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

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, $0.01 Par Value	UVE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~“smaller~~

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

Large accelerated filer

☐

☒

Accelerated filer

☐

☒

Non-accelerated filer

☐

☐ ~~(Do not check if a smaller reporting company)~~

Smaller reporting company

☐

Emerging growth company

☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~34,443,288~~29,185,808 shares of common stock, par value $0.01 per share, outstanding on ~~November 3, 2017~~.

October 24, 2023.

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS

~~PART I – FINANCIAL INFORMATION~~

~~Page No.~~

PART I – FINANCIAL INFORMATION

Page No.

Item 1.

Financial Statements:

Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2023 and December 31, ~~2016~~2022 (unaudited)

Condensed Consolidated Statements of Income for thethree and ~~nine-month~~nine-month periods ended September 30, ~~2017~~2023 and ~~2016~~2022 (unaudited)

Condensed Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2023 and 2022 (unaudited)

Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~nine-month~~nine-month periods ended September 30, ~~2017~~ 2023 and ~~2016~~2022 (unaudited)

Condensed Consolidated Statements of Cash Flows for the ~~nine-month~~nine-month periods ended September 30, ~~2017~~2023 and ~~2016~~2022 (unaudited)

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative ~~Disclosure~~Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II – OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

Item 5.

Other Information


~~Signatures~~

		48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To ~~The~~the Board of Directors and Stockholders of

Universal Insurance Holdings, Inc. ~~and Subsidiaries~~

Fort Lauderdale, Florida

RESULTS OF REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries (the “Company”) as of September 30, ~~2017~~2023 and the related condensed consolidated statements of income, comprehensive income, and stockholders’ equity for the ~~three~~three-month and nine-month periods ended September 30, ~~2017~~2023 and ~~2016~~2022 and the related condensed consolidated ~~statements~~statement of cash flows for the nine-month periods ended September 30, ~~2017~~2023 and ~~2016. These interim financial statements are the responsibility of the Company’s management.~~

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

2022. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of Universal Insurance Holdings, Inc. ~~and Subsidiaries~~ as of December 31, ~~2016~~2022 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February ~~23, 2017.~~28, 2023. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, ~~2016,~~2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

BASIS FOR REVIEW RESULTS

These interim financial statements are the responsibility of the Company’s management. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

/s/ Plante & Moran, PLLC

East Lansing, Michigan

October 30, 2023

Table of Contents

~~/s/ Plante & Moran, PLLC~~

~~Chicago, Illinois~~

~~November 9, 2017~~

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except per share data)

As of

September 30,

December 31,

2017

2016

ASSETS

Fixed maturities, at fair value
$
609,179

$
584,361

Equity securities, at fair value

26,075

50,803

Short-term investments, at fair value

—

5,002

Investment real estate, net

16,324

11,435

Total invested assets

651,578

651,601

Cash and cash equivalents

366,176

105,730

Restricted cash and cash equivalents

2,635

2,635

Prepaid reinsurance premiums

212,489

124,385

Reinsurance recoverable

412,697

106

Premiums receivable, net

66,687

53,833

Property and equipment, net

32,959

32,162

Deferred policy acquisition costs

75,934

64,912

Income taxes recoverable

19,174

3,262

Deferred income tax asset, net

5,300

10,674

Other assets

11,432

10,707

Total assets
$
1,857,061

$
1,060,007

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:

Unpaid losses and loss adjustment expenses
$
440,443

$
58,494

Unearned premiums

556,299

475,756

Advance premium

28,667

17,796

Accounts payable

3,999

3,187

Reinsurance payable, net

341,356

80,891

Dividends payable

4,846

—

Other liabilities and accrued expenses

47,659

37,665

Long-term debt

13,235

15,028

Total liabilities

1,436,504

688,817

Commitments and Contingencies (Note 12)

STOCKHOLDERS' EQUITY:

Cumulative convertible preferred stock, $.01 par value

—

—

Authorized shares - 1,000

Issued shares - 10 and 10

Outstanding shares - 10 and 10

Minimum liquidation preference, $9.99 and $9.99 per share

Common stock, $.01 par value

455

453

Authorized shares - 55,000

Issued shares - 45,473 and 45,324

Outstanding shares - 34,440 and 35,052

Treasury shares, at cost - 11,033 and 10,272

(104,866
)

(86,982
)
Additional paid-in capital

89,429

82,263

Accumulated other comprehensive income (loss), net of taxes

(2,207
)

(6,408
)
Retained earnings

437,746

381,864

Total stockholders' equity

420,557

371,190

Total liabilities and stockholders' equity
$
1,857,061

$
1,060,007


	As of
	September 30,		December 31,
	2023		2022
ASSETS
Available-for-sale debt securities, at fair value, net of allowance for credit loss of $683 and $920 (amortized cost: $1,173,967 and $1,152,852)	$	1,031,558	$	1,014,626

Equity securities, at fair value (cost: $92,554 and $102,431)	76,995		85,469

Investment real estate, net	5,572		5,711
Total invested assets	1,114,125		1,105,806

Cash and cash equivalents	343,532		388,706
Restricted cash and cash equivalents	69,488		2,635
Prepaid reinsurance premiums	379,501		282,427
Reinsurance recoverable	322,986		808,850

Premiums receivable, net	88,536		69,574
Property and equipment, net	48,729		51,404
Deferred policy acquisition costs	114,590		103,654
Income taxes recoverable	2,026		1,528
Deferred income tax asset, net	49,326		57,258
Other assets	26,016		18,312
Total assets	$	2,558,855	$	2,890,154
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses	$	551,007	$	1,038,790
Unearned premiums	1,040,067		943,854
Advance premium	76,030		54,964

Book overdraft	12,208		—
Reinsurance payable, net	388,294		384,504
Commission payable	22,751		18,541

Other liabilities and accrued expenses	64,800		58,836
Long-term debt, net	102,196		102,769
Total liabilities	2,257,353		2,602,258

Commitments and Contingencies (Note 12)

STOCKHOLDERS’ EQUITY:
Cumulative convertible preferred stock, $0.01 par value	—		—
Authorized shares - 1,000
Issued shares - 10 and 10
Outstanding shares - 10 and 10
Minimum liquidation preference, $9.99 and $9.99 per share
Common stock, $0.01 par value	473		472
Authorized shares - 55,000
Issued shares - 47,266 and 47,179
Outstanding shares - 29,186 and 30,389
Treasury shares, at cost - 18,080 and 16,790	(257,143)		(238,758)
Additional paid-in capital	115,922		112,509
Accumulated other comprehensive income (loss), net of taxes	(107,115)		(103,782)
Retained earnings	549,365		517,455
Total stockholders’ equity	301,502		287,896
Total liabilities and stockholders’ equity	$	2,558,855	$	2,890,154

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

PREMIUMS EARNED AND OTHER REVENUES

Direct premiums written
$
274,744

$
241,888

$
816,350

$
741,782

Change in unearned premium

(19,935
)

(7,388
)

(80,543
)

(59,211
)

Direct premium earned

254,809

234,500

735,807

682,571

Ceded premium earned

(80,292
)

(74,966
)

(230,722
)

(214,128
)

Premiums earned, net

174,517

159,534

505,085

468,443

Net investment income (expense)

3,085

2,304

9,012

6,051

Net realized gains (losses) on investments

803

101

2,450

1,344

Commission revenue

5,304

4,603

14,546

12,927

Policy fees

4,861

4,226

14,594

13,093

Other revenue

1,673

1,668

4,917

4,827

Total premiums earned and other revenues

190,243

172,436

550,604

506,685

OPERATING COSTS AND EXPENSES

Losses and loss adjustment expenses

116,375

73,548

267,129

199,749

General and administrative expenses

57,269

54,725

171,582

166,780

Total operating costs and expenses

173,644

128,273

438,711

366,529

INCOME BEFORE INCOME TAXES

16,599

44,163

111,893

140,156

Income tax expense

6,635

17,281

41,354

54,400

NET INCOME
$
9,964

$
26,882

$
70,539

$
85,756

Basic earnings per common share
$
0.29

$
0.77

$
2.02

$
2.46

Weighted average common shares outstanding - Basic

34,686

35,042

34,927

34,878

Diluted earnings per common share
$
0.28

$
0.75

$
1.96

$
2.41

Weighted average common shares outstanding - Diluted

35,615

35,723

35,917

35,594

Cash dividend declared per common share
$
0.14

$
0.14

$
0.42

$
0.42


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
REVENUES
Direct premiums written	$	531,988	$	500,677	$	1,489,216	$	1,429,685
Change in unearned premium	(57,677)		(48,227)		(96,213)		(133,827)
Direct premium earned	474,311		452,450		1,393,003		1,295,858
Ceded premium earned	(143,271)		(161,819)		(476,465)		(459,102)
Premiums earned, net	331,040		290,631		916,538		836,756
Net investment income	12,755		6,074		34,735		15,337
Net realized gains (losses) on investments	(431)		292		(337)		(375)
Net change in unrealized gains (losses) of equity securities	(1,285)		(4,150)		1,403		(16,430)
Commission revenue	10,830		12,592		43,098		35,157
Policy fees	5,111		5,272		14,662		15,991
Other revenue	2,028		2,099		6,027		5,862
Total revenues	360,048		312,810		1,016,126		892,298
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	287,972		330,444		717,853		715,854
General and administrative expenses	78,322		73,973		230,924		231,561
Total operating costs and expenses	366,294		404,417		948,777		947,415

Interest and amortization of debt issuance costs	1,631		1,630		4,896		4,969

INCOME (LOSS) BEFORE INCOME TAXES	(7,877)		(93,237)		62,453		(60,086)
Income tax expense (benefit)	(1,962)		(20,962)		15,629		(12,718)
NET INCOME (LOSS)	$	(5,915)	$	(72,275)	$	46,824	$	(47,368)
Basic earnings (loss) per common share	$	(0.20)	$	(2.36)	$	1.56	$	(1.54)
Weighted average common shares outstanding - Basic	29,617		30,604		30,087		30,858
Diluted earnings (loss) per common share	$	(0.20)	$	(2.36)	$	1.54	$	(1.54)
Weighted average common shares outstanding - Diluted	29,617		30,604		30,378		30,858
Cash dividend declared per common share	$	0.16	$	0.16	$	0.48	$	0.48

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net income
$
9,964

$
26,882

$
70,539

$
85,756

Other comprehensive income (loss), net of taxes

251

(491
)

4,201

5,631

Comprehensive income
$
10,215

$
26,391

$
74,740

$
91,387


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	(5,915)	$	(72,275)	$	46,824	$	(47,368)
Other comprehensive income (loss), net of taxes	(11,258)		(27,531)		(3,333)		(100,097)
Comprehensive income (loss)	$	(17,173)	$	(99,806)	$	43,491	$	(147,465)

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (unaudited)

(in ~~thousands)~~

thousands, except per share data)

Nine Months Ended September 30,

2017

2016

Cash flows from operating activities:

Net cash provided by (used in) operating activities
$
286,195

$
178,637

Cash flows from investing activities:

Proceeds from sale of property and equipment

17

31

Purchases of property and equipment

(3,655
)

(6,041
)
Purchases of equity securities

(47,070
)

(46,414
)
Purchases of fixed maturities

(114,593
)

(278,961
)
Purchases of investment real estate, net

(5,023
)

(4,400
)
Proceeds from sales of equity securities

75,027

46,819

Proceeds from sales of fixed maturities

19,643

78,966

Maturities of fixed maturities

75,770

38,111

Maturities of short-term investments

5,000

25,000

Net cash provided by (used in) investing activities

5,116

(146,889
)
Cash flows from financing activities:

Preferred stock dividend

(8
)

(7
)
Common stock dividend

(9,803
)

(9,828
)
Purchase of treasury stock

(17,884
)

(8,415
)
Sale of treasury stock

—

2,965

Payments related to tax withholding for share-based compensation

(1,367
)

(4,905
)
Excess tax benefits (shortfall) from share-based compensation

—

(1,563
)
Repayment of debt

(1,803
)

(1,768
)
Net cash provided by (used in) financing activities

(30,865
)

(23,521
)
Net increase (decrease) in cash and cash equivalents

260,446

8,227

Cash and cash equivalents at beginning of period

105,730

197,014

Cash and cash equivalents at end of period
$
366,176

$
205,241


	Treasury Shares		Common Shares Issued	Preferred Shares Issued	Common Stock Amount		Preferred Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Shares, at Cost		Total Stockholders’ Equity
Balance, December 31, 2022	(16,790)		47,179	10	$	472	$	—	$	112,509	$	517,455	$	(103,782)	$	(238,758)	$	287,896


Vesting of performance share units	(6)	(1)	16	—	—		—		—		—		—		(64)		(64)
Vesting of restricted stock units	(16)	(1)	48	—	—		—		—		—		—		(160)		(160)
Stock option exercises	(54)	(1)	63	—	—		—		928		—		—		(90)		838
Retirement of treasury shares	76	(1)	(76)	—	—		—		(1,242)		—		—		314		(928)

Share-based compensation	—		—	—	—		—		1,230		—		—		—		1,230
Net income (loss)	—		—	—	—		—		—		24,173		—		—		24,173
Other comprehensive income (loss), net of taxes	—		—	—	—		—		—		—		13,791		—		13,791
Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(4,970)		—		—		(4,970)
Balance, March 31, 2023	(16,790)		47,230	10	472		—		113,425		536,658		(89,991)		(238,758)		321,806
Grants of restricted stock awards	—		36	—	1		—		(1)		—		—		—		—


Purchases of treasury stock	(396)		—	—	—		—		—		—		—		(6,088)		(6,088)
Share-based compensation	—		—	—	—		—		1,261		—		—		—		1,261
Net income (loss)	—		—	—	—		—		—		28,566		—		—		28,566
Other comprehensive income (loss), net of taxes	—		—	—	—		—		—		—		(5,866)		—		(5,866)
Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(5,007)		—		—		(5,007)

Balance, June 30, 2023	(17,186)		47,266	10	473		—		114,685		560,217		(95,857)		(244,846)		334,672



Purchases of treasury stock	(894)		—	—	—		—		—		—		—		(12,297)		(12,297)
Share-based compensation	—		—	—	—		—		1,237		—		—		—		1,237
Net income (loss)	—		—	—	—		—		—		(5,915)		—		—		(5,915)
Other comprehensive loss, net of taxes	—		—	—	—		—		—		—		(11,258)		—		(11,258)
Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(4,937)		—		—		(4,937)
Balance, September 30, 2023	(18,080)		47,266	10	$	473	$	—	$	115,922	$	549,365	$	(107,115)	$	(257,143)	$	301,502


(1)			All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised, restricted stock vested, performance share units vested, or restricted stock units vested. These shares have been cancelled by the Company.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(in thousands, except per share data)


	Treasury Shares		Common Shares Issued	Preferred Shares Issued	Common Stock Amount		Preferred Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Shares, at Cost		Total Stockholders’ Equity
Balance, December 31, 2021	(15,797)		47,018	10	$	470	$	—	$	108,202	$	563,713	$	(15,568)	$	(227,115)	$	429,702


Vesting of performance share units	(9)	(1)	33	—	1		—		(1)		—		—		(104)		(104)
Vesting of restricted stock units	(6)	(1)	27	—	—		—		—		—		—		(105)		(105)

Retirement of treasury shares	15	(1)	(15)	—	—		—		(209)		—		—		209		—
Purchases of treasury stock	(320)		—	—	—		—		—		—		—		(3,879)		(3,879)
Share-based compensation	—		—	—	—		—		1,107		—		—		—		1,107
Net income (loss)	—		—	—	—		—		—		17,537		—		—		17,537
Other comprehensive income (loss), net of taxes	—		—	—	—		—		—		—		(42,910)		—		(42,910)

Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(5,007)		—		—		(5,007)
Balance, March 31, 2022	(16,117)		47,063	10	471		—		109,099		576,243		(58,478)		(230,994)		396,341
Grants of restricted stock awards	—		53	—	—		—		—		—		—		—		—


Purchases of treasury stock	(283)		—	—	—		—		—		—		—		(3,502)		(3,502)
Share-based compensation	—		—	—	—		—		990		—		—		—		990
Net income (loss)	—		—	—	—		—		—		7,370		—		—		7,370
Other comprehensive income (loss), net of taxes	—		—	—	—		—		—		—		(29,656)		—		(29,656)
Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(4,992)		—		—		(4,992)

Balance, June 30, 2022	(16,400)		47,116	10	471		—		110,089		578,621		(88,134)		(234,496)		366,551



Purchases of treasury stock	(203)		—	—	—		—		—		—		—		(2,419)		(2,419)
Share-based compensation	—		—	—	—		—		1,308		—		—		—		1,308
Net income	—		—	—	—		—		—		(72,275)		—		—		(72,275)
Other comprehensive loss, net of taxes	—		—	—	—		—		—		—		(27,531)		—		(27,531)
Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(4,997)		—		—		(4,997)
Balance, September 30, 2022	(16,603)		47,116	10	$	471	$	—	$	111,397	$	501,349	$	(115,665)	$	(236,915)	$	260,637


(1)			All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised, restricted stock vested, performance share units vested, or restricted stock units vested. These shares have been cancelled by the Company.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)


	Nine Months Ended
	September 30,
	2023		2022
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	70,631	$	223,157
Cash flows from investing activities:
Proceeds from sale of property and equipment	34		65
Purchases of property and equipment	(2,869)		(4,388)
Purchases of equity securities	(32,558)		(67,733)
Purchases of available-for-sale debt securities	(103,560)		(178,788)

Proceeds from sales of equity securities	42,830		26,667
Proceeds from sales of available-for-sale debt securities	3,985		24,855


Maturities of available-for-sale debt securities	77,676		59,291

Net cash provided by (used in) investing activities	(14,462)		(140,031)
Cash flows from financing activities:
Debt issuance costs paid	—		(131)
Preferred stock dividend	(8)		(8)
Common stock dividend	(14,679)		(14,880)

Purchase of treasury stock	(18,385)		(9,800)
Payments related to tax withholding for share-based compensation	(314)		(209)
Repayment of debt	(1,104)		(1,103)
Net cash provided by (used in) financing activities	(34,490)		(26,131)
Cash and cash equivalents and restricted cash and cash equivalents:
Net increase (decrease) during the period	21,679		56,995
Balance, beginning of period	391,341		253,143
Balance, end of period	$	413,020	$	310,138

The following table summarizes our cash and cash equivalents and restricted cash and cash equivalents within the Condensed Consolidated Balance Sheets (in thousands):


	As of
	September 30,		December 31,
	2023		2022
Cash and cash equivalents	$	343,532	$	388,706
Restricted cash and cash equivalents (1)	69,488		2,635
Total cash and cash equivalents and restricted cash and cash equivalents	$	413,020	$	391,341

(1)See “—Note 5 (Insurance Operations)” for a discussion of the nature of the restrictions for restricted cash and cash equivalents and "—Note 14

(Variable Interest Entities)” for a discussion of restricted cash held in a trust account.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of Operations and Basis of Presentation

Nature of Operations

Universal Insurance Holdings, Inc. (“UVE”, and together with its wholly-owned subsidiaries, “the Company”) is a Delaware corporation incorporated in 1990. ~~UVE with its wholly-owned subsidiaries (the “Company”)~~The Company is a vertically integrated insurance holding company performing all aspects of insurance underwriting, distribution, and claims. Through its wholly-owned insurance company subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”), and together ~~referred to as~~with UPCIC, the “Insurance ~~Entities,”~~Entities”), the Company is principally engaged in the property and casualty insurance business offered primarily through aits network of independent agents. Risk from catastrophic losses is managed through the use of reinsurance agreements. The Company’s primary product is residential homeowners’ insurance ~~currently~~ offered in ~~fifteen~~19 states as of September 30, ~~2017,~~2023, including Florida, which comprises the ~~vast~~ majority of the Company’s ~~in-force policies.~~policies in force. See “—Note 5 (Insurance Operations)” for more information regarding the Company’s insurance operations.

The Company generates revenues primarily from the collection of premiums and ~~invests~~investment returns on funds invested on cash flows in excess of those retained and used for claims-paying obligations and insurance operations. Other significant sources of revenue include brokerage commissions collected from reinsurers on certain reinsurance programs placed byon behalf of the Insurance Entities, policy fees collected from policyholders by ~~our~~the Company’s wholly-owned managing general ~~agency~~agent subsidiary and payment plan fees charged to policyholders who choose to pay their premiums in installments.

The Company’s wholly-owned adjusting company receives claims-handling fees from the Insurance Entities. The Insurance Entities are reimbursed for these fees on claims that are subject to recovery under the Insurance Entities’ respective reinsurance programs. These fees, after expenses, are recorded in the Condensed Consolidated Financial Statements as an adjustment to losses and loss adjustment expense (“LAE”).

Basis of Presentation

and Consolidation

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the Financial Statements do not include all of the information and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for annual financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2022, filed with the SEC on February ~~24, 2017.~~28, 2023. The ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet at December 31, ~~2016,~~2022 was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any ~~other~~ interim period or for the full year.

To conform to the current period presentation, certain amounts in the prior periods’ condensed consolidated financial statements and notes have been reclassified. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity.

The Financial Statements include the accounts of UVE and its wholly-owned ~~subsidiaries.~~subsidiaries, as well as variable interest entities (“VIE”) in which the Company is determined to be the primary beneficiary. All material intercompany balances and transactions have been eliminated in consolidation.

~~Management must~~

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts ~~reported in the Company’s Financial Statements~~of assets and ~~in disclosures~~liabilities and disclosure of contingent assets and ~~liabilities.~~liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s primary use of estimates is in the recognition of liabilities for unpaid losses, loss adjustment expenses, subrogation recoveries, and reinsurance recoveries. Actual results could differ from those estimates.

Table of Contents

2. Significant Accounting Policies

The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, ~~2016. The following~~2022. There are no new or revised ~~disclosures or~~ disclosures required on a quarterly basis.

~~Recently Adopted Accounting Pronouncements~~

~~In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies several aspects~~

Table of the accounting for share-based payment transactions. The new guidance requires excess income tax benefits (windfalls) and deficiencies (shortfalls) to be recognized in the income statement as income tax benefits or charges when the awards vest or are settled. The former guidance required the recognition of excess tax benefits or deficiencies in stockholders’ equity. In addition, all income tax-related cash flows resulting from share-based payments will be reported as operating activities in the statement of cash flows under the new guidance. The guidance also allows us to repurchase more of an employee's shares for tax withholding purposes without triggering liability accounting; clarifies that all cash payments for tax withholdings made on an employee’s behalf should be presented as a financing activity on the Company’s statement of cash flows; and provides an accounting policy election to account for forfeitures as they occur. The guidance is effective for fiscal years and interim periods beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance effective January 1, 2017.

The adoption of the new standard resulted in the recognition of excess tax benefit of $0.8 million reflected in the Company’s Condensed Consolidated Statements of Income as an income tax benefit for the nine months ended September 30, 2017. Additionally, excess tax benefits on the Company’s Condensed Consolidated Statement of Cash Flows are presented as an operating activity on a prospective basis. The presentation requirement for cash flows related to employee taxes paid for withheld shares did not impact any of the periods presented in the Company’s Condensed Consolidated Statement of Cash Flows since these cash flows have historically been presented as a financing activity. The Company will continue to account for forfeitures as they occur. The standard also modifies the calculation of dilutive earnings per share to no longer use proceeds from tax benefits or deficiencies.

Contents

3. Investments

Available-for-Sale Securities ~~Available for Sale~~

The following table provides the ~~cost or~~ amortized cost and fair value of available-for-sale debt securities ~~available for sale~~ as of the dates presented (in thousands):

	September 30, 2017
	Cost or		Gross		Gross						September 30, 2023
	Amortized		Unrealized		Unrealized						Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	Cost		Gains		Losses			Fair Value
Fixed Maturities:
Debt Securities:										Debt Securities:
U.S. government obligations and agencies	$	55,519	$	21	$	(524	)	$	55,016	U.S. government obligations and agencies	$	25,950	$	—	$	—	$	(1,193)	$	24,757
Corporate bonds		215,455		883		(507	)		215,831	Corporate bonds	791,691		(537)		37		(91,834)		699,357
Mortgage-backed and asset-backed securities		219,321		110		(1,333	)		218,098	Mortgage-backed and asset-backed securities	328,327		—		15		(44,571)		283,771
Municipal bonds		106,926		706		(1,342	)		106,290	Municipal bonds	17,139		(4)		—		(2,422)		14,713
Redeemable preferred stock		13,336		631		(23	)		13,944	Redeemable preferred stock	10,860		(142)		—		(1,758)		8,960
Equity Securities:
Common stock		5,992		—		(309	)		5,683
Mutual funds		22,316		143		(2,067	)		20,392
Total	$	638,865	$	2,494	$	(6,105	)	$	635,254	Total	$	1,173,967	$	(683)	$	52	$	(141,778)	$	1,031,558

	December 31, 2016
	Cost or		Gross		Gross						December 31, 2022
	Amortized		Unrealized		Unrealized						Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	Cost		Gains		Losses			Fair Value
Fixed Maturities:
Debt Securities:										Debt Securities:
U.S. government obligations and agencies	$	74,937	$	—	$	(670	)	$	74,267	U.S. government obligations and agencies	$	12,602	$	—	$	—	$	(938)	$	11,664
Corporate bonds		192,328		402		(1,300	)		191,430	Corporate bonds	788,737		(729)		130		(93,077)		695,061
Mortgage-backed and asset-backed securities		216,679		135		(2,038	)		214,776	Mortgage-backed and asset-backed securities	327,166		—		148		(39,707)		287,607
Municipal bonds		94,794		130		(3,727	)		91,197	Municipal bonds	14,924		(2)		—		(2,551)		12,371
Redeemable preferred stock		12,723		125		(157	)		12,691	Redeemable preferred stock	9,423		(189)		—		(1,311)		7,923
Equity Securities:
Common stock		214		—		(121	)		93
Mutual funds		53,900		407		(3,597	)		50,710
Short-term investments		5,000		2		—			5,002
Total	$	650,575	$	1,201	$	(11,610	)	$	640,166	Total	$	1,152,852	$	(920)	$	278	$	(137,584)	$	1,014,626

The following table provides the credit quality of ~~investment~~available-for-sale debt securities with contractual maturities ~~or the issuer of such securities~~ as of the dates presented ~~(in~~(dollars in thousands):

The ~~tables~~table above ~~include comparable~~includes credit quality ratings by Standard and Poor’s Rating Services, Inc. (“S&P”), Moody’s Investors Service, Inc. and Fitch Ratings, Inc.

