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 September 30, 2022March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-35761
____________________
United Insurance Holdings Corp.
(Exact Name of Registrant as Specified in its Charter)
| | | | | | | | | | | | | | |
| Delaware | | 75-3241967 | |
| (State or Other Jurisdiction of Incorporation or Organization) | | (IRS Employer Identification Number) | |
| | | | | | | | | | | | | | | | | |
| 800 2nd Avenue S. | | 33701 | |
| St. Petersburg, | Florida | | |
| (Address of Principle Executive Offices) | | (Zip Code) | |
727-895-7737
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock, $0.0001 par value per share | UIHC | Nasdaq Stock Market LLC |
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 every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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.
| | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | Accelerated filer | ☑☐ |
Non-accelerated filer | ☐☑ | | Smaller reporting company | ☐☑ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected 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 R
As of November 4, 2022, 43,308,091May 15, 2023, 43,287,573 shares of common stock, par value $0.0001 per share, were outstanding.
UNITED INSURANCE HOLDINGS CORP.
| | | | | | | | |
PART I. FINANCIAL INFORMATION | |
| Item 1. Financial Statements | |
| Condensed Consolidated Balance Sheets (Unaudited) | |
| Condensed Consolidated Statements of Comprehensive LossIncome (Loss) (Unaudited) | |
| Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) | |
| Notes to Unaudited Condensed Consolidated Financial Statements | |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
| Item 4. Controls and Procedures | |
PART II. OTHER INFORMATION | |
| Item 1. Legal Proceedings | |
| Item 1A. Risk Factors | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3. Defaults Upon Senior Securities | |
| Item 4. Mine Safety Disclosures | |
| Item 5. Other Information | |
| Item 6. Exhibits | |
Signatures | |
Throughout this Quarterly Report on Form 10-Q (Form 10-Q), we present amounts in all tables in thousands, except for share amounts, per share amounts, policy counts or where more specific language or context indicates a different presentation. In the narrative sections of this Form 10-Q, we show full values rounded to the nearest thousand.
UNITED INSURANCE HOLDINGS CORP.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about anticipated growth in revenues, gross written premium, earnings per share, estimated unpaid losses on insurance policies, investment returns, and diversification and expectations about our liquidity, our ability to meet our investment objectives, and our ability to manage and mitigate market risk with respect to our investments.investments and our ability to continue as a going concern. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “endeavor,” “project,” “believe,” “plan,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and management's beliefs and assumptions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:
•our exposure to catastrophic events and severe weather conditions;
•the regulatory, economic and weather conditions present in Florida Texas, and Louisiana,New York the states in which we are most concentrated;
•our ability to cultivate and maintain agent relationships, particularly our relationship with AmRisc, LLC;
•our reliance on certain agencies that account for a substantial portion of our policies-in-force;
•the possibility that actual claims incurred may exceed our loss reserves for claims;
•assessments charged by various governmental agencies;
•our ability to implement and maintain adequate internal controls over financial reporting;
•our ability to maintain information technology and data security systems, and to outsource relationships;
•our reliance on key vendor relationships, and the ability of our vendors to protect the personally identifiable information of our customers, claimants or employees;
•our ability to attract and retain the services of senior management;
•risks and uncertainties relating to our acquisitions, mergers, dispositions and other strategic transactions;
•risks associated with joint ventures and investments in which we share ownership or management with third parties;
•our ability to generate sufficient cash to service all of our indebtedness and comply with covenants and other requirements related to our indebtedness;
•our ability to maintain our market share;
•changes in the regulatory environment present in the states in which we operate;
•the impact of new federal or state regulations that affect the insurance industry;
•the cost, viability and availability of reinsurance;
•our ability to collect from our reinsurers or others on our reinsurance claims;
•dependence on investment income and the composition of our investment portfolio and related market risks;
•the possibility of the pricing and terms for our products to decline due to the historically cyclical nature of the property and casualty insurance and reinsurance industry;
•the outcome of litigation pending against us, including the terms of any settlements;
•downgrades in our financial strength or stability ratings;
•the impact of future transactions of substantial amounts of our common stock by us or our significant stockholders on our stock price;
•our ability to meet the standards for continued listing on Nasdaq;
•substantial doubt about our ability to continue as a going concern, including the impact on future financing and reinsurance coverage;
•our ability to pay dividends in the future, which may be constrained by our holding company structure;
•the ability of our subsidiaries to pay dividends in the future, which may affect our liquidity and our ability to meet our obligations;
•the ability of R. Daniel Peed and his affiliates to exert significant control over us due to substantial ownership of our common stock, subject to certain restrictive covenants that may restrict our ability to pursue certain opportunities;
•the impact of transactions by R. Daniel Peed and his affiliates on the price of our common stock;
•provisions in our charter documents that may make it harder for others to obtain control of us;
•the impact of the novel strain of coronavirus (COVID-19) and related business disruption and economic uncertainty on our business, results of operations and financial condition; and
•other risks and uncertainties described in the section entitled "Risk Factors" in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 20212022 and in Part II, Item 1A of this Form 10-Q.
We caution you not to rely on these forward-looking statements, which are valid only as of the date they were made. Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements to reflect new information, the occurrence of unanticipated events or otherwise.
UNITED INSURANCE HOLDINGS CORP.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Investments, at fair value: | Investments, at fair value: | | | | | Investments, at fair value: | | | | |
Fixed maturities, available-for-sale (amortized cost of $559,163 and $672,139, respectively) | | $ | 492,251 | | | $ | 663,602 | | |
Fixed maturities, available-for-sale (amortized cost of $239,473 and $237,735, respectively) | | Fixed maturities, available-for-sale (amortized cost of $239,473 and $237,735, respectively) | | $ | 210,733 | | | $ | 204,682 | |
Equity securities | Equity securities | | 36,495 | | | 37,958 | | Equity securities | | 16,181 | | | 15,657 | |
Other investments (amortized cost of $16,780 and $17,131, respectively) | | 16,609 | | | 18,006 | | |
Other investments (amortized cost of $2,917 and $3,072, respectively) | | Other investments (amortized cost of $2,917 and $3,072, respectively) | | 3,550 | | | 3,675 | |
| Total investments | Total investments | | $ | 545,355 | | | $ | 719,566 | | Total investments | | $ | 230,464 | | | $ | 224,014 | |
Cash and cash equivalents | Cash and cash equivalents | | 180,947 | | | 212,024 | | Cash and cash equivalents | | 92,586 | | | 70,903 | |
Restricted cash | Restricted cash | | 42,300 | | | 33,254 | | Restricted cash | | 49,671 | | | 45,988 | |
Total cash, cash equivalents and restricted cash | Total cash, cash equivalents and restricted cash | | $ | 223,247 | | | $ | 245,278 | | Total cash, cash equivalents and restricted cash | | $ | 142,257 | | | $ | 116,891 | |
Accrued investment income | Accrued investment income | | 3,203 | | | 3,296 | | Accrued investment income | | 1,818 | | | 1,605 | |
Property and equipment, net | Property and equipment, net | | 26,709 | | | 31,561 | | Property and equipment, net | | 18,118 | | | 19,591 | |
Premiums receivable, net (credit allowance of $28 and $32, respectively) | | 45,214 | | | 79,166 | | |
Reinsurance recoverable on paid and unpaid losses, net (credit allowance of $552 and $563, respectively) | | 1,547,282 | | | 997,120 | | |
Premiums receivable, net (credit allowance of $27 and $32, respectively) | | Premiums receivable, net (credit allowance of $27 and $32, respectively) | | 48,120 | | | 39,301 | |
Reinsurance recoverable on paid and unpaid losses, net (credit allowance of $150 and $333, respectively) | | Reinsurance recoverable on paid and unpaid losses, net (credit allowance of $150 and $333, respectively) | | 792,350 | | | 796,546 | |
Ceded unearned premiums | Ceded unearned premiums | | 373,558 | | | 430,631 | | Ceded unearned premiums | | 65,702 | | | 90,496 | |
Goodwill | Goodwill | | 59,476 | | | 73,045 | | Goodwill | | 59,476 | | | 59,476 | |
Deferred policy acquisition costs, net | Deferred policy acquisition costs, net | | 71,204 | | | 38,520 | | Deferred policy acquisition costs, net | | 59,897 | | | 60,979 | |
Intangible assets, net | Intangible assets, net | | 15,940 | | | 18,375 | | Intangible assets, net | | 11,758 | | | 12,770 | |
Other assets | Other assets | | 30,939 | | | 62,015 | | Other assets | | 15,426 | | | 3,920 | |
Assets held for disposal | | Assets held for disposal | | — | | | 1,411,907 | |
Total Assets | Total Assets | | $ | 2,942,127 | | | $ | 2,698,573 | | Total Assets | | $ | 1,445,386 | | | $ | 2,837,496 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Liabilities: | Liabilities: | | Liabilities: | |
Unpaid losses and loss adjustment expenses | Unpaid losses and loss adjustment expenses | | $ | 1,679,567 | | | $ | 1,084,450 | | Unpaid losses and loss adjustment expenses | | $ | 748,365 | | | $ | 842,958 | |
Unearned premiums | Unearned premiums | | 612,904 | | | 644,940 | | Unearned premiums | | 301,625 | | | 258,978 | |
Reinsurance payable on premiums | Reinsurance payable on premiums | | 200,568 | | | 248,625 | | Reinsurance payable on premiums | | 33,908 | | | 30,503 | |
Payments outstanding | Payments outstanding | | 105,200 | | | 114,524 | | Payments outstanding | | 2,326 | | | 2,000 | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | | 76,358 | | | 76,258 | | Accounts payable and accrued expenses | | 89,582 | | | 75,374 | |
Operating lease liability | Operating lease liability | | 1,416 | | | 1,934 | | Operating lease liability | | 1,412 | | | 1,689 | |
Other liabilities | Other liabilities | | 32,996 | | | 39,324 | | Other liabilities | | 36,242 | | | 17,466 | |
Notes payable, net | Notes payable, net | | 152,684 | | | 156,561 | | Notes payable, net | | 148,438 | | | 148,355 | |
Liabilities held for disposal | | Liabilities held for disposal | | — | | | 1,642,212 | |
Total Liabilities | Total Liabilities | | $ | 2,861,693 | | | $ | 2,366,616 | | Total Liabilities | | $ | 1,361,898 | | | $ | 3,019,535 | |
Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | | | | | Commitments and contingencies (Note 11) | | | | |
Stockholders' Equity: | Stockholders' Equity: | | Stockholders' Equity: | |
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding | Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding | | $ | — | | | $ | — | | Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding | | $ | — | | | $ | — | |
Common stock, $0.0001 par value; 100,000,000 shares authorized; 43,497,890 and 43,360,429 issued, respectively; 43,285,807 and 43,370,442 outstanding, respectively | | 4 | | | 4 | | |
Common stock, $0.0001 par value; 100,000,000 shares authorized; 43,486,442 and 43,492,256 issued, respectively; 43,274,359 and 43,280,173 outstanding, respectively | | Common stock, $0.0001 par value; 100,000,000 shares authorized; 43,486,442 and 43,492,256 issued, respectively; 43,274,359 and 43,280,173 outstanding, respectively | | 4 | | | 4 | |
Additional paid-in capital | Additional paid-in capital | | 395,192 | | | 394,268 | | Additional paid-in capital | | 395,966 | | | 395,631 | |
Treasury shares, at cost: 212,083 shares | Treasury shares, at cost: 212,083 shares | | (431) | | | (431) | | Treasury shares, at cost: 212,083 shares | | (431) | | | (431) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (64,805) | | | (6,531) | | Accumulated other comprehensive loss | | (25,629) | | | (30,947) | |
Retained earnings (deficit) | Retained earnings (deficit) | | (249,526) | | | (74,904) | | Retained earnings (deficit) | | (286,422) | | | (546,296) | |
Total stockholders' equity attributable to United Insurance Holdings Corp. (UIHC) stockholders | | $ | 80,434 | | | $ | 312,406 | | |
Noncontrolling interests (NCI) | | — | | | 19,551 | | |
Total Stockholders' Equity | | $ | 80,434 | | | $ | 331,957 | | |
| Total Stockholders' Equity (Deficit) | | Total Stockholders' Equity (Deficit) | | $ | 83,488 | | | $ | (182,039) | |
Total Liabilities and Stockholders' Equity | Total Liabilities and Stockholders' Equity | | $ | 2,942,127 | | | $ | 2,698,573 | | Total Liabilities and Stockholders' Equity | | $ | 1,445,386 | | | $ | 2,837,496 | |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
UNITED INSURANCE HOLDINGS CORP.
Condensed Consolidated Statements of Comprehensive LossIncome (Loss) (Unaudited)
| | | Three Months Ended | | Nine Months Ended | | | Three Months Ended |
| | September 30, | | September 30, | | | March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
REVENUE: | REVENUE: | | | | | | | | | REVENUE: | | | | |
Gross premiums written | Gross premiums written | | $ | 255,203 | | | $ | 322,493 | | | $ | 894,824 | | | $ | 1,060,555 | | Gross premiums written | | $ | 187,123 | | | $ | 142,414 | |
Change in gross unearned premiums | Change in gross unearned premiums | | 46,693 | | | 30,968 | | | 32,036 | | | 6,002 | | Change in gross unearned premiums | | (42,647) | | | (19,681) | |
Gross premiums earned | Gross premiums earned | | 301,896 | | | 353,461 | | | 926,860 | | | 1,066,557 | | Gross premiums earned | | 144,476 | | | 122,733 | |
Ceded premiums earned | Ceded premiums earned | | (185,709) | | | (200,190) | | | (598,411) | | | (621,877) | | Ceded premiums earned | | (57,152) | | | (64,987) | |
Net premiums earned | Net premiums earned | | 116,187 | | | 153,271 | | | 328,449 | | | 444,680 | | Net premiums earned | | 87,324 | | | 57,746 | |
Net investment income | Net investment income | | 4,269 | | | 3,471 | | | 9,887 | | | 10,737 | | Net investment income | | 2,589 | | | 1,404 | |
Net realized investment gains (losses) | Net realized investment gains (losses) | | (9) | | | 5,537 | | | (1,856) | | | 5,916 | | Net realized investment gains (losses) | | (83) | | | 37 | |
Net unrealized gains (losses) on equity securities | Net unrealized gains (losses) on equity securities | | (2,518) | | | (3,293) | | | (9,870) | | | 1,709 | | Net unrealized gains (losses) on equity securities | | 474 | | | (770) | |
Management fee income | | Management fee income | | 9,668 | | | 50,206 | |
Other revenue | Other revenue | | 5,859 | | | 3,754 | | | 15,337 | | | 16,941 | | Other revenue | | 4,075 | | | 8,738 | |
Total revenue | Total revenue | | 123,788 | | | 162,740 | | | 341,947 | | | 479,983 | | Total revenue | | 104,047 | | | 117,361 | |
EXPENSES: | EXPENSES: | | EXPENSES: | | |
Losses and loss adjustment expenses | Losses and loss adjustment expenses | | 117,228 | | | 102,769 | | | 298,670 | | | 336,614 | | Losses and loss adjustment expenses | | 19,073 | | | 32,518 | |
Policy acquisition costs | Policy acquisition costs | | 38,944 | | | 46,925 | | | 93,948 | | | 129,073 | | Policy acquisition costs | | 26,927 | | | 52,152 | |
Operating expenses | Operating expenses | | 9,615 | | | 15,429 | | | 34,882 | | | 42,133 | | Operating expenses | | 5,651 | | | 10,603 | |
General and administrative expenses | General and administrative expenses | | 26,391 | | | 13,940 | | | 56,890 | | | 42,934 | | General and administrative expenses | | 9,837 | | | 15,435 | |
Interest expense | Interest expense | | 2,392 | | | 2,378 | | | 7,165 | | | 7,010 | | Interest expense | | 2,719 | | | 2,359 | |
Total expenses | Total expenses | | 194,570 | | | 181,441 | | | 491,555 | | | 557,764 | | Total expenses | | 64,207 | | | 113,067 | |
Loss before other income | | (70,782) | | | (18,701) | | | (149,608) | | | (77,781) | | |
Other income (loss) | | (15) | | | 101 | | | 1,599 | | | 126 | | |
Loss before income taxes | | (70,797) | | | (18,600) | | | (148,009) | | | (77,655) | | |
Provision (benefit) for income taxes | | 87 | | | (3,482) | | | 25,187 | | | (20,656) | | |
Net Loss | | $ | (70,884) | | | $ | (15,118) | | | $ | (173,196) | | | $ | (56,999) | | |
Income before other income | | Income before other income | | 39,840 | | | 4,294 | |
Other income | | Other income | | 588 | | | 1,333 | |
Income before income taxes | | Income before income taxes | | 40,428 | | | 5,627 | |
Provision for income taxes | | Provision for income taxes | | 9,855 | | | 980 | |
Income from continuing operations, net of tax | | Income from continuing operations, net of tax | | $ | 30,573 | | | $ | 4,647 | |
Income (loss) from discontinued operations, net of tax | | Income (loss) from discontinued operations, net of tax | | 230,305 | | | (37,904) | |
Net income (loss) | | Net income (loss) | | $ | 260,878 | | | $ | (33,257) | |
Less: Net loss attributable to NCI | Less: Net loss attributable to NCI | | — | | | (796) | | | (111) | | | (1,396) | | Less: Net loss attributable to NCI | | — | | | (85) | |
Net loss attributable to UIHC | | $ | (70,884) | | | $ | (14,322) | | | $ | (173,085) | | | $ | (55,603) | | |
OTHER COMPREHENSIVE LOSS: | | | | | | | | | |
Net income (loss) attributable to UIHC | | Net income (loss) attributable to UIHC | | $ | 260,878 | | | $ | (33,172) | |
OTHER COMPREHENSIVE INCOME (LOSS): | | OTHER COMPREHENSIVE INCOME (LOSS): | | | | |
Change in net unrealized gains (losses) on investments | Change in net unrealized gains (losses) on investments | | (15,953) | | | 2,401 | | | (60,232) | | | (11,096) | | Change in net unrealized gains (losses) on investments | | 4,231 | | | (27,689) | |
Reclassification adjustment for net realized investment losses (gains) | | 9 | | | (5,537) | | | 1,856 | | | (5,916) | | |
Reclassification adjustment for net realized investment losses | | Reclassification adjustment for net realized investment losses | | 83 | | | 1,769 | |
| Income tax benefit related to items of other comprehensive loss | | — | | | 744 | | | 49 | | | 4,108 | | |
Total comprehensive loss | | $ | (86,828) | | | $ | (17,510) | | | $ | (231,523) | | | $ | (69,903) | | |
Income tax benefit related to items of other comprehensive income (loss) | | Income tax benefit related to items of other comprehensive income (loss) | | — | | | 6,236 | |
Total comprehensive income (loss) | | Total comprehensive income (loss) | | $ | 265,192 | | | $ | (52,941) | |
Less: Comprehensive loss attributable to NCI | Less: Comprehensive loss attributable to NCI | | — | | | (844) | | | (164) | | | (1,601) | | Less: Comprehensive loss attributable to NCI | | — | | | (643) | |
Comprehensive loss attributable to UIHC | | $ | (86,828) | | | $ | (16,666) | | | $ | (231,359) | | | $ | (68,302) | | |
Comprehensive income (loss) attributable to UIHC | | Comprehensive income (loss) attributable to UIHC | | $ | 265,192 | | | $ | (52,298) | |
| Weighted average shares outstanding | Weighted average shares outstanding | | Weighted average shares outstanding | | |
Basic | Basic | | 43,075,234 | | | 42,971,535 | | | 43,035,374 | | | 42,940,458 | | Basic | | 43,124,825 | | | 42,980,691 | |
Diluted | Diluted | | 43,075,234 | | | 42,971,535 | | | 43,035,374 | | | 42,940,458 | | Diluted | | 43,574,840 | | | 42,980,691 | |
| Earnings available to UIHC common stockholders per share | Earnings available to UIHC common stockholders per share | | Earnings available to UIHC common stockholders per share | | |
Basic | Basic | | $ | (1.65) | | | $ | (0.33) | | | $ | (4.02) | | | $ | (1.29) | | Basic | | |
Continuing operations | | Continuing operations | | $ | 0.71 | | | $ | 0.11 | |
Discontinued operations | | Discontinued operations | | 5.34 | | | (0.88) | |
Total | | Total | | $ | 6.05 | | | $ | (0.77) | |
Diluted | Diluted | | $ | (1.65) | | | $ | (0.33) | | | $ | (4.02) | | | $ | (1.29) | | Diluted | | | | |
Continuing operations | | Continuing operations | | $ | 0.70 | | | $ | 0.11 | |
Discontinued operations | | Discontinued operations | | 5.29 | | | (0.88) | |
Total | | Total | | $ | 5.99 | | | $ | (0.77) | |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
UNITED INSURANCE HOLDINGS CORP.
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended
(Unaudited)
| | | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Earnings (Deficit) | | Stockholders' Equity Attributable to UIHC | | NCI | | Total Stockholders’ Equity | | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Deficit | | Stockholders' Equity Attributable to UIHC | | NCI | | Total Stockholders’ Equity |
| | Number of Shares | | Dollars | | | Number of Shares | | Dollars | |
| | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Stockholders' Equity Attributable to UIHC | | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Stockholders' Equity Attributable to UIHC |
June 30, 2021 | 43,227,957 | | | $ | 4 | | | $ | 393,524 | | | $ | (431) | | $ | (662) | | $ | (53,102) | | $ | 339,333 | | $ | 21,089 | | | $ | 360,422 | | |
December 31, 2021 | | December 31, 2021 | 43,370,442 | | | $ | 4 | | | $ | 394,268 | | | $ | (431) | | $ | (6,531) | | $ | (74,904) | | $ | 312,406 | | $ | 19,551 | | | $ | 331,957 | |
Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | (14,322) | | | (14,322) | | | (796) | | | (15,118) | | Net loss | — | | | — | | | — | | | — | | | — | | | (33,172) | | | (33,172) | | | (85) | | | (33,257) | |
Other comprehensive loss, net | Other comprehensive loss, net | — | | | — | | | — | | | — | | | (2,344) | | | — | | | (2,344) | | | (48) | | | (2,392) | | Other comprehensive loss, net | — | | | — | | | — | | | — | | | (19,126) | | | — | | | (19,126) | | | (558) | | | (19,684) | |
| Stock Compensation | Stock Compensation | (20,567) | | | — | | | 320 | | | — | | | — | | | — | | | 320 | | | — | | | 320 | | Stock Compensation | (112,847) | | | — | | | 452 | | | — | | | — | | | — | | | 452 | | | — | | | 452 | |
| Cash dividends on common stock ($0.06 per common share) | Cash dividends on common stock ($0.06 per common share) | — | | | — | | | — | | | — | | | — | | | (2,576) | | | (2,576) | | | — | | | (2,576) | | Cash dividends on common stock ($0.06 per common share) | — | | | — | | | — | | | — | | | — | | | (2,589) | | | (2,589) | | | — | | | (2,589) | |
| September 30, 2021 | 43,207,390 | | | $ | 4 | | | $ | 393,844 | | | $ | (431) | | | $ | (3,006) | | | $ | (70,000) | | | $ | 320,411 | | | $ | 20,245 | | | $ | 340,656 | | |
March 31, 2022 | | March 31, 2022 | 43,257,595 | | | $ | 4 | | | $ | 394,720 | | | $ | (431) | | | $ | (25,657) | | | $ | (110,665) | | | $ | 257,971 | | | $ | 18,908 | | | $ | 276,879 | |
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| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Earnings (Deficit) | | Stockholders' Equity Attributable to UIHC | | NCI | | Total Stockholders’ Equity |
| Number of Shares | | Dollars | | | | | | | |
| | | | | | | |
June 30, 2022 | 43,313,166 | | | $ | 4 | | | $ | 394,902 | | | $ | (431) | | | $ | (48,861) | | | $ | (178,642) | | | $ | 166,972 | | | $ | — | | | $ | 166,972 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (70,884) | | | (70,884) | | | — | | | (70,884) | |
Other comprehensive loss, net | — | | | — | | | — | | | — | | | (15,944) | | | — | | | (15,944) | | | — | | | (15,944) | |
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Stock Compensation | (27,359) | | | — | | | 290 | | | — | | | — | | | — | | | 290 | | | — | | | 290 | |
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September 30, 2022 | 43,285,807 | | | $ | 4 | | | $ | 395,192 | | | $ | (431) | | | $ | (64,805) | | | $ | (249,526) | | | $ | 80,434 | | | $ | — | | | $ | 80,434 | |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
UNITED INSURANCE HOLDINGS CORP.
Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Deficit) | | Stockholders' Equity Attributable to UIHC | | NCI | | Total Stockholders’ Equity |
| Number of Shares | | Dollars | | | | | | |
| | | | | | |
December 31, 2020 | 43,075,877 | | | $ | 4 | | | $ | 393,122 | | | $ | (431) | | | $ | 9,693 | | | $ | (6,635) | | | $ | 395,753 | | | $ | 21,846 | | | $ | 417,599 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (55,603) | | | (55,603) | | | (1,396) | | | (56,999) | |
Other comprehensive loss, net | — | | | — | | | — | | | — | | | (12,699) | | | — | | | (12,699) | | | (205) | | | (12,904) | |
Stock Compensation | 131,513 | | | — | | | 722 | | | — | | | — | | | — | | | 722 | | | — | | | 722 | |
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Cash dividends on common stock ($0.18 per common share) | — | | | — | | | — | | | — | | | — | | | (7,762) | | | (7,762) | | | — | | | (7,762) | |
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September 30, 2021 | 43,207,390 | | | $ | 4 | | | $ | 393,844 | | | $ | (431) | | | $ | (3,006) | | | $ | (70,000) | | | $ | 320,411 | | | $ | 20,245 | | | $ | 340,656 | |
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| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Earnings (Deficit) | | Stockholders' Equity Attributable to UIHC | | NCI | | Total Stockholders’ Equity |
| Number of Shares | | Dollars | | | | | | | |
| | | | | | | |
December 31, 2021 | 43,370,442 | | | $ | 4 | | | $ | 394,268 | | | $ | (431) | | | $ | (6,531) | | | $ | (74,904) | | | $ | 312,406 | | | $ | 19,551 | | | $ | 331,957 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (173,085) | | | (173,085) | | | (111) | | | (173,196) | |
Other comprehensive loss, net | — | | | — | | | — | | | — | | | (58,274) | | | — | | | (58,274) | | | (53) | | | (58,327) | |
Return of Capital to NCI | — | | | — | | | — | | | — | | | — | | | 1,052 | | | 1,052 | | | (19,387) | | | (18,335) | |
Stock Compensation | (84,635) | | | — | | | 924 | | | — | | | — | | | — | | | 924 | | | — | | | 924 | |
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Cash dividends on common stock ($0.06 per common share) | — | | | — | | | — | | | — | | | — | | | (2,589) | | | (2,589) | | | — | | | (2,589) | |
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September 30, 2022 | 43,285,807 | | | $ | 4 | | | $ | 395,192 | | | $ | (431) | | | $ | (64,805) | | | $ | (249,526) | | | $ | 80,434 | | | $ | — | | | $ | 80,434 | |
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| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Retained Earnings (Deficit) | | Stockholders' Equity (Deficit) Attributable to UIHC | | NCI | | Total Stockholders’ Equity (Deficit) |
| Number of Shares | | Dollars | | | | | | | |
| | | | | | | |
December 31, 2022 | 43,280,173 | | | $ | 4 | | | $ | 395,631 | | | $ | (431) | | | $ | (30,947) | | | $ | (546,296) | | | $ | (182,039) | | | $ | — | | | $ | (182,039) | |
Net Income | — | | | — | | | — | | | — | | | — | | | 260,878 | | | 260,878 | | | — | | | 260,878 | |
Other comprehensive income, net | — | | | — | | | — | | | — | | | 4,314 | | | — | | | 4,314 | | | — | | | 4,314 | |
Impact of Deconsolidation of Discontinued Operations | — | | | — | | | — | | | — | | | 1,004 | | | (1,004) | | | — | | | — | | | — | |
Stock Compensation | (5,814) | | | — | | | 335 | | | — | | | — | | | — | | | 335 | | | — | | | 335 | |
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March 31, 2023 | 43,274,359 | | | $ | 4 | | | $ | 395,966 | | | $ | (431) | | | $ | (25,629) | | | $ | (286,422) | | | $ | 83,488 | | | $ | — | | | $ | 83,488 | |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
UNITED INSURANCE HOLDINGS CORP.
Condensed Consolidated Statements of Cash Flows (Unaudited) | | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
OPERATING ACTIVITIES | OPERATING ACTIVITIES | | | | | OPERATING ACTIVITIES | | | | |
Net loss | | $ | (173,196) | | | $ | (56,999) | | |
Adjustments to reconcile net loss to net cash provided used in operating activities: | | |
Depreciation and amortization, including goodwill impairment | | 21,071 | | | 9,045 | | |
Net income (loss) | | Net income (loss) | | $ | 260,878 | | | $ | (33,257) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
Depreciation and amortization | | Depreciation and amortization | | 2,155 | | | 2,606 | |
Bond amortization and accretion | Bond amortization and accretion | | 4,408 | | | 6,831 | | Bond amortization and accretion | | 160 | | | 1,634 | |
Net realized losses (gains) on investments | Net realized losses (gains) on investments | | 1,856 | | | (5,916) | | Net realized losses (gains) on investments | | (1,260) | | | 1,769 | |
Net unrealized losses (gains) on equity securities | Net unrealized losses (gains) on equity securities | | 9,870 | | | (1,709) | | Net unrealized losses (gains) on equity securities | | (2,554) | | | 2,268 | |
Provision for uncollectable premiums | Provision for uncollectable premiums | | 4 | | | 115 | | Provision for uncollectable premiums | | 5 | | | 12 | |
Provision for uncollectable reinsurance recoverables | Provision for uncollectable reinsurance recoverables | | 11 | | | (382) | | Provision for uncollectable reinsurance recoverables | | 183 | | | 168 | |
Provision for uncollectable notes receivable | | — | | | 20 | | |
| Deferred income taxes, net | Deferred income taxes, net | | 24,620 | | | (20,535) | | Deferred income taxes, net | | 15,767 | | | (11,351) | |
Stock based compensation | Stock based compensation | | 924 | | | 738 | | Stock based compensation | | 335 | | | 452 | |
Stock received as consideration for renewal rights agreement | | — | | | (5,007) | | |
| Settlement of receivable owed by HCI in connection with purchase agreement | Settlement of receivable owed by HCI in connection with purchase agreement | | 3,800 | | | — | | Settlement of receivable owed by HCI in connection with purchase agreement | | — | | | 3,800 | |
Gain on sale of property and equipment | Gain on sale of property and equipment | | (1,688) | | | Gain on sale of property and equipment | | (422) | | | (1,528) | |
Fixed asset disposal | Fixed asset disposal | | 473 | | | 18 | | Fixed asset disposal | | 524 | | | 343 | |
Disposition of former subsidiary | | Disposition of former subsidiary | | (229,183) | | | — | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accrued investment income | Accrued investment income | | 93 | | | 697 | | Accrued investment income | | 369 | | | 437 | |
Premiums receivable | Premiums receivable | | 33,948 | | | 24,025 | | Premiums receivable | | 15,178 | | | 2,265 | |
Reinsurance recoverable on paid and unpaid losses | Reinsurance recoverable on paid and unpaid losses | | (550,173) | | | (530,193) | | Reinsurance recoverable on paid and unpaid losses | | 289,946 | | | 85,140 | |
Ceded unearned premiums | Ceded unearned premiums | | 57,073 | | | (88,894) | | Ceded unearned premiums | | 72,064 | | | 146,667 | |
Deferred policy acquisition costs, net | Deferred policy acquisition costs, net | | (32,684) | | | (3,265) | | Deferred policy acquisition costs, net | | (875) | | | (7,193) | |
Other assets | Other assets | | 3,313 | | | 4,389 | | Other assets | | (31,630) | | | (4,618) | |
| Receivable from sale of building | | Receivable from sale of building | | — | | | 3,236 | |
Unpaid losses and loss adjustment expenses | Unpaid losses and loss adjustment expenses | | 595,117 | | | 419,511 | | Unpaid losses and loss adjustment expenses | | (278,142) | | | (117,236) | |
Unearned premiums | Unearned premiums | | (32,036) | | | (6,002) | | Unearned premiums | | (145,540) | | | (39,731) | |
Reinsurance payable on premiums | Reinsurance payable on premiums | | (48,057) | | | 94,477 | | Reinsurance payable on premiums | | (13,376) | | | (51,714) | |
Payments outstanding | Payments outstanding | | (9,324) | | | 57,848 | | Payments outstanding | | (68,493) | | | (10,246) | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | | 100 | | | (18,610) | | Accounts payable and accrued expenses | | 16,440 | | | (2,924) | |
Operating lease liability | Operating lease liability | | (518) | | | (273) | | Operating lease liability | | (277) | | | (183) | |
Other liabilities | Other liabilities | | (6,937) | | | 10,527 | | Other liabilities | | (6,416) | | | 8,291 | |
Net cash used in operating activities | | $ | (97,932) | | | $ | (109,544) | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | | $ | (104,164) | | | $ | (20,893) | |
INVESTING ACTIVITIES | INVESTING ACTIVITIES | | | | | INVESTING ACTIVITIES | | | | |
Proceeds from sales, maturities and repayments of: | Proceeds from sales, maturities and repayments of: | | Proceeds from sales, maturities and repayments of: | |
Fixed maturities | Fixed maturities | | 128,315 | | | 209,021 | | Fixed maturities | | 178,211 | | | 85,978 | |
Equity securities | Equity securities | | 88 | | | 11,121 | | Equity securities | | 24,163 | | | 88 | |
Other investments | Other investments | | 2,261 | | | 64,097 | | Other investments | | 227 | | | 1,063 | |
| Purchases of: | Purchases of: | | Purchases of: | |
Fixed maturities | Fixed maturities | | (21,592) | | | (177,301) | | Fixed maturities | | (7,439) | | | (13,415) | |
Equity securities | Equity securities | | (7,459) | | | (22,575) | | Equity securities | | (80) | | | (3,121) | |
Other investments | Other investments | | (1,911) | | | (42,521) | | Other investments | | — | | | (459) | |
Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | | 4,196 | | | — | | Proceeds from sale of property and equipment | | 464 | | | 730 | |
Cost of property, equipment and capitalized software acquired | Cost of property, equipment and capitalized software acquired | | (2,926) | | | (3,818) | | Cost of property, equipment and capitalized software acquired | | (154) | | | (1,406) | |
| Net cash provided by investing activities | | $ | 100,972 | | | $ | 38,024 | | |
Disposition of cash on divestiture of subsidiary | | Disposition of cash on divestiture of subsidiary | | (232,582) | | | — | |
Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | | $ | (37,190) | | | $ | 69,458 | |
FINANCING ACTIVITIES | FINANCING ACTIVITIES | | FINANCING ACTIVITIES | |
| Repayments of borrowings | Repayments of borrowings | | (4,147) | | | (1,143) | | Repayments of borrowings | | — | | | (381) | |
Dividends | Dividends | | (2,589) | | | (7,762) | | Dividends | | — | | | (2,589) | |
Tax withholding payment related to net settlement of equity awards | | — | | | (16) | | |
Return of capital in connection with termination of noncontrolling interest | | (18,335) | | | — | | |
| Net cash used in financing activities | Net cash used in financing activities | | $ | (25,071) | | | $ | (8,921) | | Net cash used in financing activities | | $ | — | | | $ | (2,970) | |
Increase in cash, cash equivalents and restricted cash | | (22,031) | | | (80,441) | | |
Increase in cash, cash equivalents and restricted cash, including cash classified as assets held for disposal | | Increase in cash, cash equivalents and restricted cash, including cash classified as assets held for disposal | | (141,354) | | | 45,595 | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | | 245,278 | | | 301,498 | | Cash, cash equivalents and restricted cash at beginning of period | | 283,611 | | | 245,278 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 223,247 | | | $ | 221,057 | | |
| Cash, cash equivalents and restricted at end of period | | Cash, cash equivalents and restricted at end of period | | $ | 142,257 | | | $ | 290,873 | |
Supplemental Cash Flows Information | Supplemental Cash Flows Information | | | | | Supplemental Cash Flows Information | | | | |
Interest paid | Interest paid | | $ | 4,823 | | | $ | 4,809 | | Interest paid | | $ | — | | | $ | 35 | |
Income taxes paid (refunded) | | $ | 1,444 | | | $ | (5,119) | | |
Income taxes paid | | Income taxes paid | | $ | 5,325 | | | $ | 77 | |
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
1) ORGANIZATION, CONSOLIDATION AND PRESENTATION
(a)Business
United Insurance Holdings Corp. (referred to in this document as we, our, us, the Company or UPC Insurance)UIHC) is a property and casualty insurance holding company that sources, writes and services residential personalcommercial and commercialpersonal property and casualty insurance policies using a network of agents and threetwo wholly-owned insurance subsidiaries. Our original insurance subsidiary is United Property & Casualty Insurance Company (UPC), which was formed in Florida in 1999. Our two other insurance subsidiaries are Interboro Insurance Company (IIC), acquired via merger on April 29, 2016; and American Coastal Insurance Company (ACIC), acquired via merger on April 3, 2017.
