousands):


	Six Months Ended June 30,
	2019			2018
Net Premiums Written	$	138,321		$	137,315
Increase in Unearned Premiums		(35,139	)		(30,828	)

Net Premiums Earned	$	103,182		$	106,487

Net Realized Investment Losses for the six months ended June 30, 2019 were approximately $505,000 as opposed to approximately $4,894,000 of net realized investment gains for the six months ended June 30, 2018. The gains in 2018 resulted primarily from sales intended to rebalance our investment portfolio to mitigate the impact from a rising interest rate trend and to decrease our holdings in municipal bonds as they became less attractive in a low tax rate environment.

Net Unrealized Investment Gains for the six months ended June 30, 2019 were approximately $6,619,000 versus net unrealized investment losses of approximately $4,157,000 for the six months ended June 30, 2018, reflecting an improvement in the fair value of equity securities.

Expenses

Our Losses and Loss Adjustment Expenses amounted to approximately $51,289,000 and $41,458,000 for the six months ended June 30, 2019 and 2018, respectively. The increase in 2019 was primarily attributable to approximately $5,250,000 of losses related to a severe storm event in March 2019, the strengthening of loss reserves due to litigation arising from non-catastrophe claims in prior years, and additional losses pertaining to Hurricane Matthew. See “Reserves for Losses and Loss Adjustment Expenses” under “Critical Accounting Policies and Estimates.”

General and Administrative Personnel Expenses for the six months ended June 30, 2019 and 2018 were approximately $15,362,000 and $14,123,000, 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 certain catastrophe claims which are recoverable from reinsurers under reinsurance contracts. The period-over-period increase of $1,239,000 was primarily attributable to higher share-based compensation expense and merit increases for non-executive employees effective in late March 2019 offset by capitalized and recoverable payroll costs.

Interest Expense for the six months ended June 30, 2019 and 2018 was approximately $7,221,000 and $8,975,000, respectively. The decrease resulted from the repayment of our 3.875% Convertible Senior Notes as described earlier.

Income Tax Expense for the six months ended June 30, 2019 and 2018 was approximately $5,307,000 and $9,130,000, respectively, for state, federal, and foreign income taxes resulting in an effective tax rate of 27.1% for 2019 and 34.7% for 2018. The decrease was primarily attributable to the factors described previously.

Ratios:

The loss ratio applicable to the six months ended June 30, 2019 was 49.7% compared with 38.9% for the six months ended June 30, 2018. The increase was primarily due to the decrease in net premiums earned and the increase in losses and loss adjustment expenses as described above.

The expense ratio applicable to the six months ended June 30, 2019 was 46.9% compared with 45.8% for the six months ended June 30, 2018. 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, 2019 was 96.6% compared with 84.7% for the six months ended June 30, 2018. The increase was attributable to the decrease in net premiums earned and the increase in losses and loss adjustment expenses as described above.

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, 2019 was 60.1% compared with 52.6% for the six months ended June 30, 2018. The increase in 2019 was primarily attributable to the decrease in gross premiums earned combined with the increase 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 December 2018, we entered into a credit agreement with one financial institution for borrowing capacity of up to $65,000,000 to fund future operations and acquisitions. The credit facility had an unused balance of $55,500,000 at June 30, 2019.

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.

Revolving Credit Facility, Senior Notes, and Promissory Notes

The following table summarizes the principal and interest payment obligations of our indebtedness at June 30, 2019:


	Maturity Date	Interest Payment Due Date
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
4.55% Promissory note	Through August 2036	1 ^st day of each month
Finance lease	Through August 2023	February 15, May 15, August 15, November 15
Revolving credit facility	Through December 2021	January 1, April 1, July 1, October 1

See Note 9 — “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 four private equity funds managed by their general partners. 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, 2019, there was an aggregate unfunded capital balance of $14,552,000. 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 2018, 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, 2019, there was approximately $12,000,000 available under the plan. See Note 16 — “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, 2019

Net cash provided by operating activities for the six months ended June 30, 2019 was approximately $28,834,000, which consisted primarily of cash received from net premiums written as well as reinsurance recoveries (of approximately $45,832,000) less cash disbursed for operating expenses, losses and loss adjustment expenses and interest payments. Net cash provided by investing activities of $45,836,000 was primarily due to the proceeds from sales of fixed-maturity and equity

securities of $35,826,000, the proceeds from redemptions and maturities of fixed-maturity securities of $47,788,000, and the proceeds from sales and maturities of short-term and other investments of $66,897,000, offset by the purchases of fixed-maturity and equity securities of $91,505,000, the purchase of real estate investments of $9,892,000, limited partnership investments of $1,751,000, and the purchases of property and equipment of $1,313,000. Net cash used in financing activities totaled $97,000,000, which was primarily due to the repayments of long-term debt of $90,647,000, $6,428,000 of net cash dividend payments, and $9,029,000 used in our share repurchases, offset by $9,500,000 of borrowings from revolving credit facility.

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 and other 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 and other investments of $15,117,000. 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.

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, 2019, we had $239,775,000 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 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, 2019, 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 18 — “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, 2019 (amounts in thousands):


	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating leases(1)	$	718	$	336	$	382	$	—	$	—
Service agreement(1)		65		25		40		—		—
Reinsurance contracts(2)		3,759		3,759		—		—		—
Unfunded capital commitments(3)		14,552		14,552		—		—		—
Revolving credit facility		9,500		9,500		—		—		—
Long-term debt obligations(4)		200,342		17,312		159,886		3,908		19,236

Total	$	228,936	$	45,484	$	160,308	$	3,908	$	19,236

(1)

Represents a lease for office space in Miami Lakes, Florida, a lease and maintenance service agreement for office space in Noida, India, and leases for office equipment and storage space. Liabilities related to our India operations were converted from Indian rupees to U.S. dollars using the June 30, 2019 exchange rate.

(2)

Represents the minimum payment of reinsurance premiums under one multi-year reinsurance contract. Reinsurance premiums payable after September 30, 2019 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 9 — “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, 2019, $111,417,000 of the total $154,242,000 we have reserved for losses and loss adjustment expenses is attributable to our estimate of IBNR. The remaining $42,825,000 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, 2019, $37,946,000 of the $42,825,000 in reserves for known cases relates to claims incurred during prior years.