The Company has presented the highest rating of the three rating agencies for each investment position.

The following table summarizes the ~~cost or~~ amortized cost and fair value of mortgage-backed and asset-backed securities as of the dates presented (in thousands):

The following ~~table summarizes the fair value and gross unrealized losses on~~tables summarize available-for-sale debt securities, ~~available for sale,~~ aggregated by major ~~investment category~~security type and length of time that individual securities have been in a continuous unrealized loss position, for which no allowance for expected credit losses has been recorded as of the dates presented ~~(dollars~~(in thousands):


	September 30, 2023
	Less Than 12 Months					12 Months or Longer
	Number of Issues	Fair Value		Unrealized Losses		Number of Issues	Fair Value		Unrealized Losses
Debt Securities:
U.S. government obligations and agencies	8	$	20,094	$	(457)	5	$	6,645	$	(734)
Corporate bonds	17	6,768		(47)		296	362,421		(52,225)
Mortgage-backed and asset-backed securities	38	60,995		(1,813)		186	220,254		(42,762)
Municipal bonds	3	1,414		(30)		3	6,756		(1,323)
Redeemable preferred stock	2	784		(74)		4	1,102		(235)
Total	68	$	90,055	$	(2,421)	494	$	597,178	$	(97,279)


	December 31, 2022
	Less Than 12 Months					12 Months or Longer
	Number of Issues	Fair Value		Unrealized Losses		Number of Issues	Fair Value		Unrealized Losses
Debt Securities:
U.S. government obligations and agencies	2	$	2,721	$	(110)	5	$	8,943	$	(828)
Corporate bonds	40	26,563		(2,910)		247	325,992		(46,451)
Mortgage-backed and asset-backed securities	64	52,751		(2,974)		146	219,189		(36,733)
Municipal bonds	—	—		—		3	6,621		(1,458)
Redeemable preferred stock	1	95		(51)		—	—		—
Total	107	$	82,130	$	(6,045)	401	$	560,745	$	(85,470)

Unrealized losses on available-for-sale debt securities in ~~thousands):~~

September 30, 2017

Less Than 12 Months

12 Months or Longer

Number of

Unrealized

Number of

Unrealized

Issues

Fair Value

Losses

Issues

Fair Value

Losses

Fixed Maturities:

U.S. government obligations and agencies

10

$
47,102

$
(404
)

4

$
4,345

$
(120
)
Corporate bonds

100

76,577

(410
)

11

7,105

(97
)
Mortgage-backed and asset-backed securities

90

146,458

(1,196
)

8

13,063

(137
)
Municipal bonds

43

46,363

(601
)

15

24,714

(741
)
Redeemable preferred stock

13

1,518

(19
)

1

107

(4
)
Equity Securities:

Common stock

2

5,683

(309
)

—

—

—

Mutual funds

5

293

(2
)

2

9,202

(2,065
)
Total

263

$
323,994

$
(2,941
)

41

$
58,536

$
(3,164
)

December 31, 2016

Less Than 12 Months

12 Months or Longer

Number of

Unrealized

Number of

Unrealized

Issues

Fair Value

Losses

Issues

Fair Value

Losses

Fixed Maturities:

U.S. government obligations and agencies

11

$
70,453

$
(608
)

2

$
3,504

$
(62
)
Corporate bonds

116

96,379

(1,219
)

4

3,250

(80
)
Mortgage-backed and asset-backed securities

73

149,928

(1,923
)

5

9,660

(115
)
Municipal bonds

69

79,402

(3,726
)

—

—

—

Redeemable preferred stock

50

6,340

(158
)

—

—

—

Equity Securities:

Common stock

1

18

(7
)

2

75

(115
)
Mutual funds

3

28,020

(774
)

2

11,529

(2,823
)
Total

323

$
430,540

$
(8,415
)

15

$
28,018

$
(3,195
)

~~Evaluating Investments for Other Than Temporary Impairment (“OTTI”)~~

Atthe above table as of September 30, ~~2017,~~2023 have not been recognized into income as credit losses because the ~~Company held fixed maturity~~issuers are of high credit quality (investment grade securities), management does not intend to sell nor does it believe it is more likely than not it will be required to sell the securities prior to their anticipated recovery, and ~~equity~~the decline in fair value is largely due to changes in interest rates and other market conditions. There were no material factors impacting any one category or specific security requiring an accrual for credit loss. The issuers continue to make principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

The following table presents a reconciliation of the beginning and ending balances for expected credit losses on available-for-sale debt securities ~~that were~~(in thousands):


	Corporate Bonds		Municipal Bonds		Redeemable Preferred Stock		Total
Balance, December 31, 2021	$	371	$	1	$	117	$	489

Provision for (or reversal of) credit loss expense	358		1		72		431
Balance, December 31, 2022	729		2		189		920
Provision for (or reversal of) credit loss expense	(192)		2		(47)		(237)
Balance, September 30, 2023	$	537	$	4	$	142	$	683

For available-for-sale debt securities in an unrealized loss position, ~~as presented in the table above. For fixed maturity securities with significant declines in value,~~ the Company ~~performs quarterly fundamental credit analysis on a security-by-security~~first assesses whether it intends to sell, or is more likely than not, that it will be required to sell the security before recovery of its amortized cost basis.If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis ~~which includes consideration of credit quality and credit ratings, review of relevant industry analyst reports and other available market data.~~ is written down to fair value through income.For ~~fixed maturity and equity~~available-for-sale debt securities that do not meet the aforementioned criteria, the Company ~~considers~~evaluates whether ~~it has~~ the intent and ability to hold the securities for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the security’s decline in fair value has resulted from credit losses or other factors.In making this assessment, management considers the extent to which fair value is ~~considered~~less than amortized cost, any changes to the rating of the security by rating agencies, market sentiment and trends and adverse conditions specifically related to the security, among other ~~than temporary~~quantitative and ~~is recorded in earnings.~~ ~~Based on our analysis, we believe~~qualitative factors utilized for establishing an estimate for credit losses.If the assessment indicates that ~~our fixed income portfolio is~~a credit loss exists, the present values of ~~high quality and that we~~

~~will recover~~cash flows expected to be collected from the security are compared to the amortized cost basis of ~~our fixed income securities. We continually monitor~~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 is recorded for the credit ~~quality of our fixed income investments to assess if it~~loss, limited by the amount that fair value is ~~probable~~less than the amortized cost basis.Any impairment that ~~we will receive our contractual or estimated cash flows~~has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the ~~form~~allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense and are reported in general and administrative expenses in the Condensed Consolidated Statements of ~~principal and interest. Additionally,~~Income. Losses are charged against the ~~Company considers management’s intent and ability to hold the securities until recovery and its credit analysis~~allowance when management believes an available-for-sale debt security is confirmed as uncollected or when either of the ~~individual issuers of the securities. Based on this process and analysis, management has no reason~~criteria regarding intent or requirement to ~~believe the unrealized losses for securities available for sale at September 30, 2017 are other than temporary.~~

As of September 30, 2017, the Company held approximately $9.2 million equity securities that were in an unrealized loss position twelve months or longer. The unrealized loss on these equity securities was $2.1 million. Based on our analysis, the Company believes each equity security will recover in a reasonable period of time and the Company has the intent and ability to hold them until recovery. There were no OTTI losses recognized in the periods presented on the equity portfolio.

sell is met.

The following table presents the amortized cost and fair value of investments with ~~contractual~~ maturities as of the date presented (in thousands):

All securities, except those with perpetual maturities, ~~may differ from~~were categorized in the table above utilizing years to effective maturity. Effective maturity takes into consideration all forms of potential prepayment, such as call features or prepayment schedules, which shorten the lifespan of contractual ~~maturities because borrowers may have the right to call or prepay with or without penalty.~~

maturity dates.

The following table provides certain information related to available-for-sale debt securities, ~~available for sale~~equity securities and investment in real estate during the periods presented (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Proceeds from sales and maturities (fair value)
$
67,818

$
23,744

$
175,440

$
188,896

Gross realized gains
$
849

$
107

$
2,662

$
1,369

Gross realized losses
$
(46
)

$
(6
)

$
(212
)

$
(25
)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Proceeds from sales and maturities (fair value):
Available-for-sale debt securities	$	34,934	$	30,929	$	81,661	$	84,146
Equity securities	$	5,597	$	8,975	$	42,830	$	26,667
Gross realized gains on sale of securities:
Available-for-sale debt securities	$	29	$	—	$	34	$	242
Equity securities	$	18	$	571	$	1,570	$	1,119
Gross realized losses on sale of securities:
Available-for-sale debt securities	$	(39)	$	(210)	$	(766)	$	(1,665)
Equity securities	$	(439)	$	(69)	$	(1,175)	$	(71)

The following table presents the components of net investment income, comprised primarily of interest and dividends, for the periods presented (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Fixed maturities
$
2,977

$
2,456

$
8,893

$
6,447

Equity securities

348

223

1,068

666

Short-term investments

—

15

22

60

Other (1)

319

166

651

603

Total investment income

3,644

2,860

10,634

7,776

Less: Investment expenses (2)

(559
)

(556
)

(1,622
)

(1,725
)
Net investment (expense) income
$
3,085

$
2,304

$
9,012

$
6,051


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Available-for-sale debt securities	$	6,325	$	4,847	$	18,122	$	13,791
Equity securities	953		740		2,874		1,965

Cash and cash equivalents (1)	5,961		1,069		15,113		1,324
Other (2)	127		122		395		371
Total investment income	13,366		6,778		36,504		17,451
Less: Investment expenses (3)	(611)		(704)		(1,769)		(2,114)
Net investment income	$	12,755	$	6,074	$	34,735	$	15,337

~~(1)~~
(1)						Includes interest earned on ~~cash and cash equivalents and~~ restricted cash and cash equivalents. ~~Also includes~~
(2)						Includes investment income earned on real estate investments.

~~(2)~~

(3)

Includes custodial fees, investment accounting and advisory fees, and expenses associated with real estate investments.

The following table provides the unrealized gains and losses recognized for the periods presented on equity securities still held at the end of the reported period (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Unrealized gains (losses) recognized during the reported period on equity securities still held at the end of the reported period	$	(1,129)	$	(4,150)	$	(831)	$	(16,387)

Investment Real Estate

Investment real estate consisted of the following as of the dates presented (in thousands):

The following table provides the depreciation expense related to investment real estate for the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Depreciation expense on investment real estate	$	46	$	46	$	139	$	139

The Company seeks to reduce its risk of loss by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers, generally as of the beginning of the hurricane season on June ~~1st~~1st of each year. The Company’s current reinsurance ~~program consists~~programs consist principally of catastrophe excess of loss reinsurance, subject to the terms and conditions of the applicable agreements. ~~The~~Notwithstanding the purchase of such reinsurance, the Company is responsible for certain retained loss amounts before reinsurance attaches and for insured losses related to catastrophes and other events ~~in excess of~~that exceed coverage provided by ~~its~~or otherwise are not within the scope of the reinsurance ~~program.~~programs. The Company remains responsible for the settlement of insured losses irrespective of ~~the ability of~~whether any of ~~its~~the reinsurers fail to make payments otherwise ~~due to the Company.~~

Amounts recoverable from reinsurers are estimated in a manner consistent with the terms of the reinsurance contracts. Reinsurance premiums, losses and loss adjustment expenses (“LAE”) are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.

~~In order to~~due.

To reduce credit risk for amounts due from reinsurers, the Insurance Entities seek to do business with financially sound reinsurance companies and regularly evaluate the financial strength of all reinsurers used.

The following table presents ratings from rating agencies and the unsecured amounts due from the ~~Company’s~~ reinsurers whose aggregate balance exceeded 3% of the Company’s stockholders’ equity as of the dates presented (in thousands):

Ratings as of September 30, 2017

Due from as of

Standard

and Poor's

Moody's

AM Best

Rating

Investors

September 30,

December 31,

Reinsurer

Company

Services

Service, Inc.

2017

2016

Allianz Risk Transfer

A+

AA-

n/a

$
186,479

$
—

AXIS Specialty Limited

A+

A+

A2

16,929

—

Everest Reinsurance Company

A+

A+

A1

63,104

—

Florida Hurricane Catastrophe Fund (1)

n/a

n/a

n/a

—

46,364

Renaissance Reinsurance Ltd

A+

AA-

A1

30,604

—

Total (2)

$
297,116

$
46,364

Ratings as of September 30, 2023

Due from as of

Reinsurer

AM Best
Company

Standard
and Poor’s
Rating
Services, Inc.

Moody’s
Investors Service, Inc.

September 30, 2023

December 31, 2022

Florida Hurricane Catastrophe Fund “FHCF” (1)

n/a

62,095

134,411

Various Lloyd’s of London Syndicates (2)

A+

n/a

34,367

101,482

DaVinci Reinsurance Ltd.

A+

28,586

48,115

Renaissance Reinsurance Ltd.

A+

20,935

38,768

Chubb Tempest Reinsurance, Ltd.

A++

Aa3

18,194

51,319

Ada Re, Ltd (3)

n/a

12,251

—

Everest Reinsurance Co

A+

11,668

11,536

Upsilon RFO RE Ltd. (3)

n/a

10,930

11,201

Aeolus Re Ltd. (3)

n/a

10,493

—

Allianz Risk Transfer (Bermuda) Ltd.

n/a

—

285,323

Markel Bermuda Ltd.

n/a

—

50,981

D E Shaw Re (Bermuda) Ltd. (3)

n/a

—

16,680

Munich Reinsurance America Inc.

n/a

—

14,616

Lumen Re Ltd.

n/a

—

8,913

Total (4)

209,519

773,345

(1)No rating is available, because the fund is not rated.

(2)No rating available for Moody’s Investors Service, Inc.

(3)No rating is available, because the reinsurer is fully collateralized with a trust agreement.

(4)Amounts represent prepaid reinsurance premiums and net recoverables for paid and unpaid losses, including incurred but not reported reserves, and loss adjustment expenses.

Table of Contents

~~(1)~~	~~No rating is available, because the fund is not rated.~~

~~(2)~~

Amounts represent prepaid reinsurance premiums, reinsurance receivables, net recoverables for paid and unpaid losses, including incurred but not reported reserves, loss adjustment expenses, and offsetting reinsurance payables.

The Company’s reinsurance arrangements had the following effect on certain items in the Condensed Consolidated Statements of Income for the periods presented (in thousands):

September 30,

December 31,

2017

2016

Prepaid reinsurance premiums
$
212,489

$
124,385

Reinsurance recoverable on unpaid losses and LAE
$
412,697

$
106

Reinsurance recoverable (payable) on paid losses

—

(1,532
)
Reinsurance receivable, net

—

186

Reinsurance recoverable (payable) and receivable
$
412,697

$
(1,240
)


	September 30,		December 31,
	2023		2022
Prepaid reinsurance premiums	$	379,501	$	282,427
Reinsurance recoverable on paid losses and LAE	$	66,299	$	10,170
Reinsurance recoverable on unpaid losses and LAE	256,687		798,680

Reinsurance recoverable	$	322,986	$	808,850

5. Insurance Operations

Deferred Policy Acquisition Costs

The Company defers certain costs in connection with written ~~policies,~~premium, called Deferred Policy Acquisition Costs (“DPAC”). DPAC is amortized over the effective period of the related insurance policies.

The following table presents the beginning and ending balances and the changes in DPAC for the periods presented (in thousands):

Regulatory Requirements and Restrictions

The Insurance Entities are subject to regulations and standards of the Florida Office of Insurance Regulation (“FLOIR”). ~~UPCIC~~The Insurance Entities are also is subject to regulations and standards of regulatory authorities in other states where ~~it is~~they are licensed, although as a Florida-domiciled ~~insurer, its~~insurers, their principal regulatory authority is the FLOIR. These standards ~~require~~and regulations include a requirement that the Insurance Entities to maintain specified levels of statutory capital and restrict the timing and amount of dividends and other distributions that may be paid by the Insurance Entities to the parent company. Except in the case of extraordinary dividends, these standards generally permit dividends to be paid from statutory unassigned ~~surplus~~funds of the regulated subsidiary and are limited based on the regulated subsidiary’s level of statutory net income and statutory capital and surplus. The maximum dividend that may be paid by ~~UPCIC and APPCIC~~the Insurance Entities to their immediate parent company, Protection Solutions, Inc. (“PSI”, formerly known as Universal Insurance Holding Company of ~~Florida (“UVECF”)~~Florida), without prior regulatory approval is limited by the provisions of the Florida ~~Statutes.~~Insurance Code. These dividends are referred to as “ordinary dividends.” However, if ~~an ordinary~~the dividend, together with other dividends paid within the preceding twelve months, exceeds this statutory limit or is paid from sources other than earned surplus, the entire dividend is generally considered an “extraordinary dividend” and must receive prior regulatory approval.

In accordance with Florida ~~Statutes,~~Insurance Code and based on the calculations performed by the Company as of December 31, 2022, UPCIC ~~has the capacity~~and APPCIC currently are not able to pay ~~ordinary dividends~~ ~~of $57.7million during 2017.~~ ~~APPCIC does not have the capacity to pay~~any ordinary dividends during ~~2017.~~ 2023. For the nine months ended September 30, ~~2017, UPCIC paid dividends of $30.0 million to UVECF. N~~o2023 and 2022, no dividends were paid from ~~APPCIC~~the Insurance Entities to ~~UVECF for the nine months ended September 30, 2017. Dividends paid to the shareholders of UVE in 2017 have been paid from the earnings of UVE and its non-insurance subsidiaries.~~

PSI.

The Florida Insurance Code requires a residential property insurance ~~companies~~company to maintain ~~capitalization equivalent~~a statutory surplus as to ~~the greater~~policyholders of at least $15.0 million or ten percent of the insurer’s total liabilities, ~~or $10.0 million.~~whichever is greater. The following table presents the amount of capital and surplus calculated in accordance with statutory accounting principles, which ~~differ~~differs from ~~U.S.~~ GAAP, and an amount representing ten percent of total liabilities for ~~both UPCIC and APPCIC~~each of the Insurance Entities as of the dates presented (in thousands):

As of the dates in the table above, ~~both UPCIC and APPCIC~~the Insurance Entities each exceeded the minimum statutory capitalization requirement. ~~UPCIC~~The Insurance Entities also met the capitalization requirements of the other states in which ~~it is~~they are licensed as of September 30, ~~2017. UPCIC and APPCIC~~2023. Annually, the Insurance Entities each are also required to adhere to prescribed premium-to-capital surplus ratios and each have met those ~~requirements at such dates.~~

requirements.

The following table summarizes combined net income (loss) for the Insurance Entities determined in accordance with statutory accounting practices for the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Combined net income (loss)	$	(77,035)	$	(67,404)	$	(105,440)	$	(79,479)

The Insurance Entities are required by various state laws and regulations to maintain certain assets in depository accounts. The following table represents assets held by insurance regulators as of the dates presented (in thousands):

6.Liability for Unpaid Losses and Loss Adjustment Expenses

Set forth in the following table is the change in liability for unpaid losses and LAE for the periods presented (in thousands):

Prior years’ development was $17.7 million in the third quarter ended September 30, 2023 compared to $2.7 million in the third quarter ended September 30, 2022. Prior years’ development was $34.8 million in the nine months ended September 30, 2023 compared to $7.1 million in the nine months ended September 30, 2022. In 2023 prior year development was the result of increased costs to settle prior year claims compared to previous estimates particularly related to non-CAT events occurring in prior years. Prior years claims predate the most significant recent property insurance reform legislation enacted in late 2022 in Florida and therefore have not benefited significantly from the statutory changes. Paid claims related to prior years in the third quarter ended September 30, 2023 include the impact of a number of commutations, including the commutation with the FHCF.

Prior years’ development was $2.7 million during the three months ended September 30, 2022. The net prior years’ reserve development for the three months ended September 30, 2022 was principally due to Hurricane Irma. Prior years’ reserve development was $7.1 million during the nine months ended September 30, 2022. The net prior years’ reserve development for the nine months ended September 30, 2022 was principally due to Hurricane Irma development of $7.0 million in the period. Hurricane Matthew net losses increased $0.1 million. Additionally, the Company concluded a favorable commutation during the nine months ended September 30, 2022, favorably increasing ceded prior year loss payments which was offset by a provisory direct prior year IBNR amount, resulting in no net effect.

7. ~~Long-Term~~Long-term Debt

Long-term debt consists of the following as of the dates presented (in thousands):

September 30,

December 31,

2017

2016

Surplus note
$
13,235

$
14,338

Promissory note

—

690

Total
$
13,235

$
15,028


	September 30,		December 31,
	2023		2022
Surplus note	$	4,411	$	5,515
5.625% Senior unsecured notes	100,000		100,000
Total principal amount	104,411		105,515
Less: unamortized debt issuance costs	(2,215)		(2,746)
Total long-term debt, net	$	102,196	$	102,769

In 2006, UPCIC entered into a $25.0 million surplus note with the State Board of Administration of Florida (the “SBA”) under Florida’s Insurance Capital Build-Up Incentive Program. The surplus note has a twenty-year term and accrues interest, adjusted quarterly based on the 10-year Constant Maturity Treasury Index. Principal and interest are paid periodically pursuant to the terms of the surplus note. UPCIC was in compliance with the terms of the surplus note as of September 30, ~~2017.~~

2023.

Senior Unsecured Notes

On November 23, 2021, the Company entered into Note Purchase Agreements with certain institutional accredited investors and qualified institutional buyers pursuant to which the Company issued and sold $100 million of 5.625% Senior Unsecured Notes due 2026 (the “Notes”). The Note Purchase Agreements contain certain customary representations, warranties and covenants made by the Company.

The Notes were offered and sold by the Company in a private placement transaction in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended.On March 24, 2022, the Registration Statement registering the exchange of Notes for registered Notes was declared effective by the Securities and Exchange Commission, and all of the Notes have since been exchanged for registered Notes with identical financial terms.

The Notes are senior unsecured debt obligations that bear interest at the rate of 5.625% per annum, payable semi-annually in arrears on May 30th and November 30th of each year, beginning on May 30, 2022. The Notes are subject to adjustment from time to time in the event of a downgrade or subsequent upgrade of the rating assigned to the Notes.The Notes mature on November 30, 2026 at which time the entire $100.0 million of principal is due and payable. At any time on or after November 30, 2023, the Company may redeem all or part of the Notes at redemption prices (expressed as percentages of the principal amount) equal to (i) 102.81250% for the twelve-month period beginning on November 30, 2023; (ii) 101.40625% for the twelve-month period beginning on November 30, 2024 and (iii) 100.0% at any time thereafter, plus accrued and unpaid interest up to, but not including the redemption date.

The indenture governing the Notes contains financial covenants, terms, events of default and related cure provisions that are customary in agreements used in connection with similar transactions. As of September 30, 2023, the Company was in compliance with all applicable covenants, including financial covenants.

The Notes are unsecured senior obligations of the Company, are not obligations of, and are not guaranteed by, any subsidiary of the Company. The Notes rank equally in right of payment to the Unsecured Revolving Loan described below.

Unsecured Revolving Loan

On June 30, 2023, the Company entered into a committed and unsecured $40.0 million revolving credit line with JP Morgan Chase Bank, N.A. This agreement succeeded the previous $37.5 million revolving credit line with J.P. Morgan Chase, N.A., entered into on October 31, 2022. As of September 30, 2023, the Company has not borrowed any amount under this revolving loan. The Company must pay an annual commitment of 0.50% of the unused portion of the commitment. Borrowings mature on June 29, 2024, 364 days after the inception date and carry an interest rate of prime rate plus a margin of 2%. The credit line is subject to annual renewals. The credit line contains customary financial and other covenants, with which the Company is in compliance.

Table of Contents~~8. Stockholders’ Equity~~

~~Common Stock~~

The following table ~~summarizes~~provides interest expense related to long-term debt during the ~~activity relating~~periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest Expense:
Surplus note	$	47	$	49	$	146	$	115
5.625% Senior unsecured notes	1,407		1,406		4,219		4,328
Non-cash expense (1)	177		175		531		526
Total	$	1,631	$	1,630	$	4,896	$	4,969

(1) Represents amortization of debt issuance costs.