Our other subsidiaries include United Insurance Management, L.C. (UIM), a managing general agent that manages substantially all aspects of UPC's business;agent; Skyway Claims Services, LLC, which provides claims adjusting services to UPC and ACIC; AmCo Holding Company, LLC (AmCo) which is a holding company subsidiary that consolidates its respective insurance company; BlueLine Cayman Holdings (BlueLine), which reinsures portfolios of excess and surplus policies; UPC Re, which provides a portion of the reinsurance protection purchased by our insurance subsidiaries when needed; Skyway Reinsurance Services, LLC, which provides reinsurance brokerage services for our insurance companies; Skyway Legal Services, LLC, which provides claims litigation services to our insurance companies; and Skyway Technologies, LLC, a managing general agent that provides technological and distribution services to our insurance companies.
Our primary products are homeowners'commercial and commercialhomeowners' residential property insurance. We currently offer personal residential insurance in seven states, under authorization from the insurance regulatory authorities in each state. In addition, we write commercial residential insurance in Florida. During 2022, we also wrote commercial residential insurance in South Carolina and Texas, however, effective May 1, 2022, we no longer write in these states. We are also licensed toIn addition, we write personal residential insurance in an additional elevenNew York. During 2022, we wrote personal residential business in six other states; however we have not commenced writing or no longer writeon February 27, 2023, our former insurance subsidiary, United Property & Casualty Insurance Company (UPC) was placed into receivership with the Florida Department of Financial Services (DFS), which divested our ownership of UPC. The events leading to receivership and results of this subsidiary, now included within discontinued operations, are discussed in these states.Note 3 below.
On August 25, 2022, we announced that our former subsidiary UPC had filed plans for withdrawal in the states of Florida, Louisiana, and Texas and intended to file a plan for withdrawal in the state of New York. All filed plans entail non-renewing personal lines policies in these states. With this action, UPC will effectively be placed into an orderly run-off so long as UPC remains in compliance with the rules and regulations of each state. Additionally, we announced that Demotech, Inc. (Demotech), an insurance rating agency, notified UPC of its intent to withdraw UPC's Financial Stability Rating. On December 5, 2022, the Florida Office of Insurance Regulation ("FLOIR") issued Consent Order No. 303643-22- CO that provided for the administrative supervision and approval of the plan of run-off for UPC (the "Consent Order"). The Consent Order provided formal approval of UPC's Plan of Run-Off (the "Plan") to facilitate a solvent wind down of its affairs in an orderly fashion. Additionally, in connection with the Plan, IIC agreed to not pay ordinary dividends without the prior approval of the New York Department of Financial Services until January 1, 2025. On February 10, 2023, we announced that a solvent run-off of UPC was unlikely and on February 27, 2023, UPC was placed into receivership with the Florida Department of Financial Services (the "DFS") which divested our ownership of UPC.
Effective June 1, 2022, we merged our majority-owned insurance subsidiary, Journey Insurance Company (JIC) into ACIC, with ACIC being the surviving entity. JIC was formed in strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Kiln) on August 30, 2018 and operated independently from ACIC prior to the merging of the entities. The Kiln subsidiary held a noncontrolling interest in JIC, which was terminated prior to the merger.
Effective June 1, 2022, we entered into a quota share reinsurance agreement with TypTap Insurance Company (Typtap). Under the terms of this agreement, we cedeceded 100% of our former subsidiary UPC's in-force, new, and renewal policies in the states of Georgia, North Carolina and South Carolina. Effective June 1, 2022, we began the transition of South Carolina policies to Homeowners Choice Property and Casualty IncInsurance Company, Inc. (HCPCI) in connection with our renewal rights agreement. Effective October 1, 2022, we transitioned Georgia policies to HCPCI in connection with our renewal rights agreement. Effective December 1, 2022, we began the transition of North Carolina policies to HCPCI in connection with our renewal rights agreement. As a result, these policies will no longer be covered under this agreement upon their renewal. This agreement replaces the 85% quota share agreement with HCPCI effective December 31, 2021.
Effective May 31, 2022, we merged Family Security Insurance Company, Inc. (FSIC) into our former subsidiary UPC, with UPC being the surviving entity. FSIC was acquired via merger on February 3, 2015, and operated independently from
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
UPC prior to the merging of the entities. In conjunction with the merger, we dissolved Family Security Holdings (FSH), a holding company subsidiary that consolidated its respective insurance company, FSIC.
Effective June 1, 2021, we entered into a quota share reinsurance agreement with HCPCI and TypTap. Under the terms of this agreement, we ceded 100% of our former subsidiary UPC's in-force, new, and renewal policies in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island. The cession of these policies was 50% to HCPCI and 50% to TypTap. HCPCI is responsible for processing all claims as a part of this agreement. As of April 1, 2022, we completed the transition of all policies in these four states to HCPCI in connection with our renewal rights agreement (Northeast Renewal Agreement) to sell UPC's personal lines homeowners business in these states.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
We conduct our operations under two reportable segments, personal residential property and casualty insurance policies (personal lines) and commercial residential property and casualty insurance policies (commercial lines). Our chief operating decision maker is our President, who makes decisions to allocate resources and assesses performance at both segment levels, as well as at the corporate level.
(b)Consolidation and Presentation
We prepare our unaudited condensed consolidated interim financial statements in conformity with U.S. generally accepted accounting principles (GAAP). We have condensed or omitted certain information and footnote disclosures normally included in the annual consolidated financial statements presented in accordance with GAAP. In management's opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of interim periods. We include all of our subsidiaries in our consolidated financial statements, eliminating intercompany balances and transactions during consolidation. As described in Note 2, our former subsidiary, UPC, qualifies as a discontinued operation. Our unaudited condensed consolidated interim financial statements and footnotes should be read in conjunction with our consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
While preparing our unaudited condensed consolidated financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us to make extensive use of estimates include our reserves for unpaid losses and loss adjustment expenses, investments and goodwill. Except for the captions on our Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Comprehensive Loss, we generally use the term loss(es) to collectively refer to both loss and loss adjustment expenses.
Our results of operations and our cash flows as of the end of the interim periods reported herein do not necessarily indicate our results for the remainder of the year or for any other future period.
(c) Going Concern
(c)
Our unaudited condensed consolidated interim financial statements have been prepared in accordance with GAAP assuming the Company will continue as a going concern. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, our subsidiary ACIC is a part of a combined reinsurance program with our former subsidiary, UPC.
To properly allocate the reinsurance recoverables under the shared catastrophe treaties, UPC and ACIC entered into a reinsurance allocation agreement that became effective on June 1, 2022 (the "Allocation Agreement"). The Allocation Agreement was filed with and approved by the FLOIR on December 5, 2022. On February 10, 2023, we announced that a solvent run-off of UPC was unlikely, driven by Hurrican Ian losses which exhausted UPC's reinsurance coverage. On February 27, 2023, UPC was placed into receivership with the DFS which divested our ownership of UPC. As of the date of filing our Annual Report, the DFS had not recognized the Allocation Agreement, leaving uncertainty regarding the timing of both recoveries currently held by UPC that are allocated to ACIC and future recoverables. Management also believed that the ability for ACIC to obtain adequate reinsurance to meet its needs for the June 1, 2023 to May 31, 2024 catastrophe cover could only be accomplished assuming that recoveries due to ACIC pursuant to the Allocation Agreement could be resolved in short order.
However, on April 19, 2023, ACIC entered into a Memorandum of Understanding with the DFS. Under the terms of the Memorandum, ACIC and the DFS as receiver of UPC have reached the following agreement:
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
1.Impact of COVID-19The DFS adopts, ratifies and Financial Statusaffirms the Allocation Agreement.
2.All future reinsurance recoverable under reinsurance agreements applicable to the Allocation Agreement for Hurricane Ian losses shall be paid, either directly from the reinsurers or directly from the reinsurance intermediary responsible therefor, to ACIC. If a true up adjustment demonstrates that any future reinsurance recoveries were over-collected by ACIC, ACIC will remit any over-payment to UPC.
We did not experienceWhile the execution of the MOU does alleviate the uncertainty regarding future recoverables, uncertainty does still exist regarding recoveries currently held by UPC. The Company intends to continue to work towards a material impact from COVID-19 on our business operations, financial position, liquidity or our ability to service our policyholders during the threefair and nine months ended September 30, 2022.equitable solution regarding these held recoveries (See Note 18). In addition, the COVID-19 pandemic and resulting global disruptions didCompany has not havefinalized its catastrophe cover for June 1, 2023 to May 31, 2024. While continued progress is being made, uncertainty does still exist regarding placement of this cover. As a material impact on our accessresult, the Company has concluded substantial doubt continues to credit and capital markets neededexist regarding its ability to maintain sufficient liquidity for our continued operating needs during the quarter ended September 30, 2022.
Additionally, during the fourth quarter of 2021 we implemented our new flexible work policy. This policy allows all employees to work remotely permanently, with the return to our offices being completely voluntary at this time. We will continue to respond to the COVID-19 pandemic and take reasonable measures to make sure customers continue to be served without interruption.as a going concern.
2) SIGNIFICANT ACCOUNTING POLICIES
(a) Income Taxes
In June 2022, we assessed our deferred tax position and believe it is more likely than not that the benefit from certain net operating loss (NOL) carryforwards will not be realized. In recognition of this risk, we have recorded a valuation allowance of $57,511,000 against our deferred tax assets as of September 30, 2022. If our assumptions change and we determine that we will be able to realize these NOLs, we will reverse the valuation allowance accordingly.
(b) Changes to Significant Accounting Policies
During the three months ended March 31, 2023, our former subsidiary, UPC, was placed into receivership with the DFS. As described in Note 1, effective February 27, 2023, this receivership divested our ownership of UPC. This disposal was evaluated for qualification as a discontinued operation. The results of operations of business are reported as discontinued operations when the disposal represents a strategic shift that will have a major effect on the entity's operations and financial results. When a business is identified for discontinued operations reporting:
•Results for prior periods are retroactively reclassified as discontinued operations;
•Results of operations are reported in a single line, net of tax, in the Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss); and
•Assets and liabilities are reported as held for disposal in the Unaudited Condensed Consolidated Balance Sheets
Additional details by major classification of operating results and financial position are included in Note 3.
There have been no other changes to our significant accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
(c)
(b) Pending Accounting Pronouncements
We have evaluated pending accounting pronouncements and do not believe any would have an impact on the operations or financial reporting of our company.
3) DISCONTINUED OPERATIONS
On August 25, 2022, we announced that our former subsidiary UPC had filed plans for withdrawal in the states of Florida, Louisiana, and Texas and intended to file a plan for withdrawal in the state of New York. All filed plans entailed non-renewing personal lines policies in these states. Additionally, we announced that Demotech, an insurance rating agency, notified UPC of its intent to withdraw UPC's Financial Stability Rating. On December 5, 2022, the FLOIR issued Consent Order No. 303643-22- CO that provided for the administrative supervision and approval of the plan of run-off for UPC (the "Consent Order"). The Consent Order provided formal approval of UPC's Plan of Run-Off (the "Plan") to facilitate a solvent wind down of its affairs in an orderly fashion. On February 10, 2023, we announced that a solvent run-off of UPC was unlikely, driven by Hurricane Ian losses which exhausted UPC's reinsurance coverage. On February 27, 2023, UPC was placed into receivership with the DFS which divested our ownership of UPC.
In the first quarter of 2023, the assets and liabilities of UPC were divested of. The assets and liabilities for the balance sheet as of December 31, 2022 are reclassified as held for disposal retrospectively, and the results of UPC are presented as discontinued operations for all periods presented.
The results from discontinued operations for the three months ended March 31, 2023 and 2022 are presented below.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30,March 31, 2023
| | | | | | | | | | | | | | |
Results From Discontinued Operations | | | | |
| | Three Months Ended March 31, |
| | 2023 | | 2022 |
REVENUE: | | | | |
Gross premiums written | | $ | (120,608) | | | $ | 146,828 | |
Change in gross unearned premiums | | 198,154 | | | 59,726 | |
Gross premiums earned | | 77,546 | | | 206,554 | |
Ceded premiums earned | | (48,203) | | | (163,443) | |
Net premiums earned | | 29,343 | | | 43,111 | |
Net investment income | | 2,182 | | | 1,075 | |
Net realized investment gains (losses) | | 1,343 | | | (1,806) | |
Net unrealized gains (losses) on equity securities | | 2,080 | | | (1,498) | |
Other revenue | | 71 | | | 170 | |
Total revenue | | 35,019 | | | 41,052 | |
EXPENSES: | | | | |
Losses and loss adjustment expenses | | 33,978 | | | 64,691 | |
Policy acquisition costs | | 8,361 | | | 24,070 | |
Operating expenses | | 513 | | | 1,645 | |
General and administrative expenses | | 240 | | | 570 | |
Interest expense | | 22 | | | 20 | |
Total expenses | | 43,114 | | | 90,996 | |
Loss before other income | | (8,095) | | | (49,944) | |
Other income (loss) | | — | | | 9 | |
Loss before income taxes | | (8,095) | | | (49,935) | |
Provision (benefit) for income taxes | | (9,217) | | | (12,031) | |
Income (loss) from discontinued operations, net of tax | | $ | 1,122 | | | $ | (37,904) | |
As of February 28, 2023, the Company completed the disposal of its former subsidiary, UPC. This divestiture resulted in a gain of $229,183,000 for the period. This gain was driven by the negative equity position of UPC.
The major classes of assets and liabilities transferred as a result of the transaction as of the date of transfer and December 31, 2022 are presented below.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
| | | | | | | | | | | | | | |
Major Classes of Assets and Liabilities Disposed | | | | |
| | Closing (1) | | December 31, 2022 |
ASSETS | | | | |
Fixed maturities, available-for-sale | | 1,380 | | | 171,781 | |
Equity securities | | 272 | | | 23,363 | |
Other investments | | 12,882 | | | 12,952 | |
Cash and cash equivalents | | 224,824 | | | 158,990 | |
Restricted cash | | 7,758 | | | 7,730 | |
Accrued investment income | | 875 | | | 1,457 | |
Premiums receivable, net | | 22,733 | | | 46,736 | |
Reinsurance recoverable on paid and unpaid losses, net | | 548,929 | | | 834,863 | |
Ceded unearned premiums | | 75,262 | | | 122,533 | |
Deferred policy acquisition costs, net | | (89) | | | (2,046) | |
Other assets | | 53,675 | | | 33,548 | |
Total assets | | $ | 948,501 | | | $ | 1,411,907 | |
| | | | |
LIABILITIES | | | | |
Unpaid losses and loss adjustment expenses | | 920,431 | | | 1,103,980 | |
Unearned premiums | | 98,655 | | | 286,842 | |
Reinsurance payable on premiums | | 12,612 | | | 29,394 | |
Payments outstanding | | 144,238 | | | 213,058 | |
Accounts payable and accrued expenses | | 1,361 | | | (872) | |
Other liabilities | | (3,731) | | | 5,692 | |
Notes payable, net | | 4,118 | | | 4,118 | |
Total Liabilities | | $ | 1,177,684 | | | $ | 1,642,212 | |
(1) The Company divested its ownership on February 27, 2023, the date the DFS was appointed as receiver of the entity.
The discontinued operations of the Company does not have any depreciation, amortization, capital expenditures or other noncash items for the periods in which the results of discontinued operations are presented.
3)4) SEGMENT REPORTING
Personal Lines Business
Our personal lines business provides structure, content and liability coverage for standard single-family homeowners, renters and condominium unit owners, through our subsidiaries UPC andsubsidiary IIC. Personal residential products are offered in all states in which we write business.New York. We include coverage to policyholders for loss or damage to dwellings, detached structures or equipment caused by covered causes of loss such as fire, wind, hail, water, theft and vandalism.
We have developed a unique and proprietary homeowners’ product. This product uses a granular approach to pricing for catastrophe perils. We have focused on using independent agencies as a channel of distribution for our personal lines business. All of our personal lines business is managed internally.
Commercial Lines Business
Our commercial lines business primarily provides commercial multi-peril property insurance for residential condominium associations and apartments in Florida, through our subsidiary ACIC. We include coverage to policyholders for loss or damage
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
to buildings, inventory or equipment caused by covered causes of loss such as fire, wind, hail, water, theft and vandalism. We also wrote commercial residential coverage through our subsidiary JIC, in South Carolina and Texas. Effective June 1, 2022 JIC was merged into ACIC, with ACIC being the surviving entity. As a result, the commercial residential policies originally written by JIC willwere not be renewed effective May 31, 2022.
All of our commercial lines business is administered by an outside managing general underwriter, AmRisc, LLC (AmRisc). This includes handling the underwriting, claims processing and premium collection related to our commercial business. In return, AmRisc is reimbursed through monthly management fees. International Catastrophe Insurance Managers (ICAT) handleshandled the underwriting and premium collection for JIC’s commercial business written in South Carolina and Texas and iswas also reimbursed through monthly management fees. InEffective May 31, 2022, the Company terminated its agreement with ICAT. Termination of this agreement is effective May 31, 2022.
Please note the following similarities pertaining to the accounting and transactions of our operating segments for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022:
•Both operating segments follow the accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2021;2022;
•Neither operating segment experienced significant noncash transactions outside of depreciation and amortization for the three and nine months ended September 30, 2022 and 2021, and the receipt of HCI common stock during the three months ended March 31, 2021, in connection with our Northeast Renewal Agreement.2023 and 2022.
The tables below present the information for each of the reportable segment's profit or loss, as well as segment assets for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022. We have restated our segments to reflect the divestiture of UPC during the first quarter of 2023, excluding the result of the entity for all periods presented.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
| | | Three Months Ended September 30, 2022 | | Three Months Ended March 31, 2023 |
| | Commercial | | Personal (1) | | Adjustments | | Consolidated | | Commercial | | Personal (1) | | Adjustments | | Consolidated |
REVENUE: | REVENUE: | | | | | | | | | REVENUE: | | | | | | | | |
Gross premiums written | Gross premiums written | | $ | 76,867 | | | $ | 178,336 | | | $ | — | | | $ | 255,203 | | Gross premiums written | | $ | 176,641 | | | $ | 10,482 | | | $ | — | | | $ | 187,123 | |
Change in gross unearned premiums | Change in gross unearned premiums | | 42,953 | | | 3,740 | | | — | | | 46,693 | | Change in gross unearned premiums | | (44,607) | | | 1,960 | | | — | | | (42,647) | |
Gross premiums earned | Gross premiums earned | | 119,820 | | | 182,076 | | | — | | | 301,896 | | Gross premiums earned | | 132,034 | | | 12,442 | | | — | | | 144,476 | |
Ceded premiums earned | Ceded premiums earned | | (60,301) | | | (125,408) | | | — | | | (185,709) | | Ceded premiums earned | | (53,374) | | | (3,778) | | | — | | | (57,152) | |
Net premiums earned | Net premiums earned | | 59,519 | | | 56,668 | | | — | | | 116,187 | | Net premiums earned | | 78,660 | | | 8,664 | | | — | | | 87,324 | |
Net investment income | Net investment income | | 1,756 | | | 2,498 | | | 15 | | | 4,269 | | Net investment income | | 1,786 | | | 782 | | | 21 | | | 2,589 | |
Net realized gains (losses) | Net realized gains (losses) | | — | | | (9) | | | — | | | (9) | | Net realized gains (losses) | | (83) | | | — | | | — | | | (83) | |
Net unrealized losses on equity securities | Net unrealized losses on equity securities | | (897) | | | (1,621) | | | — | | | (2,518) | | Net unrealized losses on equity securities | | 473 | | | — | | | 1 | | | 474 | |
Management fee income | | Management fee income | | — | | | 9,668 | | | — | | | 9,668 | |
Other revenue | Other revenue | | 1,178 | | | 4,678 | | | 3 | | | 5,859 | | Other revenue | | — | | | 4,075 | | | — | | | 4,075 | |
Total revenues | Total revenues | | 61,556 | | | 62,214 | | | 18 | | | 123,788 | | Total revenues | | 80,836 | | | 23,189 | | | 22 | | | 104,047 | |
EXPENSES: | EXPENSES: | | EXPENSES: | |
Losses and loss adjustment expenses | Losses and loss adjustment expenses | | 34,229 | | | 82,999 | | | — | | | 117,228 | | Losses and loss adjustment expenses | | 13,901 | | | 5,172 | | | — | | | 19,073 | |
Policy acquisition costs | Policy acquisition costs | | 22,430 | | | 16,514 | | | — | | | 38,944 | | Policy acquisition costs | | 25,166 | | | 1,761 | | | — | | | 26,927 | |
Operating expenses | Operating expenses | | 717 | | | 8,788 | | | 110 | | | 9,615 | | Operating expenses | | 96 | | | 5,431 | | | 124 | | | 5,651 | |
General and administrative expenses (2) | General and administrative expenses (2) | | 2,428 | | | 23,643 | | | 320 | | | 26,391 | | General and administrative expenses (2) | | 2,754 | | | 6,951 | | | 132 | | | 9,837 | |
Interest expense | Interest expense | | — | | | 34 | | | 2,358 | | | 2,392 | | Interest expense | | — | | | — | | | 2,719 | | | 2,719 | |
Total expenses | Total expenses | | 59,804 | | | 131,978 | | | 2,788 | | | 194,570 | | Total expenses | | 41,917 | | | 19,315 | | | 2,975 | | | 64,207 | |
Income (loss) before other income | Income (loss) before other income | | 1,752 | | | (69,764) | | | (2,770) | | | (70,782) | | Income (loss) before other income | | 38,919 | | | 3,874 | | | (2,953) | | | 39,840 | |
Other income (loss) | Other income (loss) | | 10 | | | (25) | | | — | | | (15) | | Other income (loss) | | — | | | 803 | | | (215) | | | 588 | |
Income (loss) before income taxes | Income (loss) before income taxes | | $ | 1,762 | | | $ | (69,789) | | | (2,770) | | | (70,797) | | Income (loss) before income taxes | | $ | 38,919 | | | $ | 4,677 | | | (3,168) | | | 40,428 | |
Benefit for income taxes | | | | | | 87 | | | 87 | | |
Provision for income taxes | | Provision for income taxes | | | | | | 9,855 | | | 9,855 | |
Net income (loss) | Net income (loss) | | $ | (2,857) | | | $ | (70,884) | | Net income (loss) | | $ | (13,023) | | | $ | 30,573 | |
Less: Net loss attributable to noncontrolling interests | Less: Net loss attributable to noncontrolling interests | | — | | | — | | Less: Net loss attributable to noncontrolling interests | | — | | | — | |
Net income (loss) attributable to UIHC | Net income (loss) attributable to UIHC | | $ | (2,857) | | | $ | (70,884) | | Net income (loss) attributable to UIHC | | $ | (13,023) | | | $ | 30,573 | |
| Loss ratio, net (3) (4) | Loss ratio, net (3) (4) | | 57.5 | % | | 146.5 | % | | 100.9 | % | Loss ratio, net (3) (4) | | 17.7 | % | | 59.7 | % | | 21.9 | % |
Expense ratio (3) (5) | Expense ratio (3) (5) | | 43.0 | % | | 86.4 | % | | 64.5 | % | Expense ratio (3) (5) | | 35.6 | % | | 163.2 | % | | 48.6 | % |
Combined ratio (3) (6) | Combined ratio (3) (6) | | 100.5 | % | | 232.9 | % | | 165.4 | % | Combined ratio (3) (6) | | 53.3 | % | | 222.9 | % | | 70.5 | % |
| Total segment assets | Total segment assets | | $ | 1,354,893 | | | $ | 1,357,892 | | | $ | 229,342 | | | $ | 2,942,127 | | Total segment assets | | $ | 1,304,499 | | | $ | 130,045 | | | $ | 10,842 | | | $ | 1,445,386 | |
(1) Our personal lines income statement also includes amounts related to subsidiaries outside of our insurance companies. We have included these items as these subsidiaries directly support our personal lines operations.
(2) Included in our General and Administrative expenses is $15,136,000$1,260,000 and $673,000$812,000 of depreciation and amortization expense related to our personal and commercial lines assets, respectively. Personal lines depreciation and amortization expenses includes $13,569,000 related to the impairment of goodwill.
(3) As these are calculated ratios, the addition of the ratios will not result in the same value as the consolidated ratio. To calculate the consolidated ratio please see the corresponding footnote below.
(4) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.
(5) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate these components separately from our loss expenses.
(6) Combined ratio is the sum of the loss ratio, net and expense ratio. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 |
| | Commercial | | Personal (1) | | Adjustments | | Consolidated |
REVENUE: | | | | | | | | |
Gross premiums written | | $ | 64,384 | | | $ | 258,109 | | | $ | — | | | $ | 322,493 | |
Change in gross unearned premiums | | 40,607 | | | (9,639) | | | — | | | 30,968 | |
Gross premiums earned | | 104,991 | | | 248,470 | | | — | | | 353,461 | |
Ceded premiums earned | | (61,583) | | | (138,607) | | | — | | | (200,190) | |
Net premiums earned | | 43,408 | | | 109,863 | | | — | | | 153,271 | |
Net investment income | | 1,166 | | | 2,294 | | | 11 | | | 3,471 | |
Net realized gains (losses) | | (2) | | | 5,539 | | | — | | | 5,537 | |
Net unrealized losses on equity securities | | 271 | | | (3,564) | | | — | | | (3,293) | |
Other revenue | | — | | | 3,754 | | | — | | | 3,754 | |
Total revenues | | 44,843 | | | 117,886 | | | 11 | | | 162,740 | |
EXPENSES: | | | | | | | | |
Losses and loss adjustment expenses | | 8,156 | | | 94,613 | | | — | | | 102,769 | |
Policy acquisition costs | | 23,384 | | | 23,541 | | | — | | | 46,925 | |
Operating expenses | | 1,422 | | | 13,777 | | | 230 | | | 15,429 | |
General and administrative expenses (2) | | 1,685 | | | 11,895 | | | 360 | | | 13,940 | |
Interest expense | | — | | | 19 | | | 2,359 | | | 2,378 | |
Total expenses | | 34,647 | | | 143,845 | | | 2,949 | | | 181,441 | |
Income (loss) before other income | | 10,196 | | | (25,959) | | | (2,938) | | | (18,701) | |
Other income (loss) | | — | | | 101 | | | — | | | 101 | |
Income (loss) before income taxes | | $ | 10,196 | | | $ | (25,858) | | | (2,938) | | | (18,600) | |
Benefit for income taxes | | | | | | (3,482) | | | (3,482) | |
Net income (loss) | | | | | | $ | 544 | | | $ | (15,118) | |
Less: Net loss attributable to noncontrolling interests | | | | | | (796) | | | (796) | |
Net income (loss) attributable to UIHC | | | | | | $ | 1,340 | | | $ | (14,322) | |
| | | | | | | | |
Loss ratio, net (3) (4) | | 18.8 | % | | 86.1 | % | | | | 67.1 | % |
Expense ratio (3) (5) | | 61.0 | % | | 44.8 | % | | | | 49.8 | % |
Combined ratio (3) (6) | | 79.8 | % | | 130.9 | % | | | | 116.9 | % |
| | | | | | | | |
Total segment assets | | $ | 1,298,042 | | | $ | 1,567,412 | | | $ | 463,132 | | | $ | 3,328,586 | |
(1) Our personal lines income statement also includes amounts related to subsidiaries outside of our insurance companies. We have included these items as these subsidiaries directly support our personal lines operations.
(2) Included in our General and Administrative expenses is $1,372,000 and $876,000 of depreciation and amortization expense related to our personal and commercial lines assets, respectively.
(3) As these are calculated ratios, the addition of the ratios will not result in the same value as the consolidated ratio. To calculate the consolidated ratio please see the corresponding footnote below.
(4) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.
(5) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate these components separately from our loss expenses.
(6) Combined ratio is the sum of the loss ratio, net and expense ratio. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 |
| | Commercial | | Personal (1) | | Adjustments | | Consolidated |
REVENUE: | | | | | | | | |
Gross premiums written | | $ | 385,898 | | | $ | 508,926 | | | $ | — | | | $ | 894,824 | |
Change in gross unearned premiums | | (45,395) | | | 77,431 | | | — | | | 32,036 | |
Gross premiums earned | | 340,503 | | | 586,357 | | | — | | | 926,860 | |
Ceded premiums earned | | (184,094) | | | (414,317) | | | — | | | (598,411) | |
Net premiums earned | | 156,409 | | | 172,040 | | | — | | | 328,449 | |
Net investment income | | 4,359 | | | 5,494 | | | 34 | | | 9,887 | |
Net realized gains (losses) | | (77) | | | (1,779) | | | — | | | (1,856) | |
Net unrealized losses on equity securities | | (4,056) | | | (5,812) | | | (2) | | | (9,870) | |
Other revenue | | 1,178 | | | 14,156 | | | 3 | | | 15,337 | |
Total revenues | | 157,813 | | | 184,099 | | | 35 | | | 341,947 | |
EXPENSES: | | | | | | | | |
Losses and loss adjustment expenses | | 56,537 | | | 242,133 | | | — | | | 298,670 | |
Policy acquisition costs | | 59,036 | | | 34,912 | | | — | | | 93,948 | |
Operating expenses | | 2,953 | | | 31,641 | | | 288 | | | 34,882 | |
General and administrative expenses (2) | | 7,169 | | | 48,518 | | | 1,203 | | | 56,890 | |
Interest expense | | — | | | 85 | | | 7,080 | | | 7,165 | |
Total expenses | | 125,695 | | | 357,289 | | | 8,571 | | | 491,555 | |
Income (loss) before other income | | 32,118 | | | (173,190) | | | (8,536) | | | (149,608) | |
Other income (loss) | | 12 | | | (80) | | | 1,667 | | | 1,599 | |
Income (loss) before income taxes | | $ | 32,130 | | | $ | (173,270) | | | (6,869) | | | (148,009) | |
Benefit for income taxes | | | | | | 25,187 | | | 25,187 | |
Net income (loss) | | | | | | $ | (32,056) | | | $ | (173,196) | |
Less: Net loss attributable to noncontrolling interests | | | | | | (111) | | | (111) | |
Net income (loss) attributable to UIHC | | | | | | $ | (31,945) | | | $ | (173,085) | |
| | | | | | | | |
Loss ratio, net (3) (4) | | 36.1 | % | | 140.7 | % | | | | 90.9 | % |
Expense ratio (3) (5) | | 44.2 | % | | 66.9 | % | | | | 56.5 | % |
Combined ratio (3) (6) | | 80.3 | % | | 207.6 | % | | | | 147.4 | % |
| | | | | | | | |
Total segment assets | | $ | 1,354,893 | | | $ | 1,357,892 | | | $ | 229,342 | | | $ | 2,942,127 | |
(1) Our personal lines income statement also includes amounts related to subsidiaries outside of our insurance companies. We have included these items as these subsidiaries directly support our personal lines operations.
(2) Included in our General and Administrative expenses is $18,005,000 and $2,435,000 of depreciation and amortization expense related to our personal and commercial lines assets, respectively. Personal lines depreciation and amortization expenses includes $13,569,000 related to the impairment of goodwill.
(3) As these are calculated ratios, the addition of the ratios will not result in the same value as the consolidated ratio. To calculate the consolidated ratio please see the corresponding footnote below.
(4) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.
(5) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate these components separately from our loss expenses.