Our Reserves decreased from $207,586,000 at December 31, 2018 to $154,242,000 at June 30, 2019. The $53,344,000 decrease is comprised of net reductions in our Reserves of $17,715,000 for 2018 and $63,658,000 for 2017 and prior loss years offset by $28,029,000 in reserves established for claims occurring in the 2019 loss year. The $28,029,000 in Reserves established for 2019 claims is primarily driven by an allowance for those claims that have been incurred but not reported to the company as of June 30, 2019. The decrease of $81,373,000 specific to our 2018 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, 2019 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

One of our reinsurance contracts includes retrospective provisions that adjust premiums 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 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, 2019, we recognized an increase in accrued benefits of $1,026,000 versus a decrease in accrued benefits of $243,000 for the three months ended June 30, 2018. We recognized a reduction in premiums ceded of $200,000 for the three months ended June 30, 2019, whereas we recognized additional premiums ceded of $135,000 for the three months ended June 30, 2018. In combination, for the three months ended June 30, 2019, we recognized a decrease in ceded premiums of $1,226,000 as opposed to an increase in ceded premiums of $378,000 for the three months ended June 30, 2018.

For the six months ended June 30, 2019 and 2018, we accrued benefits of $1,304,000 and $186,000, respectively. We recognized a decrease in premiums ceded of $434,000 for the six months ended June 30, 2019. For the six months ended June 30, 2018, we recognized additional premiums ceded of $901,000. In combination, for the six months ended June 30, 2019, we recognized a decrease in ceded premiums of $1,738,000 as opposed to a net increase in ceded premiums of $715,000 for the six months ended June 30, 2018.

As of June 30, 2019, we had $4,440,000 of accrued benefits, the amount that would be charged to earnings in the event we experience a catastrophic loss that exceeds the coverage limit provided under such agreement. At December 31, 2018, we had $3,136,000 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 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 8, 2019. For the six months ended June 30, 2019, 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, 2019 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 or 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, 2019 (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	$	198,098	$	(11,816	)		(5.63	)%
200 basis point increase		202,035		(7,879	)		(3.75	)%
100 basis point increase		205,974		(3,940	)		(1.88	)%
100 basis point decrease		213,855		3,941			1.88	%
200 basis point decrease		217,717		7,803			3.72	%
300 basis point decrease		219,327		9,413			4.48	%

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, 2019 (amounts in thousands):


Comparable Rating	Amortized Cost		% of Total Amortized Cost		Estimated Fair Value		% of Total Estimated Fair Value
AA+, AA, AA-	$	46,461		22.0	$	46,756		22.0
A+, A, A-		119,993		58.0		121,053		58.0
BBB+, BBB, BBB-		29,847		15.0		30,698		15.0
BB+, BB, BB-		4,928		2.0		5,120		2.0
CCC+, CC and Not rated		6,334		3.0		6,287		3.0

Total	$	207,563		100.0	$	209,914		100.0

Equity Price Risk

Our equity investment portfolio at June 30, 2019 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, 2019 (amounts in thousands):


			% of
			Total
	Estimated		Estimated
	Fair Value		Fair Value
Stocks by sector:
Financial	$	14,343		48
Consumer		1,752		6
Energy		1,661		6
Industrial		1,897		6
Technology		1,705		6
Other(1)		2,115		7

		23,473		79

Mutual funds and exchange traded funds by type:
Debt		4,367		14
Equity		2,021		7

Total	$	29,861		100

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

Foreign Currency Exchange Risk

At June 30, 2019, 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, 2019 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

With the exception of the items described below, 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 8, 2019.

Our credit agreement contains restrictions that can limit our flexibility in operating our business.

The agreement governing our revolving credit facility contains various covenants that limit our ability to engage in certain transactions. These covenants limit our and our subsidiaries’ ability to, among other things:

•

incur additional indebtedness;

•

declare or make any restricted payments;

•

create liens on any of our assets now owned or hereafter acquired;

•

consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets now owned or hereafter acquired; and

•

enter into certain transactions with our affiliates.

An increase in interest rates may negatively impact our operating results and financial condition.

Borrowings under our revolving credit facility have a variable rate of interest. An increase in interest rate would have a negative impact on our results of operations attributable to increased interest expense.

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, 2019 under the repurchase plan approved by our Board of Directors in December 2018 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 2019 (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, 2019		49,980	$	41.83		49,980	$	16,572
May 31, 2019		78,234	$	41.48		53,756	$	14,333
June 30, 2019		57,051	$	40.89		57,051	$	12,000

		185,265	$	41.39		160,787

(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, 2019, our insurance subsidiaries paid dividends of $14,000,000 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.

10.5**		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.


EXHIBIT NUMBER		DESCRIPTION

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.

10.17		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.


EXHIBIT NUMBER		DESCRIPTION

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.


EXHIBIT NUMBER		DESCRIPTION

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.

10.31		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2019 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 7, 2019.

10.32		Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2019 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 7, 2019.

10.33		Property Catastrophe First Excess of Loss Reinsurance Contract effective June 1, 2019 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 7, 2019.

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


EXHIBIT NUMBER		DESCRIPTION

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

10.40		Top Layer Property Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2019 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 7, 2019.

10.41		Working Layer Catastrophe Excess of Loss Reinsurance Contract effective June 1, 2019 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 7, 2019.

10.42		Reinstatement Premium Protection Reinsurance Contract effective June 1, 2019 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 7, 2019.

10.43		Reinstatement Premium Protection Reinsurance Contract (For Excess Cat U8GR000D) effective June 1, 2019 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 7, 2019.


EXHIBIT NUMBER		DESCRIPTION

10.44		Reinstatement Premium Protection Reinsurance Contract (For Excess Cat U8GR0008) effective June 1, 2019 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 7, 2019.

10.45		Reimbursement Contract effective June 1, 2019 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 7, 2019.

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

10.57		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.

10.60		Credit Agreement, Promissory Note, Security and Pledge Agreement, dated December 5, 2018, between HCI Group, Inc. and Fifth Third Bank. Incorporated by reference to Exhibits 99.1, 99.2, and 99.3 of our Form 8-K filed December 6, 2018.

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.


EXHIBIT NUMBER		DESCRIPTION

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.


EXHIBIT NUMBER		DESCRIPTION

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.

10.103**		Restricted Stock Award Contract between Paresh Patel and HCI Group, Inc. dated January 15, 2019. Incorporated by reference to exhibit 99.1 to our Form 8-K filed January 22, 2019.