8. Stockholders’ Equity

From time to time, the Company’s Board of Directors may authorize share repurchase programs under which the Company may repurchase shares of the Company’s common stock ~~during~~in the ~~nine months ended September 30, 2017~~open market. The following table presents repurchases of the Company’s common stock for the periods presented (in ~~thousands)~~thousands, except total number of shares repurchased and per share data):

Issued

Treasury

Outstanding

Shares

Shares

Shares

Balance, as of December 31, 2016

45,324

(10,272
)

35,052

Shares repurchased

—

(761
)

(761
)
Vesting of performance share units

115

—

115

Stock option exercises

71

—

71

Common stock issued

26

—

26

Shares acquired through cashless exercise (1)

—

(63
)

(63
)
Shares cancelled

(63
)

63

—

Balance, as of September 30, 2017

45,473

(11,033
)

34,440



					Total Number of Shares				Average
					Repurchased During the		Aggregate		Price Per		Plan
			Dollar Amount		Nine Months Ended September 30,		Purchase		Share		Completed or
Date Authorized		Expiration Date	Authorized		2023	2022	Price		Repurchased		Expired
June 12, 2023		June 10, 2025	$	20,000	889,566	—	$	12,231	$	13.75
December 15, 2022	(1)	December 15, 2024	$	7,997	400,691	—	$	6,154	$	15.36	August 2023
November 3, 2020	(1)	November 3, 2022	$	20,000	—	806,324	$	9,800	$	12.15	November 2022

~~(1)~~

All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised or performance share units vested. These shares have been cancelled by the Company.

See the “Condensed Consolidated Statements of Stockholders’ Equity” for a roll-forward of treasury shares.

Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities at the enacted tax rates.We review our deferred tax assets regularly for recoverability.As of September 30, 2023, we determined that we did not need a valuation allowance on our gross deferred tax assets.Although realization of the deferred tax assets is not assured, management believes that it is more likely than not the deferred tax assets will be realized based on our expectation that we will be able to fully utilize the deductions that are ultimately recognized for tax purposes.

For the nine months ended September 30, ~~2017, UVE repurchased 760,559 shares, at an aggregate price of approximately $17.9 million, pursuant to such repurchase program.~~

~~In September 2017, the Board of Directors authorized a share repurchase program under which UVE may repurchase~~2023, there was no current reporting period activity recorded in the ~~open market in compliance with Exchange Act Rule 10b-18 up~~operating statement or the balance sheet related to ~~$20 million of its outstanding shares of common stock through December 31, 2018. There were no shares of common stock repurchased under this program in September 2017.~~

~~Dividends~~

~~On January 23, 2017, UVE declared a cash dividend of $0.14 per share on its outstanding common stock paid on March 2, 2017, to the shareholders of record at the close of business on February 17, 2017.~~

~~On April 12, 2017, UVE declared a cash dividend of $0.14 per share on its outstanding common stock paid on July 3, 2017, to the shareholders of record at the close of business on June 14, 2017.~~

On August 31, 2017, UVE declared a cash dividend of $0.14 per share on its outstanding common stock payable on October 24, 2017, to the shareholders of record at the close of business on September 12, 2017.

~~9. Income Taxes~~

~~During the three months ended September 30, 2017 and 2016, the Company recorded approximately $6.6 million and $17.3 million of income~~uncertain tax ~~expense, respectively.~~ positions.

The effective tax rate for the three months ended September 30, ~~2017~~2023 was ~~40.0%~~24.9% compared to ~~a 39.1% effective tax rate~~22.5% for the same period ~~in the prior~~last year.

~~During the nine months ended September 30, 2017 and 2016, the Company recorded approximately $41.4 million and $54.4 million of income tax expense, respectively.~~ The effective tax rate for the nine months ended September 30, ~~2017~~2023 was ~~37.0%~~25.0% compared to ~~a 38.8% effective tax rate~~21.2% for the same period ~~in the prior~~last year.

During the nine months ended September 30, 2017, the Company’s excess tax benefit of $0.8 million was reflected as an income tax benefit in the condensed consolidated statements of income as a component of the The provision for income taxes differed from the statutory rate as ~~a result~~follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Federal statutory tax rate	21.0	%	21.0	%	21.0	%	21.0	%
Increases (decrease) resulting from:
State income tax, net of federal tax benefit	9.5	%	1.5	%	1.5	%	0.5	%
Disallowed compensation	(6.5)	%	(0.1)	%	2.8	%	(1.8)	%
Effect of rate change	—	%	—	%	—	%	1.4	%
Nondeductible expenses	(0.1)	%	—	%	0.3	%	(0.1)	%
Dividend received deduction	1.2	%	0.1	%	(0.5)	%	0.3	%
Other, net	(0.2)	%	—	%	(0.1)	%	(0.1)	%

Effective tax rate	24.9	%	22.5	%	25.0	%	21.2	%

10. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed 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 impact of common shares issuable upon the exercise of stock options, ~~vesting of~~non-vested performance share units, non-vested restricted stock ~~vesting of performance share~~ units, non-vested restricted stock, and conversion of preferred stock.

In loss periods, the impact of common shares issuable upon the exercises of stock options, non-vested performance share units, non-vested restricted stock units, non-vested restricted stock, and conversion of preferred stock are excluded from the calculation of diluted loss per share, as the inclusion of common shares issuable upon the exercise of stock options, non-vested performance share units, non-vested restricted stock units, non-vested restricted stocks, and conversion of preferred stock would have an anti-dilutive effect. There is no difference between basic and diluted loss per share.

The following table reconciles the numerator (i.e., income) and denominator (i.e., shares) of the basic and diluted earnings (loss) per share computations for the periods presented (in thousands, except per share data):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Numerator for EPS:

Net income
$
9,964

$
26,882

$
70,539

$
85,756

Less: Preferred stock dividends

(3
)

(3
)

(8
)

(8
)
Income available to common stockholders
$
9,961

$
26,879

$
70,531

$
85,748

Denominator for EPS:

Weighted average common shares outstanding

34,686

35,042

34,927

34,878

Plus:  Assumed conversion of stock-based
   compensation (1)

904

656

965

691

Assumed conversion of preferred stock

25

25

25

25

Weighted average diluted common shares
   outstanding

35,615

35,723

35,917

35,594

Basic earnings per common share
$
0.29

$
0.77

$
2.02

$
2.46

Diluted earnings per common share
$
0.28

$
0.75

$
1.96

$
2.41


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator for EPS:
Net income (loss)	$	(5,915)	$	(72,275)	$	46,824	$	(47,368)
Less: Preferred stock dividends	(3)		(3)		(8)		(8)
Income (loss) available to common stockholders	$	(5,918)	$	(72,278)	$	46,816	$	(47,376)
Denominator for EPS:
Weighted average common shares outstanding	29,617		30,604		30,087		30,858
Plus: Assumed conversion of share-based compensation (1)	—		—		266		—
Assumed conversion of preferred stock	—		—		25		—
Weighted average diluted common shares outstanding	29,617		30,604		30,378		30,858
Basic earnings (loss) per common share	$	(0.20)	$	(2.36)	$	1.56	$	(1.54)
Diluted earnings (loss) per common share	$	(0.20)	$	(2.36)	$	1.54	$	(1.54)

~~(1)~~
(1)						Represents the dilutive effect of ~~unvested Restricted Stock, unvested Performance Share Units~~common shares issuable upon the exercise of stock options, non-vested performance share units, non-vested restricted stock units and ~~unexercised Stock Options.~~ non-vested restricted stock.

11. Other Comprehensive Income (Loss)

The following table provides the components of other comprehensive income (loss) on a pre-tax and after-tax basis for the periods presented (in thousands):

Three Months Ended September 30,

2017

2016

Pre-tax

Tax

After-tax

Pre-tax

Tax

After-tax

Net unrealized gains (losses) on investments available for sale
   arising during the period
$
1,207

$
461

$
746

$
(694
)

$
(265
)

$
(429
)
Less: Amounts reclassified from accumulated other
   comprehensive income (loss)

(803
)

(308
)

(495
)

(101
)

(39
)

(62
)
Net current period other comprehensive income (loss)
$
404

$
153

$
251

$
(795
)

$
(304
)

$
(491
)

Nine Months Ended September 30,

2017

2016

Pre-tax

Tax

After-tax

Pre-tax

Tax

After-tax

Net unrealized gains (losses) on investments available for sale
   arising during the period
$
9,248

$
3,535

$
5,713

$
10,460

$
3,998

$
6,462

Less: Amounts reclassified from accumulated other
   comprehensive income (loss)

(2,450
)

(938
)

(1,512
)

(1,344
)

(513
)

(831
)
Net current period other comprehensive income (loss)
$
6,798

$
2,597

$
4,201

$
9,116

$
3,485

$
5,631


	Three Months Ended September 30,

	2023						2022
	Pre-tax		Tax		After-tax		Pre-tax		Tax		After-tax
Net changes related to available-for-sale securities:
Unrealized holding gains (losses) arising during the period	$	(14,942)	$	(3,677)	$	(11,265)	$	(36,715)	$	(9,026)	$	(27,689)
Less: Reclassification adjustments for (gains) losses realized in net income (loss)	10		3		7		210		52		158
Other comprehensive income (loss)	$	(14,932)	$	(3,674)	$	(11,258)	$	(36,505)	$	(8,974)	$	(27,531)

The following table provides the ~~reclassifications~~reclassification adjustments for gains (losses) out of accumulated other comprehensive income for the periods presented (in thousands):

Amounts Reclassified from Accumulated

Other Comprehensive Income (Loss)

Details about Accumulated Other

Three Months Ended September 30,

Nine Months Ended September 30,

Affected Line Item in the Statement
Comprehensive Income (Loss) Components

2017

2016

2017

2016

Where Net Income is Presented
Unrealized gains (losses) on
investments available for sale

$
803

$
101

$
2,450

$
1,344

Net realized gains (losses) on investments

(308
)

(39
)

(938
)

(513
)

Income taxes

$
495

$
62

$
1,512

$
831

Net of tax


Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)								Affected Line Item in the Statement Where Net Income is Presented
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Unrealized gains (losses) on available-for-sale debt securities
	$	(10)	$	(210)	$	(732)	$	(1,423)	Net realized gains (losses) on sale on investments
	3		52		180		350		Income tax expense (benefit)
Total reclassification for the period	$	(7)	$	(158)	$	(552)	$	(1,073)	Net of tax

12. Commitments and Contingencies

~~Litigation~~

Obligations under Multi-Year Reinsurance Contracts

The Company purchases reinsurance coverage to protect its capital and to limit its losses when certain major events occur. The Company’s reinsurance commitments generally run from June 1st of the current year to May 31st of the following year. Certain of the Company’s reinsurance agreements are for periods longer than one year. Amounts payable for coverage during the current June 1st to May 31st contract period are recorded as “Reinsurance Payable, net” in the Condensed Consolidated Balance Sheet. Multi-year contract commitments for future years will be recorded at the commencement of the coverage period. Amounts payable for future reinsurance contract years that the Company is obligated to pay are: (1) $72.7 million in 2024 and (2) $52.6 million in 2025.

Lawsuits and Legal Proceedings

From time to time, lawsuits are filed against the Company ~~from time to time.~~or the Company may become involved in other legal proceedings. Many of these lawsuits or legal proceedings involve claims under policies that ~~we underwrite~~the Company underwrites and ~~reserve~~ for ~~as an insurer. We believe that the resolution of these claims will not have a material adverse effect on our financial condition or results of operations. We are~~which it reserves. The Company is also involved in various other legal proceedings and litigation unrelated to claims under ~~our~~the Company’s policies that arise in the ordinary course of business ~~operations. Management believes that any liabilities that may arise as a result of these legal matters will not have a material adverse effect on our financial condition or results of~~ operations. The Company contests liability and/or the amount of damages as it considers appropriate according to the facts and circumstances of each matter.

The Insurance Entities are obligated by regulation and by contract to commute their losses under reimbursement agreements with the FHCF. The commutation process results in a final estimate of, and payment to the insurer for, remaining reimbursable losses attributable to a reimbursement contract year in exchange for a release of future FHCF obligations for that contract year. On June 1, 2023, the Insurance Entities began their respective commutation processes for the 2017-18 reimbursement contract year. In the third quarter, each ~~pending matter.~~

of the Insurance Entities successfully reached an agreement with the FHCF on the amount of the FHCF’s final payment in commutation without the need for dispute resolution.

In accordance with applicable accounting guidance, the Company establishes reserves intended to encompass claims-related lawsuits or legal proceedings and establishes an accrued liability for other legal matters when those matters present loss contingencies that are both probable and estimable.

~~Legal~~Lawsuits and legal proceedings are subject to many uncertain factors that generally cannot be predicted with ~~assurance,~~certainty, and the Company may be exposed to losses in excess of any amounts accrued. The Company currently estimates that the reasonably possible losses for legal ~~proceedings, whether~~matters in excess of a related accrued liability, including reserves, or where there is no accrued liability, and for which the Company is able to estimate a possible loss, are immaterial. This represents management’s estimate of possible loss with respect to these matters and is based on currently available information. These estimates of possible loss do not represent our maximum loss exposure, and actual results may vary significantly from current estimates.

13. Fair Value Measurements

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. GAAP describes three approaches to measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach. Each approach includes multiple valuation techniques. GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritizes the inputs used in applying the various techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the hierarchy while Level 3 inputs are given the lowest priority. Assets and liabilities carried at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:

•Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

•Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.

•Level 3 — Unobservable inputs that are not corroborated by market data. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Summary of ~~significant valuation techniques~~Significant Valuation Techniques for ~~assets measured~~Assets Measured at ~~fair value~~Fair Value on a ~~recurring basis~~

Recurring Basis

Common stock: Comprise actively traded, exchange-listed U.S. and international equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

Mutual funds: Comprise actively traded funds. Valuation is based on daily quoted net asset values for identical assets in active markets that the Company can access.

U.S. government obligations and agencies: Comprise U.S. Treasury Bills or Notes or U.S. Treasury Inflation Protected Securities. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.

Corporate bonds: Comprise investment-grade ~~fixed income~~debt securities. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.

Mortgage-backed and asset-backed securities: Comprise securities that are collateralized by mortgage obligations and other assets. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields, collateral performance, and credit spreads.

Municipal bonds: Comprise ~~fixed income~~debt securities issued by a state, municipality, or county. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.

Redeemable preferred stock: Comprise preferred stock securities that are redeemable. The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active.

~~Short-term investments:~~ Comprise investment securities subject to re-measurement with original maturities within one year but more than three months. The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active.

As required by GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement of the asset or liability within the fair value hierarchy levels.

The following tables set forth by level within the fair value hierarchy the Company’s assets ~~that were~~ measured at fair value ~~including those~~ on a recurring basis as of the dates presented (in thousands):

The Company utilizes third-party independent pricing services that provide a price quote for each ~~fixed maturity, equity~~available-for-sale debt security and ~~short-term investment.~~equity security. Management reviews the methodology used by the pricing services. If management believes that the price used by the pricing service does not reflect an orderly transaction between participants, management will use an alternative valuation methodology. There were no adjustments made by the Company to the prices obtained from the independent pricing source for any ~~fixed maturities~~available-for-sale debt security or equity ~~securities~~security included in the tables above.

The following table summarizes the carrying value and estimated fair values of the Company’s financial instruments ~~that are~~ not carried at fair value as of the dates presented (in thousands):

September 30, 2017

December 31, 2016

(Level 3)

(Level 3)

Estimated Fair

Estimated Fair

Carrying Value

Value

Carrying Value

Value

Liabilities (debt):

Surplus note
$
13,235

$
11,949

$
14,338

$
13,282

Promissory note
$
—

$
—

$
690

$
690


	As of September 30, 2023				As of December 31, 2022
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Liabilities (debt):
Surplus note (1)	$	4,411	$	4,151	$	5,515	$	5,126
5.625% Senior unsecured notes (2)	100,000		91,564		100,000		100,350
Total debt	$	104,411	$	95,715	$	105,515	$	105,476

(1) The fair value of the surplus note was determined by management from the expected cash flows discounted using the interest rate quoted by the holder. The ~~State Board of Administration of Florida (“SBA”)~~SBA is the holder of the surplus note and the quoted interest rate is below prevailing rates quoted by private lending institutions. However, as the Company’s use of funds from the surplus note is limited by the terms of the agreement, the Company has determined the interest rate quoted by the SBA to be appropriate for ~~purposes~~the purpose of establishing the fair value of the ~~note.~~

note (Level 3).

(2) The fair value of the ~~promissory note~~senior unsecured notes was determined based on pricing from quoted prices for similar assets in active markets and was included as Level 2.

14. Variable Interest Entities

The Company utilizes a captive reinsurance arrangement that uses Isosceles Insurance Ltd., a Bermuda licensed insurance company, pursuant to which the parties established a Bermuda separate account named “Separate Account UVE-01” as UVE’s captive. This captive is a VIE in the normal course of business and is consolidated since the Company is the primary beneficiary. The VIE files a federal tax return; however, the VIE is domiciled in Bermuda and therefore is not ~~materially different than its carrying value.~~

subject to state income taxes.

Effective June 1, 2023, the VIE entered into a new reinsurance arrangement with UPCIC and APPCIC for the 2023-2024 All States Reinsurance Program.

On June 1, 2022, the VIE entered into a reinsurance arrangement with UPCIC, which was effective June 1, 2022 through May 31, 2023. On September 28, 2022, Hurricane Ian made landfall on the Gulf Coast of Florida which triggered a full policy limit loss, totaling $66 million. Amounts due under this policy were fully paid in September 2022 by the VIE to UPCIC, pursuant to the terms of the agreement.

The following table presents, on a consolidated basis, the balance sheet classification and exposure of restricted cash held in a reinsurance trust account, which can be used only to settle specific reinsurance obligations of the VIE as of the dates presented (in thousands):


	As of
	September 30, 2023		December 31, 2022

Restricted cash and cash equivalents	$	66,853	$	—

15. Subsequent Events

The Company performed an evaluation of subsequent events through the date the ~~Financial Statements~~financial statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the ~~Financial Statements~~condensed consolidated financial statements as of September 30, ~~2017.~~

2023.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references to “we,” “us,” “our,” and “Company” refer to Universal Insurance Holdings, Inc. (“UVE”) and its wholly-owned subsidiaries. You should read the following discussion together with our unaudited condensed consolidated financial statements (“Financial Statements”) and the related notes thereto included in ~~Part~~“Part I, Item ~~1 “Financial Statements.~~1—Financial Statements,” and our audited condensed consolidated financial statements and the related notes thereto included in “Part II, Item 8—Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for any one quarter are not necessarily indicative of results to be expected for any ~~other~~ quarter or for the year.

In addition to historical information, ~~the following discussion~~this report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange ~~Act. Forward-looking~~Act of 1934, as amended (the “Exchange Act”). The forward-looking statements anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These forward-looking statements may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets,” and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure and other risk management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation, and reserves. We believe that these statements are based on ~~various factors~~reasonable estimates, assumptions, and plans. However, if the estimates, assumptions ~~that include known and unknown~~or plans underlying the forward-looking statements prove inaccurate or if other risks ~~and~~or uncertainties some of which are beyond our control and cannot be predicted or quantified. Certain statements made in this report reflect management’s expectations regarding future events, and the words “expect,” “estimate,” “anticipate,” “believe,” “intend,” “project,” “plan” and similar expressions and variations thereof, speak only as of the date the statement was made and are intended to identify forward-looking statements. Such statements may include, but not be limited to, projections of revenues, income or loss, expenses, plans, as well as assumptions relating to the foregoing. Futurearise, actual results could differ materially from those communicated in these forward-looking statements. A detailed discussion of the ~~following discussion~~risks and ~~those described in~~uncertainties that could cause actual results and events to differ materially from such forward-looking statements ~~as a result of the risks~~is set forth below, which are a summary of those ~~set forth~~ in the section titled “Risk Factors” (Part I, Item 1A) of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2022. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Risks ~~Relating~~and uncertainties that may affect, or have affected, our financial condition and operating results include, but are not limited to, ~~our Business~~

the following:

•As a property and casualty insurer, we may face significant losses, and our financial results may vary from ~~catastrophes~~period to period, due to exposure to catastrophic events and severe weather ~~events,~~

conditions, the frequency and severity of which could be affected by climate change.

~~Changing climate conditions may adversely affect our financial condition, profitability or cash flows,~~

•We have entered ~~and in the future, may enter~~ new markets and expect that we will continue to do so, but there can be no assurance that our diversification and growth strategy will be ~~effective,~~

effective.

•Breaches of our information systems or denial of service on our website could have an adverse impact on our business and ~~reputation, and~~

reputation.

~~Our Insurance Entities~~

Table of Contents

We are ~~subject~~a vertically integrated holding company offering property and casualty insurance and value-added insurance services. In addition to ~~examination~~premiums from our issuance of insurance policies, we generate additional revenue from our investment portfolio, reinsurance brokerage services, receipt of managing general agency fees from policy holders and ~~actions by state~~from other sources of revenue (collectively “Other Revenue Sources”). We develop, market, and underwrite insurance ~~departments.~~

~~Our revolving~~products for consumers predominantly in the personal residential homeowners’ line of ~~credit has restrictive terms, and our failure to comply with any of these terms could have an adverse effect on our~~ business and ~~prospects, and~~

~~Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or our ability to obtain credit on acceptable terms.~~

~~The price of our common stock may fluctuate significantly, and you could lose all or part of your investment,~~

Any issuance of preferred stock could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock, and

~~Future sales of our common stock may depress our stock price.~~

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in ~~Florida~~an understanding of our financial condition and results of operations. This MD&A should be read in conjunction with ~~$718.2 million~~our Financial Statements and accompanying Notes appearing elsewhere in ~~direct written premium~~this Report (the “Notes”). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and “Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the ~~nine months~~year ended September 30, 2017. UPCIC also writes homeowners insurance policies in Alabama, Delaware, Georgia, Hawaii, Indiana, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Pennsylvania, South Carolina, and Virginia with $98.2 million in direct written premiumDecember 31, 2022. Except for the ~~nine months ended September 30, 2017, generated~~historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those ~~states. UPCIC is also licensed~~discussed herein. Factors that could cause or contribute to ~~issue policies~~such differences include, but are not limited to, those discussed above under “—Cautionary Note Regarding Forward-Looking Statements.”

We are currently working through a cycle to improve long-term rate adequacy and earnings for the Insurance Entities by increasing rates and managing exposures in ~~Iowa, New Hampshire, New York,~~recognition of the Florida loss and ~~West Virginia. In October 2017, UPCIC wrote its first homeowners policy~~expense environment, while taking advantage of what we believe to be opportunities in ~~New York. We believe that our longevity~~an otherwise unsettled Florida market. The Florida personal lines homeowners’ market (“Florida market”) currently can be characterized as a “hard market”, where insurance premium rates are escalating, insurers are reducing coverages, and underwriting standards are tightening as insurers closely monitor insurance rates and manage coverage capacity, which has been constrained by available capital and reinsurance capacity. Due to conditions in the Florida market and ~~our resulting depth~~factors more generally affecting the United States and global reinsurance markets, reinsurance capacity in recent years has also been subject to less favorable pricing and terms. These market forces have decreased competition among admitted insurers as insurers have limited the amount of ~~experience will enable us to continue to successfully grow our~~ business they write. In turn, this has resulted in ~~both hard~~policyholders’ increased use of Citizens Property Insurance Corporation (“Citizens”), which serves as and ~~soft markets.~~

~~We generate revenues primarily from the collection of premiums. The nature of our business tends~~was created to be ~~seasonal, reflecting consumer behaviors~~Florida’s residual property insurance market or market of last resort. In recent years, in ~~connection with~~response to rising claims costs, increased reinsurance costs and deteriorating conditions in the Florida residential ~~real estate~~market, most admitted market competitors have implemented significant rate increases. Meanwhile, Citizens’ rate increases are limited by law, resulting in its policies, in a hard market, becoming priced lower than admitted market policies. As a result, Citizen’s policies often cost less than the admitted market, causing it to be viewed as a desirable alternative and at times a preferred alternative to the admitted market. In response to these conditions, our Insurance Entities have taken and continue to take action to manage through this hard market by increasing rates and prudently managing exposures, improving risk selection, and addressing reinsurance constraints and capital needs while also seeking to maintain their competitive position in the Florida market supporting our current policyholders and agents. In December 2022, the Florida legislature enacted substantial reforms intended to mitigate rising claims costs and resulting premium increases while also enhancing service to policyholders. New laws require the Insurance Entities to implement faster claims-response standards and to comply with additional regulatory oversight requirements intended to increase consumer protections. New laws also seek to curtail certain abusive claims practices that have led to recent market problems. Among these, the Florida legislature eliminated policyholders’ former one-way right to attorney’s fees and prevented the assignment of insurance benefits to third parties. The most significant statutory changes took effect for policies issued after December 16, 2022. Policies written before this date might benefit from procedural changes enacted by the legislature but remain subject to substantive laws in effect before the reforms and therefore may still be adversely impacted by the pre-reform laws. Although the number of claims subject to pre-reform laws will decline over time, it will be several years until all of the claims subject to those laws are settled or brought to an adjudicated conclusion. In the 2023 regular legislative session, the Florida legislature supplemented these reforms with additional statutory changes that became effective in May 2023. We are optimistic these changes will improve the claims environment in Florida as the changes become effective.

