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

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

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

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~~34,872,073 shares of common stock, par value $0.01 per share, outstanding on ~~November 3, 2017~~July 23, 2018.

We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries (the “Company”) as of ~~September~~June 30, ~~2017~~2018 and the related condensed consolidated statements of income and comprehensive income for the ~~three~~three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, 2018 and 2017 and ~~2016 and~~the related condensed consolidated ~~statements~~statement of cash flows for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017. 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.

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), the consolidated balance sheet of Universal Insurance Holdings, Inc. and Subsidiaries as of December 31, ~~2016~~2017 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.~~2018. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, ~~2016,~~2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

							As of
	As of						June 30,			December 31,
	September 30,			December 31,			2018			2017
	2017			2016			(unaudited)
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
Available-for-sale debt securities							$	656,762		$	639,334
Available-for-sale short-term investments								—			10,000
Equity securities								70,866			62,215
Investment real estate, net		16,324			11,435			19,539			18,474
Total invested assets		651,578			651,601			747,167			730,023

Cash and cash equivalents		366,176			105,730			311,088			213,486
Restricted cash and cash equivalents		2,635			2,635			2,635			2,635
Prepaid reinsurance premiums		212,489			124,385			310,618			132,806
Reinsurance recoverable		412,697			106			117,851			182,405
Premiums receivable, net		66,687			53,833
Reinsurance receivable, net								1,402			—
Premium receivable, net								67,186			56,500
Property and equipment, net		32,959			32,162			34,792			32,866
Deferred policy acquisition costs		75,934			64,912			88,756			73,059
Income taxes recoverable		19,174			3,262			11,839			9,472
Deferred income tax asset, net		5,300			10,674			177			9,286
Other assets		11,432			10,707			17,766			12,461
Total assets	$	1,857,061		$	1,060,007		$	1,711,277		$	1,454,999
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses	$	440,443		$	58,494		$	151,916		$	248,425
Unearned premiums		556,299			475,756			608,921			532,444
Advance premium		28,667			17,796			38,230			26,216
Accounts payable		3,999			3,187			2,778			2,866
Book overdraft								2,982			36,715
Reinsurance payable, net		341,356			80,891			341,912			110,381
Dividends payable		4,846			—			5,638			—
Other liabilities and accrued expenses		47,659			37,665			54,695			45,096
Long-term debt		13,235			15,028			12,132			12,868
Total liabilities		1,436,504			688,817			1,219,204			1,015,011

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			463			458
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	)
Issued shares - 46,257 and 45,778
Outstanding shares - 34,872 and 34,735
Treasury shares, at cost - 11,385 and 11,043								(116,239	)		(105,123	)
Additional paid-in capital		89,429			82,263			85,925			86,186
Accumulated other comprehensive income (loss), net of taxes		(2,207	)		(6,408	)		(9,161	)		(6,281	)
Retained earnings		437,746			381,864			531,085			464,748
Total stockholders' equity		420,557			371,190			492,073			439,988
Total liabilities and stockholders' equity	$	1,857,061		$	1,060,007		$	1,711,277		$	1,454,999

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

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	274,744		$	241,888		$	816,350		$	741,782		$	342,781		$	296,191		$	612,765		$	541,606
Change in unearned premium		(19,935	)		(7,388	)		(80,543	)		(59,211	)		(68,754	)		(51,568	)		(76,477	)		(60,608	)
Direct premium earned		254,809			234,500			735,807			682,571			274,027			244,623			536,288			480,998
Ceded premium earned		(80,292	)		(74,966	)		(230,722	)		(214,128	)		(81,755	)		(75,614	)		(161,439	)		(150,430	)
Premiums earned, net		174,517			159,534			505,085			468,443			192,272			169,009			374,849			330,568
Net investment income (expense)		3,085			2,304			9,012			6,051			5,786			3,223			10,571			5,927
Net realized gains (losses) on investments		803			101			2,450			1,344
Net realized gains (losses) on sale of securities														145			1,710			(2,496	)		1,647
Net change in unrealized gains (losses) of equity securities														(1,521	)		—			(6,630	)		—
Commission revenue		5,304			4,603			14,546			12,927			5,709			4,644			10,980			9,242
Policy fees		4,861			4,226			14,594			13,093			5,764			5,250			10,539			9,733
Other revenue		1,673			1,668			4,917			4,827			1,633			1,651			3,475			3,244
Total premiums earned and other revenues		190,243			172,436			550,604			506,685			209,788			185,487			401,288			360,361
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		116,375			73,548			267,129			199,749			89,842			80,184			165,768			150,754
General and administrative expenses		57,269			54,725			171,582			166,780			58,698			57,380			122,573			114,313
Total operating costs and expenses		173,644			128,273			438,711			366,529			148,540			137,564			288,341			265,067
INCOME BEFORE INCOME TAXES		16,599			44,163			111,893			140,156			61,248			47,923			112,947			95,294
Income tax expense		6,635			17,281			41,354			54,400			15,164			18,547			26,808			34,719
NET INCOME	$	9,964		$	26,882		$	70,539		$	85,756		$	46,084		$	29,376		$	86,139		$	60,575
Basic earnings per common share	$	0.29		$	0.77		$	2.02		$	2.46		$	1.32		$	0.84		$	2.47		$	1.73
Weighted average common shares outstanding - Basic		34,686			35,042			34,927			34,878			34,909			34,959			34,874			35,049
Diluted earnings per common share	$	0.28		$	0.75		$	1.96		$	2.41		$	1.29		$	0.82		$	2.42		$	1.68
Weighted average common shares outstanding - Diluted		35,615			35,723			35,917			35,594			35,589			35,958			35,636			36,061
Cash dividend declared per common share	$	0.14		$	0.14		$	0.42		$	0.42		$	0.14		$	0.14		$	0.28		$	0.28

	Three Months Ended					Nine Months Ended				Three Months Ended					Six Months Ended
	September 30,					September 30,				June 30,					June 30,
	2017		2016			2017		2016		2018			2017		2018			2017
Net income	$	9,964	$	26,882		$	70,539	$	85,756	$	46,084		$	29,376	$	86,139		$	60,575
Other comprehensive income (loss), net of taxes		251		(491	)		4,201		5,631		(1,849	)		1,486		(5,899	)		3,950
Comprehensive income	$	10,215	$	26,391		$	74,740	$	91,387	$	44,235		$	30,862	$	80,240		$	64,525