10.104**		Nonqualified Stock Option Agreement between Paresh Patel and HCI Group, Inc. dated January 15, 2019. Incorporated by reference to exhibit 99.2 to our Form 8-K filed January 22, 2019.

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 7, 2019	By:	/s/ Paresh Patel
		Paresh Patel
		Chief Executive Officer
		(Principal Executive Officer)

August 7, 2019	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.


		EXHIBIT 10.31

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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PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

TABLE OF CONTENTS


Article		Page
	Preamble		5
1	Business Covered		5
2	Retention and Limit		5
3	Florida Hurricane Catastrophe Fund		6
4	Term		7
5	Special Termination		8
6	Territory		9
7	Exclusions		9
8	Special Acceptance		11
9	Premium		11
10	Reinstatement		13
11	Definitions		13
12	Extra Contractual Obligations/Excess of Policy Limits		16
13	Net Retained Liability		17
14	Other Reinsurance		17
15	Original Conditions		18
16	No Third Party Rights		18
17	Notice of Loss and Loss Settlements		18
18	Late Payments		19

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Article (Cont’d)		Page
19	Offset		20
20	Currency		20
21	Unauthorized Reinsurance		20
22	Taxes		22
23	Access to Records		23
24	Confidentiality		24
25	Indemnification and Errors and Omissions		25
26	Insolvency		25
27	Run-Off Reinsurer		26
28	Arbitration		28
29	Expedited Arbitration		29
30	Service of Suit		29
31	Governing Law		30
32	Entire Agreement		30
33	Non-Waiver		31
34	Agency		31
35	Intermediary		31
36	Mode of Execution		31

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REINSURANCE CONTRACT

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Articles (Cont’d)		Page
	Company Signing Block		33

Attachments
	Pools, Associations & Syndicates Exclusions Clause		35
	Nuclear Incident Exclusion Clause — Physical Damage — Reinsurance — U.S.A.		38
	Terrorism Exclusion		40
	Trust Agreement Requirements Clause		41

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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

First Layer

$****

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:

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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.

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, 2019, 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, 2020, 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.

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

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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 (8) and (9) of this paragraph.

10.

The Subscribing Reinsurer has failed to post or maintain required collateral to secure its obligations as required under this Contract, and has not cured such deficiency within 30 days following written notice thereof from the Company.

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:

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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.

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.

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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.

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

A.	As respects the First layer, the Company shall pay the Reinsurer a flat premium of $**** for the term of this Contract.

As respects the Third, Fourth and Fifth Layers, 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:

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PREMIUM SCHEDULE

Layer

Final Adjusted
Premium Rate

Deposit
Premium

Minimum
Premium

Third Layer

****

$****

Fourth Layer

****

$****

Fifth Layer

****

$****

C. 1.

The deposit premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020.

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

DEPOSIT INSTALLMENT SCHEDULE

Layer

June 1, 2019

September 1, 2019

January 1, 2020

April 1, 2020

Third Layer

$****

Fourth Layer

$****

Fifth Layer

$****

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 B 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.

E.	“Total Insured Value” means the Company’s aggregate wind exposures on September 30, 2019 for business covered on the Third, Fourth and Fifth Layers hereunder.

F.	The estimated Total Insured Value is $33,489,296,549.

G.	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.

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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.

ARTICLE 11

DEFINITIONS

A. 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, and/or the Company has made a commitment to pay, and/or the Company has scheduled the payment of a loss.

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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;

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

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.

“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:

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that merges with a “Named Storm” shall be considered part of that “Named Storm,” once it has merged. 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.

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:

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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.

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.

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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.

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.

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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.

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.

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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.

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.

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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

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.

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;

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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.

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;

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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.

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.

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B. 1.

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.

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.

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“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.

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.

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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.

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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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.

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

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has ceased reinsurance underwriting operations; or

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

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 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.

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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

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.

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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.

ARTICLE 29

EXPEDITED ARBITRATION

Notwithstanding the provisions of the Arbitration Article, in the event an amount in dispute hereunder $1,000,000 or less, the parties will submit to an expedited arbitration process with the use of a single arbitrator. The arbitrator will be chosen in accordance with the procedures for selecting an arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society—U.S. (ARIAS).

Each party’s case will be submitted to the arbitrator within 100 calendar days of the date of determination of the arbitrator. Discovery will be limited to exchanging only those documents directly relating to the issue in dispute, subject to a limit of two discovery depositions from each party, unless otherwise authorized by the arbitrator upon a showing of good cause.

Within 120 calendar days of the date of determination of the arbitrator, the hearing will be completed and a written award will be issued by the arbitrator. As the parties agree that time is of the essence, the sole arbitrator does not have the authority to lengthen the schedule, absent agreement of both parties. The arbitrator will have all the powers conferred on the arbitration panel as provided in the Arbitration Article, and said Article will apply to all matters not specifically addressed above.

ARTICLE 30

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.

C.	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

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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.

ARTICLE 31

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 32

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.

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ARTICLE 33

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 34

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.

ARTICLE 35

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 36

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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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 2019.

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 2019.

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 10.32

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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PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS


Article		Page
	Preamble		5
1	Business Covered		5
2	Retention and Limit		5
3	Florida Hurricane Catastrophe Fund		6
4	Term		7
5	Special Termination		7
6	Territory		9
7	Exclusions		9
8	Special Acceptance		11
9	Premium		11
10	Reinstatement		12
11	Definitions		13
12	Extra Contractual Obligations/Excess of Policy Limits		16
13	Net Retained Liability		17
14	Other Reinsurance		17
15	Original Conditions		17
16	No Third Party Rights		17
17	Notice of Loss and Loss Settlements		18
18	Late Payments		18

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Article		Page
19	Offset		19
20	Currency		20
21	Unauthorized Reinsurance		20
22	Taxes		22
23	Access to Records		23
24	Confidentiality		24
25	Indemnification and Errors and Omissions		25
26	Insolvency		25
27	Run-Off Reinsurer		26
28	Arbitration		28
29	Expedited Arbitration		29
30	Service of Suit		29
31	Governing Law		30
32	Entire Agreement		30
33	Non-Waiver		31
34	Agency		31
35	Intermediary		31
36	Mode of Execution		31
	Company Signing Block		33

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PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

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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

ARTICLE 2

RETENTION AND LIMIT

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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

****

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:

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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:

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

10.