We seek to achieve rate adequacy for the Insurance Entities, recognizing the effects of the recent Florida claims environment on losses, LAE and expenses while also taking into account potential benefits associated with the recent reforms. We have continued to experience increased costs for losses and LAE in the Florida market, where there has been an industry around the solicitation, filing and litigation of personal residential claims. In addition, rising inflation, as seen in the cost of labor and material supplies, has further escalated costs associated with the settlement of claims. These conditions and the resulting increases in losses and LAE are chief contributing factors to the rate increases in this market. Adverse actions by public adjusters and attorneys prior to the recent reforms resulted in a pattern of increases in year-over-year levels of represented claims, increases in purported claim amounts, and increased demands for attorneys’ fees. Active solicitation of personal residential claims in Florida by policyholder representatives, remediation companies and repair companies also led to an increase in the frequency and severity of personal residential claims in Florida, exceeding historical levels and levels seen in other jurisdictions. Information prepared by the Florida Office of Insurance Regulation (“FLOIR”) shows that claims in Florida are litigated at a substantially disproportionate rate when compared to other states. This is largely due to a Florida statute in effect prior to December 16, 2022, providing a one-way right

of attorneys’ fees against insurers which, when coupled with certain other statutes and judicial rulings, produced a legal environment in Florida that encourages litigation, in many cases without regard to the underlying merits of the claims. The one-way right to attorneys’ fees essentially means that unless an insurer’s position is entirely upheld in litigation, the insurer must pay the policyholder’s attorneys’ fees in addition to the insurance company’s own defense costs. This affects not only claims that are litigated to resolution, but also the settlement discussions that take place with nearly all litigated claims. This also affects a large number of claims from inception during the adjusting process as a substantial percentage of policyholders obtain representation early in the process, sometimes even before notifying insurers of their claims. These market conditions also add complexity to efforts to adjust claims efficiently and expeditiously. This is due to an increasing number of policyholders who have one or more recent prior losses with the Insurance Entities or with other insurers, which then require evaluation during subsequent claims as to whether the property has been repaired consistently with the scope and amount of damage previously asserted.

To curtail abuses, in December 2022 the Florida legislature eliminated the statutory one-way right to attorneys’ fees; prohibited assignments of post-loss benefits under insurance policies; improved the usefulness of offers of judgment as a means of fostering resolutions of disputed claims; made incremental adjustments to reduce Citizens’ competitiveness with the private market; and adopted several other related measures. Because some of the changes will affect only future policies, the impact of the new laws on claims and claims-related costs, including litigation, will not be fully known for some time.

Despite our initiatives responding to adverse claims behaviors and trends, our costs to settle claims in Florida have increased for the reasons noted herein. Over the past three years, even as we have increased our estimates of prospective losses each year, we have recorded adverse claim development on prior years’ loss reserves and further strengthened current year losses during the year to address the increasing impact that Florida’s market disruptions, as well as the impact of rising costs of building materials and labor, have had on the claims process and the establishment of reserves for losses and LAE. The full extent and duration of these market disruptions and inflationary pressures are unknown and still unfolding, and we will monitor the impact of such disruptions on the recording and reporting of claim costs.

The Company has taken a series of steps over time to mitigate the financial impact of these negative trends in the Florida market. We also have closely monitored rate levels, especially in the Florida market, and have submitted rate filings based upon evolving data. However, because rate filings rely upon past loss and expense data and take time to develop, file and implement, we can experience significant delays between identifying needed rate adjustments, filing the ~~hurricane season.~~ associated rate changes, and ultimately collecting and earning the resulting increased premiums. This is particularly the case in an era of rising costs such as the current Florida market, in which the costs of losses and loss adjustment expenses have increased in recent years due to Florida’s outsized claims litigation environment and inflationary pressure. Similarly, the Company evaluates and periodically adjusts its policy forms in response to market factors and competitive considerations. While policy form changes can be beneficial in the Company’s risk management initiatives, like with rate adjustments, we can experience delays between identifying desired changes, filing and gaining regulatory approval of the changes, and implementing the new forms.

The ~~amount~~Company also updates its claims-handling procedures over time in response to market trends. The Company has adopted initiatives to adjust and pay straightforward, meritorious claims as promptly as possible to mitigate the adverse impacts often associated with claims that remain open for longer periods. The Company also has increasingly used video and other technology to facilitate reviews of ~~direct written premium tends~~damaged property and improve efficiency in the claims process. In addition, we develop in-house expertise, often in the form of dedicated internal units, to respond to certain types of claims such as water damage claims, represented claims and large-loss claims. The Company additionally has established significant in-house legal services to address the high volume of litigated or represented claims as cost-effectively as possible, as well as a subrogation unit that seeks to mitigate losses for the benefit of policyholders and the Company when damages are caused by third parties.

Additionally, we have taken steps to comply with the new law changes in Florida related to claims-handling procedures and timelines. The Company has analyzed the law changes and has taken steps to comply with the reforms. As a result of recent law changes, discussed above, we have seen an acceleration of claim payments during 2023 caused by the new regulatory guidelines along with operational changes implemented in response to the new regulations. Although the 2022 and 2023 law changes mark the legislature’s most definitive efforts to find effective solutions to Florida’s market problems, it is too early to evaluate the extent to which the changes will be successful or the time period over which any benefits will materialize.

In May 2022, the Company filed and received approval for a rate increase ~~just prior~~with the FLOIR for an overall 14.9% rate increase for UPCIC on Florida personal residential homeowners’ line of business which became effective June 1, 2022, for new business and November 4, 2022, for renewals.

In addition, in November 2022, UPCIC filed and received approval for a 3.7% rate increase on Florida personal residential homeowners’ line of business, effective February 15, 2023, for new business and April 1, 2023, for renewals.

In April 2023, UPCIC submitted and received approval for a rate decrease of 1.4% for Homeowners’, and a rate decrease of 1.6% for Dwelling Fire in the State of Florida, effective July 15, 2023, for new and renewal business. This filing resulted from UPCIC’s statutorily required participation in Florida’s Reinsurance to Assist Policyholders Program (“RAP”). This program is unrelated to the FHCF and allows insurers to access a layer of reinsurance coverage that is below the FHCF industry retention at no cost to the insurer. In exchange the Insurance Entities adopted a corresponding one-year rate reduction. Under current law, the RAP program expires with the reinsurance contract year ending May 31, 2024.

In July 2023, UPCIC filed a 7.5% rate increase on Florida personal residential homeowners’ line of business, effective July 17, 2023, for new business and November 4, 2023, for renewal business. In the second quarter of ~~our fiscal year~~2023, UPCIC filed a 7.8% rate increase on South Carolina personal residential homeowner’s line of business pending approval, which became effective September 5, 2023, for new business, and ~~tends to decrease approaching~~October 25, 2023 for renewal business. During the ~~fourth quarter. Other sources~~second quarter of ~~revenue include: commissions paid by our reinsurers to our reinsurance intermediary subsidiary, Blue Atlantic Reinsurance, on reinsurance it places~~2023, rate increases went into effect for ~~the Insurance Entities; policy fees collected from policyholders by our managing general agency subsidiary, Universal Risk Advisors;~~renewal business in Virginia, +7.3%, Minnesota, +8.0%, Alabama, +9.5%, and ~~financing fees charged to policyholders who choose to defer premium payments. We also generate income by investing our assets.~~

~~Over the past several years, we have grown our business both within Florida and elsewhere~~Indiana +6.0%, which were in the ~~United States through our distribution network~~process of approximately 8,600 licensed independent agents. Our goals are to profitably grow our business, invest in our vertically integrated structure, expand our independent agent network, and return value to shareholders. Some of our key strategies include increasing our policies in force in Florida through continued profitable and organic growth; expanding into other states to diversify our revenue and risk; optimizing our reinsurance program; and continuing to provide high quality service to our policyholders. We believe each of these strategies in recent years has contributed towards earnings and earnings per share as well as an improvement in our overall financial condition. See “—~~Results of Operations” below for a discussion of our results for the three and nine months ended September 30, 2017 compared to the same periods in 2016.~~

Our overall organic growth strategy emphasizes taking prudent measures to increase our footprint and increase our policy count and to improve the quality of our business rather than merely increasing our policy count. Our focus on long-term capital strength and organic growth allows us to be selective in the risks we accept. Our goal is to write risks that are priced adequately and meet our underwriting standards. We believe that our strategy of organically expanding our premium growth through our independent agent distribution network, streamlining claims management and balancing appropriate pricing with disciplined underwriting standards will maximize our profitable growth. We also intend to continue our expansion outside of Florida in markets that allow us to write profitable business and to diversify our revenue and risk. Upon entering new markets, we leverage our existing independent agent network to generate new local relationships, and business, and we take the time to learn about each new market and any of its unique risks in order to carefully develop our own policy forms, rates and informed underwriting standards. Our expansion efforts differ from many of our competitors that have grown in recent years primarily through assumption of policies from Citizens Property Insurance Corporation, Florida’s statutory residual property insurance market.

As a result of our organic growth strategy and initiatives, we have seen increases in policy count and insured value in all states for over two years. The percentage of our total insured value for states outside of Florida increased from 19.7% as of September 30, 2016 to 24.9% as of September 30, 2017. The following table provides direct written premium for Florida and other states for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):

For the Three Months Ended

September 30, 2017

September 30, 2016

Growth
year over year

State
Direct Written Premium

%

Direct Written Premium

%

$

%

Florida
$
238,309

86.7
%

$
215,634

89.1
%

$
22,675

10.5
%
Other states

36,435

13.3
%

26,254

10.9
%

10,181

38.8
%
Total
$
274,744

100.0
%

$
241,888

100.0
%

$
32,856

13.6
%

For the Nine Months Ended

September 30, 2017

September 30, 2016

Growth
year over year

State
Direct Written Premium

%

Direct Written Premium

%

$

%

Florida
$
718,177

88.0
%

$
672,477

90.7
%

$
45,700

6.8
%
Other states

98,173

12.0
%

69,305

9.3
%

28,868

41.7
%
Total
$
816,350

100.0
%

$
741,782

100.0
%

$
74,568

10.1
%

~~Third-Quarter 2017 Highlights~~

~~Gross direct written premiums overall grew by $32.9 million, or 13.6%, to $274.7 million compared to the third quarter in 2016.~~

~~Highest quarterly written premium in the Company’s history, and highest quarterly rate of growth (total 13.6%) both inside Florida (10.5%) and in other states (38.8%).~~

~~Net earned premiums grew by $15.0 million, or 9.4%, to $174.5 million compared to the third quarter in 2016.~~

~~Total revenues increased by $17.8 million, or 10.3%, to $190.2 million compared to the third quarter in 2016.~~

~~Hurricane Irma, weather events and increases to the core loss ratio affected results~~being implemented during the third quarter of ~~2017.~~

2023. A rate increase of 5.0% filed in the first quarter

Table of Contents

~~Expense ratio improved from 34.3%~~of 2023 in ~~2016~~Pennsylvania was approved in the second quarter, and became effective June 1, 2023, for new business, and July 21, 2023, for renewal business. On July 3, 2023, a rate increase of 6.7% in New Jersey was approved, and became effective August 21, 2023 for new business, and October 10, 2023, for renewal business.

During the third quarter, UPCIC submitted rate increases in two states that are currently pending approval: Massachusetts, +11.9%, effective November 1, 2023, for new business and effective December, 21, 2023, for renewal business; and Georgia, +14.8%, effective November 21, 2023, for new business, and effective January 10, 2024, for renewal business.

In the third quarter of 2023, the Insurance Entities continued to ~~32.8%~~implement inflation increases to policy insured values across the majority of states in ~~2017, quarter~~which we conduct business. These are adjustments to policy coverage amounts designed to facilitate the policies’ adherence to insurance-to-value requirements. The coverage adjustments provide a degree of protection to insureds against inflationary pressures while also resulting in additional premium to the Company to cover the increased claim costs driven by inflation factors.

Changing Climate Conditions

Severe weather events over ~~quarter.~~

~~Declared dividends~~the last two decades underscore the unpredictability of ~~$0.14 per share.~~

~~Repurchased approximately 406 thousand shares during~~climate trends. Changing climate conditions have added to the ~~quarter at~~frequency and severity of natural disasters and created additional uncertainty as to future trends and exposures. The insurance industry has experienced increased catastrophe losses due to a number of potential causal factors, including, in addition to weather/climate variability, aging infrastructure; more people living in high-risk areas; population growth in areas with weaker enforcement of building codes; urban expansion; an ~~aggregate cost~~increase in the number of ~~$9.0 million pursuant~~amenities included in, and average size of, homes, especially for homes built or remodeled in desirable coastal areas that already face heightened exposure to severe weather; and increased inflation, including as a result of post-pandemic demand surge. Climate studies by government agencies, academic institutions, catastrophe modeling organizations and other groups indicate that eastern and southern states are experiencing, and are expected to continue to experience over time, an increase in frequency and/or intensity of hurricanes, heavy precipitation events, flash flooding, sea level rise, droughts, heat waves and wildfires. Developing an awareness of the potential impacts of changing climate conditions is important to the Company’s ~~2016 stock buyback program.~~

business.

Impact of COVID-19

~~New $20 million stock buyback program authorized~~We have not seen a direct material impact from COVID-19 on our business, our financial position, our liquidity, or our ability to service our policyholders and maintain critical operations. Indirectly, inflationary pressures, in part due to supply chain and labor constraints during the pandemic, have affected and continue to affect claims costs and, to a lesser degree, other expenses. The ultimate impact of the COVID-19 pandemic, or future pandemics, on our business and on the economy in general cannot be predicted.

KEY PERFORMANCE INDICATORS

The Company considers the measures and ratios in the following discussion to be key performance indicators for its businesses. Management believes that these indicators are helpful in understanding the underlying trends in the Company’s businesses. Some of these indicators are reported on a quarterly basis and others on an annual basis. Please also refer to “Part II, Item 8—Note 2 (Summary of Significant Accounting Policies)” of our Annual Report on Form 10-K for the year ended December 31, 2022 for definitions of certain other terms we use when describing our financial results.

These indicators may not be comparable to other performance measures used by the ~~Board~~Company’s competitors and should only be evaluated together with our condensed consolidated financial statements and accompanying notes.

In addition to our key performance indicators and other financial measures presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”), management also uses certain non-GAAP financial measures to evaluate the Company's financial performance and the overall growth in value generated for the Company’s common shareholders. Management believes that non-GAAP financial measures, which may be defined differently by other companies, help to explain the Company’s results to investors in a manner that allows for a more complete understanding of ~~Directors.~~

the underlying trends in the Company’s business. The non-GAAP measures should not be viewed as a substitute for those determined in accordance with GAAP. The calculation of these key financial measures including the reconciliation of non-GAAP measures to the nearest GAAP measure are found below under “―Non-GAAP Financial Measures.”

Definitions of Key Performance Indicators and GAAP and Non-GAAP Measures

Adjusted book value per common share― is a non-GAAP measure that is calculated as adjusted common stockholders’ equity divided by common shares outstanding at the end of the period. Management believes this metric is meaningful, as it allows investors to evaluate underlying book value growth by excluding the impact of unrealized gains and losses due to interest rate volatility.

Adjusted common stockholders' equity― is a non-GAAP measure that is calculated as GAAP common stockholders' equity less accumulated other comprehensive income (loss). Management believes this metric is meaningful, as it allows investors to evaluate underlying growth in stockholders’ equity by excluding the impact of unrealized gains and losses due to interest rate volatility.

Adjusted net income (loss) attributable to common stockholders― is a non-GAAP measure that is calculated as GAAP net income (loss) attributable to common stockholders, less net realized gains (losses) on investments and net change in unrealized gains (losses) of equity securities, net of tax. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.

Adjusted operating income(loss)― is a non-GAAP measure that is calculated as GAAP operating income (loss), less net realized gains (losses) on investments and net change in unrealized gains (losses) of equity securities. Management believes this

~~UPCIC’s 2017-2018 Reinsurance Program~~

~~Third-Party Reinsurance~~

~~Our annual reinsurance program,~~

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metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.

Adjusted operating income (loss) margin― is a non-GAAP measure that is computed as adjusted operating income (loss) divided by core revenue. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.

Adjusted return on common equity (Adjusted “ROCE”) ― is a non-GAAP measure that is calculated as actual or annualized adjusted net income attributable to common stockholders divided by average adjusted common stockholders' equity, with the denominator excluding current period income statement net realized gains (losses) on investments and net change in unrealized gains (losses) of equity securities, net of tax. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.

Book Value Per Common Share ― total stockholders’ equity, adjusted for preferred stock liquidation, divided by the number of common shares outstanding as of a reporting period. Book value per common share is the excess of assets over liabilities at a reporting period attributed to each share of common stock. Changes in book value per common share inform shareholders of retained equity in the Company on a per share basis, which may assist in understanding market value trends for the Company’s stock.

Combined Ratio ― the combined ratiois a measure of underwriting profitability for a reporting period and is calculated by dividing total operating costs and expenses (which is made up of losses and LAE and general and administrative expenses) by premiums earned, net, which is ~~segmented into layers~~net of ceded premium earned. Changes to the combined ratio over time provide management with an understanding of costs to operate its business in relation to net premiums it is earning and the impact of rate, underwriting and other business management actions on underwriting profitability. A combined ratio below 100% indicates an underwriting profit; a combined ratio above 100% indicates an underwriting loss.

Core Loss Ratio― a common operational metric used in the insurance industry to describe the ratio of current accident year expected losses and LAE, excluding current accident year weather events beyond those expected, to premiums earned. Core loss ratio is an important measure identifying profitability trends of premiums in force. Core losses consists of losses and LAE excluding current accident year weather events beyond those expected and prior years’ reserve development. The financial benefit from the management of claims, including claim fees ceded to reinsurers, is recorded in the condensed consolidated financial statements as a reduction to core losses. The core loss ratio can be measured on a direct basis, using direct earned premiums, or on a net basis, using premiums earned, net (i.e., direct premiums earned less ceded premiums earned).

Core revenue― is a non-GAAP measure that is calculated as total GAAP revenue, less net realized gains (losses) on investments and net change in unrealized gains (losses) of equity securities. Management believes this metric is meaningful, as it allows investors to evaluate underlying revenue trends and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.

Debt-to-Equity Ratio ― long-term debt divided by stockholders’ equity. This ratio helps management measure the amount of financing leverage in place in relation to equity and allows investors to evaluate future leverage capacity.

Debt-to-Total Capital Ratio― long-term debt divided by the sum of total stockholders’ equity and long-term debt (often referred to as total capital resources). This ratio helps management measure the amount of financing leverage in place (long-term debt) in relation to total capital resources and allows investors to evaluate future leverage capacity.

Diluted adjusted earnings per common share― is a non-GAAP measure, which is calculated as adjusted net income available to common stockholders divided by weighted average diluted common shares outstanding. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.

Direct Premiums Written (“DPW”) ― reflects the total value of policies issued during a periodbefore considering premiums ceded to reinsurers. Direct premiums written, comprised of renewal premiums, endorsements, and new business, is initially recorded as unearned premium in the balance sheet, which is then earned pro-rata over the next year or remaining policy term. Direct premiums written reflect current trends in the Company’s sale of property and casualty insurance products and amounts that will be recognized as earned premiums in the future.

DPW (Florida) ― includes only DPW in the state of Florida. This measure allows management to analyze growth in our primary market and is also a measure of business concentration risk.

Expense Ratio (Including Policy Acquisition Cost Ratio and Other Operating Cost Ratio) ― calculated as general and administrative expenses as a percentage of premiums earned, net. General and administrative expenses are comprised of policy acquisition costs and other operating costs, which includes such items as underwriting costs, facilities, and corporate overhead. The expense ratio, including the sub-expense ratios of policy acquisition cost ratio and other operating cost ratio, are indicators to management of the Company’s cost efficiency in acquiring and servicing its business and the impact of expense items to overall profitability.

Losses and Loss Adjustment Expense Ratio or Loss and LAE Ratio ― a measure of the cost of claims and claim settlement expenses incurred in a reporting period as a percentage of premiums earned in that same reporting period. Losses and LAE incurred in a reporting period includes both amounts related to the current accident year and prior accident years, if any, referred to as development. Ultimate losses and LAE are based on actuarial estimates with changes in those estimates recognized in the

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period the estimates are revised. Losses and LAE consist of claim costs arising from claims occurring and settling in the current period, an estimate of claim costs for reported but unpaid claims, an estimate of unpaid claim costs for incurred-but-not-reported claims and an estimate of claim settlement expenses associated with reported and unreported claims which occurred during the reporting period. The loss and LAE ratio can be measured on a direct basis, which includes losses and LAE divided by direct earned premiums, or on a net basis, which includes losses and LAE divided by premiums earned, net (i.e., direct premium earned less ceded premium earned). The net loss and LAE ratio is a measure of underwriting profitability after giving consideration to the effect of reinsurance. Trends in the net loss and LAE ratio are an indication to management of current and future profitability.

Monthly Weighted Average Renewal Retention Rate ― measures the monthly average of policyholders that renew their policies over the period of a calendar year. This measure allows management to assess customer retention.

Premiums Earned, Net ― the pro-rata portion of current and previously written premiums that the Company recognizes as earned premium during the reporting period, net of ceded premium earned. Ceded premiums are premiums paid or payable by the Company for reinsurance protection. Written premiums are considered earned and are recognized pro-rata over the policy coverage period. Premiums earned, net is a measure that allows management to identify revenue trends.

Policies in Force ― represents the number of active policies with coverage in effect as of the end of the reporting period. The change in the number of policies in force is ~~industry practice, protects us against~~a growth measure and provides management with an indication of progress toward achieving strategic objectives. Inherent seasonality in our business makes this measure more useful when comparing each quarter’s balance to the same quarter in prior years.

Premium in Force ― is the amount of the annual direct written premiums previously recorded by the Company for policies which are still active as of the reporting date. This measure assists management in measuring the level of insured exposure and progress toward meeting revenue goals for the current year, and provides an indication of business available for renewal in the next twelve months. Inherent seasonality in our business makes this measure more useful when comparing each quarter’s balance to the same quarter in prior years.

Return on Average Common Equity (“ROCE”) ― calculated as actual net income (loss) attributable to common stockholders divided by average common stockholders' equity. ROCE is a capital profitability measure of how efficiently management creates profits.

Total Insured Value ― represents the amount of insurance limits available on a policy for a single loss based on all policies active as of the reporting date.This measure assists management in measuring the level of insured exposure.

Unearned Premiums― represents the portion of direct premiums corresponding to the time period remaining on an insurance policy and available for future earning by the Company. Trends in unearned premiums generally indicate expansion, if growing, or contraction, if declining, which are important indicators to management. Inherent seasonality in our business makes this measure more useful when comparing each quarter’s balance to the same quarter in prior years.

Weather events― an estimate of losses and LAE from weather events occurring during the current accident year that exceed initial estimates of expected weather events when establishing the core loss ratio for each accident year. This metric informs management of factors impacting overall current year profitability.

REINSURANCE

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events. Reinsurance contracts are typically classified as treaty or facultative contracts. Treaty reinsurance provides coverage for all or a portion of a specified group or class of risks ceded by the primary insurer, while facultative reinsurance provides coverage for specific individual risks. Within each classification, reinsurance can be further classified as quota share or excess ~~property catastrophe losses. Our 2017-2018~~of loss. Quota-share reinsurance ~~program includes~~is where the ~~mandatory coverage required by law~~primary insurer and the reinsurer share proportionally or pro-rata in the direct premiums and losses of the insurer. Excess-of-loss reinsurance indemnifies the direct insurer for all or a portion of the loss in excess of an agreed upon amount or retention.

Developing and implementing our reinsurance strategy to ~~be placed with~~adequately protect our balance sheet and Insurance Entities in the event of one or more catastrophes while maintaining efficient reinsurance costs has been a key strategic priority for us. In order to limit the Insurance Entities’ potential exposure to catastrophic events, we purchase significant reinsurance from third-party reinsurers and the Florida Hurricane Catastrophe Fund (“FHCF”) and for the 2023-24 reinsurance contract year also receive the RAP coverage provided by the State of Florida. The FLOIR requires the Insurance Entities, like all residential property insurance companies doing business in Florida, to have a certain amount of capital and reinsurance coverage in order to cover losses upon the occurrence of a single catastrophic event and a series of catastrophic events occurring in the same hurricane season. The Insurance Entities’ respective 2023-2024 reinsurance programs meet the FLOIR’s requirements, which are based on, among other things, successfully demonstrating cohesive and comprehensive reinsurance programs that protect the policyholders of our Insurance Entities as well as satisfying a series of stress test catastrophe loss scenarios based on past historical events. Similarly, the Insurance Entities’ respective 2023-2024 reinsurance programs meet the stress test and review requirements of Demotech, Inc., ~~in which we have elected~~for maintaining Financial Stability Ratings® of “A” (Exceptional) and of Kroll for maintaining insurer financial strength ratings of “A-”

We believe the Insurance Entities’ retentions under their respective reinsurance programs are appropriate and structured to ~~participate at 90%, or~~protect policyholders. We test the highest level, and also includes private reinsurance below, alongside and above the FHCF layer. In placing our 2017-2018 reinsurance program, we obtained multiple years of coverage for an additional portionsufficiency of the ~~program. We believe this multi-year arrangement will allow us~~reinsurance programs by subjecting the Insurance Entities’ personal residential exposures to ~~capitalize~~statistical testing using a third-party hurricane model, RMS RiskLink v18.1 (Build 1945). This model combines simulations of the natural occurrence patterns and characteristics of hurricanes, tornadoes, earthquakes, and other catastrophes with information on ~~favorable pricing~~property values, construction types and ~~contract terms and conditions and allow us~~occupancy classes. The model outputs provide information concerning the potential for large losses before they occur, so companies can prepare for their financial impact. Furthermore, as part of our operational excellence initiatives, we continually look to ~~mitigate uncertainty with respect~~enable new technology to ~~the price~~refine our data intelligence on catastrophe risk modeling.