(6) Combined ratio is the sum of the loss ratio, net and expense ratio. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
| | | Nine Months Ended September 30, 2021 | | Three Months Ended March 31, 2022 |
| | Commercial | | Personal (1) | | Adjustments | | Consolidated | | Commercial | | Personal (1) | | Adjustments | | Consolidated |
REVENUE: | REVENUE: | | | | | | | | | REVENUE: | | | | | | | | |
Gross premiums written | Gross premiums written | | $ | 328,406 | | | $ | 732,149 | | | $ | — | | | $ | 1,060,555 | | Gross premiums written | | $ | 127,964 | | | $ | 14,450 | | | $ | — | | | $ | 142,414 | |
Change in gross unearned premiums | Change in gross unearned premiums | | (23,639) | | | 29,641 | | | — | | | 6,002 | | Change in gross unearned premiums | | (20,499) | | | 818 | | | — | | | (19,681) | |
Gross premiums earned | Gross premiums earned | | 304,767 | | | 761,790 | | | — | | | 1,066,557 | | Gross premiums earned | | 107,465 | | | 15,268 | | | — | | | 122,733 | |
Ceded premiums earned | Ceded premiums earned | | (176,678) | | | (445,199) | | | — | | | (621,877) | | Ceded premiums earned | | (62,022) | | | (2,965) | | | — | | | (64,987) | |
Net premiums earned | Net premiums earned | | 128,089 | | | 316,591 | | | — | | | 444,680 | | Net premiums earned | | 45,443 | | | 12,303 | | | — | | | 57,746 | |
Net investment income | Net investment income | | 3,538 | | | 7,165 | | | 34 | | | 10,737 | | Net investment income | | 1,127 | | | 268 | | | 9 | | | 1,404 | |
Net realized gains | Net realized gains | | (34) | | | 5,950 | | | — | | | 5,916 | | Net realized gains | | 2 | | | 35 | | | — | | | 37 | |
Net unrealized losses on equity securities | Net unrealized losses on equity securities | | 627 | | | 1,082 | | | — | | | 1,709 | | Net unrealized losses on equity securities | | (769) | | | — | | | (1) | | | (770) | |
| Management fee income | | Management fee income | | — | | | 50,206 | | | — | | | 50,206 | |
Other revenue | Other revenue | | — | | | 16,941 | | | — | | | 16,941 | | Other revenue | | — | | | 8,738 | | | — | | | 8,738 | |
Total revenues | Total revenues | | 132,220 | | | 347,729 | | | 34 | | | 479,983 | | Total revenues | | 45,803 | | | 71,550 | | | 8 | | | 117,361 | |
EXPENSES: | EXPENSES: | | EXPENSES: | |
Losses and loss adjustment expenses | Losses and loss adjustment expenses | | 40,330 | | | 296,284 | | | — | | | 336,614 | | Losses and loss adjustment expenses | | 14,114 | | | 18,404 | | | — | | | 32,518 | |
Policy acquisition costs | Policy acquisition costs | | 59,238 | | | 69,835 | | | — | | | 129,073 | | Policy acquisition costs | | 16,678 | | | 35,474 | | | — | | | 52,152 | |
Operating expenses | Operating expenses | | 3,623 | | | 38,240 | | | 270 | | | 42,133 | | Operating expenses | | 1,109 | | | 9,403 | | | 91 | | | 10,603 | |
General and administrative expenses (2) | General and administrative expenses (2) | | 5,327 | | | 36,190 | | | 1,417 | | 1417 | 42,934 | | General and administrative expenses (2) | | 2,320 | | | 12,734 | | | 381 | | | 15,435 | |
Interest expense | Interest expense | | — | | | 66 | | | 6,944 | | | 7,010 | | Interest expense | | — | | | — | | | 2,359 | | | 2,359 | |
Total expenses | Total expenses | | 108,518 | | | 440,615 | | | 8,631 | | | 557,764 | | Total expenses | | 34,221 | | | 76,015 | | | 2,831 | | | 113,067 | |
Income (loss) before other income | Income (loss) before other income | | 23,702 | | | (92,886) | | | (8,597) | | | (77,781) | | Income (loss) before other income | | 11,582 | | | (4,465) | | | (2,823) | | | 4,294 | |
Other income | Other income | | — | | | 126 | | | — | | | 126 | | Other income | | — | | | (277) | | | 1,610 | | | 1,333 | |
Income (loss) before income taxes | Income (loss) before income taxes | | $ | 23,702 | | | $ | (92,760) | | | (8,597) | | | (77,655) | | Income (loss) before income taxes | | $ | 11,582 | | | $ | (4,742) | | | (1,213) | | | 5,627 | |
Benefit for income taxes | | | | | | (20,656) | | | (20,656) | | |
Provision for income taxes | | Provision for income taxes | | | | | | 980 | | | 980 | |
Net income (loss) | Net income (loss) | | $ | 12,059 | | | $ | (56,999) | | Net income (loss) | | $ | (2,193) | | | $ | 4,647 | |
Less: Net income attributable to noncontrolling interests | Less: Net income attributable to noncontrolling interests | | (1,396) | | | (1,396) | | Less: Net income attributable to noncontrolling interests | | (85) | | | (85) | |
Net income (loss) attributable to UIHC | Net income (loss) attributable to UIHC | | $ | 13,455 | | | $ | (55,603) | | Net income (loss) attributable to UIHC | | $ | (2,108) | | | $ | 4,732 | |
| | Loss ratio, net (3) (4) | | 31.5 | % | | 93.6 | % | | 75.7 | % | |
Expense ratio (3) (5) | | 53.2 | % | | 45.6 | % | | 48.2 | % | |
Combined ratio (3) (6) | | 84.7 | % | | 139.2 | % | | 123.9 | % | |
Loss ratio, net (3) (4) (7) | | Loss ratio, net (3) (4) (7) | | 31.1 | % | | 149.6 | % | | 56.3 | % |
Expense ratio (3) (5) (7) | | Expense ratio (3) (5) (7) | | 44.2 | % | | 468.3 | % | | 135.4 | % |
Combined ratio (3) (6) (7) | | Combined ratio (3) (6) (7) | | 75.3 | % | | 617.9 | % | | 191.7 | % |
| Total segment assets | Total segment assets | | $ | 1,298,042 | | | $ | 1,567,412 | | | $ | 463,132 | | | $ | 3,328,586 | | Total segment assets | | $ | 949,359 | | | $ | 179,208 | | | $ | 17,507 | | | $ | 1,146,074 | |
(1) Our personal lines income statement also includes amounts related to subsidiaries outside of our insurance companies. We have included these items as these subsidiaries directly support our personal lines operations.
(2) Included in our General and Administrative expenses is $5,537,000$1,512,000 and $2,509,000$885,000 of depreciation and amortization expense related to our personal and commercial lines assets, respectively.
(3) As these are calculated ratios, the addition of the ratios will not result in the same value as the consolidated ratio. To calculate the consolidated ratio please see the corresponding footnote below.
(4) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.
(5) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate these components separately from our loss expenses.
(6) Combined ratio is the sum of the loss ratio, net and expense ratio. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
4)5) INVESTMENTS
The following table details fixed-maturity available-for-sale securities, by major investment category, at September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | Cost or Adjusted/Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cost or Adjusted/Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
September 30, 2022 | | | | | | | | |
March 31, 2023 | | March 31, 2023 | | | | | | | |
U.S. government and agency securities | U.S. government and agency securities | $ | 39,516 | | | $ | — | | | $ | 4,078 | | | $ | 35,438 | | U.S. government and agency securities | $ | 3,491 | | | $ | — | | | $ | 82 | | | $ | 3,409 | |
Foreign government | Foreign government | 3,373 | | | — | | | 44 | | | 3,329 | | Foreign government | 1,000 | | | — | | | 9 | | | 991 | |
States, municipalities and political subdivisions | States, municipalities and political subdivisions | 65,759 | | | 1 | | | 7,594 | | | 58,166 | | States, municipalities and political subdivisions | 31,924 | | | 15 | | | 3,357 | | | 28,582 | |
Public utilities | Public utilities | 21,467 | | | — | | | 2,459 | | | 19,008 | | Public utilities | 8,913 | | | — | | | 1,093 | | | 7,820 | |
Corporate securities | Corporate securities | 211,277 | | | — | | | 27,496 | | | 183,781 | | Corporate securities | 99,324 | | | 58 | | | 13,659 | | | 85,723 | |
Mortgage-backed securities | Mortgage-backed securities | 153,223 | | | 14 | | | 20,653 | | | 132,584 | | Mortgage-backed securities | 64,285 | | | — | | | 8,283 | | | 56,002 | |
Asset-backed securities | Asset-backed securities | 62,447 | | | — | | | 4,500 | | | 57,947 | | Asset-backed securities | 30,536 | | | 36 | | | 2,366 | | | 28,206 | |
Redeemable preferred stocks | 2,101 | | | — | | | 103 | | | 1,998 | | |
| Total fixed maturities | Total fixed maturities | $ | 559,163 | | | $ | 15 | | | $ | 66,927 | | | $ | 492,251 | | Total fixed maturities | $ | 239,473 | | | $ | 109 | | | $ | 28,849 | | | $ | 210,733 | |
| December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
U.S. government and agency securities | U.S. government and agency securities | $ | 50,373 | | | $ | 293 | | | $ | 1,326 | | | $ | 49,340 | | U.S. government and agency securities | $ | 2,490 | | | $ | — | | | $ | 105 | | | $ | 2,385 | |
Foreign government | Foreign government | 3,383 | | | 84 | | | 8 | | | 3,459 | | Foreign government | 1,000 | | | — | | | 9 | | | 991 | |
States, municipalities and political subdivisions | States, municipalities and political subdivisions | 80,385 | | | 592 | | | 1,081 | | | 79,896 | | States, municipalities and political subdivisions | 30,958 | | | 2 | | | 4,065 | | | 26,895 | |
Public utilities | Public utilities | 26,103 | | | 164 | | | 810 | | | 25,457 | | Public utilities | 8,936 | | | — | | | 1,242 | | | 7,694 | |
Corporate securities | Corporate securities | 246,933 | | | 2,303 | | | 4,793 | | | 244,443 | | Corporate securities | 99,062 | | | 20 | | | 15,739 | | | 83,343 | |
Mortgage-backed securities | Mortgage-backed securities | 190,383 | | | 554 | | | 4,197 | | | 186,740 | | Mortgage-backed securities | 65,251 | | | — | | | 9,136 | | | 56,115 | |
Asset-backed securities | Asset-backed securities | 70,569 | | | 116 | | | 523 | | | 70,162 | | Asset-backed securities | 30,038 | | | 9 | | | 2,788 | | | 27,259 | |
Redeemable preferred stocks | 4,010 | | | 106 | | | 11 | | | 4,105 | | |
| Total fixed maturities | Total fixed maturities | $ | 672,139 | | | $ | 4,212 | | | $ | 12,749 | | | $ | 663,602 | | Total fixed maturities | $ | 237,735 | | | $ | 31 | | | $ | 33,084 | | | $ | 204,682 | |
Equity securities are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | Estimated Fair Value | | Percent of Total | | Estimated Fair Value | | Percent of Total |
| | | | | | | | |
Mutual funds | | $ | 32,137 | | | 88.0 | % | | $ | 33,064 | | | 87.1 | % |
Public utilities | | 901 | | | 2.5 | | | — | | | — | |
| | | | | | | | |
Nonredeemable preferred stocks | | 3,457 | | | 9.5 | | | 4,894 | | | 12.9 | |
Total equity securities | | $ | 36,495 | | | 100.0 | % | | $ | 37,958 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Estimated Fair Value | | Percent of Total | | Estimated Fair Value | | Percent of Total |
| | | | | | | | |
Mutual funds | | $ | 16,181 | | | 100.0 | % | | $ | 15,657 | | | 100.0 | % |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following table details our realized gains (losses) by major investment category for the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, respectively:
| | | 2022 | | 2021 | | 2023 | | 2022 |
| | Gains (Losses) | | Fair Value at Sale | | Gains (Losses) | | Fair Value at Sale | | Gains (Losses) | | Fair Value at Sale | | Gains (Losses) | | Fair Value at Sale |
Three Months Ended September 30, | | | | | | | | |
| Three Months Ended March 31, | | Three Months Ended March 31, | | | | | | | |
Fixed maturities | Fixed maturities | $ | — | | | $ | 20,507 | | | $ | 293 | | | $ | 50,112 | | Fixed maturities | $ | 4 | | | $ | 5,292 | | | $ | 41 | | | $ | 12,192 | |
Equity securities | Equity securities | — | | | — | | | 5,505 | | | 10,512 | | Equity securities | — | | | — | | | — | | | — | |
Short-term investments | Short-term investments | — | | | 57 | | | — | | | 14,655 | | Short-term investments | — | | | 126 | | | — | | | — | |
Total realized gains | Total realized gains | — | | | 20,564 | | | 5,798 | | | 75,279 | | Total realized gains | 4 | | | 5,418 | | | 41 | | | 12,192 | |
Fixed maturities | Fixed maturities | (9) | | | 245 | | | (236) | | | 16,086 | | Fixed maturities | (87) | | | (41) | | | (4) | | | 251 | |
Equity securities | Equity securities | — | | | — | | | — | | | 56 | | Equity securities | — | | | — | | | — | | | — | |
Short-term investments | Short-term investments | — | | | — | | | (25) | | | 23,974 | | Short-term investments | — | | | — | | | — | | | — | |
Total realized losses | Total realized losses | (9) | | | 245 | | | (261) | | | 40,116 | | Total realized losses | (87) | | | (41) | | | (4) | | | 251 | |
Net realized investment gains (losses) | Net realized investment gains (losses) | $ | (9) | | | $ | 20,809 | | | $ | 5,537 | | | $ | 115,395 | | Net realized investment gains (losses) | $ | (83) | | | $ | 5,377 | | | $ | 37 | | | $ | 12,443 | |
Nine Months Ended September 30, | | | | | | | | |
Fixed maturities | $ | 654 | | | $ | 82,348 | | | $ | 1,012 | | | $ | 161,314 | | |
Equity securities | — | | | — | | | 5,507 | | | 10,535 | | |
Short-term investments | — | | | 90 | | | — | | | 29,485 | | |
Total realized gains | 654 | | | 82,438 | | | 6,519 | | | 201,334 | | |
Fixed maturities | (2,499) | | | 45,940 | | | (544) | | | 47,707 | | |
Equity securities | (11) | | | 88 | | | (18) | | | 575 | | |
Short-term investments | — | | | — | | | (41) | | | 31,958 | | |
Total realized losses | (2,510) | | | 46,028 | | | (603) | | | 80,240 | | |
Net realized investment gains (losses) | $ | (1,856) | | | $ | 128,466 | | | $ | 5,916 | | | $ | 281,574 | | |
The table below summarizes our fixed maturities at September 30, 2022March 31, 2023 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations.
| | | September 30, 2022 | | March 31, 2023 |
| | Cost or Amortized Cost | | Percent of Total | | Fair Value | | Percent of Total | | Cost or Amortized Cost | | Percent of Total | | Fair Value | | Percent of Total |
Due in one year or less | Due in one year or less | $ | 25,360 | | | 4.5 | % | | $ | 25,200 | | | 5.1 | % | Due in one year or less | $ | 7,097 | | | 3.0 | % | | $ | 7,016 | | | 3.3 | % |
Due after one year through five years | Due after one year through five years | 184,937 | | | 33.1 | | | 169,320 | | | 34.5 | | Due after one year through five years | 50,754 | | | 21.2 | | | 46,402 | | | 22.0 | |
Due after five years through ten years | Due after five years through ten years | 121,858 | | | 21.8 | | | 98,100 | | | 19.9 | | Due after five years through ten years | 82,508 | | | 34.5 | | | 69,386 | | | 32.9 | |
Due after ten years | Due after ten years | 11,338 | | | 2.0 | | | 9,100 | | | 1.8 | | Due after ten years | 4,293 | | | 1.8 | | | 3,721 | | | 1.8 | |
Asset and mortgage-backed securities | Asset and mortgage-backed securities | 215,670 | | | 38.6 | | | 190,531 | | | 38.7 | | Asset and mortgage-backed securities | 94,821 | | | 39.5 | | | 84,208 | | | 40.0 | |
Total | Total | $ | 559,163 | | | 100.0 | % | | $ | 492,251 | | | 100.0 | % | Total | $ | 239,473 | | | 100.0 | % | | $ | 210,733 | | | 100.0 | % |
The following table summarizes our net investment income by major investment category:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Fixed maturities | | | | | $ | 1,272 | | | $ | 1,431 | |
Equity securities | | | | | 81 | | | 66 | |
Cash and cash equivalents | | | | | 1,304 | | | 22 | |
Other investments | | | | | 6 | | | 55 | |
Other assets | | | | | — | | | — | |
Investment income | | | | | 2,663 | | | 1,574 | |
Investment expenses | | | | | (74) | | | (170) | |
Net investment income | | | | | $ | 2,589 | | | $ | 1,404 | |
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
The following table summarizes our net investment income by major investment category:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Fixed maturities | $ | 2,487 | | | $ | 3,091 | | | $ | 7,063 | | | $ | 10,113 | |
Equity securities | 268 | | | 184 | | | 658 | | | 512 | |
Cash and cash equivalents | 1,174 | | | 2 | | | 1,791 | | | 99 | |
Other investments | 496 | | | 558 | | | 971 | | | 843 | |
Other assets | 7 | | | (92) | | | 16 | | | 20 | |
Investment income | 4,432 | | | 3,743 | | | 10,499 | | | 11,587 | |
Investment expenses | (163) | | | (272) | | | (612) | | | (850) | |
Net investment income | $ | 4,269 | | | $ | 3,471 | | | $ | 9,887 | | | $ | 10,737 | |
Portfolio monitoring
We have a quarterly portfolio monitoring process to identify and evaluate each fixed-income security whose carrying value may be impaired as the result of a credit loss. For each fixed-income security in an unrealized loss position, if we determine that we intend to sell the security or that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, the security's entire decline in fair value is recorded in earnings.
If our management decides not to sell the fixed-income security and it is more likely than not that we will not be required to sell the fixed-income security before recovery of its amortized cost basis, we evaluate whether the decline in fair value has resulted from credit losses or other factors. This is typically indicated by a change in the rating of the security assigned by a rating agency, and any adverse conditions specifically related to the security or industry, among other factors. If the assessment indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded in earnings. Credit loss is limited to the difference between a security's amortized cost basis and its fair value. Any additional impairment not recorded through an allowance for credit losses is recognized in other comprehensive loss.
During the three and nine months ended September 30, 2022,March 31, 2023, we determined that none of our fixed-income securities shown in the table below that are in an unrealized loss position have declines in fair value that are reflected as a result of credit losses. Therefore, no credit loss allowance was recorded at September 30, 2022.March 31, 2023. The issuers of our debt security investments continue to make interest payments on a timely basis. We do not intend to sell, nor is it likely that we would be required to sell the debt securities before we recover our amortized cost basis. Equity securities are reported at fair value with changes in fair value recognized in the valuation of equity investments.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
The following table presents an aging of our unrealized investment losses by investment class:
| | | Less Than Twelve Months | | Twelve Months or More | | Less Than Twelve Months | | Twelve Months or More |
| | Number of Securities(1) | | Gross Unrealized Losses | | Fair Value | | Number of Securities(1) | | Gross Unrealized Losses | | Fair Value | | Number of Securities(1) | | Gross Unrealized Losses | | Fair Value | | Number of Securities(1) | | Gross Unrealized Losses | | Fair Value |
September 30, 2022 | | | | | | | | | | | | |
March 31, 2023 | | March 31, 2023 | | | | | | | | | | | |
U.S. government and agency securities | U.S. government and agency securities | 55 | | | $ | 331 | | | $ | 7,699 | | | 41 | | | $ | 3,747 | | | $ | 27,739 | | U.S. government and agency securities | 1 | | | $ | 9 | | | $ | 990 | | | 2 | | | $ | 73 | | | $ | 1,421 | |
Foreign governments | Foreign governments | 3 | | | 37 | | | 1,322 | | | 1 | | | 7 | | | 2,007 | | Foreign governments | 1 | | | 9 | | | 991 | | | — | | | — | | | — | |
States, municipalities and political subdivisions | States, municipalities and political subdivisions | 66 | | | 2,303 | | | 25,930 | | | 49 | | | 5,291 | | | 31,260 | | States, municipalities and political subdivisions | 8 | | | 49 | | | 3,732 | | | 45 | | | 3,308 | | | 23,324 | |
Public utilities | Public utilities | 33 | | | 510 | | | 5,737 | | | 18 | | | 1,949 | | | 13,271 | | Public utilities | — | | | — | | | — | | | 12 | | | 1,093 | | | 7,819 | |
Corporate securities | Corporate securities | 209 | | | 5,020 | | | 60,556 | | | 152 | | | 22,476 | | | 122,619 | | Corporate securities | 35 | | | 547 | | | 10,964 | | | 115 | | | 13,112 | | | 71,582 | |
Mortgage-backed securities | Mortgage-backed securities | 122 | | | 2,912 | | | 38,867 | | | 128 | | | 17,741 | | | 93,152 | | Mortgage-backed securities | 12 | | | 248 | | | 3,749 | | | 116 | | | 8,035 | | | 52,254 | |
Asset-backed securities | Asset-backed securities | 96 | | | 3,225 | | | 35,232 | | | 37 | | | 1,275 | | | 21,890 | | Asset-backed securities | 7 | | | 36 | | | 3,013 | | | 54 | | | 2,330 | | | 22,632 | |
Redeemable preferred stocks | 13 | | | 92 | | | 1,910 | | | 1 | | | 11 | | | 88 | | |
| Total fixed maturities | Total fixed maturities | 597 | | | $ | 14,430 | | | $ | 177,253 | | | 427 | | | $ | 52,497 | | | $ | 312,026 | | Total fixed maturities | 64 | | | $ | 898 | | | $ | 23,439 | | | 344 | | | $ | 27,951 | | | $ | 179,032 | |
| December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
U.S. government and agency securities | U.S. government and agency securities | 39 | | | $ | 971 | | | $ | 32,167 | | | 15 | | | $ | 355 | | | $ | 8,126 | | U.S. government and agency securities | 3 | | | $ | 105 | | | $ | 2,385 | | | — | | | $ | — | | | $ | — | |
Foreign governments | Foreign governments | 1 | | | 8 | | | 2,010 | | | — | | | — | | | — | | Foreign governments | 1 | | | 9 | | | 991 | | | — | | | — | | | — | |
States, municipalities and political subdivisions | States, municipalities and political subdivisions | 63 | | | 761 | | | 41,670 | | | 8 | | | 320 | | | 11,423 | | States, municipalities and political subdivisions | 21 | | | 540 | | | 7,306 | | | 31 | | | 3,525 | | | 18,853 | |
Public utilities | Public utilities | 14 | | | 346 | | | 12,719 | | | 7 | | | 464 | | | 7,708 | | Public utilities | 8 | | | 193 | | | 2,286 | | | 4 | | | 1,049 | | | 5,408 | |
Corporate securities | Corporate securities | 205 | | | 4,589 | | | 158,959 | | | 12 | | | 204 | | | 7,896 | | Corporate securities | 78 | | | 2,279 | | | 24,594 | | | 77 | | | 13,460 | | | 57,765 | |
Mortgage-backed securities | Mortgage-backed securities | 138 | | | 2,638 | | | 111,636 | | | 37 | | | 1,559 | | | 41,786 | | Mortgage-backed securities | 48 | | | 1,282 | | | 15,259 | | | 80 | | | 7,854 | | | 40,856 | |
Asset-backed securities | Asset-backed securities | 111 | | | 493 | | | 60,566 | | | 2 | | | 30 | | | 1,596 | | Asset-backed securities | 16 | | | 795 | | | 6,397 | | | 46 | | | 1,993 | | | 19,028 | |
Redeemable preferred stocks | 1 | | | 2 | | | 90 | | | 1 | | | 9 | | | 91 | | |
| Total fixed maturities | Total fixed maturities | 572 | | | $ | 9,808 | | | $ | 419,817 | | | 82 | | | $ | 2,941 | | | $ | 78,626 | | Total fixed maturities | 175 | | | $ | 5,203 | | | $ | 59,218 | | | 238 | | | $ | 27,881 | | | $ | 141,910 | |
(1) This amount represents the actual number of discrete securities, not the number of shares or units of those securities. The numbers are not presented in thousands.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Fair value measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Unaudited Condensed Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:
Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.
Level 2: Assets and liabilities whose values are based on the following:
(a) Quoted prices for similar assets or liabilities in active markets;
(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or
(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.
We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the NYSE, Nasdaq and NYSE American. For securities for which quoted prices in active
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on September 30, 2022March 31, 2023 and December 31, 2021.2022. Changes in interest rates subsequent to September 30, 2022March 31, 2023 may affect the fair value of our investments.
The fair value of our fixed maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed-income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.
Any change in the estimated fair value of our fixed-income securities would impact the amount of unrealized gain or loss we have recorded, which could change the amount we have recorded for our investments and other comprehensive loss on our Unaudited Condensed Consolidated Balance Sheet as of September 30, 2022.
March 31, 2023.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
The following table presents the fair value of our financial instruments measured on a recurring basis by level at September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
September 30, 2022 | | | | | | | | |
March 31, 2023 | | March 31, 2023 | | | | | | | |
U.S. government and agency securities | U.S. government and agency securities | $ | 35,438 | | | $ | — | | | $ | 35,438 | | | $ | — | | U.S. government and agency securities | $ | 3,409 | | | $ | — | | | $ | 3,409 | | | $ | — | |
Foreign government | Foreign government | 3,329 | | | — | | | 3,329 | | | — | | Foreign government | 991 | | | — | | | 991 | | | — | |
States, municipalities and political subdivisions | States, municipalities and political subdivisions | 58,166 | | | — | | | 58,166 | | | — | | States, municipalities and political subdivisions | 28,582 | | | — | | | 28,582 | | | — | |
Public utilities | Public utilities | 19,008 | | | — | | | 19,008 | | | — | | Public utilities | 7,820 | | | — | | | 7,820 | | | — | |
Corporate securities | Corporate securities | 183,781 | | | — | | | 183,781 | | | — | | Corporate securities | 85,723 | | | — | | | 85,723 | | | — | |
Mortgage-backed securities | Mortgage-backed securities | 132,584 | | | — | | | 132,584 | | | — | | Mortgage-backed securities | 56,002 | | | — | | | 56,002 | | | — | |
Asset-backed securities | Asset-backed securities | 57,947 | | | — | | | 57,947 | | | — | | Asset-backed securities | 28,206 | | | — | | | 28,206 | | | — | |
Redeemable preferred stocks | 1,998 | | | 468 | | | 1,530 | | | — | | |
| Total fixed maturities | Total fixed maturities | 492,251 | | | 468 | | | 491,783 | | | — | | Total fixed maturities | 210,733 | | | — | | | 210,733 | | | — | |
Mutual funds | Mutual funds | 32,137 | | | 18,785 | | | 13,352 | | | — | | Mutual funds | 16,181 | | | 16,181 | | | — | | | — | |
Public utilities | 901 | | | 901 | | | — | | | — | | |
| Non-redeemable preferred stocks | 3,457 | | | 3,457 | | | — | | | — | | |
Total equity securities | 36,495 | | | 23,143 | | | 13,352 | | | — | | |
Other investments (1) | 454 | | | 300 | | | 154 | | | — | | |
| Total investments | Total investments | $ | 529,200 | | | $ | 23,911 | | | $ | 505,289 | | | $ | — | | Total investments | $ | 226,914 | | | $ | 16,181 | | | $ | 210,733 | | | $ | — | |
| December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
U.S. government and agency securities | U.S. government and agency securities | $ | 49,340 | | | $ | — | | | $ | 49,340 | | | $ | — | | U.S. government and agency securities | $ | 2,385 | | | $ | — | | | $ | 2,385 | | | $ | — | |
Foreign government | Foreign government | 3,459 | | | — | | | 3,459 | | | — | | Foreign government | 991 | | | — | | | 991 | | | — | |
States, municipalities and political subdivisions | States, municipalities and political subdivisions | 79,896 | | | — | | | 79,896 | | | — | | States, municipalities and political subdivisions | 26,895 | | | — | | | 26,895 | | | — | |
Public utilities | Public utilities | 25,457 | | | — | | | 25,457 | | | — | | Public utilities | 7,694 | | | — | | | 7,694 | | | — | |
Corporate securities | Corporate securities | 244,443 | | | — | | | 244,443 | | | — | | Corporate securities | 83,343 | | | — | | | 83,343 | | | — | |
Mortgage-backed securities | Mortgage-backed securities | 186,740 | | | — | | | 186,740 | | | — | | Mortgage-backed securities | 56,115 | | | — | | | 56,115 | | | — | |
Asset-backed securities | Asset-backed securities | 70,162 | | | — | | | 70,162 | | | — | | Asset-backed securities | 27,259 | | | — | | | 27,259 | | | — | |
Redeemable preferred stocks | 4,105 | | | 535 | | | 3,570 | | | — | | |
| Total fixed maturities | Total fixed maturities | 663,602 | | | 535 | | | 663,067 | | | — | | Total fixed maturities | 204,682 | | | — | | | 204,682 | | | — | |
Mutual Funds | Mutual Funds | 33,064 | | | 24,652 | | | 8,412 | | | — | | Mutual Funds | 15,657 | | | 15,657 | | | — | | | — | |
| Non-redeemable preferred stocks | 4,894 | | | 4,894 | | | — | | | — | | |
| Total equity securities | Total equity securities | 37,958 | | | 29,546 | | | 8,412 | | | — | | Total equity securities | 15,657 | | | 15,657 | | | — | | | — | |
Other investments (1) | Other investments (1) | 381 | | | 300 | | | 81 | | | — | | Other investments (1) | 125 | | | — | | | 125 | | | — | |
Total investments | Total investments | $ | 701,941 | | | $ | 30,381 | | | $ | 671,560 | | | $ | — | | Total investments | $ | 220,464 | | | $ | 15,657 | | | $ | 204,807 | | | $ | — | |
(1) Other investments included in the fair value hierarchy exclude these limited partnership interests that are measured at estimated fair value using the net asset value per share (or its equivalent) practical expedient.
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; this is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). There were no financial instruments measured on a non-recurring basis at September 30, 2022March 31, 2023 and December 31, 2021.2022.
The carrying amounts for the following financial instrument categories approximate their fair values at September 30, 2022March 31, 2023 and December 31, 2021,2022, because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, other assets, and other liabilities. The carrying amount of the notes payable to the Florida State Board of Administration and our senior notes approximate fair value as the interest rates and terms are variable.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
We are responsible for the determination of fair value and the supporting assumptions and methodologies. We have implemented a system of processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties, our processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded.
At the end of each quarter, we determine whether we need to transfer the fair values of any securities between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. During the quarter ended September 30, 2022,March 31, 2023, we transferred no investments between levels.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
For our investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, we obtain the fair values from our investment custodians, which use a third-party valuation service. The valuation service calculates prices for our investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, and adds final spreads to the U.S. Treasury curve at 3 p.m. (ET) as of quarter end. Since the inputs the valuation service uses in its calculations are not quoted prices in active markets, but are observable inputs, they represent Level 2 inputs.
Other investments
We acquired investments in limited partnerships, recorded in the other investments line of our Unaudited Condensed Consolidated Balance Sheets, and these investments are currently being measured at estimated fair value utilizing a net asset value per share (or its equivalent) practical expedient.
The information presented in the table below is as of September 30, 2022:March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Book Value | | Unrealized Gain | | Unrealized Loss | | Fair Value |
September 30, 2022 | | | | | | | | |
Limited partnership investments (1) | | $ | 16,325 | | | $ | 1,496 | | | $ | 1,666 | | | $ | 16,155 | |
Certificates of deposit | | 300 | | | — | | | — | | | 300 | |
Short-term investments | | 155 | | | — | | | 1 | | | 154 | |
Total other investments | | $ | 16,780 | | | $ | 1,496 | | | $ | 1,667 | | | $ | 16,609 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Book Value | | Unrealized Gain | | Unrealized Loss | | Fair Value |
March 31, 2023 | | | | | | | | |
Limited partnership investments (1) | | $ | 2,917 | | | $ | 633 | | | $ | — | | | $ | 3,550 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1) Distributions will be generated from investment gains, from operating income, from underlying investments of funds, and from liquidation of the underlying assets of the funds. We estimate that the underlying assets of the funds will be liquidated over the next few months to sixfive years.
Restricted Cash
We are required to maintain assets on deposit with various regulatory authorities to support our insurance operations. The cash on deposit with state regulators is available to settle insurance liabilities. We also use trust funds in certain reinsurance transactions.
The following table presents the components of restricted assets:
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Trust funds | Trust funds | $ | 36,954 | | | $ | 32,211 | | Trust funds | $ | 49,046 | | | $ | 45,364 | |
Cash on deposit (regulatory deposits) | Cash on deposit (regulatory deposits) | 5,346 | | | 1,043 | | Cash on deposit (regulatory deposits) | 625 | | | 624 | |
Total restricted cash | Total restricted cash | $ | 42,300 | | | $ | 33,254 | | Total restricted cash | $ | 49,671 | | | $ | 45,988 | |
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
In addition to the cash held on deposit described above, we also have securities on deposit with regulators, which are presented within our Fixed Maturities or Other Investments lines on the Unaudited Condensed Balance Sheets, dependent upon if they are short-term or long-term in nature. The table below shows the carrying value of those securities held on deposit with regulators.
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Invested assets on deposit (regulatory deposits) | $ | 4,012 | | | $ | 2,885 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Invested assets on deposit (regulatory deposits) | $ | 2,491 | | | $ | 2,616 | |
5)
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
6) EARNINGS PER SHARE (EPS)
Basic EPS is based on the weighted average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution resulting from the vesting of outstanding restricted stock awards, restricted stock units, performance stock units and stock options. The following table shows the computation of basic and diluted EPS for the three and nine month periods ended September 30,March 31, 2023 and 2022, and 2021, respectively:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Numerator: | Numerator: | | | | | | | | | Numerator: | | | | |
Net loss attributable to UIHC common stockholders | | $ | (70,884) | | | $ | (14,322) | | | $ | (173,085) | | | $ | (55,603) | | |
Net income (loss) attributable to UIHC common stockholders | | Net income (loss) attributable to UIHC common stockholders | | $ | 260,878 | | | $ | (33,172) | |
| Denominator: | Denominator: | | Denominator: | | |
Weighted-average shares outstanding | Weighted-average shares outstanding | | 43,075,234 | | | 42,971,535 | | | 43,035,374 | | | 42,940,458 | | Weighted-average shares outstanding | | 43,124,825 | | | 42,980,691 | |
Effect of dilutive securities | Effect of dilutive securities | | — | | | — | | | — | | | — | | Effect of dilutive securities | | 450,015 | | | — | |
Weighted-average diluted shares | Weighted-average diluted shares | | 43,075,234 | | | 42,971,535 | | | 43,035,374 | | | 42,940,458 | | Weighted-average diluted shares | | 43,574,840 | | | 42,980,691 | |
| Earnings available to UIHC common stockholders per share | Earnings available to UIHC common stockholders per share | | Earnings available to UIHC common stockholders per share | | |
Basic | Basic | | $ | (1.65) | | | $ | (0.33) | | | $ | (4.02) | | | $ | (1.29) | | Basic | | $ | 6.05 | | | $ | (0.77) | |
Diluted | Diluted | | $ | (1.65) | | | $ | (0.33) | | | $ | (4.02) | | | $ | (1.29) | | Diluted | | $ | 5.99 | | | $ | (0.77) | |
See Note 1617 of these Notes to Unaudited Condensed Consolidated Financial Statements for additional information on the stock grants related to dilutive securities.