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


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	286,195		$	178,637		$	158,081		$	140,965
Cash flows from investing activities:
Proceeds from sale of property and equipment		17			31			17			15
Purchases of property and equipment		(3,655	)		(6,041	)		(4,024	)		(2,757	)
Purchases of equity securities		(47,070	)		(46,414	)		(19,106	)		(13,275	)
Purchases of fixed maturities		(114,593	)		(278,961	)
Purchases of available-for-sale debt securities								(205,738	)		(67,517	)
Purchases of investment real estate, net		(5,023	)		(4,400	)		(1,269	)		(3,759	)
Proceeds from sales of equity securities		75,027			46,819			4,127			56,971
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
Proceeds from sales of available-for-sale debt securities								119,222			6,507
Maturities of available-for-sale debt securities								64,480			39,144
Maturities of available-for-sale short-term investments								10,000			5,000
Net cash provided by (used in) investing activities		5,116			(146,889	)		(32,291	)		20,329
Cash flows from financing activities:
Preferred stock dividend		(8	)		(7	)		(5	)		(5	)
Common stock dividend		(9,803	)		(9,828	)		(9,821	)		(9,803	)
Issuance of common stock for stock option exercises								73			—
Purchase of treasury stock		(17,884	)		(8,415	)		(11,116	)		(8,919	)
Sale of treasury stock		—			2,965
Payments related to tax withholding for share-based compensation		(1,367	)		(4,905	)		(6,583	)		(1,367	)
Excess tax benefits (shortfall) from share-based compensation		—			(1,563	)
Repayment of debt		(1,803	)		(1,768	)		(736	)		(1,435	)
Net cash provided by (used in) financing activities		(30,865	)		(23,521	)		(28,188	)		(21,529	)
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
Cash and cash equivalents, and restricted cash and cash equivalents:
Net increase (decrease) during the period								97,602			139,765
Balance, beginning of period								216,121			108,365
Balance, end of period							$	313,723		$	248,130

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

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

Universal Insurance Holdings, Inc. (“UVE”) is a Delaware corporation incorporated in 1990. UVE with its wholly-owned subsidiaries (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”), together referred to as the “Insurance 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~~seventeen states as of ~~September~~June 30, ~~2017,~~2018, including Florida, which comprises the vast majority of the Company’s in-force policies. 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 funds in excess of those retained for claims-paying obligations and insurance operations. Other significant sources of revenue include brokerage commissions collected from reinsurers on certain reinsurance programs placed by the Insurance Entities, policy fees collected from policyholders by our wholly-owned managing general ~~agency~~agent subsidiary and payment plan fees charged to policyholders who choose to pay their premiums in installments.

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 (“U. S. 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,~~2017, filed with the SEC on February ~~24, 2017.~~23, 2018. The condensed consolidated balance sheet at December 31, ~~2016,~~2017, was derived from audited financial statements, but does not include all disclosures required by U.S. 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’ 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. All material intercompany balances and transactions have been eliminated in consolidation.

Management must make estimates and assumptions that affect amounts reported in the Company’s Financial Statements and in disclosures of contingent assets and liabilities. Actual results could differ from those estimates.

The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. The following are new or revised disclosures or disclosures required on a quarterly basis.

In ~~March~~January 2016, the Financial Accounting Standards Board (“FASB”) ~~issued guidance which simplifies several aspects~~revised U.S. GAAP with the issuance of Accounting Standards Update (“ASU”) 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities to improve the ~~accounting for share-based payment transactions.~~recognition and measurement of financial instruments. The new ~~guidance~~ASU requires ~~excess income tax benefits (windfalls) and deficiencies (shortfalls)~~certain investments in equity securities to be ~~recognized~~measured at fair value with changes in fair value reported in earnings and requires changes in instrument-specific credit risk for financial liabilities recorded at fair value under the ~~income statement as income tax benefits or charges when~~fair value option to be reported in Other Comprehensive Income (“OCI”). The Company adopted this ASU effective January 1, 2018 using the ~~awards vest or are settled.~~modified retrospective transition method and recorded a cumulative effect adjustment of $3.6 million to the Condensed Consolidated Balance Sheets to reclassify unrealized losses on investments in equity securities to retained earnings from other comprehensive income. The ~~former guidance required~~adoption of this ASU also resulted in the recognition of ~~excess tax benefits or deficiencies~~the change in ~~stockholders’ equity.~~ unrealized gains and losses for equity security investments as a separate component in the Condensed Consolidated Statements of Income during the three and six months ended June 30, 2018.

In ~~addition, all income tax-related~~August 2016, the FASB revised U.S. GAAP with the issuance of ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments intended to reduce diversity in practice in how certain cash ~~flows resulting from share-based~~receipts and cash payments ~~will be reported as operating activities~~are presented and classified in the statement of cash flows. The new ASU applies to: 1) debt prepayment or debt extinguishment costs, 2) settlement of zero-coupon debt instruments, 3) contingent consideration payments made after business combination, 4) proceeds from the settlement of insurance claims, 5) proceeds from the settlement of corporate-owned life insurance policies, 6) distributions received from equity method investments, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows ~~under~~and application of the ~~new guidance.~~predominance principle. Historically, the items outlined above have not been applicable to the Company. The ~~guidance also allows us~~Company adopted this ASU effective January 1, 2018 and the adoption did not have an impact on our Condensed Consolidated Statements of Cash Flows.

In November 2016, the FASB revised U.S. GAAP, Statement of Cash Flows (Topic 230): Restricted Cash with the issuance of the ASU 2016-18, to ~~repurchase more~~reduce diversity in the classification and presentation of ~~an employee's shares for tax withholding purposes without triggering liability accounting; clarifies that all~~changes in restricted cash ~~payments for tax withholdings made on an employee’s behalf should be presented as a financing activity on~~in the ~~Company’s~~ statement of cash ~~flows;~~flows. The new ASU requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and ~~provides an accounting policy election~~amounts generally described as restricted cash or restricted cash equivalents. The Company is required to ~~account for forfeitures as they occur.~~reconcile such total to amounts on the Condensed Consolidated Balance Sheets and disclose the nature of the restrictions. The ~~guidance is~~Company adopted this ASU effective ~~for fiscal years~~January 1, 2018, which only resulted in a change in the presentation of the Condensed Consolidated Statements of Cash Flows.