Table of ~~future reinsurance coverage, our single largest cost.~~

~~The total cost of UPCIC’s private catastrophe reinsurance program for all states as described below, effective~~Contents

Effective June 1, ~~2017 through May 31, 2018, is $155.5 million. In addition, UPCIC has purchased reinstatement premium protection as described below,~~2023, the ~~cost of which is $25.7 million. The largest private participants in UPCIC’s~~Insurance Entities entered into multiple reinsurance ~~program include leading~~agreements comprising our 2023-2024 reinsurance ~~companies and providers such as Nephila Capital, Everest Re, RenaissanceRe, Chubb Tempest Re and Lloyd’s of London syndicates.~~

~~UPCIC’s Retention~~

~~UPCIC has a net~~program. See “Item 1—Note 4 (Reinsurance).”

UPCIC/APPCIC 2023-2024 All States Reinsurance Program

•First event All States retention of ~~$35 million per catastrophe~~$45 million.

•All States first event tower extends to $2.61 billion with no co-participation in any of the layers, no limitation on loss adjustment expenses for ~~losses incurred, in all states, up to~~the non-catastrophe bond Cosaint Re Pte. Ltd. traditional reinsurance and no accelerated deposit premiums.

•Assuming a first event ~~loss~~completely exhausts the $2.61 billion tower, the second event exhaustion point would be $912 million.

•Full reinstatement available on $867 million of $2.71 billion. UPCIC also purchases a separate underlying catastrophe program to further reduce its retention for all losses occurring in any state other than Florida (the “Other States Reinsurance Program”). UPCIC retains only $5 million under its Other States Reinsurance Program in thenon-FHCF and non-RAP first event and only $1 million under its Other States Reinsurance Program for the second through fourth events. These retention amounts are gross of any potential tax benefit we would receive in paying such losses.

~~First Layer~~

Immediately above UPCIC’s net retention, we have $55 million of reinsurance coverage from third-party reinsurers for up to four separate catastrophic events, for all states. Specifically, we have purchased reinsurancecatastrophe coverage for ~~the first and third catastrophic events, and each such coverage allows for one reinstatement upon the payment of reinstatement premiums, which would cover the~~guaranteed second ~~and fourth catastrophic events. This coverage has been obtained from three contracts as follows:~~

~~68.33% of $55 million in excess of $35 million provides coverage on a multi-year basis through May 31, 2019;~~

~~31.67% of $55 million in excess of $35 million provides coverage for the 2017-2018 period; and~~

~~100% of $55 million in excess of $35~~event coverage. For all layers purchased between $45 million and ~~in excess of $110 million otherwise recoverable (from~~ the ~~first and second events) provides the third and fourth event coverage for the 2017-2018 period.~~

For the first two contracts above, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages.

~~Second Layer~~

Above the first layer, for losses exceeding $90 million, we have purchased a second layer of coverage for losses up to $445 million – in other words, for the next $355 million of losses. This coverage has been obtained from two contracts as follows:

~~58% of $355 million in excess of $90 million provides coverage through May 31, 2020; and~~

~~42% of $355 million in excess of $90 million provides coverage for the 2017-2018 period~~

~~In this~~RAP layer, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased enough reinstatement premium protection ~~insurance~~("RPP") limit to pay the ~~required~~ premium necessary for the reinstatement of these ~~coverages. Both of these contracts extend coverage to all states.~~

~~Third Layer~~

~~Above the first and~~coverages or have secured a specific second ~~layers, we have purchased a third~~event contract.

•First event layer of ~~coverage for losses up to $540 million – in other words, for the next $95 million~~100% of ~~losses. This coverage was obtained from two contracts as follows:~~

~~68.33% of $95~~$66 million in excess of ~~$445~~$45 million ~~provides~~established by Universal in captive insurance arrangement. While the Company retains the risk that otherwise would be transferred to third-party reinsurers for this layer, the additional risk is substantially offset by the savings in premiums that would otherwise have been paid to third-party reinsurers.

•Specific 2nd event private market excess of loss coverage ~~on a multi-year basis through May 31, 2019; and~~

~~31.67%~~ of ~~$95~~$66 million in excess of ~~$445~~$45 million sitting behind captive arrangement.

•Specific 3rd and 4th event private market catastrophe excess of loss coverage of $86 million in excess of $25 million provides frequency protection for multiple events during the treaty period including a $20 million reduction in retention for a 3rd and 4th event.

•For the FHCF Reimbursement Contracts effective June 1, 2023, both UPCIC and APPCIC have continued the election of the 90% coverage level. We estimate the total mandatory FHCF layer will provide approximately $1.316 billion of coverage for ~~the 2017-2018 period.~~

~~In this layer,~~UPCIC, which insures to the ~~extent that all~~benefit of ~~our~~the open market coverage ~~or a portion thereof is exhausted~~secured from private reinsurers and Cosaint Re Pte. Ltd (covers UPCIC only) and we estimate the total mandatory FHCF layer will provide approximately $22.5 million of coverage for APPCIC, which insures to the benefit of the open market coverage secured from private reinsurers.

•For the participation in ~~a catastrophic event, we have purchased reinstatement premium protection insurance to pay~~ the ~~required premium necessary~~RAP program for the ~~reinstatement~~2023-2024 period, we estimate the total RAP layer will provide approximately $202.8 million of ~~these coverages. Both~~coverage for UPCIC and $3.5 million of ~~these contracts~~coverage for APPCIC, both of which inure to the benefit of the open market coverage secured from private reinsurers.

•To further insulate future years, UPCIC has secured $277 million of catastrophe capacity below the FHCF, with contractually agreed limits that extend coverage to ~~all states.~~

~~Fourth, Fifth and Sixth Layers~~

Ininclude the ~~fourth, fifth and sixth layers, we have purchased reinsurance for $55 million~~2024 wind season. UPCIC’s catastrophe bond, secured leading up to the 2021-2022 renewal, Cosaint Re Pte. Ltd, continues to provide one limit of ~~coverage in excess of $540~~$150 million in ~~losses incurred by us (net of the FHCF layer), $193 million of coverage in excess of $595 million in losses incurred by us (net of the FHCF layer),~~this year’s program and $125 million of coverage in excess of $788 million, respectively, for a total of $878 million of coverage (net of the FHCF layer) by third-party reinsurers. With respect to the fourth layer, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of this coverage. All three layers’ coverage extends to all states.

UPCIC structures its reinsurance coverage into layers and utilizes a cascading feature such that the second, third, fourth, fifth and sixth reinsurance layers all attach at $90 million. Any layers above the $90 million attachment point are excess of loss over the immediately preceding layer. If the aggregate limit of the preceding layer is exhausted, the next layer cascades down in its ~~place for future events. This means that, unless losses exhaust~~third and final year.

Reinsurers

The table below provides the ~~top layer of our coverage, we are exposed to only $35 million in losses, pre-tax, per catastrophe~~A.M. Best and S&P financial strength ratings for each of the ~~first four events. In addition~~largest rated third-party reinsurers in UPCIC’s/APPCIC’s 2023-2024 all states reinsurance program:

Reinsurer

A.M. Best

S&P

Allianz Risk Transfer

A+

Chubb Tempest Reinsurance Ltd.

A++

Markel Bermuda Ltd.

Renaissance Reinsurance Ltd.

A+

Various Lloyd’s of London Syndicates

A+

Florida Hurricane Catastrophe Fund (1)

N/A

(1)No rating is available, because the fund is not rated.

The cost of the 2023-2024 all states reinsurance programs for UPCIC and APPCIC is projected to ~~tax benefits that could reduce our ultimate loss, we anticipate that~~be $620.6 million, prior to any potential reinstatement premiums due, and represents approximately 31.97% of projected direct premium earned for the 12-month treaty period.

Commutations

During the third quarter, the Insurance Entities entered into commutation agreements with certain ~~fees paid~~of its reinsurers, which resulted in the receipt of cash to ~~our subsidiary service providers by our~~settle estimated obligations otherwise recoverable under the reinsurance agreements resulting in no gain or loss. The Insurance Entities commuted their respective 2017/18 reimbursement contracts with the FHCF in accordance with a

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contractual requirement for commutation to commence no later than five years following the end of the relevant reimbursement contract year. The other commutations were mutually agreed upon and entered into with third-party reinsurers when the Insurance Entities and ~~indirectly, our~~ reinsurers ~~would also increase during an active hurricane season,~~deemed the commutations to be in their respective best interests. Whether as a contractual obligation (in the case of the FHCF) or through mutual agreement (in the case of third-party reinsurers), commutation is a process by which ~~could also offset claim-related losses we would have~~a ceding insurer and assuming reinsurer evaluate and agree upon, or otherwise determine, a final payment amount due to the ceding insurer under a reinsurance/reimbursement contract in exchange for a release of the assuming reinsurer from all future obligations to pay ceded losses under the commuted contract.

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RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION

Highlights for the quarter ended September 30, 2023

•The Insurance Entities concluded a commutation with the FHCF relating to 2017/2018 contract year, which covered Hurricane Irma. Additionally, commutations with certain other reinsurers were concluded during the quarter, which the Insurance Entities deemed were in their best interests.

•All three rating agencies, Kroll (A- stable), Demotech (A rating) and Egan-Jones (A rating), updated and affirmed their previous ratings.

•Rate filings and inflation adjustments to policy insured values continue to drive increases in written and earned premium as the new rates and property insured values take effect on ~~our insurance policies.~~

~~Other States Reinsurance Program~~

policy renewals and new business and earn prospectively over the policy period.

•Management continues to prudently manage its new and renewal business risk selection, improving risk exposure diversification and moderating new business growth rates, compared to prior years, while rate increases are taking effect to improve profitability. As a result of management’s efforts to manage exposures and in conjunction with competition from Citizens, the number of total policies in force has been decreasing, partially offsetting increases in written and earned premium driven by rate increases and inflation increases to insured values. Management has recently worked to write additional new business in some territories in Florida as rate increases earn in and the benefits of recent favorable Florida legislation takes effect.

•Net investment income increased as cash and maturing interest earning investments are redeployed into higher interest rate investments.

•The ~~total cost~~losses and LAE, net ratio was 87.0% this quarter compared to 113.7% in the same period last year. The decrease of UPCIC’s private catastrophe reinsurance program for other states as described below, effective June 1, 2017 through May 31, 2018, is $8.9 million. In addition, UPCIC has purchased reinstatement premium protection as described below, the cost of which is $1.85 million.

~~Effective June 1, 2017 through June 1, 2018, under an excess catastrophe contract specifically covering risks located outside the state of Florida and intended~~26.7% loss ratio points was primarily due to further reduce UPCIC’s $35 million net retention, as noted above, UPCIC has obtained catastrophe coverage of $30 million in excess of $5 million covering certain loss occurrences, including hurricanes, in states outside of Florida. This catastrophe coverage has a second full limit available with additional premium calculated pro rata as to amount and 100% as to time, as applicable. All catastrophe layers are placed with a cascading feature so that all capacity could be made available in excess of $5 million under certain loss scenarios. Further, UPCIC purchased subsequent catastrophe event excess of loss reinsurance specifically covering risks outside of Florida to cover certain levels of loss through four catastrophelower reported weather events including ~~hurricanes. Specifically,~~ Hurricane Idalia in 2023, when compared to 2022, which included Hurricane Ian, a major hurricane.

•The Company continued to return shareholder value with quarterly dividends and share repurchases.

•UPCIC ~~obtained catastrophe coverage that covers 100% of $4,000,000 excess of $1,000,000~~filed with its regulators in ~~excess of $4,000,000 otherwise recoverable. This coverage has two free reinstatements and a total of $12,000,000 of coverage available~~Hawaii to ~~UPCIC.~~

~~In certain circumstances involving a first catastrophic event impacting both Florida and other states, UPCIC’s retention could result~~withdraw from the state. There are 1,244 policies in pre-tax net liability as low as $5,000,000 – the $35 million net retention under the all states reinsurance program could be offset by as much as $30 million in coverage under the Other States Reinsurance Program – or 1.6% of UPCIC’s statutory policyholders’ surplusHawaii as of September 30, ~~2017.~~

~~FHCF~~

~~UPCIC’s third-party reinsurance program supplements the FHCF coverage we~~2023. The withdrawal and nonrenewal of policies in Hawaii are ~~required~~expected to purchase every year. The limit and retention of the FHCF coverage we receive each year is subject to upward or downward adjustment based on, among other things, submitted exposures to the FHCF by all participants. As of June 1, 2017, we estimate our FHCF coverage includes a maximum provisional limit of 90% of $1,996.5 million, or $1,797 million, in excess of $618 million. The estimated premium that UPCIC plans to cede to the FHCF for the 2017 hurricane season is $124 million.

~~Coverage purchased from third-party reinsurers, as described above, adjusts to provide coverage for certain losses not otherwise covered by the FHCF. The FHCF coverage cannot~~ be reinstated once exhausted, but it does provide coverage for multiple events. The FHCF coverage extends only to losses to our Florida portfolio due to a declared hurricane that causes storm losses in Florida.

The third-party reinsurance we purchase for UPCIC is therefore net of FHCF recovery. When our FHCF and third-party reinsurance coverages are taken together, UPCIC has reinsurance coverage of up to $2,710 million for the first event, as illustrated by the graphic below. Should a catastrophic event occur, we would retain up to $35 million pre-tax for each catastrophic event, and would also be responsible for any additional losses that exceed our top layer of coverage.

~~UPCIC All States 1~~^st ~~Event~~

~~UPCIC Other States (Non-Florida) 1~~^st ~~Event~~

~~APPCIC’s 2017-2018 Reinsurance Program~~

~~Third-Party Reinsurance~~

The total cost of APPCIC’s private catastrophe and multiple line excess reinsurance program, effective June 1, 2017 through May 31, 2018, is $1.88 million. In addition, APPCIC has purchased reinstatement premium protection as described below, the cost of which is $59,500. The largest private participants in APPCIC’s reinsurance program include leading reinsurance companies such as Everest Re, Chubb Tempest Re, Hiscox, Hannover Ruck, and Lloyd’s of London syndicates.

~~APPCIC’s Retention~~

APPCIC has a net retention of $2 million for all losses per catastrophe event for losses incurred up to a first event loss of $27.6 million. This retention amount is gross of any potential tax benefit we would receive in paying such losses.

~~First Layer~~

Immediately above APPCIC’s net retention we have $3.2 million of reinsurance coverage from third-party reinsurers. Specifically, we have purchased reinsurance coverage for the first event, and such coverage allows for one reinstatement upon the payment of reinstatement premiums, which would cover the second and potentially more catastrophic events. We have purchased reinstatement premium protection to pay the required premium necessary for the initial reinstatement of this coverage for a second catastrophic event.

~~Second and Third Layers~~

In the second and third layers, we have purchased reinsurance for $1.7 million of coverage in excess of $5.2 million in losses incurred by us (net of the FHCF layer) and $7 million of coverage in excess of $6.9 million in losses incurred by us (net of the FHCF layer), respectively.

APPCIC structures its reinsurance coverage into layers and utilizes a cascading feature such that the second and third reinsurance layers all attach at $2 million. Any layers above the $2 million attachment point are excess of loss over the immediately preceding layer. If the aggregate limit of the preceding layer is exhausted,completed within the next ~~layer cascades down in its place for future events. This means that, unless losses exhaust the top layer~~year.

Table of ~~our coverage, we~~Contents

Third quarter of fiscal 2023 results of operations comparisons are ~~only exposed~~ to ~~$2 million in losses, pre-tax, per catastrophe for each~~third quarter of the first two events. In addition to tax benefits that could reduce our ultimate loss, we anticipate that certain fees paid to our subsidiary service providers by our Insurance Entities and, indirectly, our reinsurers would also increase during an active hurricane season, which could also offset losses we would have to pay on our insurance policies.

~~FHCF~~

APPCIC’s third-party reinsurance program is used to supplement the FHCF reinsurance we are required to purchase every year. The limit and retention of the FHCF coverage we receive each year is subject to upward or downward adjustment based on, among other things, submitted exposures to the FHCF by all participants. As of June 1, 2017, we estimate our FHCF coverage includes a maximum provisional limit of 90% of $15.2 million, or $13.7 million, in excess of $4.7 million. The estimated premium that APPCIC plans to cede to the FHCF for the 2017 hurricane season is $943 thousand. Factoring in our estimated coverage under the FHCF, we purchase coverage alongside our FHCF coverage from third-party reinsurers as described above, which adjusts to provide coverage for certain losses notfiscal 2022 (unless otherwise covered by the FHCF. The FHCF coverage cannot be reinstated once exhausted, but it does provide coverage for multiple events. The FHCF coverage extends only to losses to our portfolio due to a declared hurricane that causes storm losses in Florida.

The third-party reinsurance we purchase for APPCIC is therefore net of FHCF recovery. When our FHCF and third-party reinsurance coverages are taken together, APPCIC has reinsurance coverage of up to $27.6 million, as illustrated by the graphic below. Should a catastrophic event occur, we would retain $2 million pre-tax for each catastrophic event, and would also be responsible for any additional losses that exceed our top layer of coverage.

~~APPCIC 1~~^st ~~Event~~

specified).

~~Multiple Line Excess of Loss~~

APPCIC also purchases extensive multiple line excess per risk reinsurance with various reinsurers due to the high valued risks it insures in both the personal residential and commercial multiple peril lines of business. Under this multiple line excess per risk contract, APPCIC has coverage of $8.5 million in excess of $500 thousand ultimate net loss for each risk and each property loss, and $1 million in excess of $0.3 million for each casualty loss. A $19.5 million aggregate limit applies to the term of the contract for property related losses and a $2.0 million aggregate limit applies to the term of the contract for casualty-related losses. This contract also contains a profit sharing feature available to APPCIC if the contract meets specific performance measures.

Results of Operations — Three Months Ended September 30, ~~2017~~2023 Compared to Three Months Ended September 30, ~~2016~~

2022

Net loss for the three months ended September 30, 2023 was $5.9 million compared to a net loss of $72.3 million for the same period in 2022. Benefiting the quarter were increases in direct written and earned premiums, an increase in net investment income, ~~decreased~~a reduction in the cost of reinsurance and a reduction in losses and LAE. Direct premium earned and premiums earned, net were up 4.8% and 13.9%, respectively, due to premium growth in the majority of states in which we are licensed and writing during the past 12 months, mostly as a result of rate increases implemented during 2022 and 2023. Net premium growth also reflects efficiencies in the Insurance Entities’ 2023/2024 reinsurance program. The net loss and LAE ratio was 87.0% for the three months ended September 30, 2023, compared to 113.7% for the same period in 2022 reflecting lower reported weather events in the third quarter of 2023. As a result of the above and further explained below, the combined ratio for the three months ended September 30, 2023 was 110.7% compared to 139.2% for the three months ended September 30, 2022. Also see the discussion above under “Overview—Trends” regarding our response to the Florida market.

A detailed discussion of our results of operations follows the table below (in thousands, except per share data).


	Three Months Ended September 30,				Change
	2023		2022		$		%
REVENUES
Direct premiums written	$	531,988	$	500,677	$	31,311	6.3	%
Change in unearned premium	(57,677)		(48,227)		(9,450)		19.6	%
Direct premium earned	474,311		452,450		21,861		4.8	%
Ceded premium earned	(143,271)		(161,819)		18,548		(11.5)	%
Premiums earned, net	331,040		290,631		40,409		13.9	%
Net investment income	12,755		6,074		6,681		110.0	%
Net realized gains (losses) on investments	(431)		292		(723)		NM
Net change in unrealized gains (losses) of equity securities	(1,285)		(4,150)		2,865		NM
Commission revenue	10,830		12,592		(1,762)		(14.0)	%
Policy fees	5,111		5,272		(161)		(3.1)	%
Other revenue	2,028		2,099		(71)		(3.4)	%
Total revenues	360,048		312,810		47,238		15.1	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	287,972		330,444		(42,472)		(12.9)	%
General and administrative expenses	78,322		73,973		4,349		5.9	%
Total operating costs and expenses	366,294		404,417		(38,123)		(9.4)	%
Interest and amortization of debt issuance costs	1,631		1,630		1		0.1	%

INCOME (LOSS) BEFORE INCOME TAXES	(7,877)		(93,237)		85,360		(91.6)	%
Income tax expense (benefit)	(1,962)		(20,962)		19,000		(90.6)	%
NET INCOME (LOSS)	$	(5,915)	$	(72,275)	$	66,360	(91.8)	%
Other comprehensive income (loss), net of taxes	(11,258)		(27,531)		16,273		(59.1)	%
COMPREHENSIVE INCOME (LOSS)	$	(17,173)	$	(99,806)	$	82,633	NM
DILUTED EARNINGS (LOSS) PER SHARE DATA:
Diluted earnings (loss) per common share	$	(0.20)	$	(2.36)	$	2.16	(91.5)	%
Weighted average diluted common shares outstanding	29,617		30,604		(987)		(3.2)	%

NM – Not Meaningful

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Revenues

Direct premiums written increased by ~~$16.9~~$31.3 million, or ~~62.9%~~6.3%, for the quarter ended September 30, 2023, driven by premium growth within our Florida business of $18.4 million, or 4.4%, and premium growth in our other states business of $12.9 million, or 14.7%, as compared to ~~$10.0~~the same period during the prior year. Rate increases approved in 2022 and 2023 for Florida and for certain other states and policy inflation adjustments were the principal drivers of higher written premiums. The rate of year-over-year growth in the third quarter of 2023 compared to the third quarter of 2022 reflects management’s intent to effectively manage new and renewal business as well as the competitive advantage of Citizens, where rates are frequently lower than those available in the admitted market. In total, policies in force declined 2,132, or 0.3%, from 809,685 at June 30, 2023 to 807,553 at September 30, 2023. A summary of the recent rate increases that are driving increases in written premium, the Florida marketplace and competition from lower cost policies offered by Citizens is discussed above under “—Overview—Trends.”

Rate changes are applied on new business submissions and renewals from the effective date of their renewal, and then are earned subsequently over the policy period. The recent rate and inflation increases in Florida are in response to rising claim costs in recent years driven by higher costs of material and labor associated with claims, the cost of weather events, the rising cost of catastrophe and other reinsurance protecting policyholders and, more importantly, the prevalence of represented and litigated claims in Florida. Due to the time associated with analyzing data, preparing, and submitting rate filings, implementing new rate levels, and earning the corresponding premiums, the Insurance Entities’ rate adjustments typically lag behind their experience by months or even years. In addition, the Insurance Entities’ policies provide for coverage limits to be adjusted at renewal, which adjust insured value coverage limits for the impact of changes in inflation occurring since the prior renewal. This is based on third-party industry data sources that monitor inflation factors such as changes in costs for residential building materials and labor.

During 2023, management continued efforts to prudently manage policy counts and exposures intended to slow the growth of certain exposures relating to new business compared to prior years while filed rate increases are taking effect. Reduced new business writings in select states and the impact of selected policy non-renewals, as well as the effect of Citizens’ statutory rate caps in suppressing its rates below those of the admitted market, have resulted in a decline in policies in force during the quarter of 2,132, or 0.3%, from 809,685 at June 30, 2023 to 807,553 at September 30, 2023. Direct premiums written continue to increase across the majority of states in which we conduct business primarily due to rate increases. As a result of our business strategy, rate changes and disciplined underwriting initiatives, we have seen a decrease in policies in force, a decrease in total insured value and an increase in premium in force. We were authorized to write policies in 19 states during both of the third quarters of 2023 and 2022. In addition, we are authorized to do business in Tennessee with plans to submit product filings in that state, and have submitted an initial rate filing in Wisconsin which was subsequently approved. UPCIC has filed to withdraw its authority to write policies in Hawaii, and has commenced a plan to non-renew all of its policies in Hawaii (1,244 policies as of September 30, 2023). At September 30, 2023, policies in force decreased 65,373 policies, or 7.5%; premium in force increased $81.5 million, or 4.4%; and total insured value decreased $4.0 billion, or 1.2%, compared to September 30, 2022.

The following table provides direct premiums written for Florida and Other States for the three months ended September 30, 2023 and 2022 (dollars in thousands):


	For the Three Months Ended
	September 30, 2023				September 30, 2022				Growth year over year
State	Direct Premiums Written		%		Direct Premiums Written		%		$		%
Florida	$	430,946	81.0	%	$	412,588	82.4	%	$	18,358	4.4	%
Other states	101,042		19.0	%	88,089		17.6	%	12,953		14.7	%
Total	$	531,988	100.0	%	$	500,677	100.0	%	$	31,311	6.3	%

We seek to prudently grow and generate long-term rate adequate premium in each state where we offer policies. Our diversification strategy seeks to increase business outside of Florida and to improve geographical distribution within Florida.