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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.

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

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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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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.

ARTICLE 8

SPECIAL ACCEPTANCE

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, 2019

September 1, 2019

January 1, 2020

April 1, 2020

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, 2019 for business covered hereunder.

E.	The estimated Total Insured Value is $33,489,296,549.

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.

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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.

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

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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

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.

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,” once it has merged. 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.

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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.

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

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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.

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 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.

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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.

D.	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

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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.

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

B.	1.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.

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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

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

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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 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

EXPEDITED ARBITRATION

ARTICLE 30

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 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 31

GOVERNING LAW

ARTICLE 32

ENTIRE AGREEMENT

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ARTICLE 33

NON-WAIVER

ARTICLE 34

AGENCY

ARTICLE 35

INTERMEDIARY

ARTICLE 36

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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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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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 2019.

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.

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)

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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 10.33

PROPERTY CATASTROPHE FIRST 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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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS


Article		Page
	Preamble		5
1	Business Covered		5
2	Retention and Limit		5
3	Florida Hurricane Catastrophe Fund		6
4	Term		7
5	Special Termination		7
6	Territory		9
7	Exclusions		9
8	Special Acceptance		10
9	Premium		10
10	Definitions		11
11	Extra Contractual Obligations/Excess of Policy Limits		14
12	Net Retained Liability		15
13	Other Reinsurance		15
14	Original Conditions		15
15	No Third Party Rights		16
16	Notice of Loss and Loss Settlements		16
17	Late Payments		16
18	Offset		17

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Article		Page
19	Currency	18
20	Unauthorized Reinsurance	18
21	Taxes	20
22	Access to Records	21
23	Confidentiality	22
24	Indemnification and Errors and Omissions	23
25	Insolvency	23
26	Run-Off Reinsurer	24
27	Arbitration	26
28	Expedited Arbitration	27
29	Service of Suit	27
30	Governing Law	28
31	Entire Agreement	28
32	Non-Waiver	29
33	Agency	29
34	Intermediary	29
35	Mode of Execution	29
	Company Signing Block	31

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PROPERTY CATASTROPHE FIRST EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

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PROPERTY CATASTROPHE FIRST 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

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.

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

10.

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 premium of $**** for the term of this Contract.

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B.	The premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020.

C.	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

A. 1.

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;

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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.

C. 1.

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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 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.

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.

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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.

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 21

TAXES

B. 1.

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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

EXPEDITED ARBITRATION

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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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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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 2019.

TYPTAP INSURANCE COMPANY

PROPERTY CATASTROPHE FIRST 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.

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)

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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 10.40

TOP LAYER 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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TOP LAYER PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

TABLE OF CONTENTS


Article		Page
	Preamble		5
1	Business Covered		5
2	Retention and Limit		6
3	Florida Hurricane Catastrophe Fund		6
4	Term		7
5	Special Termination		8
6	Territory		9
7	Exclusions		9
8	Special Acceptance		12
9	Premium		12
10	Definitions		13
11	Extra Contractual Obligations/Excess of Policy Limits		16
12	Net Retained Liability		17
13	Other Reinsurance		18
14	Original Conditions		18
15	No Third Party Rights		18
16	Notice of Loss and Loss Settlements		18
17	Late Payments		19
18	Offset		20

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Article		Page
19	Currency		20
20	Unauthorized Reinsurance		20
21	Taxes		22
22	Access to Records		23
23	Confidentiality		24
24	Indemnification and Errors and Omissions		25
25	Insolvency		25
26	Run-Off Reinsurer		26
27	Arbitration		28
28	Expedited Arbitration		29
29	Service of Suit		29
30	Governing Law		30
31	Entire Agreement		30
32	Non-Waiver		31
33	Agency		31
34	Intermediary		31
35	Mode of Execution		31
	Company Signing Block		33

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TOP LAYER PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

TABLE OF CONTENTS

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TOP LAYER 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, 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. Notwithstanding the foregoing, the coverage afforded under Section A of the Retention and Limit Article shall apply to business further classified as standalone Flood Zone A or V, including Policies designated as Flood Zone A or V and subsequently reclassified as Flood Zone X until the next anniversary of such Policies.

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ARTICLE 2

RETENTION AND LIMIT

A.	Section A: Standalone Flood Business

As respects losses arising from standalone Flood business, 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 the Flood Retention for each Loss Occurrence, subject to a limit of liability to the Reinsurer of $**** each Loss Occurrence.

“Flood Retention” is defined as ****% of the Florida Flood TIV as established on the first day of each calendar quarter. The Flood Retention is subject to a minimum, any Loss Occurrence, of $****.

B.	Section B: All Business Except Standalone Flood Business

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. Whether a Loss Occurrence results in an Ultimate Net Loss under this Contract or one or more of the third, fourth and fifth excess layers under the Company’s Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2019, 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.

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 Section B 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.	The liability of the Reinsurer hereunder as respects all Loss Occurrences commencing during the term of this Contract shall not exceed $****.

D.	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

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

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10.

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

This Contract shall not apply to and specifically excludes:

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A.	As respects Sections A and B:

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

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

Financial guarantee and insolvency.

B.	As respects Section A:

All reinsurance assumed by the Company; provided that quota share reinsurance between the reinsured companies shall not be excluded.

Insurance policies classified by the Company as Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation, and Credit business.

Homeowners or any other property insurance policies written on an all risk basis and/or wind only basis.

Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the Florida Hurricane Catastrophe Fund, Citizens Property Insurance Corporation or any other regulatory assessment.

Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination. 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 the limit of Company’s property loss under the applicable original policy.

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Loss, damage, cost or expense arising out of an act of terrorism involving the use of any biological, chemical, nuclear or radioactive agent, material, device or weapon.

All liability arising out of mold, spores and/or fungus, but this exclusion shall not apply to those losses which follow as a direct result of a loss caused by a peril otherwise covered hereunder.

C.	As respects Section B:

Flood when written as such.

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

Pools, Associations & Syndicates, per the attached exclusion.

Terrorism as defined in the attached Terrorism Exclusion.

Mold unless directly resulting from an otherwise covered peril.

With the exception of subparagraphs A(4), A(5), B(3), B(5) and B(6) above, should any judicial, regulatory or legislative entity having legal jurisdiction invalidate any exclusion on the Company’s Policy, any amount of loss for which the Company is liable because of such invalidation will not be excluded hereunder.

