HCI Group, Inc. Fair Value Disclosure
Note 6 -- Fair Value Measurements
The Company records and discloses certain financial assets at their estimated fair values. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 – Unadjusted quoted prices in active markets for identical assets.
Level 2 – Other inputs that are observable for the asset, either directly or indirectly 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 three months from the time of purchase. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.
Restricted Cash
Restricted cash represents cash held by state authorities and the carrying value approximates fair value.
Available-for-Sale Fixed-Maturity and Equity Securities
Estimated fair values of the Company’s available-for-sale 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 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 are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers, which are level 1 or level 2 inputs depending on the asset class. 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.
Other Investments
The following table summarizes other investments held by the Company and the method used in estimating the fair value:
|
|
Maturity |
|
|
|
|
Date |
|
Valuation Methodology |
10.50% Surplus Note |
|
2026 |
|
Discounted cash flow method/Level 3 inputs |
Revolving Credit Facility
From time to time, the Company has an amount outstanding under a revolving credit facility. The interest rate is variable and is periodically adjusted based on the Secured Overnight Financing Right (“SOFR”) plus a ten basis points adjustment plus a margin based on the debt-to-capital ratio. As a result, 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 |
4.75% Convertible Senior Notes |
|
* |
|
Quoted price |
4.55% Promissory Note |
|
2036 |
|
Discounted cash flow method/Level 3 inputs |
5.50% Promissory Note |
|
2033 |
|
Discounted cash flow method/Level 3 inputs |
5.65% Promissory Note |
|
2035 |
|
Discounted cash flow method/Level 3 inputs |
* Converted during 2025. See Note 11 “Long-Term Debt” for additional information.
Assets Measured at Estimated Fair Value on a Recurring Basis
The following tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The tables indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of December 31, 2025 and 2024:
|
|
Fair Value Measurements Using |
|
|
|
|
||||||||||
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
||||
As of December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
1,210,126 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,210,126 |
|
Restricted cash |
|
$ |
3,748 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,748 |
|
Available-for-sale fixed-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury and U.S. government agencies |
|
$ |
313,420 |
|
|
$ |
19,932 |
|
|
$ |
— |
|
|
$ |
333,352 |
|
Corporate bonds |
|
|
— |
|
|
|
242,922 |
|
|
|
— |
|
|
|
242,922 |
|
Commercial mortgage-backed securities |
|
|
— |
|
|
|
21,055 |
|
|
|
— |
|
|
|
21,055 |
|
Available-for-sale fixed-maturity securities |
|
$ |
313,420 |
|
|
$ |
283,909 |
|
|
$ |
— |
|
|
$ |
597,329 |
|
Equity securities |
|
$ |
64,545 |
|
|
$ |
1,345 |
|
|
$ |
— |
|
|
$ |
65,890 |
|
|
|
Fair Value Measurements Using |
|
|
|
|
||||||||||
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
||||
As of December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
532,471 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
532,471 |
|
Restricted cash |
|
$ |
3,714 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,714 |
|
Available-for-sale fixed-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury and U.S. government agencies |
|
$ |
686,929 |
|
|
$ |
487 |
|
|
$ |
— |
|
|
$ |
687,416 |
|
Corporate bonds |
|
|
21,854 |
|
|
|
9,267 |
|
|
|
— |
|
|
|
31,121 |
|
Available-for-sale fixed-maturity securities |
|
$ |
708,783 |
|
|
$ |
9,754 |
|
|
$ |
— |
|
|
$ |
718,537 |
|
Equity securities |
|
$ |
56,200 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
56,200 |
|
Assets and Liabilities Carried at Other Than Fair Value
The following tables present fair value information for assets and liabilities that are carried on the consolidated balance sheets at amounts other than fair value as of December 31, 2025 and 2024:
|
|
Carrying |
|
|
Fair Value Measurements Using |
|
|
Estimated |
|
|||||||||||
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Fair Value |
|
|||||
As of December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other investments |
|
$ |
5,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,223 |
|
|
$ |
5,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revolving credit facility |
|
$ |
36,000 |
|
|
$ |
— |
|
|
$ |
36,000 |
|
|
$ |
— |
|
|
$ |
36,000 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
4.55% Promissory Note |
|
|
4,080 |
|
|
|
— |
|
|
|
— |
|
|
|
3,863 |
|
|
|
3,863 |
|
5.50% Promissory Note |
|
|
11,262 |
|
|
|
— |
|
|
|
— |
|
|
|
11,313 |
|
|
|
11,313 |
|
5.65% Promissory Note |
|
|
16,535 |
|
|
|
— |
|
|
|
— |
|
|
|
16,615 |
|
|
|
16,615 |
|
Long-term debt |
|
$ |
31,877 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
31,791 |
|
|
$ |
31,791 |
|
|
|
Carrying |
|
|
Fair Value Measurements Using |
|
|
Estimated |
|
|||||||||||
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Fair Value |
|
|||||
As of December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revolving credit facility |
|
$ |
44,000 |
|
|
$ |
— |
|
|
$ |
44,000 |
|
|
$ |
— |
|
|
$ |
44,000 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
4.75% Convertible Senior Notes |
|
$ |
169,397 |
|
|
$ |
— |
|
|
$ |
266,989 |
|
|
$ |
— |
|
|
$ |
266,989 |
|
4.55% Promissory Note |
|
|
4,366 |
|
|
|
— |
|
|
|
— |
|
|
|
4,043 |
|
|
|
4,043 |
|
5.50% Promissory Note |
|
|
11,491 |
|
|
|
— |
|
|
|
— |
|
|
|
11,307 |
|
|
|
11,307 |
|
Long-term debt |
|
$ |
185,254 |
|
|
$ |
— |
|
|
$ |
266,989 |
|
|
$ |
15,350 |
|
|
$ |
282,339 |
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Mar 8, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 12, 2021 | |
| 2019 | Mar 6, 2020 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 7, 2018 | |
| 2016 | Feb 22, 2017 | |
| 2015 | Mar 4, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.