Direct premium earned increased by $21.9 million, or 4.8%, for the quarter ended September 30, 2023, reflecting the earning of premiums written over the past 12 months, including the benefit of rate changes due to primary rate filings, filings to cover increased reinsurance costs as well as policy premium adjustments due to increases in insured values caused by inflation.

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Ceded premium represents premiums paid to reinsurers for this protection and is a cost which reduces net written and net earned premiums. In total, ceded premium earned decreased $18.5 million, or 11.5%, for the quarter ended September 30, 2023, as compared to the same period of the prior year. The decrease in reinsurance cost reflects several factors including the Insurance Entities’ mandatory participation in the RAP in the 2023/2024 reinsurance program, which allows insurers to access a layer of reinsurance coverage that is below the FHCF industry retention at no cost to the insurer. In exchange the Insurance Entities adopted a corresponding one-year rate reduction. Also benefiting the quarter was an absence in reinstatement premiums compared to the third quarter of 2022, in which Hurricane Ian triggered reinstatement premiums. Reinsurance costs, as a percentage of direct premium earned, decreased from 35.8% for the three months ended September 30, 2022 to 30.2% for the three months ended September 30, 2023. Reinsurance costs associated with each year’s reinsurance program are earned over the annual policy period, which typically runs from June 1st to May 31st. See the discussion above for the Insurance Entities’ 2023-2024 reinsurance programs and “Item 1—Note 4 (Reinsurance).”

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During the third quarter, the Insurance Entities entered into commutation agreements with certain of its reinsurers, which resulted in the receipt of cash to settle estimated obligations otherwise recoverable under the reinsurance agreements, resulting in no gain or loss. The commutation with the FHCF resulted from a contractual requirement in the 2017/2018 FHCF reimbursement contract. The other commutations were entered into following mutual agreements with third-party reinsurers after the Insurance Entities deemed the commutations to be in their best interests. Whether as a contractual and regulatory obligation (in the case of the FHCF) or through mutual agreement (in the case of third-party reinsurers), commutation is a process by which a ceding insurer and an assuming reinsurer evaluate and agree upon, or otherwise determine, a final payment amount due to the ceding insurer under a reinsurance/reimbursement contract in exchange for a release of the assuming reinsurer from all future obligations to pay ceded losses under the commuted contract.

Premiums earned, net of ceded premium earned, grew by 13.9%, or $40.4 million, to $331.0 million for the three months ended September 30, ~~2017, compared to $26.9~~2023, reflecting an increase in direct premium earned and the decrease in the cost of reinsurance for the current reinsurance policy period.

Net investment income was $12.8 million for the three months ended September 30, ~~2016.~~ ~~The decrease in net income was primarily the result of $37~~2023, compared to $6.1 million of net pre-tax storm losses incurred as a result of Hurricane Irma, a Category 4 storm making landfall in the Florida Keys on September 10, 2017. Total premiums earned and other revenues which increased $17.8 million, or 10.3%, overfor the same period in ~~2016, were more than offset~~2022, an increase of $6.7 million, or 110.0%. Invested cash balances along with liquidity generated by our investment portfolio from new deposits and maturities, principal repayments, and interest received throughout 2022 and into 2023 was invested at higher rates, resulting in an increase in ~~losses~~investment returns on our portfolio and ~~loss adjustment expenses for the quarter compared~~cash balances.

We look to ~~the same period~~optimize our investment portfolio on a rolling basis, which from time-to-time results in 2016. General and administrative expenses increased 4.6% over the same quarter in 2016 to $57.3 million as compared to $54.7 million, but as a percentage of earned premium decreased from 34.3% to 32.8% this quarter. ~~Diluted earnings per common share decreased by $0.47 to $0.28 for~~portfolio shaping opportunities. During the three months ended September 30, ~~2017, compared to $0.75 for~~2023, sales of available-for-sale debt securities and sales of equity securities resulted in net realized losses of $0.4 million during the third quarter of 2023. During the three months ended September 30, ~~2016, as~~2022, sales of available-for-sale debt securities and sales of equity securities resulted in net realized gains of $0.3 million during the third quarter of 2022. See “Item 1—Note 3 (Investments).”

There was a ~~result~~$1.3 million net unrealized loss in equity securities during the three months ended September 30, 2023, largely driven by overall equity market appreciation, compared to a $4.2 million net unrealized loss in equity securities during the three months ended September 30, 2022.

Commission revenue is comprised principally of brokerage commissions that we earn from traditional open market third-party reinsurers, which excludes reinsurance provided by the State of Florida and reinsurance provided by Cosaint Re (catastrophe bond). Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1st to May 31st of the ~~decrease in net income. A more detailed discussion of this and other factors follows the table below.~~

(in thousands)

Three Months Ended

September 30,

Change

2017

2016

$

%

PREMIUMS EARNED AND OTHER REVENUES

Direct premiums written
$
274,744

$
241,888

$
32,856

13.6
%
Change in unearned premium

(19,935
)

(7,388
)

(12,547
)

169.8
%
Direct premium earned

254,809

234,500

20,309

8.7
%
Ceded premium earned

(80,292
)

(74,966
)

(5,326
)

7.1
%
Premiums earned, net

174,517

159,534

14,983

9.4
%
Net investment income (expense)

3,085

2,304

781

33.9
%
Net realized gains (losses) on investments

803

101

702

695.0
%
Commission revenue

5,304

4,603

701

15.2
%
Policy fees

4,861

4,226

635

15.0
%
Other revenue

1,673

1,668

5

0.3
%
Total premiums earned and other revenues

190,243

172,436

17,807

10.3
%
OPERATING COSTS AND EXPENSES

Losses and loss adjustment expenses

116,375

73,548

42,827

58.2
%
General and administrative expenses

57,269

54,725

2,544

4.6
%
Total operating costs and expenses

173,644

128,273

45,371

35.4
%
INCOME BEFORE INCOME TAXES

16,599

44,163

(27,564
)

-62.4
%
Income tax expense

6,635

17,281

(10,646
)

-61.6
%
NET INCOME
$
9,964

$
26,882

$
(16,918
)

-62.9
%
Other comprehensive income (loss), net of taxes

251

(491
)

742

NM

COMPREHENSIVE INCOME
$
10,215

$
26,391

$
(16,176
)

-61.3
%

following year. For the three months ended September 30, ~~2017, our growth in written premium in Florida increased 10.5%~~2023, commission revenue was $10.8 million, compared to $238.3 million and in states outside Florida increased 38.8% to $36.4 million. Premiums earned, net in the current period reflect premiums written over the past 12 months and any changes in rates or policy count during that time. Premiums earned, net were $174.5$12.6 million for the three months ended September 30, ~~2017,~~2022. The decrease in commission revenue of $1.8 million, or 14.0%, for the three months ended September 30, 2023 was primarily due to the difference in pricing and structure associated with our reinsurance program for the 2023/2024 reinsurance program year when compared to ~~$159.5~~the prior year 2022/2023 reinsurance program, and due to the absence of additional commissions from Hurricane Ian reinstatement premiums which occurred in the third quarter of the prior year.

Policy fees for the three months ended September 30, 2023 were $5.1 million compared to $5.3 million for the same period in 2022. The decrease of $0.2 million, or 3.1%, was the result of a decrease in the combined total number of new and renewal policies written during the three months ended September 30, 2023 compared to the same period in 2022 in states where we are permitted to charge this fee.

Other revenue, representing revenue from policy installment fees, premium financing and other miscellaneous income, was relatively flat for the three months ended September 30, 2023 compared to the same period in 2022.

Non-GAAP

Core revenue, representing total GAAP revenue, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) of equity securities, was $361.8 million for the three months ended September 30, ~~2016.~~2023 compared to $316.7 million for the same period in 2022. The increase in core revenue primarily stems from higher net premiums earned ~~premiums~~and net investment income.

Operating Costs and Expenses

Losses and Loss Adjustment Expenses

Losses and LAE, net of ~~$15.0~~reinsurance recoveries was $288.0 million ~~or 9.4%, includes an increase~~for three months ended September 30, 2023, compared to $330.4 million, for the same period in ~~direct earned premiums of $20.3 million~~2022. The decrease reflects the reduction in reported weather offset by an increase in ~~ceded earned premiums~~the current accident year loss pick and prior year development. The net losses and LAE ratio was 87.0% this quarter compared to 113.7% in the same quarter last year. The decrease of ~~$5.3 million. Direct written premiums increased $32.9~~26.7 points in the net losses and LAE ratio reflects the same factors but also benefited from lower cost of reinsurance. See “— Item 1—Note 4 (Reinsurance)” for additional details.

Losses and LAE experience for the past several years and up through September 30, 2023, reflects claims behaviors discussed in “Overview- Trends” above.

During the three months ended September 30, 2022, Hurricane Ian resulted in net losses and LAE of $111.0 million, which represents the amount retained by the Company after ceding losses and LAE covered by reinsurance. During the three months ended September 30, 2023, Hurricane Ian resulted in $45 million of losses and LAE which is below the reinsurance layers for the Insurance Entities.

Excluding Hurricane Ian, a 2022 weather event resulting in reinsurance recoveries, losses and LAE, net for the current accident year was $270.3 million or ~~13.6%, due in part~~81.6 net loss ratio points for the three months ended September 30, 2023, compared to ~~an increase in Florida business of $22.7~~$216.7 million or ~~10.5%, over the prior period and an increase in other states of $10.2 million, or 38.8% over~~74.6 net loss ratio points for the same period in ~~2016. In each state~~2022. This reflects an increase in management’s current accident year loss pick

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to address claims received during the ~~Company writes business, direct premiums increased month over month during 2017~~2023 accident year that are still subject to the pre-December 2022 insurance law as discussed in“Overview—Trends” above.

Current accident year losses and LAE also reflect a financial benefit from activities performed by the claims affiliate within our holding company system on behalf of our Insurance Entities when losses and LAE are ceded under our reinsurance contracts. The financial benefit is reflected as a reduction to the current accident year LAE at the consolidated level. During the three months ended September 30, 2023, these claims-related activities generated a financial benefit of $18.7 million compared to ~~2016. At~~a financial benefit of $5.0 million during the three months ended September 30, ~~2017, direct premium in-force~~2022.

Prior year development was ~~$1.035 billion versus $945 million at September 30, 2016.~~

Our reinsurance programs run from June 1 to May 31 of the following year. The net increase in ceded earned premiums of $5.3 million is attributable to increased costs associated with our 2017/2018 reinsurance program. The increase in ceded premiums earned was due to increased ceded exposure from policy growth, which increased total policy insured value, our reinsurance limits and costs associated with lower reinsurance attachment points for our growth. In addition, during the third quarter of 2017 the Company recorded ceded written premium of $7.3 million to adjust the Company’s participation in the Florida Hurricane Catastrophe Fund of which $2.4 million was earned during the quarter as compared to an insignificant adjustment in 2016.

~~Net investment income was~~ ~~$3.1~~$17.7 million for the three months ended September 30, ~~2017,~~2023, compared to ~~$2.3~~$2.7 million ~~for~~in the same ~~three months~~period in ~~2016.~~2022. The prior year increase in net ~~investment income~~loss and LAE estimates reflects differences in the settlement of ~~$0.8 million~~prior gross and ceded claims compared to previous estimates related to non-catastrophe losses and adjustments to prior hurricane estimates. Prior year development includes claims which predate the most significant legislative reform. During the third quarter the Insurance Entities entered into commutation agreements with certain of its reinsurers, which resulted in the receipt of cash to settle estimated obligations otherwise recoverable under the reinsurance agreements for prior accident years, resulting in no gain or loss. The commutation with the FHCF resulted from a contractual requirement in the 2017/2018 reimbursement contract. The other commutations were entered into upon mutual agreement with third-party reinsurers after the Insurance Entities deemed the commutations to be in their best interests. Whether as a contractual and regulatory obligation (in the case of the FHCF) or through mutual agreement (in the case of third-party reinsurers), commutation is a process by which a ceding insurer and assuming reinsurer evaluate and agree upon, or otherwise determine, a final payment amount due to the ~~result~~ceding insurer under a reinsurance/reimbursement contract in exchange for a release of ~~an increase in fixed maturities, favorable market trends~~the assuming reinsurer from all future obligations to pay ceded losses under the commuted contract.

General and actions taken to increase yield by investing funds along with maturities in higher yielding securities while maintaining high credit quality. Total average investments were $644.1 million with an average credit rating of AA- duringAdministrative Expenses

For the three months ended September 30, ~~2017~~2023, general and administrative expenses were $78.3 million compared to ~~$634.4~~$74.0 million ~~with an average credit rating of AA- for~~during the same period in ~~2016.~~

~~We sell investment securities from our portfolio~~2022, as follows (dollars in thousands):


	Three Months Ended
	September 30,								Change
	2023				2022				$		%
	$		Ratio		$		Ratio
Premiums earned, net	$	331,040			$	290,631			$	40,409	13.9	%
General and administrative expenses:
Policy acquisition costs	53,180		16.1	%	54,609		18.8	%	(1,429)		(2.6)	%
Other operating costs	25,142		7.6	%	19,364		6.7	%	5,778		29.8	%
Total general and administrative expenses	$	78,322	23.7	%	$	73,973	25.5	%	$	4,349	5.9	%

General and administrative expenses increased by $4.4 million, which was the result of ~~securities available for sale from time to time when opportunities arise or circumstances could result~~a decrease in ~~greater losses if held. We sold investment securities available for sale during the three months ended September 30, 2017, generating net realized gains~~policy acquisition costs of ~~$803 thousand compared to net realized gains~~$1.4 million offset by an increase in other operating costs of ~~$101 thousand~~$5.8 million. The total general and administrative expense ratio was 23.7% for the three months ended September 30, ~~2016.~~

2023 compared to 25.5% for the same period in 2022.

•The decrease in policy acquisition costs of $1.4 million reflects a reduction in the commission rate paid to agents on the renewal of Florida policies, which was reduced by two percentage points from 10% to 8% effective May 1, 2022, which benefited future periods as the new rate structure applied prospectively, and which had not been fully amortized in the third quarter of the prior year. Partially offsetting the Florida renewal commission rate reduction were increases in Florida premium volume driven by rate increases, and an increase in premium volume in other states which pay higher commission rates.

•The increase in other operating costs of $5.8 million was driven by an increase in salaries and employment expenses, performance bonuses, policy costs, and other miscellaneous operating expenses. Also, operating costs in 2022 were lower due to adjustments to accruals for expected annual expenditures compared to amounts accrued at that time. The other operating cost ratio was 7.6% for the three months ended September 30, 2023, compared to 6.7% for the same period in 2022. The increase in operating costs and the ratio reflects several factors including the timing of adjustments to estimate accruals relating to annual discretionary expenditures.

As a result of the trends discussed above for losses and LAE and general and administrative expenses, the combined ratio for the third quarter ended September 30, 2023 was 110.7% compared to 139.2% for the same period in 2022.

Interest and Amortization of Debt Issuance Costs

Interest and amortization of debt issuance costs was $1.6 million for each of the three months ended September 30, 2023 and 2022. Interest and amortization of debt issuance costs represents amounts we incur on our outstanding long-term debt at the applicable interest rates and amortization of debt issuance costs on our 5.625% Senior Unsecured Notes. See “Item 1—Note 7 (Long-term debt)” for additional details.

Income Tax Expense/(Benefit)Income tax benefit was $2.0 million for the quarter ended September 30, 2023 compared to an income tax benefit of $21.0 million for the quarter ended September 30, 2022. Our effective tax rate (“ETR”) increased to 24.9% for the three months ended September 30, 2023, as compared to 22.5% for the three months ended September 30, 2022. See “Item 1—Note 9 (Income Taxes)” for additional details including a reconciliation of the Federal statutory tax rate to the ETR.

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Other Comprehensive Income (Loss)

Other comprehensive loss, net of taxes for the three months ended September 30, 2023, was $11.3 million compared to other comprehensive loss of $27.5 million for the same period in 2022, reflecting after-tax changes in fair value of available-for-sale debt securities held in our investment portfolio and reclassifications out of accumulated other comprehensive income (loss) for available-for-sale debt securities sold. We saw increased market yields on securities purchased in late 2021 and 2022 and increased unrealized losses on our portfolio during those periods, reflected after-tax in the equity section of our balance sheet as increased interest rates negatively impacted the fair value on much of our available-for-sale debt securities. Unrealized losses increased during the third quarter of 2023 in response to interest fluctuations and credit spreads decreasing valuations. See the discussion above under “—Revenues” and “Item 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income (loss), net of taxes for these periods.

Non-GAAP

Adjusted operating income (loss) represents GAAP operating income (loss), excluding net realized gains (losses) on investments and net change in unrealized gains (losses) of equity securities. Adjusted operating loss was $4.5 million for the three months ended September 30, 2023 compared to adjusted operating loss of $87.7 million for the same period in 2022.

Adjusted operating income (loss) margin, represents adjusted operating income (loss) divided by core revenue. Adjusted operating loss margin was 1.3% for the three months ended September 30, 2023 compared to adjusted operating loss margin of 27.7% for the same period in 2022.

Adjusted net income (loss) attributable to common stockholders represents GAAP net income (loss) attributable to common stockholders, less after-tax net realized gains (losses) on investments and net change in unrealized gains (losses) of equity securities. Adjusted net loss attributable to common stockholders was $4.6 million for the three months ended September 30, 2023 compared to adjusted net loss attributable to common stockholders of $69.4 million for the same period in 2022.

Diluted adjusted earnings (loss) per common share represents adjusted net income (loss) available to common stockholders divided by weighted average diluted common shares outstanding. Diluted adjusted loss per common share was $0.16 for the three months ended September 30, 2023 compared to diluted adjusted loss per common share of $2.27 for the same period in 2022.

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The nine months ended September 30, 2023 results of operations comparisons are to the corresponding prior year period (unless otherwise specified).

Results of Operations — Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net income was $46.8 million for the nine months ended September 30, 2023 compared to net loss of $47.4 million for the nine months ended September 30, 2022. Benefiting the nine months ended September 30, 2023 were increases in direct and earned premiums, an increase in net investment income, an increase in commission revenue, and unrealized gains of equity securities during the first nine months of 2023 compared to unrealized losses in the same period of the prior year. These were partially offset by a decrease in revenue from policy fees, and an increase in operating costs and expenses. Direct premium earned and premiums earned, net were up 7.5% and 9.5%, respectively, due to premium growth in the majority of states in which we are licensed and writing during the past 12 months, mostly as a result of rate increases implemented during 2022 and 2023. The net loss and LAE ratio was 78.3% for the nine months ended September 30, 2023, compared to 85.5% for the same period in 2022 reflecting the impact of Hurricane Ian in 2022. As a result of the above and as further explained below, the combined ratio for the nine months ended September 30, 2023 was 103.5% compared to 113.2% for the nine months ended September 30, 2022. Also see the discussion above under “Overview - Trends” regarding our response to the Florida market.

A detailed discussion of our results of operations follows the table below (in thousands, except per share data).


	Nine Months Ended September 30,				Change
	2023		2022		$		%
REVENUES
Direct premiums written	$	1,489,216	$	1,429,685	$	59,531	4.2	%
Change in unearned premium	(96,213)		(133,827)		37,614		(28.1)	%
Direct premium earned	1,393,003		1,295,858		97,145		7.5	%
Ceded premium earned	(476,465)		(459,102)		(17,363)		3.8	%
Premiums earned, net	916,538		836,756		79,782		9.5	%
Net investment income	34,735		15,337		19,398		126.5	%
Net realized gains (losses) on investments	(337)		(375)		38		(10.1)	%
Net change in unrealized gains (losses) of equity securities	1,403		(16,430)		17,833		NM
Commission revenue	43,098		35,157		7,941		22.6	%
Policy fees	14,662		15,991		(1,329)		(8.3)	%
Other revenue	6,027		5,862		165		2.8	%
Total revenues	1,016,126		892,298		123,828		13.9	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	717,853		715,854		1,999		0.3	%
General and administrative expenses	230,924		231,561		(637)		(0.3)	%
Total operating costs and expenses	948,777		947,415		1,362		0.1	%
Interest and amortization of debt issuance costs	4,896		4,969		(73)		(1.5)	%
INCOME (LOSS) BEFORE INCOME TAXES	62,453		(60,086)		122,539		NM
Income tax expense (benefit)	15,629		(12,718)		28,347		NM
NET INCOME (LOSS)	$	46,824	$	(47,368)	$	94,192	NM
Other comprehensive income (loss), net of taxes	(3,333)		(100,097)		96,764		(96.7)	%
COMPREHENSIVE INCOME (LOSS)	$	43,491	$	(147,465)	$	190,956	NM
DILUTED EARNINGS (LOSS) PER SHARE DATA:
Diluted earnings (loss) per common share	$	1.54	$	(1.54)	$	3.08	NM
Weighted average diluted common shares outstanding	30,378		30,858		(480)		(1.6)	%

NM – Not Meaningful

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Revenues

Direct premiums written increased by $59.5 million, or 4.2%, for the nine months ended September 30, 2023, driven by premium growth within our Florida business of $25.1 million, or 2.1%, and premium growth in our other states business of $34.4 million, or 15.0%, as compared to the same period of the prior year. Rate increases approved in 2022 and 2023 for Florida and for certain other states and policy inflation adjustments were the principal driver of higher written premiums. The slower rate of growth in Florida in the first nine months of 2023 compared to the same period of the prior year reflects management’s intent to effectively manage new and renewal business as well as the competitive effects of Citizens, where rates are frequently lower than those available in the admitted market. In total, policies in force declined 41,303, or 4.9%, from 848,856 at December 31, 2022 to 807,553 at September 30, 2023. A summary of the recent rate increases which are driving increases in written premium, the Florida marketplace and competition from lower cost policies offered by Citizens is discussed above under “—Overview—Trends.”

Rate changes are applied on new business submissions and renewals from the effective date of their renewal, and then are earned subsequently over the policy period. The recent rate and inflation increases in Florida are in response to rising claim costs in recent years driven by higher costs of material and labor associated with claims, the cost of weather events, the rising cost of catastrophe and other reinsurance protecting policyholders and, more importantly, the prevalence of represented and litigated claims in Florida. Due to the time associated with analyzing data, preparing, and submitting rate filings, implementing new rate levels and earning the corresponding premiums, the Insurance Entities’ rate adjustments typically lag behind their experience by months or even years. In addition, the Insurance Entities’ policies provide for coverage limits to be adjusted at renewal which adjust insured value coverage limits for the impact of changes in inflation occurring since the prior renewal. This is based on third-party industry data sources that monitor inflation factors such as changes in costs for residential building materials and labor.

During 2023, management continued efforts to prudently manage policy counts and exposures intended to slow the growth of certain exposures relating to new business compared to prior years while filed rate increases are taking effect. Reduced new business writings and the impact of selected policy non-renewals, as well as the effect of Citizens’ statutory rate caps in suppressing its rates below those of the admitted market, have resulted in a decline in policies in force of 41,303, or 4.9%, during 2023 from 848,856 at December 31, 2022 to 807,553 at September 30, 2023. Direct premiums written continue to increase across the majority of states in which we conduct business due to rate increases. As a result of our business strategy, rate changes and disciplined underwriting initiatives, we have seen a decrease in policies in force, a decrease in total insured value and an increase in premium in force. We were authorized to write policies in 19 states during 2022 and 2023. In addition, we are authorized to do business in Tennessee with plans to submit product filings in that state, and have submitted an initial rate filing in Wisconsin which was subsequently approved. UPCIC has filed to withdraw its authority to write policies in Hawaii, and has commenced a plan to non-renew all of its policies in Hawaii (1,244 policies as of September 30, 2023). At September 30, 2023, policies in force decreased 65,373 policies, or 7.5%, premium in force increased $81.5 million, or 4.4%, and total insured value decreased $4.0 billion, or 1.2%, compared to September 30, 2022.

The following table provides direct premiums written for Florida and Other States for the nine months ended September 30, 2023 and 2022 (dollars in thousands):


	For the Nine Months Ended
	September 30, 2023				September 30, 2022				Growth year over year
State	Direct Premiums Written		%		Direct Premiums Written		%		$		%
Florida	$	1,225,295	82.3	%	$	1,200,193	83.9	%	$	25,102	2.1	%
Other states	263,921		17.7	%	229,492		16.1	%	34,429		15.0	%
Total	$	1,489,216	100.0	%	$	1,429,685	100.0	%	$	59,531	4.2	%

Direct premium earned increased by $97.1 million, or 7.5%, for the nine months ended September 30, 2023, reflecting the earning of premiums written over the past 12 months, including the benefit of rate changes due to primary rate filings.

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Ceded premium represents premiums paid to reinsurers for this protection and is a cost which reduces net written and net earned premiums. Hurricane Ian triggered reinstatement premiums, increasing ceded premium written by $24.6 million which was earned from September 28, 2022 through May 31, 2023, increasing ceded premium earned during 2023 by $15.1 million. In total, ceded premium earned increased $17.4 million, or 3.8%, for the nine months ended September 30, 2023 as compared to the same period of the prior year. The increase in reinsurance costs was primarily driven by the higher overall cost of reinsurance for the 2022-2023 policy period, compared to the 2023-2024 policy period, which was earned through May 31, 2023, and to the reinstatement premium which was triggered by Hurricane Ian which further increased reinsurance costs for the 2022-2023 policy period, and was also earned through May 31, 2023. Reinsurance costs, as a percentage of direct premium earned, decreased from 35.4% in 2022 to 34.2% in 2023. Reinsurance costs associated with each year’s reinsurance program are earned over the annual policy period which typically runs fromJune 1st to May 31st. See the discussion above for the Insurance Entities’ 2023-2024 reinsurance programs and “Item 1—Note 4 (Reinsurance).”