Except as respects exclusions A(4), A(5), A(6), and C(5), 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

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ARTICLE 8

SPECIAL ACCEPTANCE

ARTICLE 9

PREMIUM

A.	Section A—Standalone Flood Business

As premium for the reinsurance provided under Section A, the Company shall pay the Reinsurer a flat premium of $****, payable in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020.

B.	Section B – All Business Except Standalone Flood Business

Premium for the reinsurance provided under Section B shall be determined as follows:

The Company shall pay the Reinsurer a minimum and 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.

The deposit premium in subparagraph B.1 above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020.

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paid in accordance with subparagraph B.1 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 subparagraph B.1 of this Article, the Reinsurer shall immediately pay the Company the difference below ****% of the deposit premium.

“Total Insured Value” means the Company’s aggregate wind exposures on September 30, 2019 for business covered hereunder.

The estimated Total Insured Value is $33,489,296,549.

C.	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

A. 1.

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:

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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.

As respects Section A – Peril of Flood, “Loss Occurrence” means the sum of all related individual losses caused by a flood in accordance with subject Policies, arising out of one event. However, the duration and extent of any one “Loss Occurrence” as respects Section A shall be limited to all individual losses sustained by the Company occurring during any period of 504 consecutive hours arising out of and directly occasioned by the same event, subject to the following:

The Company may choose the date and time when any such period of 504 consecutive hours commences. Only one period of 504 consecutive hours shall apply with respect to one event.

If more than one event occurs during the above period of 504 consecutive hours, each event shall be considered a separate Loss Occurrence.

1.As respects Section B – Perils Other Than Flood, “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:

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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

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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:

E.	“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

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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.

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).

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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

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.

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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

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 18

OFFSET

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);

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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.

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;

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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.

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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B. 1.

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.

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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 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

B.	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

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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 26

RUN-OFF REINSURER

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

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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 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

EXPEDITED ARBITRATION

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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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.

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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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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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

TOP LAYER PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

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and on this day of , in the year 2019.

TYPTAP INSURANCE COMPANY

TOP LAYER 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.

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)

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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 10.41

WORKING LAYER 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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WORKING LAYER CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

TABLE OF CONTENTS


Article		Page
	Preamble		5
1	Business Covered		5
2	Retention and Limit		5
3	Florida Hurricane Catastrophe Fund		6
4	Term		7
5	Special Termination		7
6	Territory		9
7	Exclusions		9
8	Special Acceptance		10
9	Premium		10
10	Reinstatement		11
11	Definitions		11
12	Extra Contractual Obligations/Excess of Policy Limits		14
13	Net Retained Liability		15
14	Other Reinsurance		15
15	Original Conditions		16
16	No Third Party Rights		16
17	Notice of Loss and Loss Settlements		16
18	Late Payments		17

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Article		Page
19	Offset		18
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	Expedited Arbitration		27
30	Service of Suit		27
31	Governing Law		28
32	Entire Agreement		28
33	Non-Waiver		29
34	Agency		29
35	Intermediary		29
36	Mode of Execution		29

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WORKING LAYER CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

TABLE OF CONTENTS


Articles (Cont’d)		Page
	Company Signing Block		31

Attachments
	Pools, Associations & Syndicates Exclusions Clause		33
	Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance – U.S.A.		36
	Terrorism Exclusion		38
	Trust Agreement Requirements Clause		39

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WORKING LAYER 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

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.

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

10.

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 premium of $**** for the term of this Contract.

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B.	The premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020.

C.	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.

ARTICLE 11

DEFINITIONS

A. 1.

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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.

C. 1.

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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,” once it has merged. 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.

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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.

ARTICLE 12

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

B.	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

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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.

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.

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ARTICLE 15

ORIGINAL CONDITIONS

ARTICLE 16

NO THIRD PARTY RIGHTS

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.

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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.

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;

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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.

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;

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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:

ARTICLE 22

TAXES

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B. 1.

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.

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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.

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

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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.

The provisions of the Arbitration Article shall not apply.

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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

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

EXPEDITED ARBITRATION

ARTICLE 30

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.

C.	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

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ARTICLE 31

GOVERNING LAW

ARTICLE 32

ENTIRE AGREEMENT

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ARTICLE 33

NON-WAIVER

ARTICLE 34

AGENCY

ARTICLE 35

INTERMEDIARY

ARTICLE 36

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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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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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

WORKING LAYER CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

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and on this day of , in the year 2019.

TYPTAP INSURANCE COMPANY

WORKING LAYER 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.

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)

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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 10.42

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

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

TABLE OF CONTENTS


Article		Page
	Preamble		4
1	Business Covered		4
2	Coverage		4
3	Term		4
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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Article		Page
19	Errors and Omissions		15
20	Insolvency		15
21	Run-Off Reinsurer		16
22	Arbitration		17
23	Expedited Arbitration		18
24	Service of Suit		19
25	Governing Law		20
26	Entire Agreement		20
27	Non-Waiver		20
28	Agency		20
29	Intermediary		20
30	Mode of Execution		21
	Company Signing Block		22

Attachments
	Trust Agreement Requirements Clause		24

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

Tampa, Florida

and

TYPTAP INSURANCE COMPANY

Ocala, Florida

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(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, 2019 and expiring 12:01 a.m., Standard Time, June 1, 2020, 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.

ARTICLE 3

TERM

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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.

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

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10.

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

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, 2019

September 1, 2019

January 1, 2020

April 1, 2020

Third Layer

****

Fourth Layer

****

Fifth Layer

****

By April 1, 2020, 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

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.

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.

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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.

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.

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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

B. 1.

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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

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.

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.

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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

EXPEDITED ARBITRATION

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ARTICLE 24

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 25

GOVERNING LAW

ARTICLE 26

ENTIRE AGREEMENT

ARTICLE 27

NON-WAIVER

ARTICLE 28

AGENCY

ARTICLE 29

INTERMEDIARY

Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements,

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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 30

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 2019.