6)7) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Land | | $ | 2,114 | | | $ | 2,114 | | |
Building and building improvements | | 6,726 | | | 9,211 | | |
| Computer hardware and software (software in progress of $85 and $990, respectively) | | 42,229 | | | 40,358 | | |
| Computer hardware and software (software in progress of $76 and $82, respectively) | | Computer hardware and software (software in progress of $76 and $82, respectively) | | $ | 29,746 | | | $ | 29,760 | |
Office furniture and equipment | Office furniture and equipment | | 3,216 | | | 3,067 | | Office furniture and equipment | | 798 | | | 1,414 | |
Leasehold improvements | Leasehold improvements | | 753 | | | 753 | | Leasehold improvements | | 316 | | | 753 | |
Leased vehicles(1) | Leased vehicles(1) | | 1,746 | | | 2,308 | | Leased vehicles(1) | | 11 | | | 1,080 | |
Total, at cost | Total, at cost | | 56,784 | | | 57,811 | | Total, at cost | | 30,871 | | | 33,007 | |
Less: accumulated depreciation and amortization | Less: accumulated depreciation and amortization | | (30,075) | | | (26,250) | | Less: accumulated depreciation and amortization | | (12,753) | | | (13,416) | |
Property and equipment, net | Property and equipment, net | | $ | 26,709 | | | $ | 31,561 | | Property and equipment, net | | $ | 18,118 | | | $ | 19,591 | |
(1) Includes vehicles under capitalfinancing leases. See Note 1112 of these Notes to Unaudited Condensed Consolidated Financial Statements for further information on leases.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
Depreciation and amortization expense under property and equipment was $1,547,000$1,260,000 and $1,893,000$1,710,000 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Depreciation and amortization expense under property and equipment was $4,797,000 and $6,047,000 for the nine months ended September 30, 2022 and 2021, respectively. During the ninethree months ended September 30,March 31, 2023, we sold or disposed of leased vehicles totaling $1,069,000. The depreciation on these vehicles totaled $1,037,000 at the time of disposal. We realized a net gain on this disposal of $422,000. In addition, we disposed of office furniture totaling $616,000 during the period. Accumulated depreciation at the time of this disposal totaled $603,000, respectively. During the year ended December 31, 2022, we disposed of computer hardware and software totaling $596,000,$13,202,000, primarily related to the retirement of one of our policy systems costs for states in which we no longer write policies. The depreciation on these systems totaled $123,000$12,691,000 at the time of disposal. We also sold or disposed of leased vehicles totaling $557,000.$1,222,000. The depreciation on these vehicles totaled $486,000$1,114,000 prior to disposal. The net gain on sale of these vehicles totaled $159,000. In addition,$738,000. Finally, we sold one of ourthree buildings resulting in a disposaland their related assets totaling $2,727,000$13,369,000. The depreciation on these buildings and arelated assets totaled $5,129,000 prior to disposal. The net realized gain of $1,529,000. The depreciation on the buildingthese sales totaled $290,000. During the year ended December 31, 2021, we disposed of computer hardware and software totaling $1,961,000, primarily related to the retirement of one of our claims systems. This system was fully depreciated prior to disposal.$12,164,000.
7)
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
8) GOODWILL AND INTANGIBLE ASSETS
Goodwill
The carrying amount of goodwill at September 30,March 31, 2023 and December 31, 2022 was $59,476,000. The carrying amount of goodwill at December 31, 2021 was $73,045,000.
No impairment in the value of goodwill was recognized during the three month period ended March 31, 2023. As a result of the strategic decision to place our former subsidiary UPC into an orderly runoff, we recognized an impairment of our personal lines reporting unit's goodwill totaling $13,569,000 during the three months and nine months ended September 30,third quarter of 2022. No impairment in the value of goodwill was recognized during the three or nine month periods ended September 30, 2021. The goodwill attributable to our commercial lines reporting unit was most recently tested for impairment during the secondfourth quarter of 2022, as a result2022. It was determined that there was no additional impairment in the value of the mergingasset as of JIC into ACIC and no impairment was recognized.December 31, 2022.
Goodwill allocated to our commercial lines reporting unit was $59,476,000 at September 30,March 31, 2023 and December 31, 2022. There was no goodwill allocated to our personal lines reporting unit at September 30, 2022. Goodwill allocated to our personal linesMarch 31, 2023 and commercial lines reporting units was $13,569,000 and $59,476,000, respectively, at December 31, 2021.2022.
There was no additional goodwill acquired or disposed of during the three or ninethree month periods ended September 30, 2022March 31, 2023 and 20212022. Accumulated impairment related to goodwill was $13,569,000 at September 30, 2022. There was no accumulated impairment related to goodwill atMarch 31, 2023 and December 31, 2021.2022.
Intangible Assets
The following is a summary of intangible assets excluding goodwill recorded as intangible assets on our Unaudited Condensed Consolidated Balance Sheets:
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
Intangible assets subject to amortization | Intangible assets subject to amortization | | $ | 12,183 | | | $ | 14,618 | | Intangible assets subject to amortization | | $ | 10,560 | | | $ | 11,372 | |
Indefinite-lived intangible assets(1) | Indefinite-lived intangible assets(1) | | 3,757 | | | 3,757 | | Indefinite-lived intangible assets(1) | | 1,198 | | | 1,398 | |
Total | Total | | $ | 15,940 | | | $ | 18,375 | | Total | | $ | 11,758 | | | $ | 12,770 | |
(1) Indefinite-lived intangible assets are comprised of state insurance and agent licenses, as well as perpetual software licenses.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
Intangible assets subject to amortization consisted of the following:
| | | Weighted-average remaining amortization period (in years) | | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Weighted-average remaining amortization period (in years) | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
September 30, 2022 | | | | | | | | | |
March 31, 2023 | | March 31, 2023 | | | | | | | | |
Value of business acquired | Value of business acquired | | — | | $ | 42,788 | | | $ | (42,788) | | | $ | — | | Value of business acquired | | — | | $ | 42,788 | | | $ | (42,788) | | | $ | — | |
Agency agreements acquired | Agency agreements acquired | | 4.5 | | 34,661 | | | (23,691) | | | 10,970 | | Agency agreements acquired | | 4.0 | | 34,661 | | | (24,910) | | | 9,751 | |
Trade names acquired | Trade names acquired | | 1.5 | | 6,381 | | | (5,168) | | | 1,213 | | Trade names acquired | | 1.0 | | 6,381 | | | (5,572) | | | 809 | |
Total | Total | | $ | 83,830 | | | $ | (71,647) | | | $ | 12,183 | | Total | | $ | 83,830 | | | $ | (73,270) | | | $ | 10,560 | |
| December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Value of business acquired | Value of business acquired | | — | | $ | 42,788 | | | $ | (42,788) | | | $ | — | | Value of business acquired | | — | | $ | 42,788 | | | $ | (42,788) | | | $ | — | |
Agency agreements acquired | Agency agreements acquired | | 5.3 | | 34,661 | | | (21,863) | | | 12,798 | | Agency agreements acquired | | 4.3 | | 34,661 | | | (24,300) | | | 10,361 | |
Trade names acquired | Trade names acquired | | 2.3 | | 6,381 | | | (4,561) | | | 1,820 | | Trade names acquired | | 1.3 | | 6,381 | | | (5,370) | | | 1,011 | |
Total | Total | | $ | 83,830 | | | $ | (69,212) | | | $ | 14,618 | | Total | | $ | 83,830 | | | $ | (72,458) | | | $ | 11,372 | |
No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the ninethree months ended September 30, 2022March 31, 2023 and 2021.2022. However during the three months ended March 31, 2023 and year ended December 31, 2022, we disposed of intangible assets totaling $200,000 and $2,359,000, respectively.
Amortization expense of our intangible assets was $811,000$812,000 and $812,000 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Amortization expense of our intangible assets was $2,435,000 and $2,744,000 for the nine months ended September 30, 2022 and 2021, respectively.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Estimated amortization expense of our intangible assets to be recognized by the Company during the remainder of 20222023 and over the next five years is as follows:
| Year ending December 31, | Year ending December 31, | | Estimated Amortization Expense | Year ending December 31, | | Estimated Amortization Expense |
Remaining in 2022 | | $ | 812 | | |
2023 | | 3,246 | | |
Remaining in 2023 | | Remaining in 2023 | | $ | 2,435 | |
2024 | 2024 | | 2,640 | | 2024 | | 2,640 | |
2025 | 2025 | | 2,438 | | 2025 | | 2,438 | |
2026 | 2026 | | 2,438 | | 2026 | | 2,438 | |
2027 | 2027 | | 609 | | 2027 | | 609 | |
2028 | | 2028 | | — | |
8)9) REINSURANCE
Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophes. Our program provides reinsurance protection for catastrophes, including hurricanes and tropical storms. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our stockholders an acceptable return on the risks assumed in our property business, and to reduce variability of earnings, while providing protection to our policyholders. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for the agreed-upon portion of our gross paid losses, they do not discharge our primary liability.
Our program includes excess of loss and quota share treaties. Our catastrophe reinsurance program, in effect from June 1, 2022 through May 31, 2023, provides coverage for catastrophe losses from named or numbered windstorms and earthquakes up to an exhaustion point of approximately $2,500,000,000 in the aggregate.aggregate, including coverage related to our former insurance subsidiary, UPC. Under our core catastrophe excess of loss treaty, retention on a first and second event is $16,400,000 each. During the third quarter, one of the our reinsurer'sreinsurers participating on the $25,000,000 excess of $20,000,000 layer of the core catastrophe program exercised a contractual right to terminate their participation due to Demotech's downgrade of UPC's Financial Stability Rating. We were unsuccessful in replacing this coverage in the open market so our captive reinsurer, UPC Re, stepped into the $25,000,000 excess of $20,000,000 layer which was subsequently impacted by Hurricane Ian resulting in an additional retained loss of $20,100,000.The$20,100,000. The exhaustion point of
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
IIC's catastrophe reinsurance program is approximately $200,000,000 in the aggregate, with a retention of $3,000,000 per occurrence, covering all perils.
During the third quarter of 2022, the Company's core catastrophe reinsurance program was impacted by Hurricane Ian. As a result, the Company has approximately $891$508 million of occurrence limit remaining for Ian with $818 million specificall of which is attributable to ACIC only. After reinstatement premiums of approximately $15.4 million, the Company, with its former subsidiary UPC has approximately $1.396 billion$993 million of aggregate limit remaining after Ian, based on our estimated ultimate net loss subject to the core catastrophe reinsurance program.
Effective December 13, 2021,January 1, 2023, we renewed our all other perils catastrophe excess of loss agreement. The agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $110,000,000.$101,000,000.
During the third quarter of 2022, one of our private reinsurers who held a 100% share of the $15,000,000 in excess of $15,000,000 layer on our all other perils catastrophe excess of loss agreement notified us of their intent to terminate the agreement due to the contractual provision regarding the change in our former subsidiary UPC's statutory surplus being greater than 25%. We agreed to a termination and commutation date of September 30, 2022 for this contract. This change will resultresulted in approximately $1,300,000 of ceded premium savings that would have otherwise been due in the fourth quarter of 2022 and the Company retaining all the risk for any non-hurricane catastrophe losses up to $30,000,000, excluding any quota share recoveries.
The table below outlines our quota share agreements in effect for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022. The impacts of these quota share agreements on our former subsidiay, UPC's financial statements are included in discontinued operations.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
| | | | | | | | | | | | | | |
Reinsurer | Companies in Scope (1) | Effective Dates | Cession Rate | States in Scope |
External third-party | UPC, FSIC & ACIC | 06/01/2022 - 06/01/2023 | 10% (2) | Florida, Louisiana, Texas |
TypTap | UPC | 06/01/2022 - 06/01/2023 | 100% (3) | Georgia, North Carolina, South Carolina |
External third-party | UPC, FSIC & ACIC | 12/31/2021 - 12/31/2022 | 8% (2) | Florida, Louisiana, Texas |
HCPCI | UPC | 12/31/2021 - 06/01/2022 | 85% | Georgia, North Carolina, South Carolina |
External third-party | UPC & FSIC | 12/31/2021 - 12/31/2022 | 25% (4) | Florida, Louisiana, Texas |
HCPCI / TypTap (5) | UPC | 06/01/2021 - 06/01/2022 | 100% (3) | Connecticut, New Jersey, Massachusetts, Rhode Island |
External third-party | UPC, FSIC & ACIC (6) | 06/01/2021 - 06/01/2022 | 15% (2) | Florida, Georgia, Louisiana, North Carolina, South Carolina, Texas |
IIC | UPC | 12/31/2020 - 12/31/2022 | 100% | New York |
HCPCI | UPC | 12/31/2020 - 06/01/2021 | 69.5% | Connecticut, New Jersey, Massachusetts, Rhode Island |
External third-party | UPC, FSIC & ACIC | 12/30/2020 - 12/31/2021 | 8% (2)
| Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas |
External third-party | UPC, FSIC & ACIC (6)
| 06/01/2020 - 06/01/2021 | 15% (2)
| Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas |
External third-party | UPC & FSIC | 06/01/2020 - 06/01/2021 | 7.5% (2)
| Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas |
(1) Effective May 31, 2022, FSIC was merged into UPC, with UPC being the surviving entity.
(2) This treaty provides coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides ground- up protection effectively reducing our retention for catastrophe losses.
(3) This treaty provides coverage on our in-force, new and renewal policies until these states are transitioned to HCPCI or TypTap upon renewal.
(4) This treaty provides coverage on non-catastrophe losses on policies in-force on the effective date of the agreement.
(5) Cessions are split 50% to HCPCI and 50% to TypTap.
(6) This treaty was amended effective December 31, 2020 to include ACIC.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
Reinsurance recoverable at the balance sheet dates consists of the following:
| | | September 30, | | December 31, | | March 31, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Reinsurance recoverable on unpaid losses and loss adjustment expenses | Reinsurance recoverable on unpaid losses and loss adjustment expenses | $ | 1,374,917 | | | $ | 749,600 | | Reinsurance recoverable on unpaid losses and loss adjustment expenses | $ | 646,003 | | | $ | 732,254 | |
Reinsurance recoverable on paid losses and loss adjustment expenses | Reinsurance recoverable on paid losses and loss adjustment expenses | 172,365 | | | 247,520 | | Reinsurance recoverable on paid losses and loss adjustment expenses | 146,347 | | | 64,292 | |
Reinsurance recoverable (1) | Reinsurance recoverable (1) | $ | 1,547,282 | | | $ | 997,120 | | Reinsurance recoverable (1) | $ | 792,350 | | | $ | 796,546 | |
(1) Our reinsurance recoverable balance is net of our allowance for expected credit losses. More information related to this allowance can
We write the majority of our flood insurance policies under an agreement with the National Flood Insurance Program (NFIP). We cede 100% of the premiums written and the related risk of loss to the federal government. We earn commissions for the issuance of flood policies based upon a fixed percentage of net written premiums and the processing of flood claims based upon a fixed percentage of incurred losses, and we can earn additional commissions by meeting certain growth targets for the number of in-force policies. We recognized commission revenue from our flood program of $236,000 and $380,000 for the three month periods ended September 30, 2022 and 2021, respectively and $853,000 and $1,270,000 for the nine month periods ended September 30, 2022 and 2021, respectively. On June 9, 2022, we entered into a renewal rights agreement with Wright National Flood Insurance Company to sell our entire NFIP Write Your Own flood insurance business.
9)10) LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSE (LAE)
We determine the reserve for unpaid losses on an individual case basis for all incidents reported. The liability also includes amounts for incurred but not reported (IBNR) claims as of the balance sheet date.
The table below shows the analysis of our reserve for unpaid losses for the ninethree months ended September 30,March 31, 2023 and 2022 and 2021 on a GAAP basis:
| | | | | | | | | | | |
| September 30, |
| 2022 | | 2021 |
Balance at January 1 | $ | 1,084,450 | | | $ | 1,089,966 | |
Less: reinsurance recoverable on unpaid losses | 749,600 | | | 674,746 | |
Net balance at January 1 | $ | 334,850 | | | $ | 415,220 | |
| | | |
Incurred related to: | | | |
Current year | 244,910 | | | 305,270 | |
Prior years | 53,760 | | | 31,344 | |
Total incurred | $ | 298,670 | | | $ | 336,614 | |
Paid related to: | | | |
Current year | 106,865 | | | 152,415 | |
Prior years | 222,005 | | | 243,741 | |
Total paid | $ | 328,870 | | | $ | 396,156 | |
| | | |
Net balance at September 30 | $ | 304,650 | | | $ | 355,678 | |
Plus: reinsurance recoverable on unpaid losses | 1,374,917 | | | 1,153,799 | |
Balance at September 30 | $ | 1,679,567 | | | $ | 1,509,477 | |
| | | |
Composition of reserve for unpaid losses and LAE:
| | | |
Case reserves | $ | 331,825 | | | $ | 499,311 | |
IBNR reserves | 1,347,742 | | | 1,010,166 | |
Balance at September 30 | $ | 1,679,567 | | | $ | 1,509,477 | |
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
| | | | | | | | | | | |
| March 31, |
| 2023 | | 2022 |
Balance at January 1 | $ | 842,958 | | | $ | 250,642 | |
Less: reinsurance recoverable on unpaid losses | 732,254 | | | 176,096 | |
Net balance at January 1 | $ | 110,704 | | | $ | 74,546 | |
| | | |
Incurred related to: | | | |
Current year | 22,238 | | | 35,582 | |
Prior years | (3,165) | | | (3,064) | |
Total incurred | $ | 19,073 | | | $ | 32,518 | |
Paid related to: | | | |
Current year | 13,303 | | | 17,236 | |
Prior years | 14,112 | | | 18,429 | |
Total paid | $ | 27,415 | | | $ | 35,665 | |
| | | |
Net balance at March 31 | $ | 102,362 | | | $ | 71,399 | |
Plus: reinsurance recoverable on unpaid losses | 646,003 | | | 168,174 | |
Balance at March 31 | $ | 748,365 | | | $ | 239,573 | |
| | | |
Composition of reserve for unpaid losses and LAE:
| | | |
Case reserves | $ | 284,679 | | | $ | 119,969 | |
IBNR reserves | 463,686 | | | 119,604 | |
Balance at March 31 | $ | 748,365 | | | $ | 239,573 | |
Based upon our internal analysis and our review of the annual statement of actuarial opinion provided by our actuarial consultants at December 31, 2021,2022, we believe that the reserve for unpaid losses reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.
As reflected in the table above, we had adversefavorable development in both 2023 and 2022 related to prior year losses. This adversefavorable development came as a result of the strengthening of our catastrophe reservesre-estimating ultimate losses in 20222023 based on historical loss trends. The loss payments made by the Company during the ninethree months ended September 30, 2022,March 31, 2023, were lower than the loss payments made during the ninethree months ended September 30, 2021,March 31, 2022, due to the settling of claims during 2021 related to the unprecedented number of catastrophic events that took place in 2020.non-tropical storm catastrophe events. Case and IBNR reserves and reinsurance recoverable on unpaid losses increased when compared to the prior period as a result of Hurricane Ian, which made landfall during the third quarter of 2022.
10)11) LONG-TERM DEBT
Long-Term Debt
The table below presents all long-term debt outstanding as of September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | Effective Interest Rate | | Carrying Value at | | Effective Interest Rate | | Carrying Value at |
| | Maturity | | September 30, 2022 | | December 31, 2021 | | Maturity | | March 31, 2023 | | December 31, 2022 |
Senior Notes | Senior Notes | December 15, 2027 | | 6.25% | | $ | 150,000 | | | $ | 150,000 | | Senior Notes | December 15, 2027 | | 7.25% | | $ | 150,000 | | | $ | 150,000 | |
Florida State Board of Administration Note(1) | Florida State Board of Administration Note(1) | July 1, 2026 | | 3.10% | | 4,413 | | | 5,294 | | Florida State Board of Administration Note(1) | July 1, 2026 | | N/A | | — | | | — | |
Truist Term Note Payable (1)(2) | Truist Term Note Payable (1)(2) | May 26, 2031 | | N/A | | — | | | 3,265 | | Truist Term Note Payable (1)(2) | May 26, 2031 | | N/A | | — | | | — | |
Total long-term debt | Total long-term debt | | $ | 154,413 | | | $ | 158,559 | | Total long-term debt | | $ | 150,000 | | | $ | 150,000 | |
(1)Our Florida State Board of Administration Note was held by our former subsidiary, UPC.
(2) Our Truist Term Note Payable was repaid in full on August 12, 2022.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
Senior Notes Payable
On December 13, 2017, we issued $150,000,000 of 10-year senior notes (the Senior Notes) that will mature on December 15, 2027 and bear interest at a rate equal to 6.25% per annum payable semi-annually on each June 15 and December 15, commencing June 15, 2018. The Senior Notes are senior unsecured obligations of the Company. We may redeem the Senior Notes at our option, at any time and from time to time in whole or in part, prior to September 15, 2027, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the date of redemption to the date that is three months prior to maturity, plus accrued and unpaid interest thereon. On or after that date, we may redeem the Senior Notes at par, plus accrued and unpaid interest thereon. On December 8, 2022, the Kroll Bond Rating Agency, LLC announced a downgrade of our issuer and debt ratings from BBB- to BB+. As a result, pursuant to our agreement, the interest rate of our Senior Notes increased from 6.25% to 7.25% effective on the next interest payment date of June 15, 2023.
Florida State Board of Administration Note Payable
On September 22, 2006, we issued a $20,000,000, 20-year note payable to the Florida State Board of Administration (the SBA Note). For the first three years of the SBA Note we were required to pay interest only. On October 1, 2009, we began to repay the principal in addition to interest. The SBA Note bears an annual interest rate equivalent to the 10-year Constant Maturity Treasury rate (as defined in the SBA Note agreement), which resets quarterly. This note was held by our former insurance subsidiary, UPC. On February 27, 2023, UPC was placed into receivership with the Florida Department of Financial Services, divesting our ownership of UPC.
Truist Term Note Payable
On May 26, 2016, we issued a $5,200,000, 15-year term note payable to Truist (the Truist Note), with the intent to use the funds to purchase, renovate, furnish and equip our principal executive office. The Truist Note bears interest at 1.65% in excess of the one-month LIBOR, which resets monthly. LIBOR was phased out at the end of 2021, however, the Intercontinental Exchange will continue to publish one-month LIBOR settings through 2023. The outstanding Truist Note payable balance, including applicable interest, was repaid in full on August 12, 2022. Therefore, effective August 12, 2022, Truist no longer holds our principal executive office as collateral and may not take possession of or foreclose upon the office.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
Financial Covenants
Senior Notes - Our Senior Notes provide that the Company and its subsidiaries shall not incur any indebtedness unless no default exists and the Company’s leverage ratio as of the last day of any annual or quarterly period (the balance sheet date) immediately preceding the date on which such additional indebtedness is incurred would have been no greater than 0.3:1, determined on a pro forma basis as if the additional indebtedness and all other indebtedness incurred since the immediately preceding balance sheet date had been incurred and the proceeds therefrom applied as of such day. The Company and its subsidiaries also may not create, assume, incur or permit to exist any indebtedness for borrowed money that is secured by a lien on the voting stock of any significant subsidiary without securing the Senior Notes equally. The Company may not issue, sell, assign, transfer or otherwise dispose of, directly or indirectly, any of the capital stock of the Company’s significant subsidiaries as of the issue date of the Senior Notes (except to the Company or to one or more of the Company’s other subsidiaries, or for the purpose of qualifying directors or as may be required by law or regulation), subject to certain exceptions. At December 31, 2021,2022, while our leverage ratio was greater than the allowed ratio above, we did not incur any additional debt during the period and as a result, we were in compliance with the covenants in the Senior Notes.
SBA Note - Our SBA Note requiresrequired that UPC maintainmaintained either a 2:1 ratio of net written premium to surplus, or net writing ratio, or a 6:1 ratio of gross written premium to surplus, or gross writing ratio, to avoid additional interest penalties. The SBA Note agreement definesdefined surplus for the purpose of calculating the required ratios as the $20,000,000 of capital contributed to UPC under the agreement plus the outstanding balance of the note. Should UPC failhave failed to exceed either a net writing ratio of 1.5:1 or a gross writing ratio of 4.5:1, UPC's interest rate will increasewould have increased by 450 basis points above the 10-year Constant Maturity Treasury rate, which was 3.10%3.76% at the end of September 2022.March 2023. Any other writing ratio deficiencies resultresulted in an interest rate penalty of 25 basis points above the stated rate of the note. Our SBA Note further providesprovided that the Florida State Board of Administration may, among other things, declare its loan immediately due and payable upon any default existing
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
under the SBA Note; however, any payment is subject to approval by the insurance regulatory authority. At September 30, 2022,March 31, 2023, we were in compliance withno longer the covenants inholders of the SBA Note.
Debt Issuance Costs
The table below presents the rollforward of our debt issuance costs paid, in conjunction with the debt instruments described above, during the ninethree months ended September 30, 2022March 31, 2023 and 2021:2022:
| | | 2022 | | 2021 | | 2023 | | 2022 |
Balance at January 1, | Balance at January 1, | $ | 1,998 | | | $ | 2,335 | | Balance at January 1, | $ | 1,645 | | | $ | 1,998 | |
Additions | Additions | — | | | — | | Additions | — | | | — | |
Amortization | Amortization | (269) | | | (254) | | Amortization | (83) | | | (84) | |
Balance at September 30, | $ | 1,729 | | | $ | 2,081 | | |
Balance at March 31, | | Balance at March 31, | $ | 1,562 | | | $ | 1,914 | |
11)12) COMMITMENTS AND CONTINGENCIES
Litigation
We are involved in claims-related legal actions arising in the ordinary course of business. We accrue amounts resulting from claims-related legal actions in unpaid losses and LAE during the period that we determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes revisions to our estimates based on its analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation.
At September 30, 2022,March 31, 2023, the Company is involved in legal proceedings whereby on August 18, 2021, a former employee of Skyway Legal Services, LLC, filed a complaint against the Company in the United States District Court for the District of Delaware. The lawsuit alleges violations of and damages arising under Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967, and seeks damages in an unspecified amount. The Company, a named party to the lawsuit, denies that it employed the plaintiff and disputes the claims set forth in the lawsuit. On September 27, 2022, venue was transferred to the United States District Court for the Middle District of Florida, Tampa Division. The Company believes that an unfavorable outcome is neither probable nor estimable.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
In addition, on January 13, 2022, Southern Florida Restoration (SFR) Services, LLC v. United Property and Casualty Insurance Company, et al. was filed in the United States District Court for the Middle District of Florida. The District Court dismissed the lawsuit on its own accord on January 14, 2022. SFR Services then filed an amended complaint on January 26, 2022. The complaint alleges four causes of action: (i) violation of the Federal Civil Racketeer Influenced and Corrupt Organizations statute (18 U.S.C. § 1962(c)), (ii) breach of contract, (iii) fraud, and (iv) violation of the Florida Unfair Insurance Trade Practices Act (Fla. Stat. Chpt. 626). The plaintiff seeks unspecified damages. The Company believes that an unfavorable outcome is neither probable nor estimable. The defendants moved to dismiss the lawsuit on March 25, 2022 and their motion was granted October 12, 2022.
Commitments to fund partnership investments
We have fully funded threeone limited partnership investments and have committed to fund our remaining six limited partnership investments.investment. The amount of unfunded commitments was $6,152,000$4,242,000 and $1,969,000$4,238,000 at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Leases
We, as lessee, have entered into leases of commercial office space of various term lengths. In addition to office space, we lease office equipment and a parking lot under operating leases and vehicles under finance leases.
The classification of operating and finance lease asset and liability balances within the Unaudited Condensed Consolidated Balance Sheets was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Financial Statement Line | | September 30, 2022 | | December 31, 2021 |
Assets | | | | | | |
Operating lease assets | | Other assets | | $ | 1,210 | | | $ | 1,689 | |
Financing lease assets | | Property and equipment, net | | 126 | | | 477 | |
Total lease assets | | | | $ | 1,336 | | | $ | 2,166 | |
| | | | | | |
Liabilities | | | | | | |
Operating lease liabilities | | Operating lease liability | | $ | 1,416 | | | $ | 1,934 | |
Financing lease liabilities | | Other liabilities | | 4 | | | 16 | |
Total lease liabilities | | | | $ | 1,420 | | | $ | 1,950 | |
The components of lease expenses were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease expense | | $ | 267 | | | $ | 161 | | | $ | 587 | | | $ | 492 | |
Financing lease expense: | | | | | | | | |
Amortization of leased assets | | 78 | | | 207 | | | 320 | | | 598 | |
Interest on lease liabilities | | — | | | — | | | 1 | | | 1 | |
| | | | | | | | |
Net lease expense | | $ | 345 | | | $ | 368 | | | $ | 908 | | | $ | 1,091 | |
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
The classification of operating and finance lease asset and liability balances within the Unaudited Condensed Consolidated Balance Sheets was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Financial Statement Line | | March 31, 2023 | | December 31, 2022 |
Assets | | | | | | |
Operating lease assets | | Other assets | | $ | 1,096 | | | $ | 1,278 | |
Financing lease assets | | Property and equipment, net | | 2 | | | 51 | |
Total lease assets | | | | $ | 1,098 | | | $ | 1,329 | |
| | | | | | |
Liabilities | | | | | | |
Operating lease liabilities | | Operating lease liability | | $ | 1,412 | | | $ | 1,689 | |
Financing lease liabilities | | Other liabilities | | — | | | 2 | |
Total lease liabilities | | | | $ | 1,412 | | | $ | 1,691 | |
The components of lease expenses were as follows:
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
Operating lease expense | | | | | | $ | 222 | | | $ | 160 | |
Financing lease expense: | | | | | | | | |
Amortization of leased assets | | | | | | 7 | | | 129 | |
| | | | | | | | |
| | | | | | | | |
Net lease expense | | | | | | $ | 229 | | | $ | 289 | |
At September 30, 2022,March 31, 2023, future minimum gross lease payments relating to these non-cancellable operating and finance lease agreements were as follows:
| | | Operating Leases | | Finance Leases | | Total | | Operating Leases | | Finance Leases | | Total |
Remaining in 2022 | | $ | 154 | | | $ | 2 | | | $ | 156 | | |
2023 | | 601 | | | 3 | | | 604 | | |
Remaining in 2023 | | Remaining in 2023 | | $ | 682 | | | $ | — | | | $ | 682 | |
2024 | 2024 | | 585 | | | — | | | 585 | | 2024 | | 593 | | | — | | | 593 | |
2025 | 2025 | | 240 | | | — | | | 240 | | 2025 | | 222 | | | — | | | 222 | |
2026 | 2026 | | 32 | | | — | | | 32 | | 2026 | | 11 | | | — | | | 11 | |
2027 | | 2027 | | — | | | — | | | — | |
Thereafter | Thereafter | | 1,341 | | | — | | | 1,341 | | Thereafter | | — | | | — | | | — | |
Total undiscounted future minimum lease payments | Total undiscounted future minimum lease payments | | 2,953 | | | 5 | | | 2,958 | | Total undiscounted future minimum lease payments | | 1,508 | | | — | | | 1,508 | |
Less: Imputed interest | Less: Imputed interest | | (1,537) | | | (1) | | | (1,538) | | Less: Imputed interest | | (96) | | | — | | | (96) | |
Present value of lease liabilities | Present value of lease liabilities | | $ | 1,416 | | | $ | 4 | | | $ | 1,420 | | Present value of lease liabilities | | $ | 1,412 | | | $ | — | | | $ | 1,412 | |
Weighted average remaining lease term and discount rate related to operating and finance leases were as follows:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
Weighted average remaining lease term (months) | | | | |
Operating leases | | 38 | | | 51 | |
Financing leases | | 11 | | | 17 | |
| | | | |
Weighted average discount rate | | | | |
Operating leases | | 3.70 | % | | 3.61 | % |
Financing leases | | 3.27 | % | | 3.27 | % |
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Weighted average remaining lease term (months) | | | | |
Operating leases | | 23 | | | 25 | |
Financing leases | | — | | | 9 | |
| | | | |
Weighted average discount rate | | | | |
Operating leases | | 3.70 | % | | 3.79 | % |
Financing leases | | — | % | | 3.27 | % |
Other
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
There were no other cash andor non-cash related activities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Cash paid for amounts included in the measurement of lease liabilities | | | | | | | | |
Investing cash flows from financing leases | | $ | — | | | $ | 35 | | | $ | — | | | $ | 68 | |
| | | | | | | | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | — | | | 14 | | | — | | | — | |
Right-of-use assets obtained in exchange for new financing lease liabilities | | — | | | 37 | | | — | | | 70 | |
during the three months ended March 31, 2023 and 2022.
Capital lease amortization expenses are included in depreciation expense in our Unaudited Condensed Consolidated Statements of Comprehensive Loss. See Note 67 of these Notes to Unaudited Condensed Consolidated Financial Statements for more information regarding depreciation expense, Note 1011 for information regarding commitments related to long-term debt, and Note 1314 for information regarding commitments related to regulatory actions.
Subleases
We previously leased and occupied office space in which we no longer operate. Effective October 1, 2022, this office space is now subleased to a third-party. This sublease is effective from October 1, 2022 through July 31, 2025, with no option to extend. During the three months ended March 31, 2023, we recognized $33,000 of income related to this sublease, exclusive of the lease expense associated with the original lease. During the year ended December 31, 2022, we recognized $297,000 of income related to this sublease, exclusive of the lease expense associated with the original lease.
Additionally, as a result of the sublease, we evaluated our right-of-use asset associated with the original lease for impairment, using the undiscounted cash flows from the sublease. During the year ended December 31, 2022, we recognized impairment of $175,000, which was recognized in the results of our personal lines operating segment.
Employee Retention Credit
A series of legislation was enacted in the United States during 2020 and 2021 in response to the COVID-19 pandemic that provided financial relief for businesses impacted by government-mandated shutdowns, work stoppages, or other losses suffered by employers. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided an employee retention credit, which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee. During the second quarter of 2022, we evaluated our eligibility and filed for a $10,161,000 refund in connection with our Employee Retention Tax Credit for the tax year ended December 31, 2021. As of September 30,March 31, 2022, we have received
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
$254,000 $5,718,000 from the Internal Revenue Service related to this refund. A gain contingency is an uncertain situation that will be resolved in the future, possibly resulting in a gain. We have not recorded the recognition of this gain contingency, except for what has already been received and what was received after the balance sheet date prior to finalizing our results for the quarter, prior to settlement of the underlying event.
While we believe the likelihood of the refund approval being reversed is low, a loss contingency to the extent of the refunds received and recognized is present. We will continue to monitor the matter for further developments that could affect the outcome of these contingencies and will make any appropriate adjustments each quarter.
UPC Run-off Plan
During the third quarter of 2022, UPC received approval from regulatory authorities in Florida, Louisiana and Texas to withdraw from these markets. However, there is a high degree of uncertainty regarding the viability of the run-off plan ultimately being successful. Underwriting losses, weak risk-adjusted capitalization, projected insufficient liquidity absent additional capital contributions, and the potential inability of UPC to obtain future reinsurance protection has led to increased concerns and monitoring by the Florida Office of Insurance Regulation.