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Premiums earned, net of ceded premium earned, grew by 9.5%, or $79.8 million, to $916.5 million for the nine months ended September 30, 2023, reflecting an increase in direct premium earned partially offset by increased costs for reinsurance.

Net investment income was $34.7 million for the nine months ended September 30, 2023, compared to $15.3 million for the same period in 2022, an increase of $19.4 million, or 126.5%. Invested cash balances along with liquidity generated by our investment portfolio from new deposits and maturities, principal repayments and interest received throughout 2022 and into 2023 was invested at higher rates, resulting in an increase in investment returns on our portfolio and cash balances.

We look to optimize our investment portfolio on a rolling basis, which from time-to-time results in portfolio shaping opportunities. During the nine months ended September 30, 2023, sales of available-for-sale debt securities resulted in net realized losses of $0.7 million and sales of equity securities resulted in net realized gains of $0.4 million, in total generating net realized losses of $0.3 million. During the nine months ended September 30, 2022, sales of available-for-sale debt securities resulted in net realized losses of $1.4 million and sales of equity securities resulted in net realized gains of $1.0 million, in total generating net realized losses of $0.4 million. See “Item 1—Note 3 (Investments).”

There were $1.4 million net unrealized gains in equity securities during the nine months ended September 30, 2023 compared to $16.4 million net unrealized losses in equity securities during the nine months ended September 30, 2022. Net change in unrealized gains or losses for equity securities still held at the end of the reported period are recorded at fair value in the Condensed Consolidated Balance Sheet with changes in the fair market value of equity securities reported in current period earnings in the Condensed Consolidated Statements of Income within net change in unrealized gains (losses) of equity securities as they occur. See “Item 1—Note 3 (Investments).”

Commission revenue is comprised principally of brokerage commissions we earn from traditional open market third-party reinsurers, on which excludes reinsurance ~~placed~~provided by the State of Florida and reinsurance provided by Cosaint Re (catastrophe bond). Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1st to May 31st of the following year. Reinstatement premiums for ~~the Insurance Entities.~~Hurricane Ian resulted in $13.1 million of additional brokerage commissions which were earned prospectively from September 28, 2022 to May 31, 2023, increasing brokerage commission revenue earned during 2023 by $8.1 million. For the ~~three~~nine months ended September 30, ~~2017,~~2023, commission revenue was ~~$5.3~~$43.1 million, compared to $4.6 million for the three months ended September 30, 2016. The increase in commission revenue of $701 thousand, or 15.2%, for the three months ended September 30, 2017, compared to the three months ended September 30, 2016 was the result of overall changes in the structure of the reinsurance programs in effect, the amount of premiums paid for reinsurance on our growing exposures and the types of reinsurance contracts used in each program.

Policy fees for the three months ended September 30, 2017, were $4.9 million compared to $4.2 million for the same period in 2016. The increase of $635 thousand, or 15.0%, was the result of an increase in the number of policies written during the three months ended September 30, 2017 compared to the same period in 2016.

Other revenue for each of the three months ended September 30, 2017 and for the same period in 2016 was $1.7 million. Other revenue represents revenue from premium financing and other miscellaneous income.

~~Losses and LAE, net of reinsurance were $116.4 million for the three months ended September 30, 2017, compared to $73.5 million during the same period in 2016 as follows (dollars in thousands):~~

Three Months Ended September 30, 2017

Direct

Loss Ratio

Ceded

Loss Ratio

Net

Loss Ratio

Premiums earned
$
254,809

$
80,292

$
174,517

Loss and loss adjustment expenses:

Hurricane Irma losses and loss adjustment
expenses
$
452,000

177.4
%

$
415,000

516.8
%

$
37,000

21.2
%
All other losses and loss adjustment
expenses

79,268

31.1
%

(107
)

(0.1
%)

79,375

45.5
%
Total losses and loss adjustment expenses
$
531,268

208.5
%

$
414,893

516.7
%

$
116,375

66.7
%

Three Months Ended September 30, 2016

Direct

Loss Ratio

Ceded

Loss Ratio

Net

Loss Ratio

Premiums earned
$
234,500

$
74,966

$
159,534

Total losses and loss adjustment expenses
$
73,487

31.3
%

$
(61
)

(0.1
%)

$
73,548

46.1
%

~~See “Item 1 — Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for change in liability for unpaid losses and LAE.~~

Losses and LAE were significantly affected this quarter by Hurricane Irma. For the third quarter of 2017 the Company recorded gross losses and LAE of $452.0 million resulting from Hurricane Irma. The Company’s reinsurance program limited net losses from Hurricane Irma to $37 million adding 21.2 percentage points to the net losses and LAE ratio for the quarter. Under the Company’s reinsurance program UPCIC cedes losses and LAE greater than $35 million in all states up to a maximum of $2.71 billion and

APPCIC cedes losses and LAE greater than $2 million up to a maximum amount of $27.6 million. The Company’s reinsurance protection performed as expected by reducing the net loss and LAE exposure to the maximum retained limits, as stated above, and will provide full reinsurance capacity of $2.71 billion for UPCIC and $27.6 million for APPCIC for the remainder of the 2017/2018 hurricane season. See ~~UPCIC’s and APPCIC’s 2017-2018 Reinsurance Program~~ ~~for a discussion of the Company’s reinsurance program.~~

All other net losses and LAE, net was $79.4 million for the three months ended September 30, 2017, compared to $73.5 million during the same period in 2016, which reflects $11 million of incremental losses and LAE recorded for severe weather events occurring during 2016 through September, including Hurricane Hermine. The severe weather events in 2016 added 6.9 percentage points to the net losses and LAE ratio for the three months ended September 30, 2016. Beginning in the second quarter of 2017, the Company added 1.8 percentage points to its underlying quarterly net losses and LAE ratio to account for the increased frequency of severe weather experienced in recent years.

The trend in the Company’s underlying losses and LAE ratio also reflects continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida and the marketplace dynamics inside of Florida including challenges faced by insurers when policyholders assign benefits underlying their policies to third parties.

~~General and administrative expenses were $57.3 million for the three months ended September 30, 2017, compared to $54.7 million during the same period in 2016 as follows (dollars in thousands):~~

Three Months Ended

September 30,

Change

2017

2016

$

%

$

Ratio

$

Ratio

Premiums earned, net
$
174,517

$
159,534

$
14,983

9.4
%
General and administrative expenses:

Policy acquisition costs

35,304

20.2
%

32,216

20.2
%

3,088

9.6
%
Other operating costs

21,965

12.6
%

22,509

14.1
%

(544
)

(2.4
%)
Total general and administrative expenses
$
57,269

32.8
%

$
54,725

34.3
%

$
2,544

4.6
%

For the three months ended September 30, 2017, general and administrative expenses were $57.3 million, compared to $54.7 million for the same period in 2016. The increase in general and administrative costs of $2.6 million was the result of increases in acquisition costs of $3.1 million due to increased premium volume. The increases were, offset by decreases in other operating costs of $0.5 million due to a decrease in performance bonuses, consulting fees and a reduction in amounts spent on insurance swap contracts which was offset by an increase in stock-based compensation. Overall, the expense ratio (general and administrative expenses as a percentage of net earned premiums) benefited from economies of scale as general and administrative expenses did not increase at the same rate as revenues. As a result, the expense ratio as a percentage of net earnings decreased to 32.8% for the three months ended September 30, 2017 compared to 34.3% for the same period in 2016.

Income tax expense decreased by $10.6 million, or 61.6%, for the three months ended September 30, 2017, when compared with the three months ended September 30, 2016. The decrease in income tax is primarily the result of a decrease in income before income taxes. The effective tax rate increased slightly to 40.0% for the three months ended September 30, 2017 as compared to 39.1% for the three months ended September 30, 2016.

~~Other comprehensive income, net of taxes for the three months ended September 30, 2017 was $0.3 million compared to a loss of $0.5 million for the same period in 2016. Other comprehensive income (loss)~~ represents after tax changes to equity which are not recognized in net income, including changes in the fair value of securities available for sale held in our portfolio and any reclassifications out of cumulative other comprehensive income for securities sold. See “Item 1 — Note 11 (Other Comprehensive Income (Loss)).”

~~Results of Operations—Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Net income decreased by $15.2 million, or 17.7%, to $70.5~~$35.2 million for the nine months ended September 30, ~~2017, compared to $85.7 million for the nine months ended September 30, 2016.~~ The decrease in net income was primarily the result of $37 million of net pre-tax storm losses incurred as a result of Hurricane Irma. Total premiums earned and other revenues increased by $43.9 million or 8.7% over the prior year these revenues were offset by total operating costs and expenses, which increased by $72.2 million, or 19.7% over the prior year. Expenses for the nine months ended September 30, 2017, include losses and LAE of $37 million net for Hurricane Irma and an increase to the Company’s core loss ratio for accident year 2017. Diluted earnings per common share decreased by $0.45 to $1.96 for the nine months ended September 30, 2017, compared to $2.41 for the nine months ended September 30, 2016, as a result of the decrease in net income. A more detailed discussion of this and other factors follows the table below.

(in thousands)

Nine Months Ended

September 30,

Change

2017

2016

$

%

PREMIUMS EARNED AND OTHER REVENUES

Direct premiums written
$
816,350

$
741,782

$
74,568

10.1
%
Change in unearned premium

(80,543
)

(59,211
)

(21,332
)

36.0
%
Direct premium earned

735,807

682,571

53,236

7.8
%
Ceded premium earned

(230,722
)

(214,128
)

(16,594
)

7.7
%
Premiums earned, net

505,085

468,443

36,642

7.8
%
Net investment income (expense)

9,012

6,051

2,961

48.9
%
Net realized gains (losses) on investments

2,450

1,344

1,106

82.3
%
Commission revenue

14,546

12,927

1,619

12.5
%
Policy fees

14,594

13,093

1,501

11.5
%
Other revenue

4,917

4,827

90

1.9
%
Total premiums earned and other revenues

550,604

506,685

43,919

8.7
%
OPERATING COSTS AND EXPENSES

Losses and loss adjustment expenses

267,129

199,749

67,380

33.7
%
General and administrative expenses

171,582

166,780

4,802

2.9
%
Total operating costs and expenses

438,711

366,529

72,182

19.7
%
INCOME BEFORE INCOME TAXES

111,893

140,156

(28,263
)

-20.2
%
Income tax expense

41,354

54,400

(13,046
)

-24.0
%
NET INCOME
$
70,539

$
85,756

$
(15,217
)

-17.7
%
Other comprehensive income, net of taxes

4,201

5,631

(1,430
)

-25.4
%
COMPREHENSIVE INCOME
$
74,740

$
91,387

$
(16,647
)

-18.2
%

~~For the nine months ended September 30, 2017, our growth in written premium in both Florida increased 6.8% to $718.2 million and in states outside Florida increased 41.7% to $98.2 million.~~ Premiums earned, net in the current period reflect premiums written over the past 12 months and any changes in rates or policy count during that time. Premiums earned, net were $505.1 million for the nine months ended September 30, 2017, compared to $468.4 million for the nine months ended September 30, 2016. The increase in net earned premiums of $36.6 million, or 7.8%, includes an increase in direct earned premiums of $53.2 million and an increase in ceded earned premiums of $16.6 million. Direct written premiums increased $74.6 million, or 10.1%, which consisted of an increase in Florida business of $45.7 million, or 6.8% over the prior year, and an increase in other states business of $28.9 million, or 41.7%, over the same period in 2016. In each state the Company writes business, direct premiums increased month over month during 2017 as compared to 2016. At September 30, 2017, direct premium in-force was $1.035 billion versus $945 million at September 30, 2016.

Our reinsurance programs run from June 1 to May 31 of the following year. Ceded premium earned was $230.7 million for the nine months ended September 30, 2017, compared to $214.1 million for the nine months ended September 30, 2016. The net increase in ceded earned premiums of $16.6 million is attributable to increased costs associated with our 2017/2018 reinsurance program. The increase in ceded premiums earned was due to increased ceded exposure from policy growth. In addition, during the third quarter of 2017 the Company recorded ceded written premium of $7.3 million to adjust the Company’s participation in the Florida Hurricane Catastrophe Fund of which $2.4 million was earned during the quarter as compared to an insignificant adjustment in 2016.

~~Net investment income was~~ ~~$9.0~~ million for the nine months ended September 30, 2017, compared to $6.0 million for the same nine months in 2016. The increase in net investment income of $3.0 million is the result of an increase in fixed maturities, favorable market trends and actions taken to increase yield by investing funds along with maturities in higher yielding securities while maintaining high credit quality. Total average investments were $651.7 million with an average credit rating of AA- during the nine months ended September 30, 2017 compared to $576.1 million with an average credit rating of AA- for the same period in 2016.

We sell investment securities from our portfolio of securities available for sale from time to time when opportunities arise or circumstances could result in greater losses if held. We sold investment securities available for sale during the nine months ended September 30, 2017 generating net realized gains of $2.5 million compared to net realized gains of $1.3 million for the nine months ended September 30, 2016.

~~Commission revenue is comprised principally of brokerage commissions we earn from reinsurers~~ ~~on reinsurance placed for the Insurance Entities.~~ ~~For the nine months ended September 30, 2017 commission revenue was $14.5 million, compared to $12.9 million for the nine months ended September 30, 2016.~~2022. The increase in commission revenue of ~~$1.6~~$7.9 million, or ~~12.5%~~22.6%, for the nine months ended September 30, ~~2017, compared~~2023 was primarily due to additional commissions from Hurricane Ian reinstatement premiums and to increased commissions from third-party reinsurers for the ~~nine months ended September 30, 2016 was the result of overall changes in the structure of the~~2022-2023 reinsurance ~~programs in effect, the amount of premiums paid for reinsurance on our growing exposures and the types of reinsurance contracts used in each program.~~

contract period.

Policy fees for the nine months ended September 30, ~~2017,~~2023 were ~~$14.6~~$14.7 million as compared to ~~$13.1~~$16.0 million for the same period in ~~2016.~~2022. The ~~increase~~decrease of ~~$1.5~~$1.3 million, or ~~11.5%~~8.3%, was the result of ~~an increase~~a decrease in the combined total number of new and renewal policies written during the nine months ended September 30, ~~2017~~2023 compared to the same period in ~~2016.~~

2022 in states where we are permitted to charge this fee.

Other revenue, representing revenue from policy installment fees, premium financing and other miscellaneous income for the nine months ended September 30, ~~2017~~2023 was ~~$4.9 million and for~~relatively flat when compared to the same period in ~~2016~~2022.

Non-GAAP

Core revenue, representing total GAAP revenue, excluding net realized gains (losses) on investments and net change in unrealized gains (losses) of equity securities, was $4.8 million. Other revenue represents revenue from premium financing and other miscellaneous income. The increase of $90 thousand, or 1.9%, was the result of an increase in the number of financed policies.

~~Losses and LAE, net of reinsurance were $267.1~~$1,015.1 million for the nine months ended September 30, ~~2017,~~2023 compared to ~~$199.7~~$909.1 million ~~during~~for the same period in ~~2016 as follows (dollars in thousands):~~

2022.

Nine Months Ended September 30, 2017

Direct

Loss Ratio

Ceded

Loss Ratio

Net

Loss Ratio

Premiums earned
$
735,807

$
230,722

$
505,085

Loss and loss adjustment expenses:

Hurricane Irma losses and loss adjustment
expenses
$
452,000

61.4
%

$
415,000

179.9
%

$
37,000

7.3
%
All other losses and loss adjustment
expenses

235,707

32.0
%

5,578

2.4
%

230,129

45.6
%
Total losses and loss adjustment expenses
$
687,707

93.4
%

$
420,578

182.3
%

$
267,129

52.9
%
Operating Costs and Expenses

Nine Months Ended September 30, 2016

Direct

Loss Ratio

Ceded

Loss Ratio

Net

Loss Ratio

Premiums earned
$
682,571

$
214,128

$
468,443

Total losses and loss adjustment expenses
$
198,069

29.0
%

$
(1,680
)

(0.8
%)

$
199,749

42.6
%

~~See “Item 1 — Note 6 (Liability for Unpaid~~ Losses and Loss Adjustment ~~Expenses)~~Expenses

Losses and LAE, net of reinsurance recoveries was $717.9 million for nine months ended September 30, 2023, compared to $715.9 million, for nine months ended September 30, 2022. The net losses and LAE ratio was 78.3% for the current year period compared to 85.5% in the same period last year. The decrease of 7.2 loss ratio points reflects the reduction in reported weather events offset by an increase in the current accident year loss pick and prior year development. See “Item 1—Note 4 (Reinsurance)” for ~~change in liability for unpaid losses and LAE.~~

additional details.

During the nine months ended September 30, ~~2017 the Company recorded gross~~2022, Hurricane Ian resulted in net losses and LAE of ~~$452.0~~$111.0 million, ~~resulting from~~with total weather events for the same period including Hurricane ~~Irma. The Company’s reinsurance program limited losses from Hurricane Irma to $37~~Ian totaling $115.5 million, ~~adding 7.3 percentage points to~~which represents the ~~net~~amount retained by the Company after ceding losses and LAE ~~ratio for~~covered by reinsurance. During the ~~nine-month period~~three months ended September 30, ~~2017. Under the Company’s reinsurance program UPCIC cedes~~2023, Hurricane Ian resulted in $45 million of losses and LAE ~~greater than $35~~which is below the reinsurance layers for the Insurance Entities.

Losses and LAE experience in recent years including the first nine months of 2023, reflects the financial impacts of rising claim costs under the prior Florida law and other market conditions in Florida that the Florida Legislature has been attempting to address with the passage of legislation spanning several years. The most recent and significant statutory changes were made during a special legislative session held in December 2022 and then again in a regular legislative session ending in May 2023. Also see the discussion above under “Overview—Trends” regarding our response to the Florida market.

Prior year development was $34.8 million in ~~all states up~~the nine months ended September 30, 2023 compared to ~~a maximum of $2.71 billion and APPCIC cedes all losses and LAE greater than $2~~$7.1 million ~~up to a maximum amount of $27.6 million.~~in the nine months ended September 30, 2022. The ~~Company’s reinsurance protection performed as expected by reducing the~~prior year increase in net loss and LAE ~~exposure~~estimates reflects differences in the settlement of prior gross and ceded claims compared to previous estimates related to non-catastrophe losses and adjustments to prior hurricane estimates. Prior year development is impacted by claim trends in the Florida market as discussed in “Overview—Trends” above.

During this year, the Insurance Entities entered into commutation agreements with certain of its reinsurers which resulted in the receipt of cash to settle estimated obligations otherwise recoverable under the reinsurance agreements for prior accident years, resulting in no gain or loss. The commutation with the FHCF was attributable to a contractual requirement in the 2017/2018 FHCF reimbursement contract. The other commutations were entered into upon mutual agreement with third-party reinsurers after

the Insurance Entities deemed the commutations to be in their best interests. Whether as a contractual and regulatory obligation (in the case of the FHCF) or through mutual agreement (in the case of third-party reinsurers), commutation is a process by which a ceding insurer and assuming reinsurer evaluate and agree upon, or otherwise determine, a final payment amount due to the ~~maximum retained limits,~~ceding reinsurer under a reinsurance/reimbursement contract in exchange for a release of the assuming reinsurer from all future obligations to pay ceded losses under the commuted contract.

Excluding Hurricane Ian, a 2022 weather event resulting in reinsurance recoveries, and excluding prior year development, Losses and LAE, net for the current accident year was $683.0 million or 74.5 net loss ratio points for the nine months ended September 30, 2023, compared to $593.2 million, or 70.9 net loss ratio points for the nine months ended September 30, 2022. This includes adjustments to the current accident year loss pick to address claim trends for the 2023 accident year that are still subject to the pre-December 2022 insurance law as ~~stated~~discussed in“Overview—Trends” above and ~~will provide full reinsurance capacity of $2.71 billion for UPCIC and $27.6 million for APPCIC for the remainder of the 2017/2018 hurricane season. See~~ ~~UPCIC’s and APPCIC’s 2017-2018 Reinsurance Program~~ ~~for a discussion of the Company’s reinsurance program.~~

~~All other net~~weather events occurring in 2023.

Current accident year losses and LAE ~~net was $230.1~~also reflect a financial benefit from activities performed by the claims affiliate within our holding company system on behalf of our Insurance Entities when losses and LAE are ceded under our reinsurance contracts. The financial benefit is reflected as a reduction to the current accident year LAE at the consolidated level. During the nine months ended September 30, 2023, these claims related activities generated a financial benefit of $49.5 million compared to a financial benefit of $6.9 million during the nine months ended September 30, 2022.

General and Administrative Expenses

General and administrative expenses were $230.9 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~$199.7~~$231.6 million during the same period in ~~2016. The increase reflects general growth and an increase~~2022, as follows (dollars in ~~the underlying losses and LAE ratio of 3.0 percentage points.~~

The trend in the Company’s underlying losses and LAE ratio presented in the table above reflects continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida and the marketplace dynamics inside of Florida including challenges faced by insurers when policyholders assign benefits underlying their policies to third parties.

thousands):


	Nine Months Ended
	September 30,								Change
	2023				2022				$		%
	$		Ratio		$		Ratio
Premiums earned, net	$	916,538			$	836,756			$	79,782	9.5	%
General and administrative expenses:
Policy acquisition costs	156,877		17.1	%	163,432		19.5	%	(6,555)		(4.0)	%
Other operating costs	74,047		8.1	%	68,129		8.2	%	5,918		8.7	%

Total general and administrative expenses	$	230,924	25.2	%	$	231,561	27.7	%	$	(637)	(0.3)	%

General and administrative expenses decreased by $0.6 million, which was the result of a decrease in policy acquisition costs of $6.5 million offset by an increase in other operating costs of $5.9 million. The total general and administrative expense ratio was 25.2% for the nine months ended September 30, 2023 compared to 27.7% for the nine months ended September 30, 2022.

•The decrease in policy acquisition costs of $6.5 million reflects a reduction in the commission rate paid to agents on the renewal of Florida policies, which was reduced by two percentage points from 10% to 8% effective May 1, 2022, and which had not been fully amortized in the first nine months of the prior year.

•The increase in other operating costs of $5.9 million was primarily driven by increases in salaries, benefits, and other employment expenses; stock based compensation; and other miscellaneous operating expenses. Also, operating costs for the first nine months of 2022 were ~~$171.6~~lower due to adjustments to accruals for expected annual expenditures compared to amounts accrued at the time. The other operating cost ratio was 8.1% for the nine months ended September 30, 2023, compared to 8.2% for the same period in 2022, and benefited from a 9.5% increase in net earned premium for the first nine months of 2023 compared to the same period in the prior year, offsetting the increase in operating expenses.

As a result of the trends discussed above for losses and LAE and general and administrative expense, the combined ratio for the nine months ended September 30, 2023was 103.5%compared to 113.2% for the same period in 2022.

Interest and Amortization of Debt Issuance Costs

Interest and amortization of debt issuance costs was $4.9 million for each of the nine months ended September 30, 2023 and 2022. Interest and amortization of debt issuance costs represents amounts we incur on our outstanding long-term debt at the applicable interest rates and amortization of debt issuance costs on our 5.625% Senior Unsecured Notes. See “Item 1—Note 7 (Long-term debt)” for additional details.

Income Tax Expense/(Benefit)

Income tax expense was $15.6 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~$166.8~~income tax benefit of $12.7 million ~~during the same period in 2016 as follows (dollars in thousands):~~

Nine Months Ended

September 30,

Change

2017

2016

$

%

$

Ratio

$

Ratio

Premiums earned, net
$
505,085

$
468,443

$
36,642

7.8
%
General and administrative expenses:

Policy acquisition costs

100,754

20.0
%

92,455

19.7
%

8,299

9.0
%
Other operating costs

70,828

14.0
%

74,325

15.9
%

(3,497
)

(4.7
%)
Total general and administrative expenses
$
171,582

34.0
%

$
166,780

35.6
%

$
4,802

2.9
%

For the nine months ended September 30, 2017, general and administrative expenses were $171.6 million, compared to $166.8 million for the same period in 2016. The net increase in total general and administrative expenses of $4.8 million was the result of increases in acquisition costs of $8.3 million, due to increased premium volume, offset by a net decrease in other operating costs of $3.5 million, due to a reduction in stock-based compensation, a reduction in amounts spent on insurance swap contracts and lower consulting and legal fees, partially offset by increases in advertising to promote growth within and outside Florida. Overall, the expense ratio (general and administrative expenses as a percentage of net earned premiums) benefited from economies of scale as general and administrative expenses did not increase at the same rate as revenues. As a result, the expense ratio as a percentage of net earnings decreased to 34.0% for the nine months ended September 30, ~~2017 compared~~2022. Our ETR increased to ~~35.6% for the same period in 2016.~~

~~Income tax expense~~25.0% for the nine months ended September 30, ~~2017 decreased by $13.0 million, or 24.0%, when~~2023, as compared to ~~the nine months ended September 30, 2017, primarily as a result of a decrease in income before income taxes, offset by the benefit derived from two discrete items.~~ The first was a credit to income tax expense of $0.8 million for excess tax benefits resulting from stock-based awards that vested and/or were exercised during the nine months ended September 30, 2017. This credit to income tax expense represents the application of a new accounting pronouncement. Prior to 2017, excess benefits were recorded in stockholders’ equity. The other discrete item is a credit to income tax expense of $1.2 million resulting from anticipated recoveries of income taxes paid for the 2014-2015 tax years. Collectively, these discrete items, lowered our effective tax rate to ~~37.0%~~21.2% for the nine months ended September 30, ~~2017~~ ~~as compared~~2022. See “Item 1—Note 9 (Income Tax)” for further details, including a reconciliation of statutory tax rates to ~~38.8% for~~ the ~~nine months ended nine months ended September 30, 2016.~~

ETR.