In February 2018, the FASB revised U.S. GAAP, Comprehensive Income (Topic 220), with the issuance of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in response to the enactment of the Tax Cuts and ~~interim periods beginning after~~Jobs Act of 2017 (the “Tax Act”) on December ~~15, 2016, with early adoption permitted.~~22, 2017. The new ASU permits a company to reclassify the disproportionate income tax effects of the Tax Act on items within accumulated other comprehensive income (“AOCI”) to retained earnings and requires certain new disclosures. The Company adopted this guidance effective January 1, ~~2017.~~

~~The adoption~~2018 and made an election to reclassify the income tax effects of the ~~new standard resulted~~Tax Act from AOCI to retained earnings. Retained earnings were reduced by approximately $0.6 million due to this reclassification. The reclassification represents the effect of the change in the ~~recognition~~U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances at the date of ~~excess~~enactment of the Tax Act related to items remaining in accumulated other comprehensive income. The Company follows an aggregate portfolio approach and considers that it had two portfolios, an available for sale debt equity portfolio and an available for sale equity portfolio, the disproportionate tax ~~benefit of $0.8 million reflected~~effects relating to the available for sale equity portfolio were included 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.transition adjustment when adopting ASU 2016-01.

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

	September 30, 2017									June 30, 2018
	Cost or		Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized					Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value
Fixed Maturities:
Debt Securities:
U.S. government obligations and agencies	$	55,519	$	21	$	(524	)	$	55,016	$	59,086	$	—	$	(1,374	)	$	57,712
Corporate bonds		215,455		883		(507	)		215,831		339,730		424		(6,190	)		333,964
Mortgage-backed and asset-backed securities		219,321		110		(1,333	)		218,098		242,492		31		(5,091	)		237,432
Municipal bonds		106,926		706		(1,342	)		106,290		15,798		—		(81	)		15,717
Redeemable preferred stock		13,336		631		(23	)		13,944		11,762		318		(143	)		11,937
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	$	668,868	$	773	$	(12,879	)	$	656,762

	December 31, 2016									December 31, 2017
	Cost or		Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized					Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value
Fixed Maturities:
Debt Securities:
U.S. government obligations and agencies	$	74,937	$	—	$	(670	)	$	74,267	$	60,481	$	—	$	(877	)	$	59,604
Corporate bonds		192,328		402		(1,300	)		191,430		228,336		476		(1,308	)		227,504
Mortgage-backed and asset-backed securities		216,679		135		(2,038	)		214,776		221,956		19		(2,523	)		219,452
Municipal bonds		94,794		130		(3,727	)		91,197		120,883		599		(1,187	)		120,295
Redeemable preferred stock		12,723		125		(157	)		12,691		12,059		485		(65	)		12,479
Equity Securities:
Common stock		214		—		(121	)		93
Mutual funds		53,900		407		(3,597	)		50,710
Short-term investments		5,000		2		—			5,002		10,000		—		—			10,000
Total	$	650,575	$	1,201	$	(11,610	)	$	640,166	$	653,715	$	1,579	$	(5,960	)	$	649,334

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):

	September 30, 2017					December 31, 2016					June 30, 2018					December 31, 2017 (1)
			% of Total					% of Total					% of Total					% of Total
Comparable Ratings	Fair Value		Fair Value			Fair Value		Fair Value
Credit Ratings											Fair Value		Fair Value			Fair Value		Fair Value
AAA	$	130,119		21.4	%	$	131,260		22.3	%	$	310,359		47.3	%	$	317,313		48.9	%
AA		268,056		44.0	%		275,480		46.7	%		73,207		11.1	%		129,573		20.0	%
A		122,808		20.2	%		107,418		18.2	%		182,479		27.8	%		146,749		22.6	%
BBB		79,950		13.1	%		67,263		11.4	%		87,007		13.3	%		51,020		7.8	%
BB+ and Below		3,738		0.6	%		3,444		0.6	%		114		0.0	%		1,569		0.2	%
No Rating Available		4,508		0.7	%		4,498		0.8	%		3,596		0.5	%		3,110		0.5	%
Total	$	609,179		100.0	%	$	589,363		100.0	%	$	656,762		100.0	%	$	649,334		100.0	%

The ~~tables~~table above ~~include comparable~~includes credit quality ratings by Standard and Poor’s Rating Services, Inc., Moody’s Investors Service,

Inc. and Fitch Ratings, Inc. The Company modified the presentation of this table by presenting 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):

	September 30, 2017				December 31, 2016
	Cost or				Cost or				June 30, 2018				December 31, 2017
	Amortized				Amortized				Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Mortgage-backed Securities:
Agency	$	119,469	$	118,387	$	110,724	$	109,022	$	140,252	$	137,247	$	118,014	$	116,014
Non-agency		15,418		15,334		19,408		19,265		29,023		28,608		17,676		17,488
Asset-backed Securities:
Auto loan receivables		36,989		36,959		37,390		37,429		30,187		29,845		35,105		34,962
Credit card receivables		35,869		35,846		38,640		38,568		16,258		16,074		38,844		38,719
Other receivables		11,576		11,572		10,517		10,492		26,772		25,658		12,317		12,269
Total	$	219,321	$	218,098	$	216,679	$	214,776	$	242,492	$	237,432	$	221,956	$	219,452

The following table summarizes the fair value and gross unrealized losses on available-for-sale debt securities, ~~available for sale,~~ aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates presented (dollars in thousands):

	September 30, 2017														June 30, 2018
	Less Than 12 Months							12 Months or Longer							Less Than 12 Months							12 Months or Longer
	Number of				Unrealized			Number of				Unrealized			Number of				Unrealized			Number of				Unrealized
	Issues		Fair Value		Losses			Issues		Fair Value		Losses			Issues		Fair Value		Losses			Issues		Fair Value		Losses
Fixed Maturities:
Debt Securities:
U.S. government obligations and agencies		10	$	47,102	$	(404	)		4	$	4,345	$	(120	)		9	$	35,148	$	(608	)		8	$	22,564	$	(766	)
Corporate bonds		100		76,577		(410	)		11		7,105		(97	)		346		266,868		(5,103	)		33		31,018		(1,087	)
Mortgage-backed and asset-backed securities		90		146,458		(1,196	)		8		13,063		(137	)		100		135,607		(2,172	)		61		84,444		(2,919	)
Municipal bonds		43		46,363		(601	)		15		24,714		(741	)		7		3,521		(81	)		—		—		—
Redeemable preferred stock		13		1,518		(19	)		1		107		(4	)		66		3,808		(143	)		—		—		—
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	)		528	$	444,952	$	(8,107	)		102	$	138,026	$	(4,772	)