12)13) ALLOWANCE FOR EXPECTED CREDIT LOSSES
We are exposed to credit losses primarily through threefour different pools of assets based on similar risk characteristics: premiums receivable for direct written business; reinsurance recoverables from ceded losses to our reinsurers; our investment holdings; and our notes receivable. We estimate the expected credit losses based on historical trends, credit ratings assigned to reinsurers by rating agencies, average default rates, current economic conditions, and reasonable and supportable forecasts of future economic conditions that affect the collectability of the reported amounts over its expected life. Changes in the relevant information may significantly affect the estimates of expected credit losses.
The allowance for credit losses is deducted from the amortized cost basis of the assets to present their net carrying value at the amount expected to be collected. Each period, the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets.
The following tables summarize our allowance for expected credit losses by pooled asset for the ninethree months ended September 30, 2022March 31, 2023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2022 | | December 31, 2021 | | Provision for expected credit losses | | Write-offs | | September 30, 2022 |
Premiums Receivable | | $ | 32 | | | $ | (156) | | | $ | 152 | | | $ | 28 | |
Reinsurance Recoverables | | 563 | | | (11) | | | — | | | 552 | |
| | | | | | | | |
Total | | $ | 595 | | | $ | (167) | | | $ | 152 | | | $ | 580 | |
| | | | | | | | |
September 30, 2021 | | December 31, 2020 | | Provision for expected credit losses | | Write-offs | | September 30, 2021 |
Premiums Receivable | | $ | 140 | | | $ | (176) | | | $ | 61 | | | $ | 25 | |
Reinsurance Recoverables | | 386 | | | 382 | | | — | | | 768 | |
Note Receivable | | 20 | | | (20) | | | — | | | — | |
Total | | $ | 546 | | | $ | 186 | | | $ | 61 | | | $ | 793 | |
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2023 | | December 31, 2022 | | Provision for expected credit losses | | Write-offs | | March 31, 2023 |
Premiums Receivable | | $ | 32 | | | $ | (34) | | | $ | 29 | | | $ | 27 | |
Reinsurance Recoverables | | 333 | | | (183) | | | — | | | 150 | |
| | | | | | | | |
Total | | $ | 365 | | | $ | (217) | | | $ | 29 | | | $ | 177 | |
| | | | | | | | |
March 31, 2022 | | December 31, 2021 | | Provision for expected credit losses | | Write-offs | | March 31, 2022 |
Premiums Receivable | | $ | 16 | | | $ | (14) | | | $ | 10 | | | $ | 12 | |
Reinsurance Recoverables | | 58 | | | 22 | | | — | | | 80 | |
| | | | | | | | |
Total | | $ | 74 | | | $ | 8 | | | $ | 10 | | | $ | 92 | |
13)14) STATUTORY ACCOUNTING AND REGULATION
The insurance industry is heavily regulated. State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as our insurance subsidiaries. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict insurers' ability to pay dividends, specify allowable investment types and investment mixes, and subject insurers to assessments. Effective June 1, 2022, our insurance subsidiaries JIC and ACIC were merged, with ACIC being the surviving entity. Effective May 31, 2022, our former insurance subsidiaries UPC and FSIC were merged, with UPC being the surviving entity. Both UPC and ACIC are domiciled in Florida, while IIC is domiciled in New York. At September 30, 2022,March 31, 2023, and during the three and nine months then ended, our insurance subsidiariesACIC and IIC met all regulatory requirements of the states in which they operate. As of December 31, 2022, UPC was determined to be insolvent and effective February 27, 2023 was placed into receivership by the DFS.
During 2022,2023, we received an assessment notice from the Florida Insurance Guaranty Association (FIGA). This assessment will be 0.7% on direct written premium of all covered lines of business in Florida to cover the cost of an insurance company facing insolvency. This assessment is in addition to the 1.3% assessment, described below, and is recoupable from policyholders. During 2022, we received an assessment notice from FIGA. This assessment will be 1.3% on direct written premium of all covered lines of business in Florida to cover the cost of an insurance company
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
facing insolvency. This assessment is in addition to FIGA's 0.7% assessment, described below, and is recoupable from policyholders. During 2021, we received an assessment notice from FIGA of 0.7% on all direct written premium of Florida lines of business during 2022. In addition, during 2021, we received an assessment notice from the Louisiana Insurance Guarantee Association (LIGA). LIGA is assessing property and casualty insurers $100,000,000 in the aggregate to cover the cost of two regional insurance companies facing insolvency.
The National Association of Insurance Commissioners (NAIC) has Risk-Based Capital (RBC) guidelines for insurance companies that are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. Most states, including Florida and New York, have enacted statutory requirements adopting the NAIC RBC guidelines, and insurers having less statutory surplus than required will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. State insurance regulatory authorities could require an insurer to cease operations in the event the insurer fails to maintain the required statutory capital.
The state laws of Florida and New York permit an insurer to pay dividends or make distributions out of that part of statutory surplus derived from net operating profit and net realized capital gains. The state laws further provide calculations to determine the amount of dividends or distributions that can be made without the prior approval of the insurance regulatory authorities in those states and the amount of dividends or distributions that would require prior approval of the insurance regulatory authorities in those states. Statutory RBC requirements may further restrict our insurance subsidiaries' ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause statutory surplus to fall below minimum RBC requirements.
The SBA Note is considered a surplus note pursuant Additionally, in connection with our former subsidiary UPC's plan for run off, IIC has agreed to statutory accounting principles. As a result, UPC is subject to the authoritynot pay ordinary dividends without prior approval of the Insurance CommissionerNew York Department of the State of Florida with regard to its ability to repay principal and interest on the SBA Note. Any payment of principal or interest requires permission from the insurance regulatory authority.Financial Services until January 1, 2025.
Our insurance subsidiaries must each file with the various insurance regulatory authorities an “Annual Statement” which reports, among other items, statutory net income (loss) and surplus as regards policyholders, which is called stockholders' equity under GAAP. The table below details the statutory net income (loss) for each of our regulated entities for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
UPC(2) | | $ | (42,257) | | | $ | 1,607 | | | $ | (169,090) | | | $ | (59,314) | |
ACIC(3) | | 14,314 | | | (3,484) | | | 25,000 | | | (39,882) | |
IIC | | (1,833) | | | (4,037) | | | (4,429) | | | (5,488) | |
Total | | $ | (29,776) | | | $ | (5,914) | | | $ | (148,519) | | | $ | (104,684) | |
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
| | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2023 | | 2022 |
ACIC(1) | | | | | | 18,230 | | | 6,110 | |
IIC | | | | | | (2,203) | | | (3,985) | |
Total | | | | | | $ | 16,027 | | | $ | 2,125 | |
(1) All values included in the table are estimated as of November 9, 2022.
(2) UPC results are inclusive of FSIC as these entities were merged effective May 31, 2022.
(3) ACIC results are inclusive of JIC as these entities were merged effective June 1, 2022.
Our insurance subsidiaries must maintain capital and surplus ratios or balances as determined by the regulatory authority of the states in which they are domiciled. At September 30, 2022,March 31, 2023, we met these requirements. The table below details the amount of surplus as regards policyholders for each of our regulated entities at September 30, 2022March 31, 2023 and December 31, 2021.2022.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
UPC(2) | | $ | 50,880 | | | $ | 169,244 | | |
ACIC(3) | | 90,604 | | | 142,138 | | |
ACIC(1) | | ACIC(1) | | 101,811 | | | 77,511 | |
IIC | IIC | | 25,422 | | | 30,248 | | IIC | | 23,966 | | | 26,152 | |
Total | Total | | $ | 166,906 | | | $ | 341,630 | | Total | | $ | 125,777 | | | $ | 103,663 | |
(1) All values included in the table are estimated as of November 9, 2022.
(2) UPC results are inclusive of FSIC as these entities were merged effective May 31, 2022.
(3) ACIC results are inclusive of JIC as these entities were merged effective June 1, 2022.
14)
15) ACCUMULATED OTHER COMPREHENSIVE LOSS
We report changes in other comprehensive lossincome (loss) items within comprehensive lossincome (loss) on the Unaudited Condensed Consolidated Statements of Comprehensive Loss,Income (Loss), and we include accumulated other comprehensive lossincome (loss) as a component of stockholders' equity on our Unaudited Condensed Consolidated Balance Sheets.
The table below details the components of accumulated other comprehensive loss at period end:
| | | Pre-Tax Amount | | Tax (Expense) Benefit | | Net-of-Tax Amount | | Pre-Tax Amount | | Tax (Expense) Benefit | | Net-of-Tax Amount |
December 31, 2021 | $ | (8,593) | | | $ | 2,062 | | | $ | (6,531) | | |
December 31, 2022 | | December 31, 2022 | $ | (33,041) | | | $ | 2,094 | | | $ | (30,947) | |
Changes in net unrealized losses on investments | Changes in net unrealized losses on investments | (60,162) | | | 496 | | | (59,666) | | Changes in net unrealized losses on investments | 5,574 | | | (315) | | | 5,259 | |
Reclassification adjustment for realized losses | Reclassification adjustment for realized losses | 1,856 | | | (464) | | | 1,392 | | Reclassification adjustment for realized losses | (1,260) | | | 315 | | | (945) | |
September 30, 2022 | $ | (66,899) | | | $ | 2,094 | | | $ | (64,805) | | |
Impact of deconsolidation of discontinued operations | | Impact of deconsolidation of discontinued operations | $ | (3) | | | $ | 1,007 | | | $ | 1,004 | |
March 31, 2023 | | March 31, 2023 | $ | (28,730) | | | $ | 3,101 | | | $ | (25,629) | |
15)16) STOCKHOLDERS' EQUITY
Our Board of Directors declared dividends on our outstanding shares of common stock to stockholders of record as follows for the periods presented (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| | Per Share Amount | | Aggregate Amount | | Per Share Amount | | Aggregate Amount |
First Quarter | | $ | 0.06 | | | $ | 2,589 | | | $ | 0.06 | | | $ | 2,582 | |
Second Quarter | | — | | | — | | | 0.06 | | | 2,591 | |
Third Quarter | | — | | | — | | | 0.06 | | | 2,589 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2023 | | 2022 |
| | Per Share Amount | | Aggregate Amount | | Per Share Amount | | Aggregate Amount |
First Quarter | | $ | — | | | $ | — | | | $ | 0.06 | | | $ | 2,589 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
In July 2019, our Board of Directors authorized a stock repurchase plan of up to $25,000,000 of our common stock. As of September 30, 2022,March 31, 2023, we had not yet repurchased any shares under this stock repurchase plan. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of UIHC common stock, and general market conditions. The plan has no expiration date, and the plan may be suspended or discontinued at any time.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
See Note 1617 in these Notes to Unaudited Condensed Consolidated Financial Statements for information regarding stock-based compensation activity.
16)17) STOCK-BASED COMPENSATION
We account for stock-based compensation under the fair value recognition provisions of ASC Topic 718 - Compensation - Stock Compensation. We recognize stock-based compensation cost over the award’s requisite service period on a straight-line basis for time-based restricted stock grants and performance-based restricted stock grants. We record forfeitures as they occur for all stock-based compensation.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
The following table presents our total stock-based compensation expense:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Employee stock-based compensation expense | Employee stock-based compensation expense | | | | | | | | | Employee stock-based compensation expense | | | | |
Pre-tax | Pre-tax | | $ | 261 | | | $ | 270 | | | $ | 792 | | | $ | 495 | | Pre-tax | | $ | 309 | | | $ | 390 | |
Post-tax (1) | Post-tax (1) | | 206 | | | 213 | | | 626 | | | 391 | | Post-tax (1) | | 244 | | | 308 | |
Director stock-based compensation expense | Director stock-based compensation expense | | Director stock-based compensation expense | | |
Pre-tax | Pre-tax | | 29 | | | 66 | | | 132 | | | 243 | | Pre-tax | | 26 | | | 62 | |
Post-tax (1) | Post-tax (1) | | 23 | | | 52 | | | 104 | | | 192 | | Post-tax (1) | | 21 | | | 49 | |
(1) The after tax amounts are determined using the 21% corporate federal tax rate.
We had approximately $3,174,000$1,709,000 of unrecognized stock compensation expense at September 30, 2022March 31, 2023 related to non-vested stock-based compensation granted, which we expect to recognize over a weighted-average period of approximately 2.21.8 years. We had approximately $62,000$10,000 of unrecognized director stock-based compensation expense at September 30, 2022March 31, 2023 related to non-vested director stock-based compensation granted, which we expect to recognize over a weighted-average period of approximately 0.60.1 years.
Restricted stock, restricted stock units and performance stock units
Stock-based compensation cost for restricted stock awards, restricted stock units and performance stock units is measured based on the closing fair market value of our common stock on the date of grant, which vest in equal installments over the requisite service period of typically three years. Restricted stock awards granted to non-employee directors vest over a one-year period. Each restricted stock unit and performance stock unit represents our obligation to deliver to the holder one share of common stock upon vesting.
Performance stock units vest based on the Company's return on average equity compared to a defined group of peer companies. On the grant date, we issue the target number of performance stock units. They are subject to forfeitures if performance goals are not met. The actual number of performance stock units earned can vary from zero to 150 percent of the target for the 2023, 2022, 2021, and 20202021 awards.
We did not grant shares of restricted common stock during the three months ended September 30, 2022. We granted 2,551any shares of restricted common stock during the three month period ended September 30, 2021,March 31, 2023. We granted 114,866 shares of restricted common stock during the three month period ended March 31, 2022, which had a weighted-average grant date fair value of $3.76$3.59 per share. We granted 907,907 and 290,577 shares of restricted common stock during the nine month periods ended September 30, 2022 and 2021, respectively, which had a weighted-average grant date fair value of $1.97 and $6.02 per share, respectively.
The following table presents certain information related to the activity of our non-vested common stock grants:
| | | | | | | | | | | |
| Number of Restricted Shares | | Weighted Average Grant Date Fair Value |
Outstanding as of December 31, 2021 | 336,596 | | | $ | 6.99 | |
Granted | 907,907 | | | 1.97 | |
Less: Forfeited | 208,075 | | | 4.31 | |
Less: Vested | 112,722 | | | 7.09 | |
Outstanding as of September 30, 2022 | 923,706 | | | $ | 2.65 | |
| | | | | | | | | | | |
| Number of Restricted Shares | | Weighted Average Grant Date Fair Value |
Outstanding as of December 31, 2022 | 714,239 | | | $ | 2.73 | |
Granted | — | | | — | |
Less: Forfeited | 856 | | | 3.59 | |
Less: Vested | 44,457 | | | 4.40 | |
Outstanding as of March 31, 2023 | 668,926 | | | $ | 2.62 | |
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
Stock options
Stock option fair value was estimated on the grant date using the Black-Scholes-Merton formula. Stock options vest in equal installments over the requisite service period of typically three years. The following weighted-average assumptions were used to value the stock options granted:
| | | 2022 | | 2021 | | 2023 | | 2022 |
Expected annual dividend yield | Expected annual dividend yield | — | % | | 0.65 | % | Expected annual dividend yield | — | % | | — | % |
Expected volatility | Expected volatility | 49.66 | % | | 46.63 | % | Expected volatility | — | % | | 49.66 | % |
Risk-free interest rate | Risk-free interest rate | 2.92 | % | | 1.16 | % | Risk-free interest rate | — | % | | 2.92 | % |
Expected term | Expected term | 6 years | | 6 years | Expected term | N/A | | 6 years |
Expected annual dividend yield for our options granted prior to the third quarter of 2021 is based on a quarterly dividend of $0.06 per share and the stock price on the grant date. The expected annual dividend yield for our options granted during and after the third quarter of 20212022 is based on no dividends being paid in future quarters. The expected volatility is a historical volatility calculated based on the daily closing prices over a period equal to the expected term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the grant date. Expected term takes into account the three-year graded vesting term and the 10-year contractual term of the option.
We did not grant any stock options during the three monthsmonth periods ended September 30,March 31, 2023 and 2022. We granted 900,000 stock options during the three months ended September 30, 2021, which had a weighted average grant date fair value of $1.57 per share. We granted 635,643 and 1,054,707 stock options during the nine months ended September 30, 2022 and 2021, respectively, which had a weighted average grant date fair value of $0.86 and $1.61, per share, respectively.
The following table presents certain information related to the activity of our non-vested stock option grants:
| | | Number of Stock Options | | Weighted Average Exercise Prices | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value | | Number of Stock Options | | Weighted Average Exercise Prices | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding as of December 31, 2021 | 1,147,215 | | | $ | 4.80 | | | 9.49 | | | $ | 792,000 | | |
Outstanding as of December 31, 2022 | | Outstanding as of December 31, 2022 | 1,250,685 | | | $ | 3.71 | | | 7.66 | | | $ | — | |
Granted | Granted | 635,643 | | | 1.70 | | | — | | | — | | Granted | — | | | — | | | — | | | — | |
Less: Forfeited | Less: Forfeited | 199,006 | | | 3.05 | | | — | | | — | | Less: Forfeited | — | | | — | | | — | | | — | |
Less: Expired | Less: Expired | — | | | — | | | — | | | — | | Less: Expired | 161,925 | | | 3.05 | | | — | | | — | |
Less: Exercised | Less: Exercised | — | | | — | | | — | | | — | | Less: Exercised | — | | | — | | | — | | | — | |
Outstanding as of September 30, 2022 | 1,583,852 | | | $ | 3.77 | | | 9.05 | | | $ | — | | |
Outstanding as of March 31, 2023 | | Outstanding as of March 31, 2023 | 1,088,760 | | | $ | 3.81 | | | 8.55 | | | $ | 451 | |
| Vested as of September 30, 2022(1) | 463,724 | | | $ | 7.77 | | | 8.19 | | | $ | — | | |
Exercisable as of September 30, 2022 | 411,090 | | | $ | 6.36 | | | 8.44 | | | $ | — | | |
Vested as of March 31, 2023(1) | | Vested as of March 31, 2023(1) | 532,797 | | | $ | 7.26 | | | 7.79 | | | $ | 112 | |
Exercisable as of March 31, 2023 | | Exercisable as of March 31, 2023 | 270,861 | | | $ | 6.57 | | | 7.89 | | | $ | 112 | |
(1) The vested shares are calculated based on all vested shares at September 30, 2022,March 31, 2023, inclusive of those that have since expired. The weighted average exercise prices, and weighted-average remaining contractual term and aggregate intrinsic value is calculated based on only vested shares that are outstanding and exercisable at September 30, 2022.March 31, 2023.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022
17)18) SUBSEQUENT EVENTS
We evaluate all subsequent events and transactions for potential recognition or disclosure in our financial statements.
On October 1, 2022, we transitioned our Georgia businessApril 5, 2023, the Company filed a Motion for Release of Property of ACIC in the Circuit Court of the Second Judicial
Circuit for Leon County, Florida, requesting that UPC immediately remit to TypTapACIC reinsurance recoveries currently held by UPC and reinsurance recoveries recovered by UPC in connectionthe future in accordance with our southeast renewal rights agreement.the Company’s Allocation Agreement. Alternatively, ACIC requested future reinsurance recoveries remitted to UPC be placed into a segregated account for future reconciliation and remittance to ACIC. On April 13, 2023, the DFS filed a response to the Company’s motion, objecting to ACIC’s position. On April 14, 2023, the Court denied ACIC’s motion without prejudice.
On October 17, 2022,April 19, 2023, United Insurance Holding Corp.'s (the "Company") subsidiary, American Coastal Insurance Company ("ACIC") entered into a Memorandum of Understanding (the "Memorandum") with the Company received written notice from the Listing QualificationsFlorida Department of The Nasdaq Stock Market notifying the Company that, based on the closing bid priceFinancial Services, Division of Rehabilitation and Liquidation (the "DFS") as receiver of the Company's stock for the last 30 consecutive business days, theformer subsidiary, United Property & Casualty Insurance Company no longer complies with the minimum bid price requirement for continued listing on The Nasdaq Global Market. The Company has been provided an initial compliance period of 180 calendar days to regain compliance with this requirement.
In November, ACIC declared a dividend of $26,000,000 payable("UPC") related to the Company. The Company intends to make a capital contribution of $26,000,000 to UPC utilizing these funds.Reinsurance Allocation Agreement (the "Allocation Agreement") by and between ACIC and UPC.
UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023
The Allocation Agreement, effective on June 1, 2022, and approved by the Florida Office of Insurance Regulation (the "FLOIR") on December 5, 2022, describes the manner in which reinsurance recoveries under shared reinsurance agreements are allocated between ACIC and UPC. Under the terms of the Memorandum, ACIC and the DFS as receiver of UPC have reached the following agreement:
1.The DFS adopts, ratifies and affirms the Allocation Agreement.
2.All future reinsurance recoverable under reinsurance agreements applicable to the Allocation Agreement for Hurricane Ian losses shall be paid, either directly from the reinsurers, or directly from the reinsurance intermediary responsible therefor, to ACIC. If a true up adjustment demonstrates that any future reinsurance recoveries were over-collected by ACIC, ACIC will remit any over-payment to UPC.
On May 15, 2023, the Company, together with it's subsidiary, ACIC, entered into a Tax Memorandum of Understanding (the "Tax Memorandum") with the DFS as receiver of the Company's former subsidiary, UPC. On February 27, 2023, UPC entered into receivership with the DFS as receiver. As of March 31, 2023, in accordance with the various reinsurance allocation agreements including the Allocation Agreement described above, the Company is due approximately $38,352,000 of net reinsurance recoveries received by UPC on behalf of the Company but not settled prior to receivership. In addition, in April ACIC paid reinsurance premiums on behalf of UPC totaling $12,929,000. The Company and the DFS believe that an opportunity exists to settle these balances via the realization of certain deferred tax assets of the Company's consolidated Federal and Florida tax returns to which ACIC and UPC belong. UPC holds certain deferred tax assets that are believed to be on no value to UPC on a stand-alone basis. However, ACIC and the Company have the opportunity, subject to certain conditions such as continuing and adequate profitability, to realize these assets. Under the terms of the Tax Memorandum, the Company, ACIC and the DFS as receiver of UPC have reached the following agreement:
1.The parties agree to cooperate with one another to achieve realization of the deferred tax assets;
2.The parties agree to deposit the funds that are or may be due to UPC pursuant to the Tax Allocation Agreement into a segregated account held by ACIC that will serve as collateral for any amount payable from or to UPC;
3.The parties agree that the Federal Income Tax Allocation Agreement entered into prior to UPC’s receivership is ratified and accepted by all parties;
4.The parties agree to an annual “true up” of the allocation of the disputed recoveries to the extent that such recoveries were not allocated correctly according to the Reinsurance Allocation Agreement;
5.In the event that ACIC, UIHC, or any of their affiliates make a claim or file a proof of claim in the UPC estate, the reviewed, approved, and/or adjudicated claim shall be reduced by the amount of (a) any tax benefit collectively received by ACIC, UIHC, or any of their affiliates as well as (b) any money withdrawn from the DTA Account for the benefit of any entity other than UPC; and
6.In the event that the benefit received by the Company is greater than the disputed recoveries, the difference shall be paid to DFS as receiver of UPC.
The Tax Memorandum allows the Company to secure amounts due from UPC to ACIC provided the Internal Revenue Service does not object to the Company utilizing UPC's net operating loss carry-forward against its future taxable income.
UNITED INSURANCE HOLDINGS CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-Q, as well as with the Consolidated Financial Statements and related footnotes under Part II. Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021.2022. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these forward-looking statements as a result of certain known and unknown risks and uncertainties. See "Forward-Looking Statements."
EXECUTIVE SUMMARY
Overview
United Insurance Holdings Corp. (referred to in this document as we, our, us, the Company or UPC Insurance)UIHC) is a holding company primarily engaged in personalcommercial and commercialpersonal property and casualty insurance business with investments in the United States. We conduct our business principally through our threetwo wholly-owned insurance subsidiaries: United Property & Casualty Insurance Company (UPC); American Coastal Insurance Company (ACIC); and Interboro Insurance Company (IIC). Collectively, we refer to the holding company and all our subsidiaries, including non-insurance subsidiaries, as “UPC“United Insurance Holdings,” which is the preferred brand identification for our Company.
Our Company’s primary source of revenue is generated from writing insurance in Florida Louisiana,and New York and Texas. The CompanyYork. Our target market in such areas consists of states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies. We believe an opportunity exists for UIHC to write profitable business in such areas. During 2022, we also writes policieswrote commercial residential insurance in Georgia, NorthSouth Carolina and South Carolina where renewal rights have been sold and all premiums and losses are ceded. Effective AprilTexas, however, effective May 1, 2022, we no longer write in the state of Massachusetts, and effective January 15,these states. In addition, during 2022 we no longer writewrote personal residential business in six other states, however on February 27, 2023, our former insurance subsidiary, United Property & Casualty Insurance Company (UPC) was placed into receivership with the stateFlorida Department of New Jersey. Effective January 1, 2021, we no longer writeFinancial Services, which divested our ownership of UPC. The events leading to receivership and results of this subsidiary, now included within discontinued operations, can be seen in Note 3 of the state of Hawaii, and effective December 1, 2021, we no longer write in the states of Connecticut or Rhode Island, though we are still licensedNotes to write in all five states. We are also licensed to write property and casualty insurance in an additional six states; however, we have not commenced writing or no longer write in these states.Unaudited Condensed Consolidated Financial Statements above.
On August 25, 2022, we announced that our thatformer subsidiary UPC had filed plans for withdrawal in the states of Florida, Louisiana, and Texas and intended to file a plan for withdrawal in the state of New York. All filed plans entail non-renewing personal lines policies in these states. With this action, UPC will effectively be placed into an orderly run-off so long as UPC remains in compliance with the rules and regulations of each state. Additionally, we announced that Demotech, Inc. (Demotech), an insurance rating agency, notified UPC of its intent to withdraw UPC's Financial Stability Rating. On December 5, 2022, the Florida Office of Insurance Regulation ("FLOIR") issued Consent Order No. 303643-22- CO that provided for the administrative supervision and approval of the plan of run-off for UPC (the "Consent Order"). The Consent Order provided formal approval of UPC's Plan of Run-Off (the "Plan") to facilitate a solvent wind down of its affairs in an orderly fashion. Additionally, in connection with the Plan, IIC agreed to not pay ordinary dividends without the prior approval of the New York Department of Financial Services until January 1, 2025. On February 10, 2023, we announced that a solvent run-off of UPC was unlikely and on February 27, 2023, UPC was placed into receivership with the Florida Department of Financial Services (the "DFS") which divested our ownership of UPC.
Our Company, together with wholly-owned subsidiariesits former subsidiary, UPC and wholly-owned subsidiary United Insurance Management, L.C. (UIM), entered into a Renewal Rights Agreement (Southeast Renewal Agreement), dated as of December 30, 2021 with Homeowners Choice Property and Casualty Insurance Company, Inc. (HCPCI), pursuant to which our Company, UPC and UIM agreed to sell, and HCPCI agreed to purchase, the renewal rights to UPC’s personal lines homeowners business in Georgia, South Carolina and North Carolina. The transfer of policies is subject to regulatory approval. Effective June 1, 2022, we began transitioning South Carolina policies to HCPCI. The sale was consummated on December 30, 2021.
Effective June 1, 2022, we entered into a quota share reinsurance agreement with TypTap Insurance Company (Typtap) in connection with the Southeast Renewal Agreement. Under the terms of this agreement, we cedeceded 100% of our former subsidiary UPC's in-force, new, and renewal policies in the states of Georgia, North Carolina, and South Carolina. This agreement replaces the 85% quota share agreement with HCPCI effective December 31, 2021. Also effective June 1, our third-party quota share reinsurance agreements were renewed to exclude these states. We will no longer retain any risk associated with these states.
Our Company, together with wholly-owned subsidiariesits former subsidiary UPC and wholly-owned subsidiary UIM, entered into a Renewal Rights Agreement (Northeast Renewal Agreement), dated as of January 18, 2021 with HCPCI and HCI Group, Inc. (HCI), pursuant to
UNITED INSURANCE HOLDINGS CORP.
which our Company, UPC and UIM agreed to sell, and HCPCI agreed to purchase, the renewal rights to UPC’s personal lines homeowners business in Connecticut, Massachusetts, New Jersey and Rhode Island. The transfer of all states was completed as of June 30, 2022.
Effective June 1, 2021, we entered into a quota share reinsurance agreement with HCPCI and TypTap in connection with the Northeast Renewal Agreement. Under the terms of this agreement, we cedeceded 100% of our former subsidiary UPC's in-force, new, and renewal policies in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island. The cession of these policies is 50% to HCPCI and 50% to TypTap.
UNITED INSURANCE HOLDINGS CORP.
We have historically grown our business through strong organic growth, complemented by strategic acquisitions and partnerships, including our acquisitions of AmCo Holding Company, LLC (AmCo) and its subsidiaries, including ACIC, in April 2017, IIC in April 2016, and Family Security Holdings, LLC (FSH), including its subsidiary Family Security Insurance Company, Inc. (FSIC), in February 2015, and our strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Tokio Marine), which formed Journey Insurance Company (JIC) in August 2018. Effective June 1, 2022, we merged JIC into ACIC, with ACIC being the surviving entity. Effective May 31, 2022, we merged FSIC into UPC, with UPC being the surviving entity.
As a result of underwriting actions implemented during the fourth quarterreceivership of 2020 and throughout 2021, as well asour former subsidiary UPC by the transfer of Rhode Island, Connecticut, New Jersey, Massachusetts and South Carolina policies to HCPCI,DFS effective February 27, 2022, our policies in-force decreased by 42.5%51.3% from 525,96948,152 policies in-force at September 30, 2021March 31, 2022 to 302,29623,473 policies in-force at September 30, 2022.March 31, 2023.
The following discussion highlights significant factors influencing the consolidated financial position and results of operations of UPC Insurance.United Insurance Holdings. In evaluating our results of operations, we use premiums written and earned, policies in-force and new and renewal policies by geographic concentration. We also consider the impact of catastrophe losses and prior year development on our loss ratios, expense ratios and combined ratios. In monitoring our investments, we use credit quality, investment income, cash flows, realized gains and losses, unrealized gains and losses, asset diversification and portfolio duration. To evaluate our financial condition, we consider our liquidity, financial strength, ratings, book value per share and return on equity.
Impact of COVID-19
We did not experience a material impact from COVID-19 on our business operations, financial position, liquidity or our ability to service our policyholders during the three and nine months ended September 30, 2022. In addition, the COVID-19 pandemic and resulting global disruptions did not have a material impact on our access to credit and capital markets needed to maintain sufficient liquidity for our continued operating needs during the quarter ended September 30, 2022.
Additionally, during the fourth quarter of 2021 we implemented our new flexible work policy. This policy allows all employees to work remotely permanently, with the return to our offices being completely voluntary at this time. We will continue to respond to the COVID-19 pandemic and take reasonable measures to make sure customers continue to be served without interruption.
UNITED INSURANCE HOLDINGS CORP.
20222023 Highlights
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Gross premiums written | $ | 255,203 | | | $ | 322,493 | | | $ | 894,824 | | | $ | 1,060,555 | |
Gross premiums earned | 301,896 | | | 353,461 | | | 926,860 | | | 1,066,557 | |
Net premiums earned | 116,187 | | | 153,271 | | | 328,449 | | | 444,680 | |
Total revenues | 123,788 | | | 162,740 | | | 341,947 | | | 479,983 | |
Earnings before income tax | (70,797) | | | (18,600) | | | (148,009) | | | (77,655) | |
Consolidated net loss attributable to UIHC | (70,884) | | | (14,322) | | | (173,085) | | | (55,603) | |
Net loss available to UIHC stockholders per diluted share | $ | (1.65) | | | $ | (0.33) | | | $ | (4.02) | | | $ | (1.29) | |
| | | | | | | |
Reconciliation of net loss to core loss: | | | | | | | |
| | | | | | | |
Plus: Non-cash amortization of intangible assets and goodwill impairment (1) | $ | 14,381 | | | $ | 812 | | | $ | 16,005 | | | $ | 2,744 | |
Less: Realized gains on investment portfolio | (9) | | | 5,537 | | | (1,856) | | | 5,916 | |
Less: Unrealized gains (losses) on equity securities | (2,518) | | | (3,293) | | | (9,870) | | | 1,709 | |
Less: Net tax impact (2) | 3,551 | | | (301) | | | 5,824 | | | (1,025) | |
Core loss (3) (4) | (57,527) | | | (15,453) | | | (151,178) | | | (59,459) | |
Core loss per diluted share(3) (4) | $ | (1.34) | | | $ | (0.36) | | | $ | (3.51) | | | $ | (1.38) | |
| | | | | | | |
Book value per share | | | | | $ | 1.86 | | | $ | 7.42 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
| | | | | | | |
Gross premiums written | | | | | $ | 187,123 | | | $ | 142,414 | |
Gross premiums earned | | | | | 144,476 | | | 122,733 | |
Net premiums earned | | | | | 87,324 | | | 57,746 | |
Total revenues | | | | | 104,047 | | | 117,361 | |
Earnings from continuing operations, before income tax | | | | | 40,428 | | | 5,627 | |
Income (loss) from discontinued operations, net of tax | | | | | 230,305 | | | (37,904) | |
Consolidated net income (loss) attributable to UIHC | | | | | 260,878 | | | (33,172) | |
Net income (loss) available to UIHC stockholders per diluted share | | | | | | | |
Continuing Operations | | | | | $ | 0.70 | | | $ | 0.11 | |
Discontinued Operations | | | | | 5.29 | | | (0.88) | |
Total | | | | | $ | 5.99 | | | $ | (0.77) | |
| | | | | | | |
Reconciliation of net income (loss) to core income (loss): | | | | | | | |
| | | | | | | |
Plus: Non-cash amortization of intangible assets | | | | | $ | 812 | | | $ | 812 | |
Less: Income (loss) from discontinued operations, net of tax | | | | | 230,305 | | | (37,904) | |
Less: Realized losses on investment portfolio | | | | | (83) | | | 37 | |
Less: Unrealized gains (losses) on equity securities | | | | | 474 | | | (770) | |
Less: Net tax impact (1) | | | | | 88 | | | 324 | |
Core income (loss) (2) | | | | | 30,906 | | | 5,953 | |
Core income (loss) per diluted share(2) | | | | | $ | 0.71 | | | $ | 0.14 | |
| | | | | | | |
Book value per share | | | | | $ | 1.93 | | | $ | (4.21) | |
(1) For both the three and nine months ended September 30, 2022, non-cash amortization of intangible assets includes $13,570,000 related to the impairment of goodwill attributable to our personal lines operating segment.
(2) In order to reconcile the net loss to the core loss measure, we included the tax impact of all adjustments using the 21% corporate federal tax rate.
(3) For the three and nine months ended September 30, 2022, core loss includes $13,851,000 and $57,511,000, respectively, in tax expense related to the Company's recognition of a valuation allowance.