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 10.43

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR000D)

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 U8GR000D)

TABLE OF CONTENTS


Article		Page
	Preamble		4
1	Business Covered		4
2	Coverage		5
3	Term		5
4	Special Termination		5
5	Territory		6
6	Exclusions		6
7	Premium		7
8	Definitions		7
9	Original Conditions		7
10	No Third Party Rights		8
11	Notice of Loss and Loss Settlements		8
12	Late Payments		8
13	Offset		9
14	Currency		10
15	Unauthorized Reinsurance		10
16	Taxes		12
17	Access to Records		12

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Article		Page
18	Confidentiality		13
19	Errors and Omissions		14
20	Insolvency		14
21	Run-Off Reinsurer		15
22	Arbitration		17
23	Expedited Arbitration		18
24	Service of Suit		18
25	Governing Law		19
26	Entire Agreement		19
27	Non-Waiver		20
28	Agency		20
29	Intermediary		20
30	Mode of Execution		20
	Company Signing Block		22

Attachments
	Trust Agreement Requirements Clause		24

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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR000D)

(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, 2019 and expiring 12:01 a.m., Standard Time, June 1, 2020, Document Number: U8GR000D (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.

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ARTICLE 2

COVERAGE

The Reinsurer shall be liable to pay the Reinstatement Premium obligations under the Original Contract.

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

10.

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.

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ARTICLE 7

PREMIUM

A.	The Company shall pay the Reinsurer a premium of $**** for the term of this Contract.

B.	The premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020.

C.	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.	“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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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 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

B.	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

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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.

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

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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

EXPEDITED ARBITRATION

ARTICLE 24

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 25

GOVERNING LAW

ARTICLE 26

ENTIRE AGREEMENT

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ARTICLE 27

NON-WAIVER

ARTICLE 28

AGENCY

ARTICLE 29

INTERMEDIARY

ARTICLE 30

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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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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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR000D)

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and on this day of , in the year 2019.

TYPTAP INSURANCE COMPANY

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR FIRST EXCESS CAT U8GR000D)

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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 10.44

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		4
1	Business Covered		4
2	Coverage		5
3	Term		5
4	Special Termination		5
5	Territory		6
6	Exclusions		6
7	Premium		7
8	Definitions		7
9	Original Conditions		7
10	No Third Party Rights		8
11	Notice of Loss and Loss Settlements		8
12	Late Payments		8
13	Offset		9
14	Currency		10
15	Unauthorized Reinsurance		10
16	Taxes		12
17	Access to Records		12

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Article		Page
18	Confidentiality		13
19	Errors and Omissions		14
20	Insolvency		14
21	Run-Off Reinsurer		15
22	Arbitration		17
23	Expedited Arbitration		18
24	Service of Suit		18
25	Governing Law		19
26	Entire Agreement		19
27	Non-Waiver		20
28	Agency		20
29	Intermediary		20
30	Mode of Execution		20
	Company Signing Block		22

Attachments
	Trust Agreement Requirements Clause		24

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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, 2019 and expiring 12:01 a.m., Standard Time, June 1, 2020, 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.

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ARTICLE 2

COVERAGE

The Reinsurer shall be liable to pay the Reinstatement Premium obligations under the Original Contract.

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

10.

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.

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ARTICLE 7

PREMIUM

A.	The Company shall pay the Reinsurer a premium of $**** for the term of this Contract.

B.	The premium in paragraph A above shall be payable to the Reinsurer by the Company in four equal installments of $**** on June 1, 2019, September 1, 2019, January 1, 2020 and April 1, 2020.

C.	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.	“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.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.

ARTICLE 17

ACCESS TO RECORDS

B.	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

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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

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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

EXPEDITED ARBITRATION

ARTICLE 24

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 25

GOVERNING LAW

ARTICLE 26

ENTIRE AGREEMENT

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ARTICLE 27

NON-WAIVER

ARTICLE 28

AGENCY

ARTICLE 29

INTERMEDIARY

ARTICLE 30

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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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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HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY, INC.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(FOR WORKING LAYER CAT U8GR0008)

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U8GR000C

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and on this day of , in the year 2019.

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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DOC: June 7, 2019

EXHIBIT 10.45

STATE BOARD OF ADMINISTRATION

OF FLORIDA

1801 HERMITAGE BOULEVARD, SUITE 100

TALLAHASSEE, FLORIDA 32308

(850) 488-4406

POST OFFICE BOX 13300

32317-3300

RON DESANTIS

GOVERNOR

CHAIR

JIMMY PATRONIS

CHIEF FINANCIAL OFFICER

ASHLEY MOODY

ATTORNEY GENERAL

ASHBEL C. WILLIAMS

EXECUTIVE DIRECTOR &

CHIEF INVESTMENT OFFICER

REIMBURSEMENT CONTRACT

Effective: June 1, 2019

(“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

Section 215.555, Florida Statutes creates the FHCF and 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 Section 215.555, Florida Statutes, 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 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 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.

ARTICLE II—PARTIES TO THE CONTRACT

This Contract is solely between the Company, an Authorized Insurer or any entity writing Covered Policies under Section 627.351, Florida Statutes, in the State of Florida, and the SBA. In no instance shall any

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insured of the Company, 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 disburse funds only to the Company, except as provided for in Article XV. The Company shall not, without the prior approval of the Florida 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 1,2019, to 12:00 midnight, Eastern Time, May 31, 2020 (the “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 (F.A.C.), in fulfillment of the statutory requirement that the SBA enter into a 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 Contract as a condition of doing business in Florida. Under Section 215.555(16)(c), Florida Statutes, Companies writing Covered Policies must execute the 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 Coverage Level 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). 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 Coverage Level election under Article XX, the Company’s Coverage Level shall be deemed as follows:

(a)

For a Company that is 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.

(b)

For a Company that is 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 a New Participant that is a member of an NAIC group, the same Coverage Level selected by the other Companies of the same NAIC group shall be deemed.

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(d)

For a New Participant that is 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 if 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 in the amount of Ultimate Net Loss paid by the Company in excess of the Company’s Retention, as adjusted pursuant to the definition of Retention in Article V, multiplied by the applicable Coverage Level, plus 5% of the reimbursed Losses as a Loss Adjustment Expense Allowance, the total of which shall not exceed the Company’s Limit.

(2)	Section 215.555(4)(c)1., Florida Statutes provides that the obligation of the FHCF with respect to all Contracts covering a particular Contract Year shall not exceed the Actual Claims-Paying Capacity of the FHCF up to a specified dollar limit.