	December 31, 2016														December 31, 2017
	Less Than 12 Months							12 Months or Longer							Less Than 12 Months							12 Months or Longer
	Number of				Unrealized			Number of				Unrealized			Number of				Unrealized			Number of				Unrealized
	Issues		Fair Value		Losses			Issues		Fair Value		Losses			Issues		Fair Value		Losses			Issues		Fair Value		Losses
Fixed Maturities:
Debt Securities:
U.S. government obligations and agencies		11	$	70,453	$	(608	)		2	$	3,504	$	(62	)		7	$	35,464	$	(301	)		9	$	24,140	$	(576	)
Corporate bonds		116		96,379		(1,219	)		4		3,250		(80	)		159		142,208		(792	)		39		29,796		(516	)
Mortgage-backed and asset-backed securities		73		149,928		(1,923	)		5		9,660		(115	)		83		137,481		(955	)		37		70,218		(1,568	)
Municipal bonds		69		79,402		(3,726	)		—		—		—			36		28,265		(246	)		30		48,370		(941	)
Redeemable preferred stock		50		6,340		(158	)		—		—		—			21		2,464		(65	)		—		—		—
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	)		306	$	345,882	$	(2,359	)		115	$	172,524	$	(3,601	)

~~At September~~As of June 30, ~~2017,~~2018, the Company held ~~fixed maturity and equity~~available-for-sale debt securities that were in an unrealized loss position as presented in the table above. For ~~fixed maturity~~available-for-sale debt securities with significant declines in value, the Company performs quarterly fundamental credit analysis on a security-by-security basis, which includes consideration of credit quality and credit ratings, review of relevant industry analyst reports and other available market data. For ~~fixed maturity and equity~~available-for-sale debt securities, the Company considers whether it has the intent and ability to hold the available-for-sale debt 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 is considered other than temporary and is recorded in earnings. Based on our analysis, ~~we believe that~~ our fixed income portfolio is of high quality and we believe that we

will recover the amortized cost basis of our ~~fixed income~~available-for-sale debt securities. We continually monitor the credit quality of our ~~fixed income~~ investments in available-for-sale debt securities to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest. Additionally, the Company considers management’s intent and ability to

hold the available-for-sale debt securities until recovery and its credit analysis of the individual issuers of the securities. Based on this process and analysis, management has no reason to believe the unrealized losses ~~for~~of the available-for-sale debt securities ~~available for sale at September~~as of June 30, ~~2017~~2018 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.

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

	September 30, 2017
	Cost or				June 30, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	42,233	$	42,233	$	49,496	$	49,286
Due after one year through five years		229,841		229,898		216,335		211,886
Due after five years through ten years		47,716		47,879		124,206		121,788
Due after ten years		58,110		57,127		24,577		24,433
Mortgage-backed and asset-backed securities		219,321		218,098		242,492		237,432
Perpetual maturity securities		13,336		13,944		11,762		11,937
Total	$	610,557	$	609,179	$	668,868	$	656,762

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without penalty.

The following table provides certain information related to available-for-sale debt securities ~~available for sale~~and equity securities 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						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Proceeds from sales and maturities (fair value):
Available-for-sale debt securities	$	68,875		$	30,822		$	193,702		$	50,651
Equity securities	$	3,082		$	54,471		$	4,127		$	56,971
Gross realized gains on sale of securities:
Available-for-sale debt securities	$	10		$	28		$	317		$	28
Equity securities	$	177		$	1,785		$	301		$	1,785
Gross realized losses on sale of securities:
Available-for-sale debt securities	$	(42	)	$	(4	)	$	(3,114	)	$	(40	)
Equity securities	$	—		$	(99	)	$	—		$	(126	)

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						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Fixed maturities	$	2,977		$	2,456		$	8,893		$	6,447
Available-for-sale debt securities													$	4,095		$	3,206		$	7,795		$	5,916
Equity securities		348			223			1,068			666			711			338			1,294			720
Short-term investments		—			15			22			60
Available-for-sale short-term investments														56			7			145			22
Other (1)		319			166			651			603			1,605			188			2,659			332
Total investment income		3,644			2,860			10,634			7,776			6,467			3,739			11,893			6,990
Less: Investment expenses (2)		(559	)		(556	)		(1,622	)		(1,725	)		(681	)		(516	)		(1,322	)		(1,063	)
Net investment (expense) income	$	3,085		$	2,304		$	9,012		$	6,051		$	5,786		$	3,223		$	10,571		$	5,927

The following table presents the portion of unrealized gains and losses related to equity securities for the periods presented (in thousands):

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

	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Income Producing:
Investment real estate(1)	$	6,918		$	6,918		$	14,619		$	6,918
Less: Accumulated depreciation		(415	)		(281	)		(664	)		(460	)
		6,503			6,637			13,955			6,458
Non-Income Producing:
Properties under development(1)		9,821			4,798			5,584			12,016
Investment real estate, net	$	16,324		$	11,435		$	19,539		$	18,474

(1) During the six months ended June 30, 2018, the Company transferred $7.4 million from properties under development to investment real estate.

Depreciation expense related to investment real estate for the periods presented (in thousands):

The Company seeks to reduce ~~its~~their 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 of each year. The Company’s current reinsurance ~~program consists~~programs consist of catastrophe excess of loss reinsurance, subject to the terms and conditions of the applicable agreements. The Company is responsible for certain retained loss amounts before reinsurance attaches and insured losses related to catastrophes and other events ~~in excess of~~that exceed coverage provided by ~~its~~their reinsurance ~~program.~~programs. The Company remains responsible for the settlement of insured losses irrespective of ~~the ability of~~whether any of ~~its~~their reinsurers fail to make payments otherwise ~~due to the Company.~~due.

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~~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

Ratings as of June 30, 2018

Due from as of

Standard

and Poor's

Moody's

and Poor's

Moody's

AM Best

Rating

Investors

September 30,

December 31,

AM Best

Rating

Investors

June 30,

December 31,

Reinsurer

Company

Services

Service, Inc.

2017

2016

Company

Services

Service, Inc.