(4)(2) Core loss,income (loss), a measure that is not based on U.S. generally accepted accounting principles (GAAP), is reconciled above to net loss,income (loss), the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-Q is in "Definitions of Non-GAAP Measures" below.
UNITED INSURANCE HOLDINGS CORP.
Consolidated Net LossIncome (Loss)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
REVENUE: | REVENUE: | | | | | | | | | REVENUE: | | | | |
Gross premiums written | Gross premiums written | | $ | 255,203 | | | $ | 322,493 | | | $ | 894,824 | | | $ | 1,060,555 | | Gross premiums written | | $ | 187,123 | | | $ | 142,414 | |
Change in gross unearned premiums | Change in gross unearned premiums | | 46,693 | | | 30,968 | | | 32,036 | | | 6,002 | Change in gross unearned premiums | | (42,647) | | | (19,681) |
Gross premiums earned | Gross premiums earned | | 301,896 | | | 353,461 | | | 926,860 | | | 1,066,557 | | Gross premiums earned | | 144,476 | | | 122,733 | |
Ceded premiums earned | Ceded premiums earned | | (185,709) | | | (200,190) | | | (598,411) | | | (621,877) | | Ceded premiums earned | | (57,152) | | | (64,987) | |
Net premiums earned | Net premiums earned | | 116,187 | | | 153,271 | | | 328,449 | | | 444,680 | | Net premiums earned | | 87,324 | | | 57,746 | |
Net investment income | Net investment income | | 4,269 | | | 3,471 | | | 9,887 | | | 10,737 | | Net investment income | | 2,589 | | | 1,404 | |
Net realized investment gains (losses) | Net realized investment gains (losses) | | (9) | | | 5,537 | | | (1,856) | | | 5,916 | | Net realized investment gains (losses) | | (83) | | | 37 | |
Net unrealized gains (losses) on equity securities | Net unrealized gains (losses) on equity securities | | (2,518) | | | (3,293) | | | (9,870) | | | 1,709 | | Net unrealized gains (losses) on equity securities | | 474 | | | (770) | |
| Management fee income | | Management fee income | | 9,668 | | | 50,206 | |
Other revenue | Other revenue | | 5,859 | | | 3,754 | | | 15,337 | | | 16,941 | | Other revenue | | 4,075 | | | 8,738 | |
Total revenue | Total revenue | | 123,788 | | | 162,740 | | | 341,947 | | | 479,983 | | Total revenue | | 104,047 | | | 117,361 | |
EXPENSES: | EXPENSES: | | EXPENSES: | | |
Losses and loss adjustment expenses | Losses and loss adjustment expenses | | 117,228 | | | 102,769 | | | 298,670 | | | 336,614 | | Losses and loss adjustment expenses | | 19,073 | | | 32,518 | |
Policy acquisition costs | Policy acquisition costs | | 38,944 | | | 46,925 | | | 93,948 | | | 129,073 | | Policy acquisition costs | | 26,927 | | | 52,152 | |
Operating expenses | Operating expenses | | 9,615 | | | 15,429 | | | 34,882 | | | 42,133 | | Operating expenses | | 5,651 | | | 10,603 | |
General and administrative expenses | General and administrative expenses | | 26,391 | | | 13,940 | | | 56,890 | | | 42,934 | | General and administrative expenses | | 9,837 | | | 15,435 | |
Interest expense | Interest expense | | 2,392 | | | 2,378 | | | 7,165 | | | 7,010 | | Interest expense | | 2,719 | | | 2,359 | |
Total expenses | Total expenses | | 194,570 | | | 181,441 | | | 491,555 | | | 557,764 | | Total expenses | | 64,207 | | | 113,067 | |
Loss before other income | | (70,782) | | | (18,701) | | | (149,608) | | | (77,781) | | |
Income before other income | | Income before other income | | 39,840 | | | 4,294 | |
Other income | Other income | | (15) | | | 101 | | | 1,599 | | | 126 | | Other income | | 588 | | | 1,333 | |
Loss before income taxes | | (70,797) | | | (18,600) | | | (148,009) | | | (77,655) | | |
Provision (benefit) for income taxes | | 87 | | | (3,482) | | | 25,187 | | | (20,656) | | |
Net loss | | $ | (70,884) | | | $ | (15,118) | | | $ | (173,196) | | | $ | (56,999) | | |
Less: Net income (loss) attributable to noncontrolling interests | | — | | | (796) | | | (111) | | | (1,396) | | |
Net loss attributable to UIHC | | $ | (70,884) | | | $ | (14,322) | | | $ | (173,085) | | | $ | (55,603) | | |
Income before income taxes | | Income before income taxes | | 40,428 | | | 5,627 | |
Provision for income taxes | | Provision for income taxes | | 9,855 | | | 980 | |
Net income from continuing operations, net of tax | | Net income from continuing operations, net of tax | | $ | 30,573 | | | $ | 4,647 | |
Income (loss) from discontinued operations, net of tax | | Income (loss) from discontinued operations, net of tax | | 230,305 | | | (37,904) | |
Net income (loss) | | Net income (loss) | | $ | 260,878 | | | $ | (33,257) | |
Less: Net loss attributable to noncontrolling interests | | Less: Net loss attributable to noncontrolling interests | | — | | | (85) | |
Net income (loss) attributable to UIHC | | Net income (loss) attributable to UIHC | | $ | 260,878 | | | $ | (33,172) | |
Earnings available to UIHC common stockholders per diluted share | Earnings available to UIHC common stockholders per diluted share | | $ | (1.65) | | | $ | (0.33) | | | $ | (4.02) | | | $ | (1.29) | | Earnings available to UIHC common stockholders per diluted share | | $ | 5.99 | | | $ | (0.77) | |
Book value per share | Book value per share | | $ | 1.86 | | | $ | 7.42 | | Book value per share | | $ | 1.93 | | | $ | (4.21) | |
Return on equity based on GAAP net loss | | (99.1) | % | | (20.4) | % | |
Return on equity based on GAAP net income (loss) | | Return on equity based on GAAP net income (loss) | | NM | | (41.7) | % |
Loss ratio, net (1) | Loss ratio, net (1) | | 100.9 | % | | 67.1 | % | | 90.9 | % | | 75.7 | % | Loss ratio, net (1) | | 21.9 | % | | 56.3 | % |
Expense ratio (2)(3) | | 64.5 | % | | 49.8 | % | | 56.5 | % | | 48.2 | % | |
Combined ratio (4) | | 165.4 | % | | 116.9 | % | | 147.4 | % | | 123.9 | % | |
Expense ratio (2) | | Expense ratio (2) | | 48.6 | % | | 135.4 | % |
Combined ratio (3) | | Combined ratio (3) | | 70.5 | % | | 191.7 | % |
Effect of current year catastrophe losses on combined ratio | Effect of current year catastrophe losses on combined ratio | | 32.2 | % | | 24.1 | % | | 26.4 | % | | 22.8 | % | Effect of current year catastrophe losses on combined ratio | | 3.5 | % | | 11.4 | % |
Effect of prior year development on combined ratio | Effect of prior year development on combined ratio | | 38.4 | % | | 1.3 | % | | 16.4 | % | | 7.0 | % | Effect of prior year development on combined ratio | | (3.6) | % | | (5.3) | % |
| Underlying combined ratio (5) | | 94.8 | % | | 91.5 | % | | 104.6 | % | | 94.1 | % | |
Underlying combined ratio (4) | | Underlying combined ratio (4) | | 70.6 | % | | 185.6 | % |
(1) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.
(2) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate this component separately from our loss expenses.
(3)Includes the impairment of goodwill, which had an impact of 11.7% and 4.1% on our expense ratios during the three and nine month periods ended September 30, 2022, respectively.
(4) Combined ratio is the sum of the loss ratio, net and the expense ratio, net. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.
(5)(4) Underlying combined ratio, a measure that is not based on GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-Q is in "Definitions of Non-GAAP Measures" below.
UNITED INSURANCE HOLDINGS CORP.
Definitions of Non-GAAP Measures
We believe that investors' understanding of UPC Insurance'sUIHC's performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.
Combined ratio excluding the effects of current year catastrophe losses and prior year reserve development (underlying combined ratio) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year development from the combined ratio. We believe that this ratio is useful to investors and it is used by management to highlight the trends in our business that may be obscured by current year catastrophe losses and prior year development. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their frequency of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.
Net loss and LAE excluding the effects of current year catastrophe losses and prior year reserve development (underlying loss and LAE) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and LAE. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these two items can have a significant impact on our loss trends in a given period. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net loss and LAE and does not reflect the overall profitability of our business.
Net lossincome (loss) excluding the effects of amortization of intangible assets, income (loss) from discontinued operations, realized gains (losses) and unrealized gains (losses) on equity securities, net of tax (core loss)income (loss)) is a non-GAAP measure, which is computed by adding amortization, net of tax, to net lossincome (loss) and subtracting income (loss) from discontinued operations, net of tax, realized gains (losses) on our investment portfolio, net of tax, and unrealized gains (losses) on our equity securities, net of tax, from net loss.income (loss). Amortization expense is related to the amortization of intangible assets acquired, including goodwill, through mergers and therefore the expense does not arise through normal operations. Investment portfolio gains (losses) and unrealized equity security gains (losses) vary independent of our operations. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is net loss.income (loss). The core lossincome (loss) measure should not be considered a substitute for net loss and does not reflect the overall profitability of our business.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
When we prepare our consolidated financial statements and accompanying notes in conformity with GAAP, we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the three and nine months ended September 30, 2022,March 31, 2023, we reassessed our critical accounting policies and estimates as disclosed in Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements and our Annual Report on Form 10-K for the year ended December 31, 2021. In June 2022, we assessed our deferred tax position and recorded a valuation allowance against all of our deferred tax assets.2022. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. In addition, in September 2022, as a result of the decision to place UPC into an orderly runoff, we impaired the full balance of goodwill attributable to our personal lines operating segment.We have made no other material changes or additions with regard to those policies and estimates.
RECENT ACCOUNTING STANDARDS
Please refer to Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting standards that may affect us.
UNITED INSURANCE HOLDINGS CORP.
ANALYSIS OF FINANCIAL CONDITION - SEPTEMBER 30, 2022MARCH 31, 2023 COMPARED TO DECEMBER 31, 20212022
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying unaudited condensed consolidated interim financial statements and related notes, and in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Investments
The primary goals of our investment strategy are to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors that represent the most attractive relative value, and we maintain a moderate equity exposure. Limiting equity exposure manages risks and helps to preserve capital for two reasons: first, bond market returns are less volatile than stock market returns, and second, should the bond issuer enter bankruptcy liquidation, bondholders generally have a higher priority than equity holders in a bankruptcy proceeding. Our investment strategy is the same for both our personal lines and commercial lines operating segments.
We must comply with applicable state insurance regulations that prescribe the type, quality and concentrations of investments our insurance subsidiaries can make; therefore, our current investment policy limits investment in non-investment-grade fixed maturities and limits total investment amounts in preferred stock, common stock and mortgage notes receivable. We do not invest in derivative securities.
Two outside asset management companies, which have authority and discretion to buy and sell securities for us, manage our investments subject to (i) the guidelines established by our Board of Directors and (ii) the direction of management. The Investment Committee of our Board of Directors reviews and approves our investment policy on a regular basis.
Our cash, cash equivalents, restricted cash and investment portfolio totaled $768,602,000$372,721,000 at September 30, 2022,March 31, 2023, compared to $964,844,000$340,905,000 at December 31, 2021.2022.
The following table summarizes our investments, by type:
| | | September 30, 2022 | | December 31, 2021 | | March 31, 2023 | | December 31, 2022 |
| | Estimated Fair Value | | Percent of Total | | Estimated Fair Value | | Percent of Total | | Estimated Fair Value | | Percent of Total | | Estimated Fair Value | | Percent of Total |
U.S. government and agency securities | U.S. government and agency securities | $ | 35,438 | | | 4.6% | | $ | 49,340 | | | 5.1% | U.S. government and agency securities | $ | 3,409 | | | 0.9% | | $ | 2,385 | | | 0.7% |
Foreign government | Foreign government | 3,329 | | | 0.4% | | 3,459 | | | 0.4% | Foreign government | 991 | | | 0.3% | | 991 | | | 0.3% |
States, municipalities and political subdivisions | States, municipalities and political subdivisions | 58,166 | | | 7.6% | | 79,896 | | | 8.3% | States, municipalities and political subdivisions | 28,582 | | | 7.7% | | 26,895 | | | 7.9% |
Public utilities | Public utilities | 19,008 | | | 2.5% | | 25,457 | | | 2.6% | Public utilities | 7,820 | | | 2.1% | | 7,694 | | | 2.3% |
Corporate securities | Corporate securities | 183,781 | | | 23.9% | | 244,443 | | | 25.3% | Corporate securities | 85,723 | | | 23.0% | | 83,343 | | | 24.3% |
Mortgage-backed securities | Mortgage-backed securities | 132,584 | | | 17.3% | | 186,740 | | | 19.4% | Mortgage-backed securities | 56,002 | | | 15.0% | | 56,115 | | | 16.5% |
Asset-backed securities | Asset-backed securities | 57,947 | | | 7.5% | | 70,162 | | | 7.3% | Asset-backed securities | 28,206 | | | 7.6% | | 27,259 | | | 8.0% |
Redeemable preferred stocks | 1,998 | | | 0.3% | | 4,105 | | | 0.4% | |
| Total fixed maturities | Total fixed maturities | 492,251 | | | 64.1 | % | | 663,602 | | | 68.8 | % | Total fixed maturities | 210,733 | | | 56.6 | % | | 204,682 | | | 60.0 | % |
Mutual funds | Mutual funds | 32,137 | | | 4.2% | | 33,064 | | | 3.4% | Mutual funds | 16,181 | | | 4.3% | | 15,657 | | | 4.6% |
Public utilities | 901 | | | 0.1% | | — | | | —% | |
| Non-redeemable preferred stocks | 3,457 | | | 0.4% | | 4,894 | | | 0.5% | |
| Total equity securities | Total equity securities | 36,495 | | | 4.7 | % | | 37,958 | | | 3.9 | % | Total equity securities | 16,181 | | | 4.3 | % | | 15,657 | | | 4.6 | % |
Other investments | Other investments | 16,609 | | | 2.2 | % | | 18,006 | | | 1.9 | % | Other investments | 3,550 | | | 1.0 | % | | 3,675 | | | 1.1 | % |
Total investments | Total investments | 545,355 | | | 71.0% | | 719,566 | | | 74.6% | Total investments | 230,464 | | | 61.9% | | 224,014 | | | 65.7% |
Cash and cash equivalents | Cash and cash equivalents | 180,947 | | | 23.5 | % | | 212,024 | | | 22.0 | % | Cash and cash equivalents | 92,586 | | | 24.8 | % | | 70,903 | | | 20.8 | % |
Restricted cash | Restricted cash | 42,300 | | | 5.5% | | 33,254 | | | 3.4% | Restricted cash | 49,671 | | | 13.3% | | 45,988 | | | 13.5% |
Total cash, cash equivalents, restricted cash and investments | Total cash, cash equivalents, restricted cash and investments | $ | 768,602 | | | 100.0 | % | | $ | 964,844 | | | 100.0 | % | Total cash, cash equivalents, restricted cash and investments | $ | 372,721 | | | 100.0 | % | | $ | 340,905 | | | 100.0 | % |
UNITED INSURANCE HOLDINGS CORP.
We classify all of our fixed-maturity investments as available-for-sale. Our investments at September 30, 2022March 31, 2023 and December 31, 20212022 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings consisted mainly of securities issued by companies in the financial, utilities and industrial sectors or mutual funds. At September 30, 2022,March 31, 2023, approximately 83.8%79.6% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 16.2%20.4% were corporate bonds rated “BBB” or "BB".
Reinsurance
We follow the industry practice of reinsuring a portion of our risks. Reinsurance involves transferring, or "ceding", all or a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain primarily liable for the entire insured loss under the policies we write.
Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophe losses. According to the Insurance Service Office (ISO), a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25,000,000 or more in U.S. industry-wide direct insured losses to property and that affect a significant number of policyholders and insurers (ISO catastrophes). In addition to ISO catastrophes, we also include as catastrophes those events (non-ISO catastrophes), which may include losses, that we believe are, or will be, material to our operations which we define as incidents that result in $1,000,000 or more in losses for multiple policyholders.
During the second quarter of 2022, we placed our reinsurance program for the 2022 hurricane season. We purchased catastrophe excess of loss reinsurance protection up to an exhaustion point of approximately $2,500,000,000 in the aggregate.aggregate, including coverage related to our former insurance subsidiary, UPC. The treaties reinsure for personal and commercial lines property excess catastrophe losses caused by multiple perils including hurricanes and tropical storms. The agreements became effective as of June 1, 2022, for a one-year term, and incorporate the mandatory coverage required by and placed with the Florida Hurricane Catastrophe Fund (FHCF) and coverage required under the Reinsurance to Assist Policyholders Program (RAP Program). The FHCF and RAP Program covers Florida risks only and we participate at 90%. Under our core catastrophe excess of loss treaty, retention on a first and second event is $16,400,000. During the third quarter, one of our reinsurer'sreinsurers participating on the $25,000,000 excess of $20,000,000 layer of the core catastrophe program exercised a contractual right to terminate their participation due to Demotech's downgrade of UPC's Financial Stability Rating. We were unsuccessful in replacing this coverage in the open market so our captive reinsurer, UPC Re, stepped into the $25,000,000 excess of $20,000,000 layer which was subsequently impacted by Hurricane Ian resulting in an additional retained loss of $20,100,000 million. The exhaustion point of IIC's catastrophe reinsurance program is approximately $200,000,000 in the aggregate, with a retention of $3,000,000 per occurrence, covering all perils.
During the third quarter of 2022, the Company's core catastrophe reinsurance program was impacted by Hurricane Ian. As a result, the Company has approximately $891$508 million of occurrence limit remaining for Ian, with $818 million specificall of which is attributable to ACIC only. After reinstatement premiums of approximately $15.4 million, the Company, with its former subsidiary UPC has approximately $1.396 billion$993 million of aggregate limit remaining after Ian, based on our estimated ultimate net loss subject to the core catastrophe reinsurance program.
Effective December 13, 2021,January 1, 2023, we renewed our all other perils (AOP) catastrophe excess of loss agreement. The agreement
provides protection from catastrophe loss events other than named windstorms and earthquakes up to $110,000,000.$101,000,000.
During the third quarter of 2022, one of our private reinsurers who held a 100% share of the $15,000,000 in excess of $15,000,000 layer on our all other perils catastrophe excess of loss agreement notified us of their intent to terminate the agreement due to the contractual provision regarding the change in UPC's statutory surplus being greater than 25%. We agreed to a termination and commutation date of September 30, 2022 for this contract. This change will result in approximately $1,300,000 of ceded premium savings that would have otherwise been due in the fourth quarter of 2022 and the Company retaining all the risk for any non-hurricane catastrophe losses up to $30,000,000, excluding any quota share recoveries.
UNITED INSURANCE HOLDINGS CORP.
The table below outlines our quota share agreements in effect for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.
| | | | | | | | | | | | | | |
Reinsurer | Companies in Scope (1) | Effective Dates | Cession Rate | States in Scope |
External third-party | UPC, FSIC & ACIC | 06/01/2022 - 06/01/2023 | 10% (2) | Florida, Louisiana, Texas |
TypTap | UPC | 06/01/2022 - 06/01/2023 | 100% (3) | Georgia, North Carolina, South Carolina |
External third-party | UPC, FSIC & ACIC | 12/31/2021 - 12/31/2022 | 8% (2) | Florida, Louisiana, Texas |
HCPCI | UPC | 12/31/2021 - 06/01/2022 | 85% | Georgia, North Carolina, South Carolina |
External third-party | UPC & FSIC | 12/31/2021 - 12/31/2022 | 25% (4) | Florida, Louisiana, Texas |
HCPCI / TypTap (5) | UPC | 06/01/2021 - 06/01/2022 | 100% (3) | Connecticut, New Jersey, Massachusetts, Rhode Island |
External third-party | UPC, FSIC & ACIC (6) | 06/01/2021 - 06/01/2022 | 15% (2) | Florida, Georgia, Louisiana, North Carolina, South Carolina, Texas |
IIC | UPC | 12/31/2020 - 12/31/2022 | 100% | New York |
HCPCI | UPC | 12/31/2020 - 06/01/2021 | 69.5% | Connecticut, New Jersey, Massachusetts, Rhode Island |
External third-party | UPC, FSIC & ACIC | 12/30/2020 - 12/31/2021 | 8% (2)
| Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas |
External third-party | UPC, FSIC & ACIC (6)
| 06/01/2020 - 06/01/2021 | 15% (2)
| Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas |
External third-party | UPC & FSIC | 06/01/2020 - 06/01/2021 | 7.5% (2)
| Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas |
(1) Effective May 31, 2022, FSIC was merged into UPC, with UPC being the surviving entity.
(2) This treaty provides coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides ground- up protection effectively reducing our retention for catastrophe losses.
(3) This treaty provides coverage on our in-force, new and renewal policies until these states are transitioned to HCPCI or TypTap upon renewal.
(4) This treaty provides coverage on non-catastrophe losses on policies in-force on the effective date of the agreement.
(5) Cessions are split 50% to HCPCI and 50% to TypTap.
(6) This treaty was amended effective December 31, 2020 to include ACIC.
UNITED INSURANCE HOLDINGS CORP.
Reinsurance costs as a percentage of gross earned premium during the three and nine month periods ended September 30,March 31, 2023 and 2022 and 2021 were as follows:
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
Three Months Ended September 30, | | | | |
Non-at-Risk | | (2.0) | % | | (0.8) | % |
Quota Share | | (20.1) | % | | (23.9) | % |
All Other | | (39.4) | % | | (31.9) | % |
Total Ceding Ratio | | (61.5) | % | | (56.6) | % |
| | | | |
Nine Months Ended September 30, | | | | |
Non-at-Risk | | (2.2) | % | | (2.0) | % |
Quota Share | | (26.0) | % | | (25.3) | % |
All Other | | (36.4) | % | | (31.0) | % |
Total Ceding Ratio | | (64.6) | % | | (58.3) | % |
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Three Months Ended March 31, | | | | |
Non-at-Risk | | (0.5) | % | | (0.6) | % |
Quota Share | | (6.1) | % | | (15.6) | % |
All Other | | (33.0) | % | | (36.8) | % |
Total Ceding Ratio | | (39.6) | % | | (53.0) | % |
Reinsurance costs as a percent of gross earned premium for our personal residential property and casualty insurance policies (personal lines) and commercial residential property and casualty insurance policies (commercial lines) operating segments during the three and nine month periods ended September 30,March 31, 2023 and 2022 and 2021 were as follows:
| | | Personal | | Commercial | | Personal | | Commercial |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Three Months Ended September 30, | | | | | | | | | |
| Three Months Ended March 31, | | Three Months Ended March 31, | | | | | | | | |
Non-at-Risk | Non-at-Risk | | (3.1) | % | | (1.4) | % | | (0.5) | % | | 0.5 | % | Non-at-Risk | | (1.6) | % | | (1.2) | % | | (0.4) | % | | (0.5) | % |
Quota Share | Quota Share | | (24.4) | % | | (26.7) | % | | (13.4) | % | | (17.4) | % | Quota Share | | — | % | | — | % | | (6.7) | % | | (17.8) | % |
All Other | All Other | | (41.4) | % | | (27.7) | % | | (36.4) | % | | (41.8) | % | All Other | | (28.8) | % | | (18.2) | % | | (33.3) | % | | (39.4) | % |
Total Ceding Ratio | Total Ceding Ratio | | (68.9) | % | | (55.8) | % | | (50.3) | % | | (58.7) | % | Total Ceding Ratio | | (30.4) | % | | (19.4) | % | | (40.4) | % | | (57.7) | % |
| Nine Months Ended September 30, | | |
Non-at-Risk | | (3.3) | % | | (2.8) | % | | (0.5) | % | | (0.2) | % | |
Quota Share | | (32.0) | % | | (29.6) | % | | (15.9) | % | | (14.3) | % | |
All Other | | (35.4) | % | | (26.0) | % | | (37.7) | % | | (43.5) | % | |
Total Ceding Ratio | | (70.7) | % | | (58.4) | % | | (54.1) | % | | (58.0) | % | |
Please note that the sum of the percentages above will not reconcile to the consolidated percentages as they are calculated using each operating segments’ gross earned premium rather than our consolidated gross earned premium.
UNITED INSURANCE HOLDINGS CORP.
We amortize our ceded unearned premiums over the annual agreement period, and we record that amortization in ceded premiums earned on our Unaudited Condensed Consolidated Statements of Comprehensive Loss. The table below summarizes
UNITED INSURANCE HOLDINGS CORP.
the amounts of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Quota Share(1) | Quota Share(1) | $ | (40,167) | | | $ | (80,941) | | | $ | (118,382) | | | $ | (245,976) | | Quota Share(1) | | $ | (12,243) | | | $ | (23,128) | |
Excess-of-loss | Excess-of-loss | (10,416) | | | 1,751 | | | (403,971) | | | (445,697) | | Excess-of-loss | | (19,295) | | | (5,507) | |
Equipment, identity theft, and cyber security | Equipment, identity theft, and cyber security | (849) | | | 5,353 | | | (3,074) | | | (277) | | Equipment, identity theft, and cyber security | | (820) | | | (746) | |
Flood and inland flood | (5,171) | | | (6,860) | | | (15,911) | | | (18,821) | | |
| Ceded premiums written | Ceded premiums written | $ | (56,603) | | | $ | (80,697) | | | $ | (541,338) | | | $ | (710,771) | | Ceded premiums written | | $ | (32,358) | | | $ | (29,381) | |
Change in ceded unearned premiums | Change in ceded unearned premiums | (129,106) | | | (119,493) | | | (57,073) | | | 88,894 | | Change in ceded unearned premiums | | (24,794) | | | (35,606) | |
Ceded premiums earned | Ceded premiums earned | $ | (185,709) | | | $ | (200,190) | | | $ | (598,411) | | | $ | (621,877) | | Ceded premiums earned | | $ | (57,152) | | | $ | (64,987) | |
(1) 2022 and 2021 quota share ceded written premium includes our quota share agreements with HCPCI and Typtap.
The breakdown of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums for our personal lines and commercial lines operating segments can be seen in the tables below. These values can be reconciled to the table above.
Personal Lines Operating Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Quota Share | $ | (29,506) | | | $ | (69,315) | | | $ | (66,649) | | | $ | (187,521) | |
Excess-of-loss | (8,614) | | | 3,443 | | | (237,980) | | | (275,483) | |
Equipment, identity theft, and cyber security | (635) | | | 4,410 | | | (1,424) | | | (9) | |
| | | | | | | |
Flood and inland flood (1) | (5,171) | | | (6,860) | | | (15,911) | | | (18,821) | |
Ceded premiums written | $ | (43,926) | | | $ | (68,322) | | | $ | (321,964) | | | $ | (481,834) | |
Change in ceded unearned premiums | (81,482) | | | (70,285) | | | (92,353) | | | 36,635 | |
Ceded premiums earned | $ | (125,408) | | | $ | (138,607) | | | $ | (414,317) | | | $ | (445,199) | |
(1) 2022 and 2021 quota share ceded written premium includes our quota share agreements with HCPCI and Typtap. | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
| | | | | | | |
Excess-of-loss | | | | | (995) | | | 353 | |
Equipment, identity theft, and cyber security | | | | | (290) | | | (168) | |
| | | | | | | |
| | | | | | | |
Ceded premiums written | | | | | $ | (1,285) | | | $ | 185 | |
Change in ceded unearned premiums | | | | | (2,493) | | | (3,150) | |
Ceded premiums earned | | | | | $ | (3,778) | | | $ | (2,965) | |
Commercial Lines Operating Segment Impact
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
Quota Share | Quota Share | $ | (10,661) | | | $ | (11,626) | | | $ | (51,733) | | | $ | (58,455) | | Quota Share | | $ | (12,243) | | | $ | (23,128) | |
Excess-of-loss | Excess-of-loss | (1,802) | | | (1,692) | | | (165,991) | | | (170,214) | | Excess-of-loss | | (18,300) | | | (5,860) | |
Equipment, identity theft, and cyber security | Equipment, identity theft, and cyber security | (214) | | | 943 | | | (1,650) | | | (268) | | Equipment, identity theft, and cyber security | | (530) | | | (578) | |
| Ceded premiums written | Ceded premiums written | $ | (12,677) | | | $ | (12,375) | | | $ | (219,374) | | | $ | (228,937) | | Ceded premiums written | | $ | (31,073) | | | $ | (29,566) | |
Change in ceded unearned premiums | Change in ceded unearned premiums | (47,624) | | | (49,208) | | | 35,280 | | | 52,259 | | Change in ceded unearned premiums | | (22,301) | | | (32,456) | |
Ceded premiums earned | Ceded premiums earned | $ | (60,301) | | | $ | (61,583) | | | $ | (184,094) | | | $ | (176,678) | | Ceded premiums earned | | $ | (53,374) | | | $ | (62,022) | |
UNITED INSURANCE HOLDINGS CORP.
Current year catastrophe losses disaggregated between name and numbered storms and all other catastrophe loss events are shown in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact | | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact |
Three Months Ended September 30, | | | | | | | | | | | | |
Current period catastrophe losses incurred | | | | | | | | | | | | |
Named and numbered storms | | 1 | | | $ | 36,525 | | | 31.4 | % | | 5 | | | $ | 30,925 | | | 20.1 | % |
All other catastrophe loss events | | 4 | | | 915 | | | 0.8 | % | | 6 | | | 6,078 | | | 4.0 | % |
Total | | 5 | | | $ | 37,440 | | | 32.2 | % | | 11 | | | $ | 37,003 | | | 24.1 | % |
| | | | | | | | | | | | |
Nine Months Ended September 30, | | | | | | | | | | | | |
Current period catastrophe losses incurred | | | | | | | | | | | | |
Named and numbered storms | | 1 | | | $ | 36,525 | | | 11.1 | % | | 7 | | | $ | 34,937 | | | 7.9 | % |
All other catastrophe loss events | | 30 | | | 50,084 | | | 15.3 | % | | 31 | | | 66,288 | | | 14.9 | % |
Total | | 31 | | | $ | 86,609 | | | 26.4 | % | | 38 | | | $ | 101,225 | | | 22.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact | | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Three Months Ended March 31, | | | | | | | | | | | | |
Current period catastrophe losses incurred | | | | | | | | | | | | |
Named and numbered storms | | — | | | $ | — | | | — | % | | — | | | $ | — | | | — | % |
All other catastrophe loss events | | 3 | | | 3,071 | | | 3.5 | % | | 3 | | | 6,555 | | | 11.4 | % |
Total | | 3 | | | $ | 3,071 | | | 3.5 | % | | 3 | | | $ | 6,555 | | | 11.4 | % |
(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.
UNITED INSURANCE HOLDINGS CORP.
The impact of the current year catastrophes to our personal lines and commercial lines operating segments can be seen in the tables below. Please note that the catastrophe events may have impacted both operating segments. As a result, the sum of the number of events in the tables below will not reconcile to the consolidated number of events above. In addition, the combined ratio impact is calculated using each segment's net premiums earned and sum of the ratios in the tables below will not reconcile to the ratios above.
Personal Lines Operating Segment
| | | 2022 | | 2021 | | 2023 | | 2022 |
| | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact | | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact | | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact | | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact |
Three Months Ended September 30, | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Three Months Ended March 31, | | | | | | | | | | | | |
Current period catastrophe losses incurred | Current period catastrophe losses incurred | | Current period catastrophe losses incurred | |
Named and numbered storms | Named and numbered storms | | 1 | | | $ | 16,073 | | | 28.4 | % | | 5 | | | $ | 30,855 | | | 28.1 | % | Named and numbered storms | | — | | | $ | — | | | — | % | | — | | | $ | — | | | — | % |
All other catastrophe loss events | All other catastrophe loss events | | 4 | | | (5,868) | | | (10.4) | % | | 6 | | | 4,410 | | | 4.0 | % | All other catastrophe loss events | | 3 | | | 974 | | | 11.2 | % | | 3 | | | 3,450 | | | 28.0 | % |
Total | Total | | 5 | | | $ | 10,205 | | | 18.0 | % | | 11 | | | $ | 35,265 | | | 32.1 | % | Total | | 3 | | | $ | 974 | | | 11.2 | % | | 3 | | | $ | 3,450 | | | 28.0 | % |
| Nine Months Ended September 30, | | |
Current period catastrophe losses incurred | | |
Named and numbered storms | | 1 | | | $ | 16,073 | | | 9.3 | % | | 7 | | | $ | 34,781 | | | 11.0 | % | |
All other catastrophe loss events | | 30 | | | 42,783 | | | 24.9 | % | | 31 | | | 57,909 | | | 18.3 | % | |
Total | | 31 | | | $ | 58,856 | | | 34.2 | % | | 38 | | | $ | 92,690 | | | 29.3 | % | |
(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.
UNITED INSURANCE HOLDINGS CORP.
Commercial Lines Operating Segment
| | | 2022 | | 2021 | | 2023 | | 2022 |
| | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact | | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact | | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact | | Number of Events | | Incurred Loss and LAE (1) | | Combined Ratio Impact |
Three Months Ended September 30, | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Three Months Ended March 31, | | | | | | | | | | | | |
Current period catastrophe losses incurred | Current period catastrophe losses incurred | | Current period catastrophe losses incurred | |
Named and numbered storms | Named and numbered storms | | 1 | | | $ | 20,451 | | | 34.3 | % | | 3 | | | $ | 70 | | | 0.2 | % | Named and numbered storms | | — | | | $ | — | | | — | % | | — | | | $ | — | | | — | % |
All other catastrophe loss events | All other catastrophe loss events | | — | | | 6,784 | | | 11.4 | % | | 4 | | | 1,668 | | | 3.8 | % | All other catastrophe loss events | | 1 | | | 2,097 | | | 2.7 | % | | 3 | | | 3,105 | | | 6.8 | % |
Total | Total | | 1 | | | $ | 27,235 | | | 45.7 | % | | 7 | | | $ | 1,738 | | | 4.0 | % | Total | | 1 | | | $ | 2,097 | | | 2.7 | % | | 3 | | | $ | 3,105 | | | 6.8 | % |
| Nine Months Ended September 30, | | |
Current period catastrophe losses incurred | | |
Named and numbered storms | | 1 | | | $ | 20,451 | | | 13.0 | % | | 4 | | | $ | 156 | | | 0.1 | % | |
All other catastrophe loss events | | 6 | | | 7,302 | | | 4.7 | % | | 7 | | | 8,379 | | | 6.6 | % | |
Total | | 7 | | | $ | 27,753 | | | 17.7 | % | | 11 | | | $ | 8,535 | | | 6.7 | % | |
(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.
See Note 89 in our Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding our reinsurance program.