(3)

In order to assure that reimbursements do not exceed the statutory limit on the obligation of the FHCF provided in Section 215.555(4)(c)1., Florida Statutes, the SBA shall, upon the occurrence of a Covered Event, 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.

(4)	Reimbursement amounts shall not be reduced by reinsurance paid or payable to the Company from other sources. Once the Company’s Limit has been exhausted, the Company will not be entitled to further reimbursements.

ARTICLE V – DEFINITIONS

As used in this Contract, the following words and phrases are defined to mean:

(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 under Section 215.555(6), Florida Statutes.

(2)

Actuarially Indicated

This term means an amount determined according to principles of actuarial science to be adequate, but not excessive, in the aggregate, to pay current and future obligations and expenses of the fund, including additional amounts if needed to pay debt service on revenue bonds and to provide required debt service coverage in excess of the amounts required to pay actual debt service on revenue bonds, and determined according to principles of actuarial science to reflect each insurer’s relative exposure to hurricane losses.

(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’ ¹ Street, Suite 1100, Minneapolis, Minnesota 55437. The telephone number is (800) 689-3863, and the facsimile number is (800) 264-0492.

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(5)	Authorized Insurer

This term is defined in Section 624.09(1), Florida Statutes.

(6)	Balance of the Fund as of December 31 or Fund Balance

This term means the amount of assets available to pay claims resulting from Covered Events which occurred during the Contract Year, not including any pre-event or post-event bonds, reinsurance, or proceeds from other financing mechanisms.

(7)	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.

(8)	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.

(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)	Coverage Level

This term means the level of reimbursement (90%, 75%, or 45%), as elected by the Company under Article XX or deemed under Article III(3), which is used in determining reimbursement under Article IV.

(11)	Covered Policy

(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)

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, are available.

(c)

Covered Policy does not include any policy or exposure excluded under Article VI.

(12)	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.

(13)	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.

(14)	Excess Policy

This term means, for the purposes of this Contract, 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.

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(15)	Insurer Group

For purposes of the Coverage Level 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 regulatory purposes. 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.

(16)

Limit

This term means the maximum amount that a Company may recover under this Contract, calculated by multiplying the Company’s Reimbursement Premium by the Payout Multiple.

(17)

Loss

This term means an incurred loss 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. The term Loss does not include allocated or unallocated loss adjustment expenses or any item for which this Contract does not provide reimbursement pursuant to the exclusions in Article VI.

(18)	Loss Adjustment Expense Allowance

(a)

The Loss Adjustment Expense Allowance is equal to 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 Loss Adjustment Expense Allowance is included in, and not in addition to, the Limit applicable to a Company.

(19)	New Participant

This term means a Company that begins 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.

(20)	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 actual 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.

(21)	Premium Formula

This term means the Formula developed pursuant to Section 215.555(5)(b), Florida Statutes, and approved by the SBA Trustees for the purpose of determining the Actuarially Indicated Reimbursement Premium to be paid to the FHCF.

(22)	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.

(23)	Reimbursement Premium or Premium

These terms mean the amount to be paid by the Company, as 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.

(24)	Residential Structure

In general, this term means a unit or building used exclusively or predominantly for dwelling or habitational occupancies, including the primary structure and appurtenant structures insured under the same Covered Policy and any other structures covered under endorsements associated with the Covered Policy covering the Residential Structure.

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(a)

With respect to a unit or home insured under a personal lines residential policy form, such unit or home is deemed to have a habitational occupancy and to be a Residential Structure regardless of the term of its occupancy.

( )

With respect to a condominium structure or complex insured under a commercial lines policy, such structure is deemed to have a habitational occupancy and to be a Residential Structure, regardless of the term of occupancy of individual units.

(a)

A single structure which includes a mix of commercial habitational and commercial non-habitational occupancies, and is insured under a commercial lines policy, is considered a Residential Structure if 50% or more of the total insured value of the structure is used for habitational occupancies.

(b)

Residential Structures do not include any structures excluded under Article VI.

(25)	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.

(26)	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 2019/2020 Contract Year shall be equal to $4.5 billion, adjusted based upon the reported exposure for the 2017/2018 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% Coverage Level for the Contract Year as determined by the SBA.

(b)

The Retention Multiple shall be adjusted to reflect the Coverage Level elected by the Company under this Contract as follows:

If the Company elects the 90% Coverage Level, the adjusted Retention Multiple is 100% of the amount determined under paragraph (a);

If the Company elects the 75% Coverage Level, the adjusted Retention Multiple is 120% of the amount determined under paragraph (a); or

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If the Company elects the 45% Coverage Level, the adjusted Retention Multiple is 200% of the amount determined under paragraph (a).

(27)	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 Coverage Level, and excluding loss adjustment expense and any exclusions under Article VI.

(b)

In calculating the Company’s Ultimate Net Loss, the amounts described in paragraph (a) shall be reduced by the deductibles applicable under the policy to the hurricane loss, which must first be applied to the portion of the Loss covered by the FHCF.

(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.

(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)

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, including any loss other than a loss under the first-party property section of a policy pertaining strictly to the structure, its contents, appurtenant structures, or ALE coverage.

(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(11)(b).

(7)	Any reinsurance assumed by the Company.

(8)	Hotels, motels, timeshares, shelters, camps, retreats, or other similar structures.

(9)	Retail, office, mercantile, or manufacturing facilities, or other similar structures.

(10)	Any exposure for condominium or homeowner associations if no Residential Structures are insured under the policy.

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(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 under construction.

(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 the 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 aggregate limits of liability specified in Article IV and in 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 Company 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

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or remote, and regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

(26)	Losses from water damage, which is generally excluded under property insurance contracts, including 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)	A policy providing personal property coverage separate from coverage of personal property included in a homeowner’s, mobile home owner’s, condominium unit owner’s, or tenant’s policy or other policy covering a Residential Structure, or in an endorsement to such a policy.

(28)	Endorsements predominantly covering Specialized Fine Arts Risks or collectible types of property meeting the following requirements:

(a)

An 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 endorsement is an 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)

An 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 endorsements are subject to the exclusion provided in this paragraph when the 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 an endorsement represents an unusually high exposure value and such endorsement 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.

(29)	Any losses under liability coverages.

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.