2018

2017

Lloyd's of London Syndicate

A+

n/a

33,966

—

Allianz Risk Transfer

A+

AA-

n/a

186,479

—

A+

AA-

n/a

18,406

105,573

AXIS Specialty Limited

A+

16,929

—

Everest Reinsurance Company

A+

63,104

—

Florida Hurricane Catastrophe Fund (1)

n/a

—

46,364

n/a

—

52,054

Renaissance Reinsurance Ltd

A+

AA-

30,604

—

n/a

—

22,545

Total (2)

297,116

46,364

52,372

180,172

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):

	Three Months Ended September 30,																	Three Months Ended June 30,
	2017									2016								2018										2017
							Losses and Loss									Losses and Loss					��				Losses and Loss									Losses and Loss
	Premiums			Premiums			Adjustment			Premiums			Premiums			Adjustment		Premiums				Premiums			Adjustment			Premiums			Premiums			Adjustment
	Written			Earned			Expenses			Written			Earned			Expenses		Written				Earned			Expenses			Written			Earned			Expenses
Direct	$	274,744		$	254,809		$	531,268		$	241,888		$	234,500		$	73,487	$	342,781			$	274,027		$	246,622		$	296,191		$	244,623		$	85,656
Ceded		(7,303	)		(80,292	)		(414,893	)		(151,432	)		(74,966	)		61		(339,251	)			(81,755	)		(156,780	)		(311,338	)		(75,614	)		(5,472	)
Net	$	267,441		$	174,517		$	116,375		$	90,456		$	159,534		$	73,548	$	3,530			$	192,272		$	89,842		$	(15,147	)	$	169,009		$	80,184

	Nine Months Ended September 30,																	Six Months Ended June 30,
	2017									2016								2018									2017
							Losses and Loss									Losses and Loss								Losses and Loss									Losses and Loss
	Premiums			Premiums			Adjustment			Premiums			Premiums			Adjustment		Premiums			Premiums			Adjustment			Premiums			Premiums			Adjustment
	Written			Earned			Expenses			Written			Earned			Expenses		Written			Earned			Expenses			Written			Earned			Expenses
Direct	$	816,350		$	735,807		$	687,707		$	741,782		$	682,571		$	198,069	$	612,765		$	536,288		$	323,261		$	541,606		$	480,998		$	156,439
Ceded		(318,827	)		(230,722	)		(420,578	)		(298,365	)		(214,128	)		1,680		(339,251	)		(161,439	)		(157,493	)		(311,524	)		(150,430	)		(5,685	)
Net	$	497,523		$	505,085		$	267,129		$	443,417		$	468,443		$	199,749	$	273,514		$	374,849		$	165,768		$	230,082		$	330,568		$	150,754

The following prepaid reinsurance premiums and reinsurance recoverable ~~(payable)~~ and receivable are reflected in the Condensed Consolidated Balance Sheets as of the dates presented (in thousands):

	September 30,		December 31,			June 30,		December 31,
	2017		2016			2018		2017
Prepaid reinsurance premiums	$	212,489	$	124,385		$	310,618	$	132,806
Reinsurance recoverable on paid losses and LAE						$	21,002	$	—
Reinsurance recoverable on unpaid losses and LAE	$	412,697	$	106			96,849		182,405
Reinsurance recoverable (payable) on paid losses		—		(1,532	)
Reinsurance receivable, net		—		186			1,402		—
Reinsurance recoverable (payable) and receivable	$	412,697	$	(1,240	)
Reinsurance recoverable and receivable						$	119,253	$	182,405

The Company defers certain costs ~~in connection with~~relating to 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):

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
DPAC, beginning of period	$	73,591		$	67,190		$	64,912		$	60,019		$	78,007		$	66,524		$	73,059		$	64,912
Capitalized Costs		36,999			33,227			110,653			100,444			50,430			39,898			92,369			73,654
Amortization of DPAC		(34,656	)		(32,117	)		(99,631	)		(92,163	)		(39,681	)		(32,831	)		(76,672	)		(64,975	)
DPAC, end of period	$	75,934		$	68,300		$	75,934		$	68,300		$	88,756		$	73,591		$	88,756		$	73,591

The Insurance Entities are subject to regulations and standards of the Florida Office of Insurance Regulation (“FLOIR”). UPCIC also is subject to regulations and standards of regulatory authorities in other states where it is licensed, although as a Florida-domiciled insurer, its principal regulatory authority is the FLOIR. These standards require 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 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 to their immediate parent company, Universal Insurance Holding Company of Florida (“UVECF”), 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, 2017, UPCIC has the capacity to pay ordinary dividends of ~~$57.7~~$36.2 million during ~~2017.~~2018. APPCIC does not ~~have~~currently meet the ~~capacity~~earnings or surplus regulatory requirements to pay ordinary dividends during ~~2017.~~2018. For the ~~nine~~six months ended ~~September~~June 30, ~~2017, UPCIC paid dividends of $30.0 million to UVECF. N~~o2018, no dividends were paid from UPCIC or APPCIC 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.~~UVECF.

The Florida Insurance Code requires insurance companies to maintain capitalization equivalent to the greater of ten percent of the insurer’s total liabilities orbut not less than $10.0 million. The following table presents the amount of capital and surplus calculated in accordance with statutory accounting principles, which differ from U.S. GAAP, and an amount representing ten percent of total liabilities for both UPCIC and APPCIC as of the dates presented (in thousands):

	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Ten percent of total liabilities
UPCIC	$	82,923	$	57,560	$	86,454	$	72,633
APPCIC	$	655	$	464	$	624	$	572
Statutory capital and surplus
UPCIC	$	319,304	$	313,753	$	340,933	$	307,686
APPCIC	$	16,389	$	17,280	$	16,278	$	16,633

As of the dates in the table above, both UPCIC and APPCIC exceeded the minimum statutory capitalization requirement. UPCIC also met the capitalization requirements of the other states in which it is licensed as of ~~September~~June 30, ~~2017.~~2018. UPCIC and APPCIC are also required to adhere to prescribed premium-to-capital surplus ratios and have met those requirements at such dates.

The following table summarizes combined net income for UPCIC and APPCIC determined in accordance with statutory accounting practices for the periods presented (in thousands):

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):

	September 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Restricted cash and cash equivalents	$	2,635	$	2,635	$	2,635	$	2,635
Investments	$	3,922	$	3,952	$	3,908	$	3,910

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

	Three Months Ended						Nine Months Ended						Three Months Ended					Six Months Ended
	September 30,						September 30,						June 30,					June 30,
	2017			2016			2017			2016			2018			2017		2018			2017
Balance at beginning of period	$	22,645		$	60,144		$	58,494		$	98,840		$	129,637		$	31,463	$	248,425		$	58,494
Less: Reinsurance recoverable		(1,393	)		(2,958	)		(106	)		(13,540	)
Less: Reinsurance (recoverable)/payable														(70,351	)		2,353		(182,405	)		(106	)
Net balance at beginning of period		21,252			57,186			58,388			85,300			59,286			33,816		66,020			58,388
Incurred (recovered) related to:
Current year		116,262			73,721			265,811			199,907			87,532			79,075		163,502			149,549
Prior years		113			(173	)		1,318			(158	)		2,310			1,109		2,266			1,205
Total incurred		116,375			73,548			267,129			199,749			89,842			80,184		165,768			150,754
Paid related to:
Current year		93,969			73,352			179,000			146,012			50,572			62,141		67,979			85,031
Prior years		15,912			5,077			118,771			86,732			43,373			30,607		108,626			102,859
Total paid		109,881			78,429			297,771			232,744			93,945			92,748		176,605			187,890
Net balance at end of period		27,746			52,305			27,746			52,305			55,183			21,252		55,183			21,252
Plus: Reinsurance recoverable		412,697			1,904			412,697			1,904
Plus: Reinsurance recoverable/(payable)														96,733			1,393		96,733			1,393
Balance at end of period	$	440,443		$	54,209		$	440,443		$	54,209		$	151,916		$	22,645	$	151,916		$	22,645