Unpaid Losses and Loss Adjustments
We generally use the term “loss(es)” to collectively refer to both loss and LAE. We establish reserves for both reported and unreported unpaid losses that have occurred at or before the balance sheet date for amounts we estimate we will be required to pay in the future, including provisions for claims that have been reported but are unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the balance sheet date. Our policy is to establish these loss reserves after considering all information known to us at each reporting period. At any given point in time, our loss reserve represents our best estimate of the ultimate settlement and administration costs of our insured claims incurred and unpaid.
Unpaid losses and LAE totaled $1,679,567,000$748,365,000 and $1,084,450,000$842,958,000 as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Of this total, $1,170,278,000$727,320,000 and $854,073,000,$816,489,000, respectively, is related to our personalcommercial lines operating segment. The remaining $509,289,000$21,045,000 and $230,377,000,$26,469,000, respectively, is related to our commercialpersonal lines operating segment. On a consolidated basis, this balance has increaseddecreased from year end as a result ofwe continue to settle claims related to Hurricane Ian which made landfall in the third quarter of 2022.
Since the process of estimating loss reserves requires significant judgment due to a number of variables, such as fluctuations in inflation, judicial decisions, legislative changes and changes in claims handling procedures, our ultimate liability
UNITED INSURANCE HOLDINGS CORP.
will likely differ from these estimates. We revise our reserve for unpaid losses as additional information becomes available, and reflect adjustments, if any, in our earnings in the periods in which we determine the adjustments as necessary.
See Note 910 in our Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding our losses and loss adjustments.
Inflation
During the fourth quarter of 2021, the United States began experiencing an increase in the rate of inflation. During the first half of 2022, inflation hit 8.6%, its highest level since 1981, impacting all industries. Premium rates charged to policyholders are typically developed several months prior to implementation, using market information available at the time of the filing. While we attempt to charge adequate premium rates to combat increased costs, during periods of high inflation, we may not have included the negative impact to loss and loss adjustment expenses into our projections, resulting in premium rates that may not be sufficient. In addition, we may be limited in our ability to raise premium rates due to regulatory restrictions. As a result of the inflation during 2022,2023, higher loss and loss adjustment expenses have had a negative impact on our results of operations during the three and nine months ended September 30, 2022.March 31, 2023.
UNITED INSURANCE HOLDINGS CORP.
In response to inflation, the Federal Reserve has also increased interest rates which may negatively affect the market value of our investment portfolio and our rate of return on investments. Management monitors and responds to the inflationary pressure and changing interest rate environment for potential long-term material impacts to our investment portfolio and results of operations.
UNITED INSURANCE HOLDINGS CORP.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30,MARCH 31, 2023 AND 2022 AND 2021
Net lossesincome attributable to UIHC for the three months ended September 30, 2022March 31, 2023 increased $56,562,000,$294,050,000, or 394.9%886.4%, to net income of $260,878,000 for the first quarter of 2023 from a net loss of $70,884,000 for the third quarter of 2022 from $14,322,000$33,172,000 for the same period in 2021.2022. Drivers of the net lossincome from continuing operations during the three months ended September 30, 2022 include: decreasedMarch 31, 2023 include increased gross written premiums which were partially offset by a decline in ceded premiums earned, unfavorable prior yeardecreased loss development duringand LAE driven by decreased non-catastrophe losses, and decreases across policy acquisition costs, operating and underwriting expenses and general and administrative expenses, the quarter,details of which are described below. In addition to continuing operations, we recognized income from discontinued operations of $230,305,000, driven by the impactdeconsolidation of Hurricane Ian making landfall in Florida as a category four hurricane, and impairment of goodwill attributable to our personal lines operating segment.UPC.
Revenue
Our gross written premiums decreased $67,290,000,increased $44,709,000, or 20.9%31.4%, to $255,203,000$187,123,000 for the thirdfirst quarter ended September 30, 2022March 31, 2023 from $322,493,000$142,414,000 for the same period in 2021.2022. This decreaseincrease was driven primarily by the transition of the Northeast business to HCPCIan increase in the fourth quarter of 2021 and the first half of 2022. In addition, the Company experiencedour commercial premiums written, as we focus on transitioning towards a decline in written premiums across the personalspecialty commercial lines business, due to underwriting actions taken by the Company throughout 2021 and in the first half of 2022.underwriter. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by regionstate and gross written premium by line of business are shown in the table below.
| ($ in thousands) | ($ in thousands) | | Three Months Ended September 30, | ($ in thousands) | | Three Months Ended March 31, |
| | 2022 | | 2021 | | Change | | 2023 | | 2022 | | Change |
Direct Written and Assumed Premium by Region (1) | | | | | | | |
Direct Written and Assumed Premium by State (1) | | Direct Written and Assumed Premium by State (1) | | | | | | |
Florida | Florida | | $ | 178,313 | | | $ | 185,178 | | | $ | (6,865) | | Florida | | $ | 176,611 | | | $ | 125,764 | | | $ | 50,847 | |
Gulf | | 49,961 | | | 62,757 | | | (12,796) | | |
Northeast | | 16,627 | | | 49,982 | | | (33,355) | | |
Southeast | | 10,155 | | | 24,464 | | | (14,309) | | |
Total direct written premium by region | | 255,056 | | | 322,381 | | | (67,325) | | |
Texas | | Texas | | (9) | | | 1,986 | | | (1,995) | |
New York | | New York | | 10,482 | | | 14,450 | | | (3,968) | |
South Carolina | | South Carolina | | — | | | 93 | | | (93) | |
Total direct written premium by state | | Total direct written premium by state | | 187,084 | | | 142,293 | | | 44,791 | |
Assumed premium (2) | Assumed premium (2) | | 147 | | | 112 | | | 35 | | Assumed premium (2) | | 39 | | | 121 | | | (82) | |
Total gross written premium by region | | $ | 255,203 | | | $ | 322,493 | | | $ | (67,290) | | |
Total gross written premium by state | | Total gross written premium by state | | $ | 187,123 | | | $ | 142,414 | | | $ | 44,709 | |
| Gross Written Premium by Line of Business | Gross Written Premium by Line of Business | | Gross Written Premium by Line of Business | |
Personal property (3) | Personal property (3) | | $ | 178,335 | | | $ | 258,109 | | | $ | (79,774) | | Personal property (3) | | $ | 10,482 | | | $ | 14,450 | | | $ | (3,968) | |
Commercial property | Commercial property | | 76,868 | | | 64,384 | | | 12,484 | | Commercial property | | 176,641 | | | 127,964 | | | 48,677 | |
Total gross written premium by line of business | Total gross written premium by line of business | | $ | 255,203 | | | $ | 322,493 | | | $ | (67,290) | | Total gross written premium by line of business | | $ | 187,123 | | | $ | 142,414 | | | $ | 44,709 | |
(1) "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, andTexas or South Carolina as of June 1, 2022 as the policies have transitioned to HCPCI.May 31, 2022.
(2) Assumed premium written for 20222023 and 20212022 is primarily commercial property business assumed from unaffiliated insurers.
(3) Includes gross written premium from flood policies.
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
New and Renewal Policies(1) by Region (2) | 2022 | | 2021 | | Change |
Florida | 35,310 | | | 54,924 | | | (19,614) | |
Gulf | 20,087 | | | 32,256 | | | (12,169) | |
Northeast | 8,761 | | | 34,050 | | | (25,289) | |
Southeast | 5,518 | | | 14,970 | | | (9,452) | |
Total | 69,676 | | | 136,200 | | | (66,524) | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
New and Renewal Policies(1) by State (2) | 2023 | | 2022 | | Change |
Florida | 1,157 | | | 1,472 | | | (315) | |
Texas | — | | | 18 | | | (18) | |
New York | 6,137 | | | 9,952 | | | (3,815) | |
South Carolina | — | | | 1 | | | (1) | |
Total | 7,294 | | | 11,443 | | | (4,149) | |
(1) Only includes new and renewal homeowner, commercial and dwelling fire policies written during the quarter.
(2) "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, andTexas or South Carolina as of June 1, 2022 as the policies have transitioned to HCPCI.May 31, 2022.
In connection with the divestiture of our former subsidiary, UPC, our income statement was recast to present our results from continuing operations separately from the results of UPC. As a result, we have presented management fee income of $9,668,000 for the three months ended March 31, 2023, compared to $50,206,000 for the three months ended March 31, 2022. This decrease is attributable directly to the divestiture of UPC, as management fee income was earned by our subsidiary, United Insurance Management for the servicing of UPC policies. In 2023, UPC operated until receivership
UNITED INSURANCE HOLDINGS CORP.
effective February 27, 2023, compared to normal operation for the three months ended March 31, 2022. This income previously eliminated on a consolidated basis.
Expenses
Expenses for the three months ended September 30, 2022 increased $13,129,000,March 31, 2023 decreased $48,860,000, or 7.2%43.2%, to $194,570,000$64,207,000 from $181,441,000$113,067,000 for the same period in 2021.2022. The increasedecrease in expenses was primarily due to an increasea decrease in policy acquisition costs of $25,225,000 and decrease in loss and LAE of $13,445,000. Operating and underwriting expenses and general and administrative expenses of $14,459,000also decreased $4,952,000 and $12,451,000$5,598,000 in the thirdfirst quarter of 20222023 compared to the thirdfirst quarter of 2021. These increases were partially offset by decreased policy acquisition costs and operating costs in the third quarter of 2022 compared to the third quarter of 2021.2022.
The calculations of our loss ratios and underlying loss ratios are shown below.
| | | Three Months Ended September 30, | | Three Months Ended March 31, |
2022 | | 2021 | | Change | 2023 | | 2022 | | Change |
Net loss and LAE | Net loss and LAE | $ | 117,228 | | | $ | 102,769 | | | $ | 14,459 | | Net loss and LAE | $ | 19,073 | | | $ | 32,518 | | | $ | (13,445) | |
% of Gross earned premiums | % of Gross earned premiums | 38.8 | % | | 29.1 | % | | 9.7 pts | % of Gross earned premiums | 13.3 | % | | 26.5 | % | | (13.2) pts |
% of Net earned premiums | % of Net earned premiums | 100.9 | % | | 67.1 | % | | 33.8 pts | % of Net earned premiums | 21.9 | % | | 56.3 | % | | (34.4) pts |
Less: | Less: | | Less: | |
Current year catastrophe losses | Current year catastrophe losses | $ | 37,440 | | | $ | 37,003 | | | $ | 437 | | Current year catastrophe losses | $ | 3,071 | | | $ | 6,555 | | | $ | (3,484) | |
Prior year reserve unfavorable development | Prior year reserve unfavorable development | 44,561 | | | 1,947 | | | 42,614 | | Prior year reserve unfavorable development | (3,165) | | | (3,064) | | | (101) | |
Underlying loss and LAE (1) | Underlying loss and LAE (1) | $ | 35,227 | | | $ | 63,819 | | | $ | (28,592) | | Underlying loss and LAE (1) | $ | 19,167 | | | $ | 29,027 | | | $ | (9,860) | |
% of Gross earned premiums | % of Gross earned premiums | 11.7 | % | | 18.1 | % | | (6.4) pts | % of Gross earned premiums | 13.3 | % | | 23.7 | % | | (10.4) pts |
% of Net earned premiums | % of Net earned premiums | 30.3 | % | | 41.6 | % | | (11.3) pts | % of Net earned premiums | 21.9 | % | | 50.3 | % | | (28.4) pts |
(1) Underlying loss and LAE is a non-GAAP measure and is reconciled above to Net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.
The calculations of our expense ratios are shown below. | | | Three Months Ended September 30, | | Three Months Ended March 31, |
2022 | | 2021 | | Change | 2023 | | 2022 | | Change |
Policy acquisition costs | Policy acquisition costs | $ | 38,944 | | | $ | 46,925 | | | $ | (7,981) | | Policy acquisition costs | $ | 26,927 | | | $ | 52,152 | | | $ | (25,225) | |
Operating and underwriting | Operating and underwriting | 9,615 | | | 15,429 | | | (5,814) | | Operating and underwriting | 5,651 | | | 10,603 | | | (4,952) | |
General and administrative | General and administrative | 26,391 | | | 13,940 | | | 12,451 | | General and administrative | 9,837 | | | 15,435 | | | (5,598) | |
Total Operating Expenses | Total Operating Expenses | $ | 74,950 | | | $ | 76,294 | | | $ | (1,344) | | Total Operating Expenses | $ | 42,415 | | | $ | 78,190 | | | $ | (35,775) | |
% of Gross earned premiums | % of Gross earned premiums | 24.8 | % | | 21.6 | % | | 3.2 pts | % of Gross earned premiums | 29.4 | % | | 63.7 | % | | (34.3) pts |
% of Net earned premiums | % of Net earned premiums | 64.5 | % | | 49.8 | % | | 14.7 pts | % of Net earned premiums | 48.6 | % | | 135.4 | % | | (86.8) pts |
Loss and LAE increaseddecreased by $14,459,000,$13,445,000, or 14.1%41.3%, to $117,228,000$19,073,000 for the thirdfirst quarter of 20222023 from $102,769,000$32,518,000 for the thirdfirst quarter of 2021.2022. Loss and LAE expense as a percentage of net earned premiums increased 33.8decreased 34.4 points to 100.9%21.9% for the thirdfirst quarter of 2022,2023, compared to 67.1%56.3% for the thirdfirst quarter of 2021.2022. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the thirdfirst quarter of 20222023 would have been 11.7%13.3%, a decrease of 6.410.4 points from 18.1%23.7% during the thirdfirst quarter of 2021.2022.
Policy acquisition costs decreased by $7,981,000,$25,225,000, or 17.0%48.4%, to $38,944,000$26,927,000 for the thirdfirst quarter of 2023 from $52,152,000 for the first quarter of 2022, from $46,925,000 for the third quarter of 2021, primarily due to decreases in agent commissions and policy administration fees, and premium taxes of $8,591,000, $1,256,000 and $420,000,$30,127,000, $2,836,000 respectively, which fluctuate in conjunction with the quarter-over-quarter decrease in personal lines gross written premium. In addition,This was partially offset by a $7,537,000 increase in external management fees incurred related to our commercial lines gross written premium decreased $1,256,000 during the thirdfirst quarter of 2022,2023, driven by the termination of the profit share component of our external commercial management agreement.. This was partially offset by a decrease in ceding commission income of $4,653,000 related to changes in terms of our quota share reinsurance agreements.
Operating and underwriting expenses decreased by $5,814,000, or 37.7%, to $9,615,000 for the third quarter of 2022 from $15,429,000 for the third quarter of 2021, driven by a decrease in investments in technology of $4,505,000 and decreased underwriting expenses of $1,850,000 as a result of the decrease in personal lines premiums described above.increased written premium quarter-over-quarter.
UNITED INSURANCE HOLDINGS CORP.
Operating and underwriting expenses decreased by $4,952,000, or 4.7%, to $5,651,000 for the first quarter of 2023 from $10,603,000 for the first quarter of 2022, driven by a decrease in investments in technology of $2,244,000 and decreased underwriting expenses of $2,179,000 as a result of the decrease in personal lines premiums shown in the table above.
General and administrative expenses increaseddecreased by $12,451,000,$5,598,000, or 89.3%36.3%, to $26,391,000$9,837,000 for the thirdfirst quarter of 2023 from $15,435,000 for the first quarter of 2022, from $13,940,000 for the third quarter of 2021, driven by the impairmenta decrease in salary related expenses of goodwill attributable to our personal lines operating segment, totaling $13,569,000.$5,667,000, driven by decreased headcount quarter-over-quarter.
Personal Lines Operating Segment Results
Pretax earnings attributable to our personal lines operating segment for the three months ended September 30, 2022 decreased $43,931,000,March 31, 2023 increased $9,419,000, or 169.9%198.6%, to a pre-tax lossincome of $69,789,000$4,677,000 for the thirdfirst quarter of 20222023 from a pre-tax loss of $25,858,000$4,742,000 for the same period in 2021.2022. The change in pretax earnings was primarily driven by a decrease in gross written premiums quarter-over-quarter as described below. Expenses decreased quarter-over-quarter, driven by decreased loss & LAE, policy acquisition costs, and operating expenses. These decreases were partially offset by an increase in general and administrative expenses quarter-over-quarter. The details of the change in these expenses are described below.
Revenue
Our gross written premiums attributable to our personal lines operating segment decreased $79,773,000,$3,968,000, or 30.9%27.5%, to $178,336,000$10,482,000 for the thirdfirst quarter ended September 30, 2022March 31, 2023 from $258,109,000$14,450,000 for the same period in 2021.2022. This decrease was driven primarily by a decreae in assumed premiums, driven by the transitiontermination of the Northeast business to HCPCIour quota share agreement between our former subsidiary, UPC and IIC effective December 31, 2022. The change in the fourth quarter of 2021 and first half of 2022. In addition, gross written premiums have declined across our personal lines business, due to underwriting actions taken throughout 2021direct written and the first half of 2022. The breakdownassumed premiums and new and renewal premiums of the personal lines operating segment quarter-over-quarter changes in direct written premiums by region is shown in the tablecan be seen below.
| | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Three Months Ended September 30, |
| | 2022 | | 2021 | | Change |
Direct Written and Assumed Premium by Region (1) | | | | | | |
Florida | | $ | 101,707 | | | $ | 120,821 | | | $ | (19,114) | |
Gulf | | 49,847 | | | 62,804 | | | (12,957) | |
Northeast | | 16,627 | | | 49,982 | | | (33,355) | |
Southeast | | 10,155 | | | 24,502 | | | (14,347) | |
Total gross written premium by region | | $ | 178,336 | | | $ | 258,109 | | | $ | (79,773) | |
(1) "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, and South Carolina as of June 1, 2022 as the policies have transitioned to HCPCI.
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
New and Renewal Policies(1) by Region (2) | 2022 | | 2021 | | Change |
Florida | 34,492 | | | 53,920 | | | (19,428) | |
Gulf | 20,087 | | | 32,255 | | | (12,168) | |
Northeast | 8,761 | | | 34,050 | | | (25,289) | |
Southeast | 5,518 | | | 14,970 | | | (9,452) | |
Total | 68,858 | | | 135,195 | | | (66,337) | |
| | | | | | | | | | | | | | | | | | | | |
($ in thousands, policies in ones) | | Three Months Ended March 31, |
| | 2023 | | 2022 | | Change |
| | | | | | |
| | | | | | |
| | | | | | |
Direct Written Premium | | $ | 10,482 | | | $ | 4,684 | | | $ | 5,798 | |
Assumed Premiums | | — | | | 9,766 | | | (9,766) | |
Total gross written premium | | $ | 10,482 | | | $ | 14,450 | | | $ | (3,968) | |
| | | | | | |
New and Renewal Policies (1) | | 6,137 | | | 9,952 | | | (3,815) | |
(1) Only includes new and renewal homeowner and dwelling fire policies written during the quarter.
(2)
"Gulf"
In connection with the divestiture of our former subsidiary, UPC, our income statement was recast to present our results from continuing operations separately from the results of UPC. As a result, we have presented management fee income of $9,668,000 for the three months ended March 31, 2023, compared to $50,206,000 for the three months ended March 31, 2022. This decrease is comprisedattributable directly to the divestiture of Louisiana and Texas; "Northeast" is comprisedUPC, as management fee income was earned by our subsidiary, United Insurance Management for the servicing of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, and South Carolina as of June 1, 2022 asUPC policies. In 2023, UPC operated until receivership effective February 27, 2023, compared to normal operation for the policies have transitioned to HCPCI.three months ended March 31, 2022. This income previously eliminated on a consolidated basis.
UNITED INSURANCE HOLDINGS CORP.
Expenses
Expenses attributable to our personal lines operating segment for the three months ended September 30, 2022March 31, 2023 decreased $11,867,000,$56,700,000, or 8.2%74.6%, to $131,978,000$19,315,000 from $143,845,000$76,015,000 for the same period in 2021.2022. The decrease in expenses is attributable to a decrease in policy acquisition costs, as well as decreased loss &and LAE driven by decreased current year catastrophenon-catastrophe losses, as well as decreased policy acquisition costsoperating expenses and administrative costs, partially offset by increased general and administrative costs.expenses. The details of these changes are described below.
The calculations of our personal lines operating segment loss ratios and underlying loss ratios are shown below.
| | | Three Months Ended September 30, | | Three Months Ended March 31, |
2022 | | 2021 | | Change | 2023 | | 2022 | | Change |
Net loss and LAE | Net loss and LAE | $ | 82,999 | | | $ | 94,613 | | | $ | (11,614) | | Net loss and LAE | $ | 5,172 | | | $ | 18,404 | | | $ | (13,232) | |
% of Gross earned premiums | % of Gross earned premiums | 45.6 | % | | 38.1 | % | | 7.5 pts | % of Gross earned premiums | 41.6 | % | | 120.5 | % | | (78.9) pts |
% of Net earned premiums | % of Net earned premiums | 146.5 | % | | 86.1 | % | | 60.4 pts | % of Net earned premiums | 59.7 | % | | 149.6 | % | | (89.9) pts |
Less: | Less: | | Less: | |
Current year catastrophe losses | Current year catastrophe losses | $ | 10,205 | | | $ | 35,265 | | | $ | (25,060) | | Current year catastrophe losses | $ | 974 | | | $ | 3,450 | | | $ | (2,476) | |
Prior year reserve (favorable) development | Prior year reserve (favorable) development | 46,356 | | | 3,268 | | | 43,088 | | Prior year reserve (favorable) development | (395) | | | (1,261) | | | 866 | |
Underlying loss and LAE (1) | Underlying loss and LAE (1) | $ | 26,438 | | | $ | 56,080 | | | $ | (29,642) | | Underlying loss and LAE (1) | $ | 4,593 | | | $ | 16,215 | | | $ | (11,622) | |
% of Gross earned premiums | % of Gross earned premiums | 14.5 | % | | 22.6 | % | | (8.1) pts | % of Gross earned premiums | 36.9 | % | | 106.2 | % | | (69.3) pts |
% of Net earned premiums | % of Net earned premiums | 46.7 | % | | 51.0 | % | | (4.3) pts | % of Net earned premiums | 52.9 | % | | 131.8 | % | | (78.9) pts |
(1) Underlying loss and LAE is a non-GAAP measure and is reconciled above to Net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.
The calculations of our personal lines operating segment expense ratios are shown below. | | | Three Months Ended September 30, | | Three Months Ended March 31, |
2022 | | 2021 | | Change | 2023 | | 2022 | | Change |
Policy acquisition costs | Policy acquisition costs | $ | 16,514 | | | $ | 23,541 | | | $ | (7,027) | | Policy acquisition costs | $ | 1,761 | | | $ | 35,474 | | | $ | (33,713) | |
Operating and underwriting | Operating and underwriting | 8,788 | | | 13,777 | | | (4,989) | | Operating and underwriting | 5,431 | | | 9,403 | | | (3,972) | |
General and administrative | General and administrative | 23,643 | | | 11,895 | | | 11,748 | | General and administrative | 6,951 | | | 12,734 | | | (5,783) | |
Total Operating Expenses | Total Operating Expenses | $ | 48,945 | | | $ | 49,213 | | | $ | (268) | | Total Operating Expenses | $ | 14,143 | | | $ | 57,611 | | | $ | (43,468) | |
% of Gross earned premiums | % of Gross earned premiums | 26.9 | % | | 19.8 | % | | 7.1 pts | % of Gross earned premiums | 113.7 | % | | 377.3 | % | | (263.6) pts |
% of Net earned premiums | % of Net earned premiums | 86.4 | % | | 44.8 | % | | 41.6 pts | % of Net earned premiums | 163.2 | % | | 468.3 | % | | (305.1) pts |
Loss and LAE attributable to our personal lines operating segment decreased by $11,614,000,$13,232,000, or 12.3%71.9%, to $82,999,000$5,172,000 for the thirdfirst quarter of 20222023 from $94,613,000$18,404,000 for the thirdfirst quarter of 2021.2022. Loss and LAE expense as a percentage of net earned premiums increased 60.4decreased 89.9 points to 146.5%59.7% for the thirdfirst quarter of 2022,2023, compared to 86.1%149.6% for the thirdfirst quarter of 2021.2022. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the thirdfirst quarter of 20222023 would have been 14.5%36.9%, a decrease of 8.169.3 points from 22.6%106.2% during the thirdfirst quarter of 2021.2022.
Policy acquisition costs attributable to our personal lines operating segment decreased by $7,027,000,$33,713,000, or 29.9%95.0%, to $16,514,000$1,761,000 for the thirdfirst quarter of 2023 from $35,474,000 for the first quarter of 2022, from $23,541,000 for the third quarter of 2021, primarily due to a decrease in agent commissions premium taxes, and policy administration fees of $9,450,000, $797,000 and $1,369,000,$27,763,000, $2,848,000, respectively, which fluctuate in conjunction with the quarter-over-quarter decrease in personal lines gross written premium. This was partially offset by a $5,576,000 decrease in ceding commission income,In addition reinsurance commissions decreased $2,530,000, driven by changes in the termstermination of ourthe quota share reinsurance agreements.agreement between our former subsidiary UPC and IIC.
Operating and underwriting expenses attributable to our personal lines operating segment decreased by $4,989,000,$3,972,000, or 36.2%42.2%, to $8,788,000$5,431,000 for the thirdfirst quarter of 2023 from $9,403,000 for the first quarter of 2022, from $13,777,000 for the third quarter of 2021, due to decreased investments in technology of $3,736,000$2,041,000 in 20222023 and decreased underwriting expenses of $1,694,000$1,588,000 as the result of the decrease in premiums written described above.
General and administrative expenses attributable to our personal lines operating segment decreased by $5,783,000, or 45.4%, to $6,951,000 for the first quarter of 2023 from $12,734,000 for the first quarter of 2022, driven by a $5,640,000 decrease in salary related expenses as a result of lower headcount quarter-over-quarter.
UNITED INSURANCE HOLDINGS CORP.
General and administrative expenses attributable to our personal lines operating segment increased by $11,748,000, or 98.8%, to $23,643,000 for the third quarter of 2022 from $11,895,000 for the third quarter of 2021, driven by the impairment of goodwill attributable to the segment totaling $13,569,000.
Commercial Lines Operating Segment Results
Pretax earnings attributable to our commercial lines operating segment for the three months ended September 30, 2022 decreased $8,434,000,March 31, 2023 increased $27,337,000, or 82.7%236.0%, to pre-tax income of $1,762,000$38,919,000 for the thirdfirst quarter of 20222023 from pre-tax income of $10,196,000$11,582,000 for the same period in 2021.2022. The change in earnings was primarily driven by increased lossgross written premiums quarter-over-quarter, and LAE incurred, driven by increased catastrophe losses primarily as the result of Hurricane Ian making landfall in 2022.decreased operating and underwriting expenses. This increase was partially offset by increased gross written premiums quarter-over-quarter, thepolicy acquisition costs quarter-over-quarter. The details of whichthese changes are described below.
Revenue
Our gross written premiums attributable to our commercial lines operating segment increased $12,483,000,$48,677,000, or 19.4%38.0%, to $76,867,000$176,641,000 for the thirdfirst quarter ended September 30, 2022March 31, 2023 from $64,384,000$127,964,000 for the same period in 2021.2022. This increase was driven primarily by an increase in written premiums in the state of Florida, as we focus on increasing commercial written premiums and transitioning towards a specialty commercial lines underwriter. The breakdown of the commercial lines operating segment quarter-over-quarter changes in both direct written and assumed premiums by state are shown in the table below.
| ($ in thousands) | ($ in thousands) | | Three Months Ended September 30, | ($ in thousands) | | Three Months Ended March 31, |
| | 2022 | | 2021 | | Change | | 2023 | | 2022 | | Change |
Direct Written and Assumed Premium by State (1) | Direct Written and Assumed Premium by State (1) | | | | | | | Direct Written and Assumed Premium by State (1) | | | | | | |
Florida | Florida | | $ | 76,606 | | | $ | 64,357 | | | $ | 12,249 | | Florida | | $ | 176,611 | | | $ | 125,764 | | | $ | 50,847 | |
Texas | Texas | | 114 | | | (47) | | | 161 | | Texas | | (9) | | | 1,986 | | | (1,995) | |
South Carolina | South Carolina | | — | | | (38) | | | 38 | | South Carolina | | — | | | 93 | | | (93) | |
Total direct written premium by region | | 76,720 | | | 64,272 | | | 12,448 | | |
Total direct written premium by state | | Total direct written premium by state | | 176,602 | | | 127,843 | | | 48,759 | |
Assumed premium (2) | Assumed premium (2) | | 147 | | | 112 | | | 35 | | Assumed premium (2) | | 39 | | | 121 | | | (82) | |
Total gross written premium by region | | $ | 76,867 | | | $ | 64,384 | | | $ | 12,483 | | |
Total gross written premium by state | | Total gross written premium by state | | $ | 176,641 | | | $ | 127,964 | | | $ | 48,677 | |
(1) We are no longer writing in Texas or South Carolina as of May 31, 2022.
(2) Assumed premium written for 2022 and 2021 is primarily commercial property business assumed from unaffiliated insurers.
| | | Three Months Ended September 30, | | Three Months Ended March 31, |
New and Renewal Policies(1) by State (2) | New and Renewal Policies(1) by State (2) | 2022 | | 2021 | | Change | New and Renewal Policies(1) by State (2) | 2023 | | 2022 | | Change |
Florida | Florida | 818 | | | 1,004 | | | (186) | | Florida | 1,157 | | | 1,472 | | | (315) | |
Texas | Texas | — | | | 1 | | | (1) | | Texas | — | | | 18 | | | (18) | |
| South Carolina | | South Carolina | — | | | 1 | | | (1) | |
Total | Total | 818 | | | 1,005 | | | (187) | | Total | 1,157 | | | 1,491 | | | (334) | |
(1) Only includes new and renewal commercial policies written during the year.
(2) We are no longer writing in Texas or South Carolina as of May 31, 2022.
UNITED INSURANCE HOLDINGS CORP.
Expenses
Expenses attributable to our commercial lines operating segment for the three months ended September 30, 2022March 31, 2023 increased $25,157,000,$7,696,000, or 72.6%22.5%, to $59,804,000$41,917,000 from $34,647,000$34,221,000 for the same period in 2021.2022. The increase in expenses was primarily due to an increase in loss and LAEpolicy acquisition costs of $26,073,000$8,488,000 in the thirdfirst quarter of 20222023 compared to the thirdfirst quarter of 2021.2022. This was partially offset by a $954,000$1,012,000 decrease in policy acquisition costs and a $705,000 decrease in operating and underwriting expenses in the third quarter of 2022 compared to the third quarter of 2021, thecosts. The details of whichthese changes can be seen below.
The calculations of our commercial lines operating segment loss ratios and underlying loss ratios are shown below.
| | | Three Months Ended September 30, | | Three Months Ended March 31, |
2022 | | 2021 | | Change | 2023 | | 2022 | | Change |
Net loss and LAE | Net loss and LAE | $ | 34,229 | | | $ | 8,156 | | | $ | 26,073 | | Net loss and LAE | $ | 13,901 | | | $ | 14,114 | | | $ | (213) | |
% of Gross earned premiums | % of Gross earned premiums | 28.6 | % | | 7.8 | % | | 20.8 pts | % of Gross earned premiums | 10.5 | % | | 13.1 | % | | (2.6) pts |
% of Net earned premiums | % of Net earned premiums | 57.5 | % | | 18.8 | % | | 38.7 pts | % of Net earned premiums | 17.7 | % | | 31.1 | % | | (13.4) pts |
Less: | Less: | | Less: | |
Current year catastrophe losses | Current year catastrophe losses | $ | 27,235 | | | $ | 1,738 | | | $ | 25,497 | | Current year catastrophe losses | $ | 2,097 | | | $ | 3,105 | | | $ | (1,008) | |
Prior year reserve (favorable) development | Prior year reserve (favorable) development | (1,795) | | | (1,321) | | | (474) | | Prior year reserve (favorable) development | (2,770) | | | (1,803) | | | (967) | |
Underlying loss and LAE (1) | Underlying loss and LAE (1) | $ | 8,789 | | | $ | 7,739 | | | $ | 1,050 | | Underlying loss and LAE (1) | $ | 14,574 | | | $ | 12,812 | | | $ | 1,762 | |
% of Gross earned premiums | % of Gross earned premiums | 7.3 | % | | 7.4 | % | | (0.1) pts | % of Gross earned premiums | 11.0 | % | | 11.9 | % | | (0.9) pts |
% of Net earned premiums | % of Net earned premiums | 14.8 | % | | 17.8 | % | | (3.0) pts | % of Net earned premiums | 18.5 | % | | 28.2 | % | | (9.7) pts |
(1) Underlying loss and LAE is a non-GAAP measure and is reconciled above to Net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.
The calculations of our commercial lines operating segment expense ratios are shown below. | | | Three Months Ended September 30, | | Three Months Ended March 31, |
2022 | | 2021 | | Change | 2023 | | 2022 | | Change |
Policy acquisition costs | Policy acquisition costs | $ | 22,430 | | | $ | 23,384 | | | $ | (954) | | Policy acquisition costs | $ | 25,166 | | | $ | 16,678 | | | $ | 8,488 | |
Operating and underwriting | Operating and underwriting | 717 | | | 1,422 | | | (705) | | Operating and underwriting | 96 | | | 1,109 | | | (1,013) | |
General and administrative | General and administrative | 2,428 | | | 1,685 | | | 743 | | General and administrative | 2,754 | | | 2,320 | | | 434 | |
Total Operating Expenses | Total Operating Expenses | $ | 25,575 | | | $ | 26,491 | | | $ | (916) | | Total Operating Expenses | $ | 28,016 | | | $ | 20,107 | | | $ | 7,909 | |
% of Gross earned premiums | % of Gross earned premiums | 21.3 | % | | 25.2 | % | | (3.9) pts | % of Gross earned premiums | 21.2 | % | | 18.7 | % | | 2.5 pts |
% of Net earned premiums | % of Net earned premiums | 43.0 | % | | 61.0 | % | | (18.0) pts | % of Net earned premiums | 35.6 | % | | 44.2 | % | | (8.6) pts |
Loss and LAE attributable to our commercial lines operating segment increaseddecreased by $26,073,000,$213,000, or 319.7%1.5%, to $34,229,000$13,901,000 for the thirdfirst quarter of 20222023 from $8,156,000$14,114,000 for the thirdfirst quarter of 2021.2022. Loss and LAE expense as a percentage of net earned premiums increased 38.7decreased 13.4 points to 57.5%17.7% for the thirdfirst quarter of 2022, compared to 18.8%31.1% for the thirdfirst quarter of 2021. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the thirdfirst quarter of 2022 would have been 7.3%11.0%, a decrease of 0.10.9 points from 7.4%11.9% during the thirdfirst quarter of 2021.2022.