Other Comprehensive Income (Loss)

Other comprehensive ~~income,~~loss, net of taxes for the nine months ended September 30, ~~2017~~2023, was ~~$4.2~~$3.3 million compared to ~~$5.6~~other comprehensive loss of $100.1 million for the same period in ~~2016. Other comprehensive~~2022, reflecting after-tax changes in fair value of available-for-sale debt securities held in our investment portfolio and reclassifications out of accumulated other comprehensive income (loss) ~~represents after tax changes to~~for available-for-sale debt securities sold. We saw increased market yields on securities purchased in late 2021 and 2022 and increased unrealized losses on our portfolio during those periods, reflected after-tax in the equity ~~which are not recognized in net income, including changes in~~section of our balance sheet as interest rates negatively impacted the fair value on much of our available-for-sale debt securities ~~available for sale held~~. Unrealized losses increased during 2023 in ~~our portfolio~~response to interest rate fluctuations and ~~any reclassifications out of cumulative other comprehensive income for securities sold.~~credit spreads decreasing valuations. See the discussion above and “Item ~~1 —~~ 1—Note 11 (Other Comprehensive Income (Loss)).”

for additional information about the amounts comprising other comprehensive income (loss), net of taxes for these periods.

Adjusted operating income (loss) represents GAAP operating income (loss), excluding net realized gains (losses) on investments and net change in unrealized gains (losses) of equity securities. Adjusted operating income was $66.3 million for the nine months ended September 30, 2023 compared to adjusted operating loss of $38.3 million for the same period in 2022.

Adjusted operating income (loss) margin, represents adjusted operating income (loss) divided by core revenue. Adjusted operating income margin was 6.5% for the nine months ended September 30, 2023 compared to adjusted operating loss margin of 4.2% for the same period in 2022.

Adjusted net income (loss) attributable to common stockholders represents GAAP net income (loss) attributable to common stockholders, less after-tax net realized gains (losses) on investment and net change in unrealized gains (losses) of equity securities, net of tax. Adjusted net income attributable to common stockholders was $46.0 million for the nine months ended September 30, 2023 compared to adjusted net loss attributable to common stockholders of $34.7 million for the same period in 2022.

Diluted adjusted earnings (loss) per common share represents adjusted net income (loss) available to common stockholders divided by weighted average diluted common shares outstanding. Diluted adjusted income per common share was $1.51 for the nine months ended September 30, 2023 compared to diluted adjusted loss per common share of $1.12 for the same period in 2022.

Analysis of Financial Condition—As of September 30, ~~2017~~2023 Compared to December 31, ~~2016~~

2022

We believe that the cash flows generated from operations will be sufficient to meet our working capital requirements for at least the next twelve months. ~~Our policy is to~~We invest amounts considered to be in excess of current working capital requirements.

The following table summarizes, by type, the carrying values of investments as of the dates presented (in thousands):

See “Item ~~1 —~~1—Condensed Consolidated Statements of Cash Flows” and “Item 1—Note 3 (Investments)” for explanations ofon changes in investments.

Cash and cash equivalents were $343.5 million at September 30, 2023 compared to $388.7 million at December 31, 2022, a decrease of $45.2 million, or 11.6%. This decrease is largely attributable to Hurricane Ian claim settlements from previous cash calls from reinsurers offset by an increase in cash this quarter received from reinsurance commutations which were concluded during the quarter. Additionally, recent regulatory changes have resulted in the acceleration of claim settlements during 2023, as discussed in “Overview—Trends” above. Cash and cash equivalents are invested short-term until needed to settle loss and LAE payments, reinsurance premium payments, and operating cash needs, or until they are deployed by our investment advisors.

Restricted cash and cash equivalents increased by $66.9 million to $69.5 million as of September 30, 2023 as a result of collateral held by a reinsurance captive arrangement with one of the Insurance Entities reported as a Variable Interest Entities (“VIE”) in the condensed consolidated financial statements. See “Item 1—Note 14 (Variable Interest Entities)” for more information.

Prepaid reinsurance premiums represent the portion of unearned ceded written ~~premiums~~premium that will be earned pro-rata over the coverage period inof our reinsurance program, which runs from June 1st to May 31st of the ~~future.~~following year. The increase of ~~$88.1~~$97.1 million to ~~$212.5~~$379.5 million as of September 30, ~~2017,~~2023 was primarily due ~~primarily~~ to additional ceded written premium ~~for~~ reinsurance costs relating to our ~~2017-2018~~new 2023-2024 catastrophe ~~reinsurance~~ program beginning June 1, ~~2017.~~

2023, less amortization of ceded written premium for the reinsurance costs earned since the beginning of the program.

Reinsurance recoverable represents the estimated amount of paid and unpaid losses, LAE and ~~LAE~~other expenses that are ~~recoverable~~expected to be recovered from reinsurers. The ~~increase~~decrease of ~~$412.6~~$485.9 million to ~~$412.7~~$323.0 million as of September 30, ~~2017~~2023 was primarily due to the settlement and collection of Hurricane ~~Irma.~~

Ian claims and amounts recoverable from reinsurers relating to other ceded events. In addition commutations concluded during the quarter reduced reinsurance recoverable.

Premiums receivable, net represents amounts receivable from policyholders. The increase in premiums receivable, net of ~~$12.9~~$19.0 million to ~~$66.7~~$88.5 million as of September 30, ~~2017 relates to both the growth in~~2023 is consistent with premium trends including seasonality and ~~seasonality of the Company’s business including increased~~ consumer ~~demand during storm periods.~~

Deferred income tax assets and liabilities represent temporary differences between U.S. GAAP and the tax basis of the Company's assets and liabilities. During the nine months ended September 30, 2017, deferred tax assets decreased by $5.4 million to $5.3 million, primarily due to an increase in deferred policy acquisition costs and decrease in unrealized gains and losses.

payment behaviors.

Deferred policy acquisition costs (“DPAC”) increased ~~$11.0~~by $10.9 million to ~~$75.9~~$114.6 million as of September 30, ~~2017, which~~2023, and is consistent with written premium trends and changes in ~~line with~~commissions paid to agents. In addition, DPAC was affected by the ~~underlying premium growth.~~reductions to Florida renewal commissions implemented during 2022 and other changes to the Company’s commission structure. See “Item ~~1 —~~ 1—Note 5 (Insurance Operations)” for a roll-forward in the balance of our DPAC.

Deferred income taxes represent the estimated tax assets or tax liabilities caused by temporary differences between the tax return basis of certain assets and liabilities and amounts recorded in the financial statements. During the nine months ended September 30, 2023, net deferred income tax assets decreased by $7.9 million to $49.3 million primarily due to the utilization of prior period net operating losses, and an increase in deferred policy acquisition costs.

~~Income taxes recoverable~~

Other assets increased ~~$15.9~~by $7.7 million to ~~$19.2~~$26.0 million as of September 30, ~~2017, from $3.3 million as of December 31, 2016. The~~2023, which was primarily due to an increase represents amounts due from taxing jurisdictions within one year and arise when income tax payments exceed income tax liabilities. Income taxes recoverable as of September 30, 2017 were $19.2 million, which represents amounts recoverable ~~or to be applied to future periods~~ ~~for federal and state income taxes.~~

in miscellaneous assets.

See “Item ~~1 —~~ 1—Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for a roll-forward in the balance of our unpaid losses and LAE. Unpaid losses and LAE ~~increased $381.9~~decreased by $487.8 million to ~~$440.4~~$551.0 million as of September 30, ~~2017.~~2023. The ~~increase in 2017 was a result~~majority of the decrease is the settlement of losses ~~recorded in the third quarter of 2017 for~~from Hurricane ~~Irma.~~Ian and prior hurricanes. Overall, unpaid losses and LAE decreased, as claims settlements exceeded new emerging claims. Unpaid losses and LAE are net of estimated subrogation recoveries. ~~The Company is continuing its initiatives to expedite claims payments including the ability of our mobile claims teams to rapidly settle certain claims, which we refer to as “Fast Track,”and pursuing the anticipated benefits from subrogation collections.~~

Unearned premiums represent the portion of direct premiums written ~~premiums~~ that will be earned ~~pro rata~~pro-rata in the future. The increase of ~~$80.5~~$96.2 million from December 31, 2022 to ~~$556.3~~$1,040.1 million as of September 30, ~~2017~~2023 reflects ~~both organic growth~~premium trends and the seasonality of our business, ~~including increased consumer demand during storm periods~~ ~~as described under “–~~ ~~Overview~~”.

which varies from month to month.

Advance premium represents premium payments made by policyholders ahead of the effective date of ~~the~~their policies. The increase of ~~$10.9~~$21.1 million from December 31, 2022 to ~~$28.7~~$76.0 million as of September 30, ~~2017~~2023 reflects ~~both organic growth~~customer payment behavior and ~~seasonality~~the payment behavior of mortgage escrow service providers as well as premium trends.

We exclude net negative cash balances, if any, from cash and cash equivalents that we have with any single financial institution based on aggregating the book balance of all accounts at the institution which have the right of offset. If the aggregation results in a net negative book balance, that balance is reclassified from cash and cash equivalents in our ~~business~~ ~~including increased consumer demand during storm periods~~ ~~as described under “–~~ ~~Overview~~”.

~~Reinsurance payable, net increased $260.5 million~~Consolidated Balance Sheet to ~~$341.4~~book overdraft. These amounts represent outstanding checks or drafts not yet presented to the financial institution in excess of amounts on deposit at the financial institutions. We maintain a short-term cash investment strategy sweep to maximize investment returns on cash balances. Book overdraft totaled $12.2 million as of September 30, ~~2017~~2023 compared to zero as of December 31, 2022. The increase of $12.2 million is the result of lower cash balances available for offset as of September 30, 2023 compared to December 31, 2022. See “—Liquidity and ~~is comprised of~~Capital Resources” for more information.

Reinsurance payable, net, represents the unpaid ~~amounts~~reinsurance premium installments owed to reinsurers, ~~in connection with the renewal of the Company’s 2017/2018 catastrophe reinsurance program, which began June 1, 2017. It also includes $114 million in~~unpaid reinstatement premiums due to reinsurers and cash advances received from reinsurers, if any. On June 1st of each year, we renew our core catastrophe reinsurance program and record the estimated annual cost of our reinsurance program. These estimated annual costs are increased or decreased during the year based on premium adjustments or as a result of new placements during the year. The annual cost initially increases reinsurance payable, which is then reduced as installment payments are made over the policy period of the reinsurance, which typically runs from June 1st to May 31st. The balance increased by $3.8 million to $388.3 million as of September 30, 2023 as a result of timing of the above items. See “—Liquidity and Capital Resources” for more information about timing of reinsurance premium installment payments.

~~Delaware~~	~~65-0231984~~
Delaware		65-0231984
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	September 30, 2017					December 31, 2016
			% of Total					% of Total				September 30, 2023				December 31, 2022
Comparable Ratings	Fair Value		Fair Value			Fair Value		Fair Value
Average Credit Ratings											Average Credit Ratings	Fair Value		% of Total Fair Value		Fair Value		% of Total Fair Value
AAA	$	130,119		21.4	%	$	131,260		22.3	%	AAA	$	312,769	30.3	%	$	297,475	29.3	%
AA		268,056		44.0	%		275,480		46.7	%	AA	130,994		12.7	%	154,975		15.3	%
A		122,808		20.2	%		107,418		18.2	%	A	346,486		33.6	%	327,427		32.3	%
BBB		79,950		13.1	%		67,263		11.4	%	BBB	240,563		23.3	%	232,316		22.9	%
BB+ and Below		3,738		0.6	%		3,444		0.6	%

No Rating Available		4,508		0.7	%		4,498		0.8	%	No Rating Available	746		0.1	%	2,433		0.2	%
Total	$	609,179		100.0	%	$	589,363		100.0	%	Total	$	1,031,558	100.0	%	$	1,014,626	100.0	%

	September 30, 2017				December 31, 2016
	Cost or				Cost or					September 30, 2023				December 31, 2022
	Amortized				Amortized					Amortized Cost		Fair Value		Amortized Cost		Fair Value
	Cost		Fair Value		Cost		Fair Value
Mortgage-backed Securities:
Mortgage-backed securities:									Mortgage-backed securities:
Agency	$	119,469	$	118,387	$	110,724	$	109,022	Agency	$	164,291	$	135,263	$	157,672	$	133,928
Non-agency		15,418		15,334		19,408		19,265	Non-agency	63,960		53,119		60,328		50,478
Asset-backed Securities:
Asset-backed securities:									Asset-backed securities:
Auto loan receivables		36,989		36,959		37,390		37,429	Auto loan receivables	54,287		52,588		62,128		59,370
Credit card receivables		35,869		35,846		38,640		38,568	Credit card receivables	1,657		1,614		657		612
Other receivables		11,576		11,572		10,517		10,492	Other receivables	44,132		41,187		46,381		43,219
Total	$	219,321	$	218,098	$	216,679	$	214,776	Total	$	328,327	$	283,771	$	327,166	$	287,607

	September 30, 2017
	Cost or					September 30, 2023
	Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due in one year or less	$	42,233	$	42,233	Due in one year or less	$	110,000	$	107,919
Due after one year through five years		229,841		229,898	Due after one year through five years	593,152		539,398
Due after five years through ten years		47,716		47,879	Due after five years through ten years	434,732		356,024
Due after ten years		58,110		57,127	Due after ten years	32,281		25,091
Mortgage-backed and asset-backed securities		219,321		218,098
Perpetual maturity securities		13,336		13,944	Perpetual maturity securities	3,802		3,126
Total	$	610,557	$	609,179	Total	$	1,173,967	$	1,031,558

	Three Months Ended						Nine Months Ended
	September 30,						September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2017			2016			2017			2016				2023		2022		2023		2022
DPAC, beginning of period	$	73,591		$	67,190		$	64,912		$	60,019		DPAC, beginning of period	$	107,047	$	110,983	$	103,654	$	108,822
Capitalized Costs		36,999			33,227			110,653			100,444		Capitalized Costs	60,470		55,552		167,357		165,983
Amortization of DPAC		(34,656	)		(32,117	)		(99,631	)		(92,163	)	Amortization of DPAC	(52,927)		(54,674)		(156,421)		(162,944)
DPAC, end of period	$	75,934		$	68,300		$	75,934		$	68,300		DPAC, end of period	$	114,590	$	111,861	$	114,590	$	111,861

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

	Issued			Treasury			Outstanding
	Shares			Shares			Shares
Balance, as of December 31, 2016		45,324			(10,272	)		35,052
Shares repurchased		—			(761	)		(761	)
Vesting of performance share units		115			—			115
Stock option exercises		71			—			71
Common stock issued		26			—			26
Shares acquired through cashless exercise (1)		—			(63	)		(63	)
Shares cancelled		(63	)		63			—
Balance, as of September 30, 2017		45,473			(11,033	)		34,440

	Amounts Reclassified from Accumulated
	Other Comprehensive Income (Loss)
Details about Accumulated Other	Three Months Ended September 30,						Nine Months Ended September 30,						Affected Line Item in the Statement
Comprehensive Income (Loss) Components	2017			2016			2017			2016			Where Net Income is Presented
Unrealized gains (losses) on investments available for sale
	$	803		$	101		$	2,450		$	1,344		Net realized gains (losses) on investments
		(308	)		(39	)		(938	)		(513	)	Income taxes
	$	495		$	62		$	1,512		$	831		Net of tax

	Fair Value Measurements
	September 30, 2017									Fair Value Measurements
	Level 1		Level 2		Level 3		Total			As of September 30, 2023
Fixed Maturities:
										Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:									Available-For-Sale Debt Securities:
U.S. government obligations and agencies	$	—	$	55,016	$	—	$	55,016	U.S. government obligations and agencies	$	—	$	24,757	$	—	$	24,757
Corporate bonds		—		215,831		—		215,831	Corporate bonds	—		699,357		—		699,357
Mortgage-backed and asset-backed securities		—		218,098		—		218,098	Mortgage-backed and asset-backed securities	—		283,771		—		283,771
Municipal bonds		—		106,290		—		106,290	Municipal bonds	—		14,713		—		14,713
Redeemable preferred stock		—		13,944		—		13,944	Redeemable preferred stock	—		8,960		—		8,960
Equity Securities:									Equity Securities:
Common stock		5,683		—		—		5,683	Common stock	14,786		—		—		14,786
Mutual funds		20,392		—		—		20,392	Mutual funds	62,209		—		—		62,209
Total assets accounted for at fair value	$	26,075	$	609,179	$	—	$	635,254	Total assets accounted for at fair value	$	76,995	$	1,031,558	$	—	$	1,108,553

	September 30, 2017				December 31, 2016
			(Level 3)				(Level 3)
			Estimated Fair				Estimated Fair
	Carrying Value		Value		Carrying Value		Value
Liabilities (debt):
Surplus note	$	13,235	$	11,949	$	14,338	$	13,282
Promissory note	$	—	$	—	$	690	$	690

	For the Three Months Ended
	September 30, 2017					September 30, 2016					Growth year over year
State	Direct Written Premium		%			Direct Written Premium		%			$		%
Florida	$	238,309		86.7	%	$	215,634		89.1	%	$	22,675		10.5	%
Other states		36,435		13.3	%		26,254		10.9	%		10,181		38.8	%
Total	$	274,744		100.0	%	$	241,888		100.0	%	$	32,856		13.6	%

	For the Nine Months Ended
	September 30, 2017					September 30, 2016					Growth year over year
State	Direct Written Premium		%			Direct Written Premium		%			$		%
Florida	$	718,177		88.0	%	$	672,477		90.7	%	$	45,700		6.8	%
Other states		98,173		12.0	%		69,305		9.3	%		28,868		41.7	%
Total	$	816,350		100.0	%	$	741,782		100.0	%	$	74,568		10.1	%

	Three Months Ended September 30, 2017
	Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio
Premiums earned	$	254,809				$	80,292					$	174,517

Loss and loss adjustment expenses:
Hurricane Irma losses and loss adjustment expenses	$	452,000		177.4	%	$	415,000			516.8	%	$	37,000		21.2	%
All other losses and loss adjustment expenses		79,268		31.1	%		(107	)		(0.1	%)		79,375		45.5	%
Total losses and loss adjustment expenses	$	531,268		208.5	%	$	414,893			516.7	%	$	116,375		66.7	%

	Three Months Ended September 30, 2016
	Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio
Premiums earned	$	234,500				$	74,966					$	159,534

Total losses and loss adjustment expenses	$	73,487		31.3	%	$	(61	)		(0.1	%)	$	73,548		46.1	%

	Nine Months Ended September 30, 2017
	Direct		Loss Ratio			Ceded		Loss Ratio			Net		Loss Ratio
Premiums earned	$	735,807				$	230,722				$	505,085

Loss and loss adjustment expenses:
Hurricane Irma losses and loss adjustment expenses	$	452,000		61.4	%	$	415,000		179.9	%	$	37,000		7.3	%
All other losses and loss adjustment expenses		235,707		32.0	%		5,578		2.4	%		230,129		45.6	%
Total losses and loss adjustment expenses	$	687,707		93.4	%	$	420,578		182.3	%	$	267,129		52.9	%

	Nine Months Ended September 30, 2016
	Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio
Premiums earned	$	682,571				$	214,128					$	468,443

Total losses and loss adjustment expenses	$	198,069		29.0	%	$	(1,680	)		(0.8	%)	$	199,749		42.6	%

			Less than						Over
	Total		1 year		1-3 years		3-5 years		5 years
Unpaid losses and LAE, direct (1)	$	440,443	$	281,884	$	127,288	$	22,903	$	8,368
Long-term debt		14,624		1,322		5,100		3,233		4,969
Total contractual obligations	$	455,067	$	283,206	$	132,388	$	26,136	$	13,337


	Total		Next 12 Months		Beyond 12 Months
Reinsurance payable and multi-year commitments (1)	$	513,641	$	424,645	$	88,996
Unpaid losses and LAE, direct (2)	551,007		316,278		234,729
Long-term debt (3)	124,376		7,244		117,132
Total material cash requirements	$	1,189,024	$	748,167	$	440,857

~~(1)~~	There are generally no notional or stated amounts related to unpaid losses and LAE. Both the amounts and timing of future loss and LAE payments are estimates and subject to the inherent variability of legal and market conditions affecting the obligations and making the timing of cash outflows uncertain. The ultimate amount and timing of unpaid losses and LAE could differ materially from the amounts in the table above. Further, the unpaid losses and LAE do not represent all the obligations that will arise under the contracts, but rather only the estimated liability incurred through September 30, 2017.


	Three Months Ended September 30,					Nine Months Ended September 30,						Year Ended December 31,
	2023			2022		2023			2022			2022
Actual or annualized net income (loss) available to common stockholders	$	(23,672)		$	(289,112)	$	62,421		$	(63,168)		$	(22,267)
Average common stockholders' equity	317,987			313,494		294,599			345,070			358,699
ROCE *	(7.4)		%	NM		21.2		%	(18.3)		%	(6.2)		%
Actual or annualized adjusted net income (loss) available to common stockholders	$	(18,496)		$	(277,476)	$	61,349		$	(46,273)		$	(12,618)
Actual or adjusted average common stockholders' equity**	420,120			416,848		399,646			417,022			423,199
Adjusted ROCE *	(4.4)		%	NM		15.4		%	(11.1)		%	(3.0)		%





**			Adjusted average common stockholders’ equity excludes current period after-tax net realized gains (losses) on investment and net
			change in unrealized gains (losses) of equity securities.


NM			– Not Meaningful, as it implies full first event hurricane retentions in the first two quarters of the year, which in
			actuality were hurricane free, and it similarly implies a full first event retention in the fourth quarter of the year, which
			would instead be subject to a smaller subsequent event retention on a consolidated basis.


	September 30, 2023
	2023			2024			2025			2026			2027			Thereafter			Other			Total
Amortized cost	$	110,000		$	142,449		$	171,006		$	173,076		$	106,621		$	467,013		$	3,802		$	1,173,967
Fair market value	$	107,919		$	133,889		$	156,130		$	153,336		$	96,043		$	381,115		$	3,126		$	1,031,558
Coupon rate	2.68		%	2.90		%	2.75		%	2.63		%	3.19		%	3.04		%	4.42		%	2.90		%
Book yield	1.98		%	2.07		%	1.96		%	1.86		%	2.84		%	2.45		%	4.38		%	2.24		%
* Years to effective maturity - 4.6 years

					Total Number of		Maximum Number
					Shares Purchased		of Shares That
					As Part of		May Yet be
					Publicly		Purchased Under
	Total Number of		Average Price		Announced		the Plans or
	Shares Purchased		Paid per Share (1)		Plans or Programs		Programs (2)
7/1/17 - 7/31/17		—	$	—		—		—
8/1/17 - 8/31/17		306,091	$	22.91		306,091		—
9/1/17 - 9/30/17		100,175	$	19.32		100,175		873,082
Total		406,266	$	22.03		406,266		873,082

~~Exhibit No.~~	~~Exhibit~~
Exhibit No.			Exhibit
~~3.1~~
3.1			Amended and Restated Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10‑K filed on February 24, 2017 and incorporated herein by reference)

3.2			Amended and Restated Bylaws of Universal Insurance Holdings, Inc. ~~(1)~~ (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 19, 2017 and incorporated herein by reference)

~~15.1~~












15.1			Accountants’ Acknowledgment †

31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 †

31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 †

32			Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 †

~~101.INS-XBRL~~ 101.1			~~Instance Document~~ The following materials from Universal Insurance Holdings, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Statement of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows (vi) Notes to Condensed Consolidated Financial Statements and (vii) Part II, Item 5. Other Information.
104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (included in Exhibit 101).
~~101.SCH-XBRL~~			~~Taxonomy Extension Schema Document~~
				† Filed herewith.
~~101.CAL-XBRL~~		~~Taxonomy Extension Calculation Linkbase Document~~

		~~Taxonomy Extension Definition Linkbase Document~~

~~101.LAB-XBRL~~		~~Taxonomy Extension Label Linkbase Document~~

~~101.PRE-XBRL~~		~~Taxonomy Extension Presentation Linkbase Document~~


	UNIVERSAL INSURANCE HOLDINGS, INC.

Date: ~~November 9, 2017~~ October 30, 2023		/s/ ~~Sean P. Downes~~ Stephen J. Donaghy
		~~Sean P. Downes,~~Stephen J. Donaghy, Chief Executive Officer ~~and Principal Executive Officer~~

Date: ~~November 9, 2017~~ October 30, 2023		/s/ ~~Frank C. Wilcox~~ Gary Lloyd Ropiecki
		~~Frank C. Wilcox, Chief Financial Officer and~~Gary Lloyd Ropiecki, Principal Accounting Officer