The Company’s losses incurred for the three and six months ended June 20, 2018 include prior year net reserve development of $2.3 million which was principally caused by loss reserve development of $5.3 million on a direct basis ($2.6 million on a net basis) for the fourth quarter 2016 storm, Hurricane Matthew. Reserve strengthening on Hurricane Matthew is based on our revised estimate to settle the remaining 78 open claims. The three and six months ended June 30, 2017 included prior year loss reserve development of $6.6 million on a direct basis ($1.1 million on a net basis), also reflecting strengthening of reserves for the fourth quarter 2016 storm, Hurricane Matthew.

Also, during the second quarter in 2018, the Company increased its estimate of ultimate losses on the third quarter 2017 storm Hurricane Irma to $603.5 million for both Insurance Entities from $447.4 million recorded in the first quarter in 2018. The prior year development of $156.1 million in gross losses resulted in a net retention benefit of $0.3 million after cessions to the Company’s reinsurers. The increase in the ultimate loss and LAE for Hurricane Irma was the result of continuation of new reported claims and the aggressive nature of plaintiff attorneys on claims in Florida.

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

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 “ICBUI”). The surplus note has a twenty-year term and accrues interest, adjusted quarterly based on the 10-year Constant Maturity Treasury Index.

UPCIC was in compliance with the terms of the surplus note as of ~~September~~June 30, ~~2017.~~2018.

The following table summarizes the activity relating to shares of the Company’s common stock during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 (in thousands):

	Issued			Treasury			Outstanding			Issued			Treasury			Outstanding
	Shares			Shares			Shares			Shares			Shares			Shares
Balance, as of December 31, 2016		45,324			(10,272	)		35,052
Balance, as of December 31, 2017											45,778			(11,043	)		34,735
Shares repurchased		—			(761	)		(761	)		—			(342	)		(342	)
Vesting of performance share units		115			—			115			127			—			127
Stock option exercises		71			—			71			1,156			—			1,156
Common stock issued		26			—			26
Restricted stock grants											50			—			50
Shares acquired through cashless exercise (1)		—			(63	)		(63	)		—			(854	)		(854	)
Shares cancelled		(63	)		63			—			(854	)		854			—
Balance, as of September 30, 2017		45,473			(11,033	)		34,440
Balance, as of June 30, 2018											46,257			(11,385	)		34,872

In ~~June 2016, UVE announced that its~~September 2017, UVE’s Board of Directors authorized a share repurchase program under which UVE may repurchase in the open market in compliance with Exchange Act Rule 10b-18, up to $20 million of ~~its outstanding shares of common stock through December 31, 2017. During~~ 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 in the open market in compliance with Exchange Act Rule 10b-18 up to $20 million of its~~Company’s outstanding shares of common stock through December 31, 2018. ~~There were no~~During the six months ended June 30, 2018, UVE repurchased 342,749 shares, at an aggregate price of ~~common stock repurchased under this program in September 2017.~~approximately $11.1 million, pursuant to such repurchase program.

~~On January 23, 2017, UVE~~The following table summarizes the dividends declared ~~a cash dividend of $0.14 per share on its outstanding common stock~~and paid ~~on March 2, 2017, to~~by the ~~shareholders of record at the close of business on February 17, 2017.~~Company:

~~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.

During the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recorded approximately ~~$6.6~~$15.2 million and ~~$17.3~~$18.5 million of income tax expense, respectively. The effective tax rate ~~for~~(“ETR”)for the three months ended ~~September~~June 30, ~~2017~~2018 was ~~40.0%~~24.8% compared to a ~~39.1% effective tax rate~~38.7% ETR for the same period in ~~the prior year.~~2017.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company recorded approximately ~~$41.4~~$26.8 million and ~~$54.4~~$34.7 million of income tax expense, respectively. The ~~effective tax rate~~ETR for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~37.0%~~23.7% compared to a ~~38.8% effective tax rate~~36.4% ETR for the same period in ~~the prior 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 provision for income taxes as a result of the adoption of the accounting guidance for share-based payment transactions. See “Note 2 – Significant Accounting Policies – Recently Adopted Accounting Pronouncements” for more information. In addition, during the nine months ended September 30, 2017, the Company recorded another discrete item as a credit to income tax expense of $1.2 million resulting from anticipated recoveries ~~of income taxes paid for the 2014-2015 tax years.~~

In arriving at these rates, the Company considers a variety of factors including the forecasted full year pre-tax results, the U.S. federal tax rate of ~~35%~~, expected non-deductible expenses, and estimated state income taxes. The Company’s final ~~effective tax rate~~ETR for the full year will be dependent on the level of pre-tax income, discrete items, the apportionment of taxable income among state tax jurisdictions and the extent of non-deductible expenses in relation to pre-tax income.

Income tax expense for the three months ended June 30, 2018 included a net credit for discrete items of $0.6 million primarily driven by the excess tax benefits resulting from stock-based compensation awards that were exercised during the second quarter of 2018, benefitting the current quarter’s ETR. For the second quarter of 2017, there were no discrete items.

Income tax expense for the six months ended June 30, 2018 included a net credit of $2.3 million primarily driven by the excess tax benefits resulting from stock-based compensation awards that had vested and/or were exercised during that period. The prior year’s discrete items for the six months ended June 30, 2017 were $0.8 million for excess tax benefits resulting from stock-based compensation awards that had vested and/or were exercised during that period, and a credit to income tax expense of $1.2 million resulting from anticipated recoveries of income taxes paid for the 2014-2015 tax years.

The Company's income tax provision for the current reporting period reflects an estimated annual ETR of 25.7%, calculated before the impact of discrete items. The statutory tax rate consists of a federal income tax rate of 21% and a state income tax rate, net of federal benefit, of 3.7%. The difference in the statutory tax rate, 24.7%, and the annual ETR, 25.7%, is largely attributable to the new tax law’s impact on Internal Revenue Code Section 162(m). The effect of reporting discrete items in the three months and six months ended June 30, 2018 amounts to an additional decrease to the annual ETR rate of 1.0% and 2.0%, respectively, resulting in a total estimated ETR of 24.8% and 23.7%, respectively.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s 2014 through 2016 tax years are still subject to examination by the Internal Revenue Service and v~~arious~~various tax years remain open to examination in certain state jurisdictions. In February 2018, the Company received notification from the Internal Revenue Service with respect to an examination of the 2015 tax return. The Company is anticipating no adjustments from the examination which is expected to conclude in the third quarter of 2018.

Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution resulting from the ~~exercise~~exercises of stock options, vesting of restricted stock, vesting of performance share units, and conversion of preferred stock.

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

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Numerator for EPS:
Net income	$	9,964		$	26,882		$	70,539		$	85,756		$	46,084		$	29,376		$	86,139		$	60,575
Less: Preferred stock dividends		(3	)		(3	)		(8	)		(8	)		(2	)		(2	)		(5	)		(5	)
Income available to common stockholders	$	9,961		$	26,879		$	70,531		$	85,748		$	46,082		$	29,374		$	86,134		$	60,570	��
Denominator for EPS:
Weighted average common shares outstanding		34,686			35,042			34,927			34,878			34,909			34,959			34,874			35,049
Plus: Assumed conversion of stock-based compensation (1)		904			656			965			691
Plus: Assumed conversion of share-based compensation (1)														655			974			737			987
Assumed conversion of preferred stock		25			25			25			25			25			25			25			25
Weighted average diluted common shares outstanding		35,615			35,723			35,917			35,594			35,589			35,958			35,636			36,061
Basic earnings per common share	$	0.29		$	0.77		$	2.02		$	2.46		$	1.32		$	0.84		$	2.47		$	1.73
Diluted earnings per common share	$	0.28		$	0.75		$	1.96		$	2.41		$	1.29		$	0.82		$	2.42		$	1.68

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 June 30,
	2018									2017
	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	$	(2,488	)	$	(618	)	$	(1,870	)	$	4,116		$	1,574		$	2,542
Less: Reclassification adjustment for (gains) losses realized in net income		32			11			21			(1,710	)		(654	)		(1,056	)
Other comprehensive income (loss)		(2,456	)		(607	)		(1,849	)		2,406			920			1,486
Reclassification adjustments to retained earnings (1)		—			—			—			—			—			—
Change in accumulated other comprehensive income (loss)	$	(2,456	)	$	(607	)	$	(1,849	)	$	2,406		$	920		$	1,486

	Six Months Ended June 30,
	2018									2017
	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	$	(10,522	)	$	(2,507	)	$	(8,015	)	$	8,041		$	3,074		$	4,967
Less: Reclassification adjustment for (gains) losses realized in net income		2,797			681			2,116			(1,647	)		(630	)		(1,017	)
Other comprehensive income (loss)		(7,725	)		(1,826	)		(5,899	)		6,394			2,444			3,950
Reclassification adjustments to retained earnings (1)		5,830			2,811			3,019			—			—			—
Change in accumulated other comprehensive income (loss)	$	(1,895	)	$	985		$	(2,880	)	$	6,394		$	2,444		$	3,950

The following table provides the reclassifications adjustment 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


	Amount Reclassified from Accumulated
	Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive	Three Months Ended June 30,						Six Months Ended June 30,						Affected Line Item in the Statement
Income (Loss) Components	2018			2017			2018			2017			Where Net Income is Presented
Unrealized gains (losses) on available-for-sale debt securities
	$	(32	)	$	1,710		$	(2,797	)	$	1,647		Net realized gains (losses) sale of securities
		11			(654	)		681			(630	)	Income taxes
Total reclassification for the period	$	(21	)	$	1,056		$	(2,116	)	$	1,017		Net of tax

Lawsuits are filed against the Company from time to time. Many of these lawsuits involve claims under policies that we underwrite 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 also involved in various other legal proceedings and litigation unrelated to claims under our 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 appropriate in each pending matter.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal matters when those matters present loss contingencies that are both probable and estimable.

Legal proceedings are subject to many uncertain factors that generally cannot be predicted with assurance, 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 in excess of a related accrued liability 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.

U.S. 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. U.S. 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. U.S. 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:

Summary of significant valuation techniques for assets measured at fair value on a 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 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 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 U.S. 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):

	Fair Value Measurements								Fair Value Measurements
	September 30, 2017								June 30, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:
Fixed Maturities:
U.S. government obligations and agencies	$	—	$	55,016	$	—	$	55,016	$	—	$	57,712	$	—	$	57,712
Corporate bonds		—		215,831		—		215,831		—		333,964		—		333,964
Mortgage-backed and asset-backed securities		—		218,098		—		218,098		—		237,432		—		237,432
Municipal bonds		—		106,290		—		106,290		—		15,717		—		15,717
Redeemable preferred stock		—		13,944		—		13,944		—		11,937		—		11,937
Equity Securities:
Common stock		5,683		—		—		5,683		22,320		—		—		22,320
Mutual funds		20,392		—		—		20,392		48,546		—		—		48,546
Total assets accounted for at fair value	$	26,075	$	609,179	$	—	$	635,254	$	70,866	$	656,762	$	—	$	727,628

	Fair Value Measurements								Fair Value Measurements
	December 31, 2016								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:
Fixed Maturities:
U.S. government obligations and agencies	$	—	$	74,267	$	—	$	74,267	$	—	$	59,604	$	—	$	59,604
Corporate bonds		—		191,430		—		191,430		—		227,504		—		227,504
Mortgage-backed and asset-backed securities		—		214,776		—		214,776		—		219,452		—		219,452
Municipal bonds		—		91,197		—		91,197		—		120,295		—		120,295
Redeemable preferred stock		—		12,691		—		12,691		—		12,479		—		12,479
Equity Securities:
Common stock		93		—		—		93		18,811		—		—		18,811
Mutual funds		50,710		—		—		50,710		43,404		—		—		43,404
Short-term investments		—		5,002		—		5,002
Available-for-sale short-term investments										—		10,000		—		10,000
Total assets accounted for at fair value	$	50,803	$	589,363	$	—	$	640,166	$	62,215	$	649,334	$	—	$	711,549

The Company utilizes third-party independent pricing services that provide a price quote for each ~~fixed maturity,~~available-for-sale debt security, equity security and available-for-sale short-term investment. 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 securities, equity securities or ~~equity securities~~available-for-sale short-term investments 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):

Long-term debt: 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 of establishing the fair value of the note.

~~The fair value of the promissory note is not materially different than its carrying value.~~

The Company performed an evaluation of subsequent events through the date the 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 as of ~~September~~June 30, ~~2017.~~2018.

