Note 12 -- Variable Interest Entities

The Company includes two consolidated VIEs related to reciprocal insurance exchanges, CORE and Tailrow. The reciprocal insurance exchanges are owned by their policyholders, referred to as subscribers, who gain ownership by buying an insurance policy and making a surplus contribution. Each subscriber has rights in their respective reciprocal insurance exchange to (i) receive dividends or premium credits if the reciprocal insurance exchange generates a surplus, and (ii) elect members to the subscribers’ advisory committee. The subscribers’ advisory committee oversees the financial affairs of its respective reciprocal insurance exchange and appoints the AIF. Each subscribers’ advisory committee requires at least two-thirds of its members to be subscribers who are independent of the AIF.

Both CORE and Tailrow each received initial funding through the issuance of a subordinated surplus note to wholly-owned subsidiaries of HCI Group, Inc. as neither had any subscribers or sufficient surplus to fund their insurance operations at the time of formation. In addition, CORE and Tailrow each entered into an AIF agreement with Core Risk Managers, LLC (“CRM”) and Tailrow Risk Managers, LLC (“TRM”), respectively. Both CRM and TRM are wholly-owned subsidiaries of HCI Group, Inc. The AIF agreements, which were approved by the Florida Office of Insurance Regulation (“FLOIR”), can be terminated at any time by mutual agreement of both parties or with cause, if the FLOIR or a court of competent jurisdiction determines that a material breach of the agreement has occurred. Under the AIF agreements, CRM and TRM have the power of attorney to directly or indirectly conduct the daily operations of CORE and Tailrow, respectively, by underwriting insurance policies, collecting premiums, investing funds, and processing claims. As such, subscribers do not possess the power to directly manage the operations of CORE and Tailrow. The AIF agreements also permit CRM and TRM to contract with service providers including other HCI Group, Inc. subsidiaries to perform certain functions.

The AIF agreements, together with the subordinated surplus notes, result in both CORE and Tailrow to be consolidated VIEs. As CORE and Tailrow are owned by their underlying policyholders, their net assets and results of operations are included in noncontrolling interests.

CORE

CORE was formed and issued a $25,000 subordinated surplus note with an annual interest rate of 9% during 2023. CORE commenced business operations during 2024.

As of March 31, 2026 and December 31, 2025, the Company’s maximum exposure to loss relating to CORE was $25,000. CORE’s assets are legally restricted for the purpose of fulfilling obligations specific to CORE and its creditors have no legal right to pursue additional sources of payment from the Company.

Tailrow

Tailrow was formed and issued a $25,000 subordinated surplus note with an annual interest rate of 9% during 2024. Tailrow commenced business operations during 2025.

As of March 31, 2026 and December 31, 2025, the Company’s maximum exposure to loss relating to Tailrow was $25,000. Tailrow’s assets are legally restricted for the purpose of fulfilling obligations specific to Tailrow and its creditors have no legal right to pursue additional sources of payment from the Company.