Policy acquisition costs attributable to our commercial lines operating segment decreasedincreased by $954,000,$8,488,000, or 4.1%50.9%, to $22,430,000$25,166,000 for the thirdfirst quarter of 2023 from $16,678,000 for the first quarter of 2022, from $23,384,000 for the third quarter of 2021, driven by decreasesincreases in external management fees of $1,256,000,$7,537,000, as a result of the termination of the profit share component of our external commercial management agreement.increased gross written premiums quarter-over-quarter. In addition ceding commission income related to our quota share reinsurance agreements increased $923,000,decreasing $3,506,000, driven by the changes in terms made to these agreements.non-renewal of agreements at the end of 2022. These decreasesincreases were partially offset by increases todecreased agent commission expenses and premium taxes of $858,000 and $377,000, respectively, both of which fluctuate in conjunction with the quarter-over-quarter increase in commercial lines gross written premium.$2,363,000.
Operating and underwriting expenses attributable to our commercial lines operating segment decreased by $705,000,$1,013,000, or 49.6%91.3%, to $717,000$96,000 for the thirdfirst quarter of 2023 from $1,109,000 for the first quarter of 2022, from $1,422,000 for the third quarter of 2021, driven by a $591,000 decrease in underwriting expenses quarter-over-quarter, decreased allocations of expenses for investments in technology of $768,000.
UNITED INSURANCE HOLDINGS CORP.
General$196,000, and administrative expenses attributable to our commercial lines operating segment increased by $743,000, or 44.1%, to $2,428,000 for the third quarter of 2022 from $1,685,000 for the third quarter of 2021, driven by a $667,000 increase in allocated salary related expenses for the third quarter of 2022 compared to the same period in 2021.
RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2022 AND 2021
Net losses attributable to UIHC for the nine months ended September 30, 2022 increased $117,482,000, or 211.3%, to a net loss of $173,085,000 from $55,603,000 for the same period in 2021. The change in earnings was primarily due to a decrease in total revenue as a result of the decline in gross written premiums year-over-year as described below. This decrease in revenues was partially offset by lower expenses for the quarter. Loss and LAE incurred decreased from reduced geographic exposure to current year catastrophe and non-catastrophe losses during 2022. Policy acquisition costs decreased year-over-year, as described below. Our provision for income taxes increased year-over-year due to the recognition of a valuation allowance against our deferred tax assets beginning in the second quarter of 2022.
Revenue
Our gross written premiums decreased $165,731,000, or 15.6%, to $894,824,000 for the nine months ended September 30, 2022 from $1,060,555,000 for the same period in 2021. This decrease was driven primarily by the transition of the Northeast business to HCPCI in the fourth quarter of 2021 and the first half of 2022. In addition, we experienced a decline in written premiums across our personal lines business, due to underwriting actions taken throughout 2021 and during the first half of 2022. Our commercial written premiums have increased year over year, offsetting the personal lines decrease in Florida, resulting in a net increase for the region. The breakdown of the year-over-year changes in both direct and assumed written premiums by region and gross written premium by line of business are shown in the table below.
| | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | Change |
Direct Written and Assumed Premium by Region (1) | | | | | | |
Florida | | $ | 682,991 | | | $ | 662,491 | | | $ | 20,500 | |
Gulf | | 148,306 | | | 183,030 | | | (34,724) | |
Southeast | | 42,040 | | | 76,354 | | | (34,314) | |
Northeast | | 21,064 | | | 138,476 | | | (117,412) | |
Total direct written premium by region | | 894,401 | | | 1,060,351 | | | (165,950) | |
Assumed premium (2) | | 423 | | | 204 | | | 219 | |
Total gross written premium by region | | $ | 894,824 | | | $ | 1,060,555 | | | $ | (165,731) | |
| | | | | | |
Gross Written Premium by Line of Business | | | | | | |
Personal property (3) | | $ | 508,925 | | | $ | 732,149 | | | $ | (223,224) | |
Commercial property | | 385,899 | | | 328,406 | | | 57,493 | |
Total gross written premium by line of business | | $ | 894,824 | | | $ | 1,060,555 | | | $ | (165,731) | |
(1) "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, and South Carolina as of June 1, 2022 as the policies have transitioned to HCPCI.
(2) Assumed premium written for 2022 and 2021 is primarily commercial property business assumed from unaffiliated insurers.
(3) Includes gross written premium from flood policies.
UNITED INSURANCE HOLDINGS CORP.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
New and Renewal Policies (1) By Region (2) | 2022 | | 2021 | | Change |
Florida | 116,159 | | | 168,319 | | | (52,160) | |
Gulf | 61,014 | | | 92,800 | | | (31,786) | |
Northeast | 29,704 | | | 97,149 | | | (67,445) | |
Southeast | 23,323 | | | 50,363 | | | (27,040) | |
Total | 230,200 | | | 408,631 | | | (178,431) | |
(1) Only includes new and renewal homeowner, commercial and dwelling fire policies written during the quarter.
(2) "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, and South Carolina as of June 1, 2022 as the policies have transitioned to HCPCI.
Expenses
Expenses for the nine months ended September 30, 2022 decreased $66,209,000, or 11.9%, to $491,555,000 from $557,764,000 for the same period in 2021. The decrease in expenses was primarily due to a $37,944,000 decrease in our loss and LAE and a $35,125,000 decrease in our policy acquisition costs. Operating expenses also decreased $7,251,000 year-over-year. These decreases were partially offset by a $13,956,000 increase in our general and administrative expenses year-over-year.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
2022 | | 2021 | | Change |
Net loss and LAE | $ | 298,670 | | | $ | 336,614 | | | $ | (37,944) | |
% of Gross earned premiums | 32.2 | % | | 31.6 | % | | 0.6 pts |
% of Net earned premiums | 90.9 | % | | 75.7 | % | | 15.2 pts |
Less: | | | | | |
Current year catastrophe losses | $ | 86,609 | | | $ | 101,225 | | | $ | (14,616) | |
Prior year reserve (favorable) development | 53,760 | | | 31,344 | | | 22,416 | |
Underlying loss and LAE (1) | $ | 158,301 | | | $ | 204,045 | | | $ | (45,744) | |
% of Gross earned premiums | 17.1 | % | | 19.1 | % | | (2.0) pts |
% of Net earned premiums | 48.1 | % | | 45.9 | % | | 2.2 pts |
(1) Underlying loss and LAE is a non-GAAP measure and is reconciled above to net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.
The calculations of our expense ratios are shown below. | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
2022 | | 2021 | | Change |
Policy acquisition costs | $ | 93,948 | | | $ | 129,073 | | | $ | (35,125) | |
Operating and underwriting | 34,882 | | | 42,133 | | | (7,251) | |
General and administrative | 56,890 | | | 42,934 | | | 13,956 | |
Total operating expenses | $ | 185,720 | | | $ | 214,140 | | | $ | (28,420) | |
% of Gross earned premiums | 20.0 | % | | 20.1 | % | | (0.1) pts |
% of Net earned premiums | 56.5 | % | | 48.2 | % | | 8.3 pts |
Loss and LAE decreased $37,944,000, or 11.3%, to $298,670,000 for the nine months ended September 30, 2022 from $336,614,000 for the same period in 2021. Loss and LAE expense as a percentage of net earned premiums increased 15.2 points to 90.9% for the nine months ended September 30, 2022, compared to 75.7% for the same period in 2021. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the nine months ended September 30, 2022 was 17.1%, a decrease of 2.0 points from 19.1% during the nine months ended September 30, 2021.
UNITED INSURANCE HOLDINGS CORP.
Policy acquisition costs decreased $35,125,000, or 27.2%, to $93,948,000 for the nine months ended September 30, 2022 from $129,073,000 for the same period in 2021. The primary driver of the decrease was a decrease in the Company's agent commissions, premium taxes, and policy administration fees of $32,543,000, $3,920,000 and $2,952,000, respectively, which fluctuate in conjunction with the year-over-year decrease in personal lines gross written premium. This was partially offset by a $4,709,000 increase in external management fees incurred during 2022 as a result of an increased volume of commercial written premium and a decrease of $1,041,000 in ceding commission income as a result of changes made to the terms of our quota share agreements.
Operating expenses decreased $7,251,000, or 17.2%, to $34,882,000 for the nine months ended September 30, 2022 from $42,133,000 for the same period in 2021, primarily due to decreased investments in technology of $5,971,000 and decreased underwriting expenses of $1,422,000 driven by the decrease in personal lines premiums described above.
General and administrative expenses increased $13,956,000, or 32.5%, to $56,890,000 for the nine months ended September 30, 2022 from $42,934,000 for the same period in 2021 primarily due to the impairment of goodwill attributablerelated to our personal lines operating segment totaling $13,569,000.
Personal Lines Operating Segment Results
Pretax earnings attributable to our personal lines operating segment for the nine months ended September 30, 2022 decreased $80,510,000, or 86.8%, to a pre-tax losscredit allowance reserve of $173,270,000 from a pre-tax loss of $92,760,000 for the same period in 2021. The change in pretax earnings was primarily driven by a decrease in revenues during 2022 compared to the same period in 2021 as a result of decreased gross written premiums, the details of which are described below. The decrease in revenues was partially offset by lower loss and LAE incurred. Policy acquisition and operating costs also decreased for the period, the details of which are described below.
Revenue
Our gross written premiums attributable to our personal lines operating segment decreased $223,223,000 or 30.5%, to $508,926,000 for the nine months ended September 30, 2022 from $732,149,000 for the same period in 2021. This decrease was driven primarily by the transition of our Northeast business to HCPCI in the fourth quarter of 2021 and first half of 2022. In addition, direct written premiums have declined across our personal lines business, due to underwriting actions taken throughout 2021 and in the first half of 2022. The breakdown of the personal lines operating segment year-over-year changes in direct written premiums by region is shown in the table below.
| | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | Change |
Direct Written and Assumed Premium by Region (1) | | | | | | |
Florida | | $ | 301,434 | | | $ | 343,007 | | | $ | (41,573) | |
Gulf | | 144,403 | | | 175,614 | | | (31,211) | |
Southeast | | 42,025 | | | 75,052 | | | (33,027) | |
Northeast | | 21,064 | | | 138,476 | | | (117,412) | |
Total gross written premium by region | | $ | 508,926 | | | $ | 732,149 | | | $ | (223,223) | |
(1) "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, and South Carolina as of June 1, 2022 as the policies have transitioned to HCPCI.
UNITED INSURANCE HOLDINGS CORP.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
New and Renewal Policies(1) by Region (2) | 2022 | | 2021 | | Change |
Florida | 111,913 | | | 163,655 | | | (51,742) | |
Gulf | 60,982 | | | 92,703 | | | (31,721) | |
Northeast | 29,704 | | | 97,149 | | | (67,445) | |
Southeast | 23,321 | | | 50,337 | | | (27,016) | |
Total | 225,920 | | | 403,844 | | | (177,924) | |
(1) Only includes new and renewal homeowner and dwelling fire policies written during the quarter.
(2) "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, and South Carolina as of June 1, 2022 as the policies have transitioned to HCPCI.
Expenses
Expenses attributable to our personal lines operating segment for the nine months ended September 30, 2022 decreased $83,326,000, or 18.9%, to $357,289,000 from $440,615,000 for the same period in 2021. The decrease in expenses was primarily due to a decrease in loss and LAE expenses of $54,151,000 during 2022 compared to the same period in 2021. In addition, policy acquisition costs decreased by $34,923,000 and our operating costs decreased $6,599,000 during 2022 compared to the same period in 2021. These decreases were partially offset by an increase in administrative costs of $12,328,000 during 2022 compared to the same period in 2021.
The calculations of our personal lines operating segment loss ratios and underlying loss ratios are shown below.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
2022 | | 2021 | | Change |
Net loss and LAE | $ | 242,133 | | | $ | 296,284 | | | $ | (54,151) | |
% of Gross earned premiums | 41.3 | % | | 38.9 | % | | 2.4 pts |
% of Net earned premiums | 140.7 | % | | 93.6 | % | | 47.1 pts |
Less: | | | | | |
Current year catastrophe losses | $ | 58,856 | | | $ | 92,690 | | | $ | (33,834) | |
Prior year reserve (favorable) development | 59,244 | | | 33,493 | | | 25,751 | |
Underlying loss and LAE (1) | $ | 124,033 | | | $ | 170,101 | | | $ | (46,068) | |
% of Gross earned premiums | 21.2 | % | | 22.3 | % | | (1.1) pts |
% of Net earned premiums | 72.1 | % | | 53.7 | % | | 18.4 pts |
(1) Underlying loss and LAE is a non-GAAP measure and is reconciled above to Net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.
The calculations of our personal lines operating segment expense ratios are shown below. | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
2022 | | 2021 | | Change |
Policy acquisition costs | $ | 34,912 | | | $ | 69,835 | | | $ | (34,923) | |
Operating and underwriting | 31,641 | | | 38,240 | | | (6,599) | |
General and administrative | 48,518 | | | 36,190 | | | 12,328 | |
Total Operating Expenses | $ | 115,071 | | | $ | 144,265 | | | $ | (29,194) | |
% of Gross earned premiums | 19.6 | % | | 18.9 | % | | 0.7 pts |
% of Net earned premiums | 66.9 | % | | 45.6 | % | | 21.3 pts |
Loss and LAE attributable to our personal lines operating segment decreased by $54,151,000, or 18.3%, to $242,133,000 for the nine months ended September 30, 2022 from $296,284,000 for the same period in 2021. Loss and LAE expense as a percentage of net earned premiums increased 47.1 points to 140.7% for the nine months ended September 30, 2022, compared to 93.6% for the same period in 2021. Excluding catastrophe losses and reserve development, our gross underlying loss and
UNITED INSURANCE HOLDINGS CORP.
LAE ratio for the nine months ended September 30, 2022 would have been 21.2%, a decrease of 1.1 points from 22.3% for the same period in 2021.
Policy acquisition costs attributable to our personal lines operating segment decreased by $34,923,000, or 50.0%, to $34,912,000 for the nine months ended September 30, 2022 from $69,835,000 for the same period in 2021, primarily due to a decrease in agent commissions, premium taxes, and policy administration fees of $32,123,000, $5,673,000 and $2,926,000, respectively, which fluctuate in conjunction with the year-over-year decrease in personal lines gross written premium. This was partially offset by ceding commission income decreasing by $7,258,000, driven by changes in the terms of our quota share agreements.
Operating and underwriting expenses attributable to our personal lines operating segment decreased by $6,599,000, or 17.3%, to $31,641,000 for the nine months ended September 30, 2022 from $38,240,000 for the same period in 2021, due to decreased investments in technology of $5,232,000 and decreased underwriting expenses as a result of decreased personal lines written premiums described above.
General and administrative expenses attributable to our personal lines operating segment increased $12,328,000, or 34.1%, to $48,518,000 for the nine months ended September 30, 2022 from $36,190,000 for the same period in 2021, driven by the impairment of goodwill attributable to the segment totaling $13,569,000.
Commercial Lines Operating Segment Results
Pretax earnings attributable to our commercial lines operating segment for the nine months ended September 30, 2022 increased $8,428,000, or 35.6%, to pre-tax income of $32,130,000 from pre-tax income of $23,702,000 for the same period in 2021. The change in earnings was primarily driven by increased gross written premiums, the details of which are described below. This increase was partially offset by increased loss and LAE incurred during 2022 compared to the same period in 2021, driven by increased catastrophe losses year-over-year.
Revenue
Our gross written premiums attributable to our commercial lines operating segment increased $57,492,000, or 17.5%, to $385,898,000 for the nine months ended September 30, 2022 from $328,406,000 for the same period in 2021. This increase was driven primarily by an increase in written premiums in the state of Florida, as we focus on increasing commercial written premiums and transitioning to a specialty commercial lines underwriter. The breakdown of the commercial lines operating segment year-over-year changes in both direct written and assumed premiums by state are shown in the table below.
| | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | Change |
Direct Written and Assumed Premium by State (1) | | | | | | |
Florida | | $ | 381,557 | | | $ | 319,484 | | | $ | 62,073 | |
Texas | | 3,903 | | | 7,416 | | | (3,513) | |
South Carolina | | 15 | | | 1,302 | | | (1,287) | |
Total direct written premium by region | | 385,475 | | | 328,202 | | | 57,273 | |
Assumed premium (2) | | 423 | | | 204 | | | 219 | |
Total gross written premium by region | | $ | 385,898 | | | $ | 328,406 | | | $ | 57,492 | |
(1) We are no longer writing in Texas or South Carolina as of May 31, 2022.
(2) Assumed premium written for 2022 and 2021 is primarily commercial property business assumed from unaffiliated insurers.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
New and Renewal Policies(1) by State (2) | 2022 | | 2021 | | Change |
Florida | 4,246 | | | 4,664 | | | (418) | |
Texas | 32 | | | 97 | | | (65) | |
South Carolina | 2 | | | 26 | | | (24) | |
Total | 4,280 | | | 4,787 | | | (507) | |
(1) Only includes new and renewal commercial policies written during the year.
(2) We are no longer writing in Texas or South Carolina as of May 31, 2022.
UNITED INSURANCE HOLDINGS CORP.
Expenses
Expenses attributable to our commercial lines operating segment for the nine months ended September 30, 2022 increased $17,177,000, or 15.8%, to $125,695,000 from $108,518,000 for the same period in 2021. The increase in expenses was primarily due to an increase in loss and LAE of $16,207,000 during 2022 compared to the same period in 2021. In addition, administrative expenses increased $1,842,000 in 2022 compared to the same period in 2021.
The calculations of our commercial lines operating segment loss ratios and underlying loss ratios are shown below.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
2022 | | 2021 | | Change |
Net loss and LAE | $ | 56,537 | | | $ | 40,330 | | | $ | 16,207 | |
% of Gross earned premiums | 16.6 | % | | 13.2 | % | | 3.4 pts |
% of Net earned premiums | 36.1 | % | | 31.5 | % | | 4.6 pts |
Less: | | | | | |
Current year catastrophe losses | $ | 27,753 | | | $ | 8,535 | | | $ | 19,218 | |
Prior year reserve (favorable) development | (5,484) | | | (2,149) | | | (3,335) | |
Underlying loss and LAE (1) | $ | 34,268 | | | $ | 33,944 | | | $ | 324 | |
% of Gross earned premiums | 10.1 | % | | 11.1 | % | | (1.0) pts |
% of Net earned premiums | 21.9 | % | | 26.5 | % | | (4.6) pts |
(1) Underlying loss and LAE is a non-GAAP measure and is reconciled above to Net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.
The calculations of our commercial lines operating segment expense ratios are shown below. | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
2022 | | 2021 | | Change |
Policy acquisition costs | $ | 59,036 | | | $ | 59,238 | | | $ | (202) | |
Operating and underwriting | 2,953 | | | 3,623 | | | (670) | |
General and administrative | 7,169 | | | 5,327 | | | 1,842 | |
Total Operating Expenses | $ | 69,158 | | | $ | 68,188 | | | $ | 970 | |
% of Gross earned premiums | 20.3 | % | | 22.4 | % | | (2.1) pts |
% of Net earned premiums | 44.2 | % | | 53.2 | % | | (9.0) pts |
Loss and LAE attributable to our commercial lines operating segment increased by $16,207,000, or 40.2%, to $56,537,000 for the nine months ended September 30, 2022 from $40,330,000 for the same period in 2021. Loss and LAE expense as a percentage of net earned premiums increased 4.6 points to 36.1% for the nine months ended September 30, 2022 compared to 31.5% for the same period in 2021. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the nine months ended September 30, 2022 would have been 10.1%, a decrease of 1.0 points from 11.1% during the same period in 2021.
Policy acquisition costs attributable to our commercial lines operating segment remained relatively flat, decreasing by $202,000, or 0.3%, to $59,036,000 for the nine months ended September 30, 2022 from $59,238,000 for the same period in 2021.
Operating and underwriting expenses attributable to our commercial lines operating segment decreased by $670,000, or 18.5%, to $2,953,000 for the nine months ended September 30, 2022 from $3,623,000 for the same period in 2021, driven by a $735,000 decrease in allocations of expenses for investments in technology.$208,000.
General and administrative expenses attributable to our commercial lines operating segment increased by $1,842,000,$434,000, or 34.6%18.7%, to $7,169,000$2,754,000 for the nine months ended 2022first quarter of 2023 from $5,327,000$2,320,000 for the same period in 2021,first quarter of 2022, driven by an $863,000a $433,000 increase in allocated external fees related to legal, audit, actuarial and taxprofessional services provided duringcosts for the year. In addition, we incurred $851,000 in additional allocated salary expenses in 2022first quarter of 2023 compared to the same period in 2021.
2022.
UNITED INSURANCE HOLDINGS CORP.
LIQUIDITY AND CAPITAL RESOURCES
We generate cash through premium collections, reinsurance recoveries, investment income, the sale or maturity of invested assets, the incurrence of debt and the issuance of additional shares of our stock. We use our cash to pay reinsurance premiums, claims and related costs, policy acquisition costs, salaries and employee benefits, other expenses and stockholder dividends, acquire subsidiaries and pay associated costs, as well as to repay debts, repurchase stock and purchase investments.
As a holding company, we do not conduct any business operations of our own and, as a result, we rely on cash dividends or intercompany loans from our management subsidiaries to pay our general and administrative expenses. Insurance regulatory authorities heavily regulate our insurance subsidiaries, including restricting any dividends paid by our insurance subsidiaries and requiring approval of any management fees our insurance subsidiaries pay to our management subsidiaries for services rendered; however, nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency. Our management subsidiaries pay us dividends primarily using cash from the collection of management fees from our insurance subsidiaries, pursuant to the management agreements in effect between those entities. In accordance with state laws, our insurance subsidiaries may pay dividends or make distributions out of that part of their statutory surplus derived from their net operating profit and their net realized capital gains. The Risk-Based Capital (RBC) guidelines published by the National Association of Insurance Commissioners may further restrict our insurance subsidiaries’ ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause their respective surplus as it regards policyholders to fall below minimum RBC guidelines. See Note 1314 in our Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
During the three months ended September 30, 2022,March 31, 2023, the Company made no capital contributions totaling $16,000,000 to our insurance subsidiary UPC.its subsidiaries. During the ninethree months ended September 30,March 31, 2022, the Company made capital contributions of $55,000,000 and $11,200,000$8,000,000 each to our former insurance subsidiaries, UPC and FSIC. The contribution made to FSIC was made prior to the merging of FSIC into UPC. During the three months ended September 30, 2021, the Company made capital contributions of $7,000,000 and $2,000,000 to our insurance subsidiaries, UPC and FSIC, respectively. During the nine months ended September 30, 2021, IIC paid a dividend of $3,500,000 to the Company. In addition, the Company made capital contributions of $5,500,000, $7,000,000 and $10,000,000 to our insurance subsidiaries, FSIC, UPC and ACIC, respectively. We may make future contributions of capital to our insurance subsidiaries as circumstances require.
The COVID-19 pandemic and resulting global disruptions have caused significant volatilityAs described in financial markets. However, duringNote 1 in the three and nine month periods ended September 30, 2022,Notes to Unaudited Condensed Consolidated Financial Statements above, substantial doubt exists about the disruptions did not have an impact on our access to credit and capital markets needed to maintain sufficient liquidity for our continued operating needs. We expectCompany’s ability to continue as a going concern within the twelve-month period subsequent to maintain financing flexibilitythe date that these unaudited condensed consolidated interim financial statements are issued. No adjustments have been made that might be necessary if the Company is unable to continue as a going concern. Accordingly, the unaudited condensed consolidated interim financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the current market conditions.ordinary course of business.
Holding Company LiquidityManagement’s strategic plans include the following:
As of September 30, 2022, we have outstanding debt obligations related•Working with the DFS to achieve a fair and equitable solution regarding reinsurance recoverables held by UPC that management believes are due to ACIC;
•Providing additional information to our notes payable of $150,000,000. This is exclusive of interest costs, which we estimate will total $51,563,000 overrating agencies for the lifeaffirmation of the debt, based onCompany’s current financial ratings;
•Successfully renewing our catastrophe reinsurance programs for ACIC and IIC effective June 1, 2023; and
•Exploring raising additional capital for UIHC and ACIC, including in the fixed interest rateform of these notes. Our short-term obligation relatedsurplus note contributions, to these notes includes only interest payments, totaling $9,375,000, as the notes do not mature until December 15, 2027. For more information regarding this outstanding note, please see Note 10.strengthen its statutory risk-based capital if necessary.
AtIf the holding companyCompany is unable to implement these actions, there is no assurance that the Company will be able to obtain the necessary amounts of additional capital to continue as a going concern. As of the date of this report we do not have any commitments from any source to provide such additional capital. Even if we are several optionsable to satisfy this obligation oversecure debt or equity financing, it may be unavailable in the next twelve months, including but not limited to, ordinary dividends paid toamounts or time when we require. Furthermore, such financing would likely take the holding company by its subsidiaries and cash and cash equivalentsform of $1,099,000. The shared services companies continue to receive funds from our insurance subsidiaries for management and claims adjusting services, allbank loans, surplus notes, private placement or public offering of which can be drawn on by the holding company for use in satisfying debt obligations. Our shared service companies cash and cash equivalent holdings total $15,377,000 as of September 30, 2022. In November ACIC declared a dividend payable to the holding company of $26,000,000. This dividend will then be contributed to UPC. Finally, we have fixed maturity andor equity securities or some combination of $2,552,000, which can be liquidated,these. The issuance of additional equity securities would dilute the stock ownership of current investors while incurring loans, surplus notes or other debt would increase our capital requirements and a possible loss of valuable assets if necessary. We anticipate these sources will provide the holding companysuch obligations were not repaid in accordance with the liquidity needed to satisfy its obligations and do not anticipate a need to liquidate securities at this time.their terms.
Insurance Subsidiaries Liquidity
As a result of claim activity from current and prior years, we have an obligation related to the unpaid policyholder losses and unpaid loss adjustment expenses associated with the settling of these claims. As of September 30, 2022, our total obligation related to these payments was $1,679,567,000, of which we estimate $898,315,000 to be short-term in nature (due in less than
UNITED INSURANCE HOLDINGS CORP.
twelve months), based upon our cumulative claims paid over the last 21 years. While we believe that historical performance of loss payment patterns is a reasonable source for projecting future claim payments, there is inherent uncertainty in this estimated projected settlement, and as a result these estimates will differ, perhaps significantly, from actual future payments.
In addition to our unpaid loss and loss adjustment expenses, as of September 30, 2022, we have outstanding debt obligations related to our notes payable totaling $4,413,000. This is exclusive of interest costs, which we estimate will total $275,000 over the life of the debt, based on the current fixed and variable interest rates of these notes. Our short-term obligation related to these notes payable total $1,176,000 in principal payments and $124,000 in estimated interest payments. For more information regarding this outstanding note, please see Note 10.
In connection with entering into contracts with our outside vendors, we have minimum obligations due to our vendors over the life of the contracts. Our main vendor obligations are related to underwriting tools, claims and policy administration systems, and software used by our information technology department in their daily operations. Our total obligation related to these three categories of obligations are $1,427,000, $3,576,000, and $5,313,000, respectively. Of these obligations, $762,000, $2,808,000, and $1,250,000, respectively are short-term in nature.
Our subsidiaries have several options to satisfy their obligations over the next twelve months, including but not limited to, an estimated $847,616,000 in reinsurance recoveries over the next twelve months and $223,247,000 in cash, cash equivalents and restricted cash. In November, 2022, the holding company contributed capital of $26,000,000 to UPC. We also anticipate maturities of fixed maturity securities of $53,973,000 within the next twelve months. Finally, we have $528,746,000 in fixed maturity and equity securities which can be liquidated, if necessary. While we do not anticipate the need to liquidate at this time, this liquidation would result in realized losses of approximately $66,912,000 on our fixed maturities. Absent additional capital contributions, our insurance subsidiary UPC, is projected to have insufficient liquidity. However, we anticipate these sources will provide our insurance subsidiaries ACIC and IIC with the liquidity needed to satisfy their obligations.
Cash Flows for the ninethree months ended September 30,March 31, 2023 and 2022 and 2021 (in millions)
Operating Activities
The principal cash inflows from our operating activities come from premium collections, reinsurance recoveries and investment income. The principal cash outflows from our operating activities are the result of claims and related costs, reinsurance premiums, policy acquisition costs and salaries and employee benefits. A primary liquidity concern with respect to these cash flows is the risk of large magnitude catastrophe events.
During the ninethree months ended September 30, 2022,March 31, 2023, we experienced cash outflows of $97,932,000$104,164,000 compared to cash outflows of $109,544,000$20,893,000 during the ninethree months ended September 30, 2021.March 31, 2022. Net income for the period also increased $63,830,000, exclusive of the impact of the disposition of UPC, driving these inflows. This change can be attributed primarily tois offset by the changedeconsolidation of UPC in the first quarter of 2023. This resulted in changes in our unpaid loss and loss adjustment expenses, net of reinsurance recoverables on paid and unpaid losses, in 2022, which increased by $155,626,000, driven byas we no longer hold the landfallUPC portion of Hurricane Ian in the third quarter of 2022 causing large unpaid and
UNITED INSURANCE HOLDINGS CORP.
recoverable balances at September 30, 2022. This was partially offset by a $116,197,000 increase in our net loss for the nine months ended 2022 compared to the same period in 2021.this liability.
Investing Activities
The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to sales of investments. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the ninethree months ended September 30, 2022,March 31, 2023, net salespurchases of investments totaled $99,702,000$195,082,000 compared to net sales of investments of $41,842,000$70,134,000 during the ninethree months ended September 30, 2021.March 31, 2022. This was partially offset by the disposition of $232,582,000 of cash held by UPC at the time of receivership.
Financing Activities
The principal cash outflows from our financing activities come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market disruption in the cost and availability of credit. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements. During the ninethree months ended September 30, 2022,March 31, 2023, no cash was used in financing activities totaled $25,071,000 compared to $8,921,000$2,970,000 for the ninethree months ended September 30, 2021.March 31, 2022. The increasedecrease in outflow in 20222023 can be attributed to no dividend payment being made in the return of capital to Kiln of $18,335,000 as a result of the stock re-purchase agreement and termination agreements effective June 30, 2022. Additionally, during the thirdfirst quarter of 20222023. In addition, no repayments of borrowings were made in 2023 as we repaidno longer hold the debt associated with our Truist note in full, resulting in a $3,004,000 increase in repayments for the year. These increases were partially offset by a decrease in dividend payments in 2022 of $5,l73,000 since no dividend was declared in the second or third quarter of 2022.former subsidiary, UPC.
UNITED INSURANCE HOLDINGS CORP.
OFF-BALANCE SHEET ARRANGEMENTS
At September 30, 2022,March 31, 2023, we did not have any off-balance sheet arrangements or material changes to our contractual obligations during the quarter.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, including interest rate risk related to changes in interest rates in our fixed-maturity securities, credit risk related to changes in the financial condition of the issuers of our fixed-maturities and equity price risk related to changes in equity security prices. These risks are disclosed in Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2021.2022. We had no material changes in our market risk during the ninethree months ended September 30, 2022.March 31, 2023.
Item 4. Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that the information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. We designed our disclosure controls with the objective of ensuring we accumulate and communicate this information to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2022,March 31, 2023, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal
UNITED INSURANCE HOLDINGS CORP.
control performed during the fiscal year ended December 31, 2021,2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in routine claims-related legal actions arising in the ordinary course of business. We accrue amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that we determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes revisions to our estimates based on its analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation.
At September 30, 2022,March 31, 2023, the Company is involved in legal proceedings whereby on August 18, 2021, a former employee of Skyway Legal Services, LLC,Jacqueline A. Miraglia v. United Insurance Holdings Corp., and United Property & Casualty Insurance Company was filed a complaint against the Company in the United States District Court for the District of Delaware. The lawsuit allegesDelaware alleging violations of and damages arising under Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967, and seeks damages in an unspecified amount. The Company, a named party to the lawsuit, denies that it employed the plaintiff and disputes the claims set forth in the lawsuit. On September 27, 2022, venue was transferred to the United States District Court for the Middle District of Florida, Tampa Division. In November, 2022, the plaintiff filed an Amended Complaint styled Jacqueline A. Miraglia vs. United Insurance Holdings Corp., United Property & Casualty Insurance Company, and Skyway Claims Services, LLC, alleging violations arising under Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967. The Company denies wrongdoing and believes that an unfavorable outcome is neither probable nor estimable.
In addition, on January 13, 2022 Southern Florida Restoration (SFR) Services, LLC v. United Property and Casualty Insurance Company, et al. was filed in the United States District Court for the Middle District of Florida. The District Court dismissed the lawsuit on its own accord on January 14, 2022. SFR Services then filed an amended complaint on January 26, 2022. The complaint alleges four causes of action: (i) violation of the Federal Civil Racketeer Influenced and Corrupt Organizations statute (18 U.S.C. § 1962(c)), (ii) breach of contract, (iii) fraud, and (iv) violation of the Florida Unfair Insurance Trade Practices Act (Fla. Stat. Chpt. 626). The plaintiff seeks unspecified damages. The Company believes that an unfavorable outcome is neither probable nor estimable. The defendants moved to dismiss the lawsuit on March 25, 2022 and their motion was granted October 12, 2022.
UNITED INSURANCE HOLDINGS CORP.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in Part I. Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the ninethree months ended September 30, 2022,March 31, 2023, we did not sell any unregistered equity securities or repurchase any of our equity securities.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed or furnished herewith or are incorporated herein by reference:
UNITED INSURANCE HOLDINGS CORP.
| | | | | | | | |
Exhibit | | Description |
| | |
| | Renewal Rights Agreement, dated as of February 1, 2023, by and among United Property and Casualty Insurance Company and Slide Insurance Company. (included as Exhibit 10.1 to the Form 8-K filed on February 6, 2023, and incorporated herein by reference.) |
| | |
| | Asset Purchase and Services Agreement, dated as of February 1, 2023, by and among United Insurance Management, L.C. and Slide Insurance Company. (included as Exhibit 10.2 to the Form 8-K filed on February 6, 2023, and incorporated herein by reference.) |
| | |
| | Consent Order Appointing the Florida Department of Financial Services as Receiver of United Property & Casualty Insurance Company for Purposes of Liquidation, Injunction and Notice of Automatic Stay, dated as of February 27, 2023. (included as Exhibit 10.1 to the Form 8-K filed on February 28, 2023, and incorporated herein by reference.) |
| | |
| | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
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| | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
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| | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. |
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| | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. |
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101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). |
UNITED INSURANCE HOLDINGS CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | UNITED INSURANCE HOLDINGS CORP. |
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November 9, 2022May 19, 2023 | By: | /s/ R. Daniel Peed |
| | R. Daniel Peed, Chief Executive Officer (principal executive officer and duly authorized officer) |
| | | | | | | | |
November 9, 2022May 19, 2023 | By: | /s/ B. Bradford Martz |
| | B. Bradford Martz, Chief Financial Officer and President (principal financial officer and principal accounting officer) |