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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 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 calculation of Reimbursement Premium or Retention, 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 Reimbursement Premium installments. However, if the Company’s estimation is less than the provisional Reimbursement Premium billed, an interest charge will accrue on the difference between the estimated Reimbursement Premium and the final Reimbursement Premium. If a Company estimates its first installment, the Administrator shall bill that estimated Reimbursement Premium as the second installment as well, which will be considered as an estimate by the Company. No interest will accrue regarding any provisional Reimbursement 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 Reimbursement Premium billed but is less than the final Reimbursement Premium, interest will not accrue. If the Reimbursement 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 Reimbursement Premiums resulting from submissions or resubmissions finalized after December 1 of the Contract Year. An interest credit will be applied for any Reimbursement Premium which is overpaid as either an estimate or as a provisional Reimbursement 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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Rule 19-8.010 F.A.C.

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-DIA (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 installments 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 Premium 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 subparagraph 1. by the applicable due date 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 Covered Event occurred or triggered coverage.

Subparagraphs 1. and 2. do not apply if the state regulator, receiver, or rehabilitator provides a letter of assurance to the FHCF stating 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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Rule 19-8.010 F.A.C.

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 subparagraph 1., to default to the 45% Coverage Level being deemed as specified in subparagraph 2., or to provide the assurances as specified in subparagraph 3.

(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 Reimbursement Premium as determined by processing the Company’s exposure data shall then be divided in half, the provisional Reimbursement Premium shall be credited, and the resulting amount shall be the total Reimbursement 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 Reimbursement 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 Reimbursement 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 Reimbursement 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)1., 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.

FHCF-2019K

Rule 19-8.010 F.A.C.

(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.

(b)

Loss Reports

At the direction of the SBA, the Company shall report its projected Ultimate Net Loss fromeach 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., 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., 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:

FHCF-2019K

Rule 19-8.010 F.A.C.

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.

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) 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 claims 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 claims examinations to determine the reasonableness of the reported Losses. Except as noted in subparagraph 5., 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 Reimbursement 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.

FHCF-2019K

Rule 19-8.010 F.A.C.

(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(25)(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.

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., not less than 36 months or more than 60 months afterthe 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. Otherwise, the final Proof of Loss Report(s) is required as specified in sub-subparagraph b. 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 claims 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

FHCF-2019K

Rule 19-8.010 F.A.C.

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 Florida 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.

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. The Loss valuation process under this subparagraph may begin only after all other issues arising under this Contract have been resolved, and shall be suspended pending resolution of any such issues that arise during the Loss valuation process. 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 on the valuation of any Losses, then any difference in valuation of the Loss shall be settled by a panel of three actuaries, as provided in this subparagraph. Either the SBA or the Company may initiate the process under this subparagraph by providing written notice to the other party stating that the parties are at an impasse with respect to valuation of Losses and specifying the dollar amounts in dispute.

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 after the initiation of the process, 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 a written statement of its case to the panel of actuaries and the opposing party no later than 30 days after the appointment of the third actuary. Within 15 days after receiving the other party’s submission, a party may submit its written response to the panel of actuaries and the other party. After the appointment of the third actuary, a party may not communicate with the panel or any member of the panel except in writing simultaneously furnished to all members of the panel and the opposing party. Any member of the panel may present questions to be answered by both parties, which shall be answered in writing and simultaneously furnished to the members of the panel and the opposing party or, at the discretion of the panel, may be provided in a meeting or teleconference attended by both parties and all members of the panel.

FHCF-2019K

Rule 19-8.010 F.A.C.

The written decision of a majority of the panel as to the disagreement over the valuation of losses identified in the written notice of impasse, 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.) 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 without being subject to the 36-month waiting period provided in subparagraph (d)1. Such early commutation, once completed, eliminates the mandatory Proof of Loss Report requirements required under subparagraphs (b)3. and 4. for all reporting periods subsequent to the completion of the commutation.

(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 a Loss Adjustment Expense Allowance 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). 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. I. 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.

FHCF-2019K

Rule 19-8.010 F.A.C.

In addition to the requirements outlined in subparagraph (4)(a), 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.

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), 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.

FHCF-2019K

Rule 19-8.010 F.A.C.

(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 are 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.

(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 Reimbursement Premium herein when making premium tax returns to the appropriate authorities. Should any taxes be levied on the Company in respect of the Reimbursement 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 claims examination file and the termination of the Contract. The Company shall have no right to re-open an exposure or claims 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 defmition (11)(b) 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.

FHCF-2019K

Rule 19-8.010 F.A.C.

(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.

(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 claims 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 are 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.

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Rule 19-8.010 F.A.C.

(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.

(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 Reimbursement Premium difference, then the FHCF will send the Company a letter outlining the process for resubmission or for paying the estimated Reimbursement 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.

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Rule 19-8.010 F.A.C.

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 Reimbursement Premium for the current Contract Year (regardless of installment due dates), against any (1) Reimbursement 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.

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 claims examinations will be maintained until completion of the Company’s exposure and claims 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 claims 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 claims 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

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Rule 19-8.010 F.A.C.

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 to the Company until the SBA determines that the Company is no longer in a state of noncompliance.

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.

FHCF-2019K

Rule 19-8.010 F.A.C.

ARTICLE XX – REIMBURSEMENT CONTRACT ELECTIONS

(1)	Coverage Level

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% Coverage Level under this Contract. If the Company is a member of an NAIC group, all members must elect the same Coverage Level, 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 Coverage Level 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% Coverage Level. The Company shall not be permitted to change its Coverage Level during the Contract Year. The Company shall be permitted to change its Coverage Level at the beginning of a new Contract Year, but may not reduce its Coverage Level if a Covered Event required the issuance of revenue bonds, until the bonds are no longer outstanding.

The Coverage Level elected by the Company for the prior Contract Year effective June 1, 2018 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)

Coverage Level Election: The Company hereby elects the following Coverage Level for the Contract Year from 12:00:01 a.m., Eastern Time, June 1, 2019, to 12:00 a.m., Eastern Time, May 31, 2020, (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% OR		75% OR		90%

(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.

No – Time

Element ALE

Yes – Time

Element ALE

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Rule 19-8.010 F.A.C.

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:						3-26-19
						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:		2/26/2019
By:	Signature	Date

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Rule 19-8.010 F.A.C.

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 7, 2019				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 7, 2019				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, 2019 as filed with the Securities and Exchange Commission on August 7, 2019 (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 7, 2019

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, 2019 as filed with the Securities and Exchange Commission on August 7, 2019 (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 7, 2019

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.