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. and its wholly-owned subsidiaries. You should read the following discussion together with our condensed consolidated financial statements (“Financial Statements”) and the related notes thereto included in Part I, Item 1 “Financial Statements.” 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 may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act. Forward-looking statements are based on various factors and assumptions that include known and unknown risks and 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. Future results could differ materially from those in the following discussion and those described in forward-looking statements as a result of the risks set forth below which are a summary of those set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Universal Insurance Holdings, Inc. and its wholly-owned consolidated subsidiaries. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes in Item 1 above.

Universal Insurance Holdings, Inc. (“UVE,” and together with its wholly-owned subsidiaries, “we,” “our,” “us,” or “the Company”) is the largest private personal residential insurance company in Florida by direct written premium in-force, with approximately ~~9.9%~~10.3% market share as of ~~June 30, 2017,~~March 31, 2018, according to the most recent data reported by the Florida Office of Insurance Regulation (“FLOIR”). We perform substantially all aspects of insurance underwriting, policy issuance, general administration and claims processing and settlement internally through our vertically integrated operations. Our wholly-owned licensed insurance subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”

and together with UPCIC, the “Insurance Entities”), currently write personal residential insurance policies, predominantly in Florida with ~~$718.2~~$529.5 million in direct written premium for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. UPCIC also writes residential homeowners insurance policies in Alabama, Delaware, Georgia, Hawaii, Indiana, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, and Virginia with ~~$98.2~~$83.3 million in direct written premium for the ~~nine~~six months ended ~~September~~June 30, ~~2017, generated in those states.~~2018. UPCIC is also licensed to issue policies in Illinois, Iowa, ~~New Hampshire, New York,~~ and West Virginia. ~~In October 2017, UPCIC wrote its first homeowners policy~~APPCIC also is currently writing Fire, Commercial Multi-Peril, and Other Liability lines of business in ~~New York.~~Florida. We believe that our longevity in the Florida market and our resulting depth of experience will enable us to continue to successfully grow our business in both hard and soft markets.

We generate revenues primarily from the collection of premiums. The nature of our business tends to be seasonal, reflecting consumer behaviors in connection with the Florida residential real estate market and the hurricane season. The amount of direct written premium tends to increase just prior to the second quarter of our fiscal year and tends to decrease approaching the fourth quarter. Other sources of revenue include: commissions paid by our reinsurers to our reinsurance intermediary subsidiary, Blue Atlantic Reinsurance, on reinsurance it places for the Insurance Entities; policy fees collected from policyholders by our managing general ~~agency~~agent subsidiary, Universal Risk Advisors; earnings from claims handling on ceded claims by our subsidiary, Universal Adjusting Corporation (“UAC”); 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 in the United States through our distribution network of approximately ~~8,600~~9,200 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.~~policyholders and reinsurers through our vertically integrated structure. We believe each of these strategies ~~in recent years~~ has contributed ~~towards~~to an increase in 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~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016.~~2017.

Our overall organic growth strategy emphasizes taking prudent measures to increase our footprint, ~~and increase~~grow our policy count and to improve the quality of our business rather than merely increasing our ~~policy count.~~market share. 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 and through our unique direct-to-consumer online platform called Universal Direct^SM (which enables homeowners to directly purchase, pay for and bind homeowners policies online without the need to directly interface with any intermediaries), 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.~~market and through mergers and acquisitions.

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~~three years. The percentage of our total insured value for states outside of Florida increased from ~~19.7%~~23.7% as of ~~September~~June 30, ~~2016~~2017 to ~~24.9%~~28.9% as of ~~September~~June 30, ~~2017.~~2018. The following table provides direct written premium for Florida and other states for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 (dollars in thousands):

	For the Three Months Ended															For the Three Months Ended
	September 30, 2017					September 30, 2016					Growth year over year					June 30, 2018					June 30, 2017					Growth year over year
State	Direct Written Premium		%			Direct Written Premium		%			$		%			Direct Written Premium		%			Direct Written Premium		%			$		%
Florida	$	238,309		86.7	%	$	215,634		89.1	%	$	22,675		10.5	%	$	295,337		86.2	%	$	261,430		88.3	%	$	33,907		13.0	%
Other states		36,435		13.3	%		26,254		10.9	%		10,181		38.8	%		47,444		13.8	%		34,761		11.7	%		12,683		36.5	%
Total	$	274,744		100.0	%	$	241,888		100.0	%	$	32,856		13.6	%	$	342,781		100.0	%	$	296,191		100.0	%	$	46,590		15.7	%

	For the Nine Months Ended															For the Six Months Ended
	September 30, 2017					September 30, 2016					Growth year over year					June 30, 2018					June 30, 2017					Growth year over year
State	Direct Written Premium		%			Direct Written Premium		%			$		%			Direct Written Premium		%			Direct Written Premium		%			$		%
Florida	$	718,177		88.0	%	$	672,477		90.7	%	$	45,700		6.8	%	$	529,515		86.4	%	$	479,868		88.6	%	$	49,647		10.3	%
Other states		98,173		12.0	%		69,305		9.3	%		28,868		41.7	%		83,250		13.6	%		61,738		11.4	%		21,512		34.8	%
Total	$	816,350		100.0	%	$	741,782		100.0	%	$	74,568		10.1	%	$	612,765		100.0	%	$	541,606		100.0	%	$	71,159		13.1	%

Our annual reinsurance program, which is segmented into layers of coverage, as is industry practice, protects us against excess property catastrophe losses. Our ~~2017-2018~~2018-2019 reinsurance program includes the mandatory coverage required by law to be placed with the Florida Hurricane Catastrophe Fund (“FHCF”), in which we have elected to participate at 90%, or the highest level, and also includes private reinsurance below, alongside and above the FHCF layer. In placing our ~~2017-2018~~2018-2019 reinsurance program, we obtained multiple years of coverage for an additional portion of the program. We believe this multi-year arrangement will allow us to capitalize on favorable pricing and contract terms and conditions and allow us to mitigate uncertainty with respect to the price of future reinsurance coverage, one of our ~~single~~ largest ~~cost.~~costs.

The total cost of UPCIC’s private catastrophe reinsurance program for all states as described below, effective June 1, ~~2017~~2018 through May 31, ~~2018,~~2019, is ~~$155.5~~$175.30 million. In addition, UPCIC has purchased reinstatement premium protection as described below, the cost of which is ~~$25.7~~$14.97 million. The largest private participants in UPCIC’s reinsurance program include leading reinsurance companies and providers such as Nephila Capital, Everest Re, RenaissanceRe, Chubb Tempest Re and Lloyd’s of London syndicates.

UPCIC has a net retention of $35 million per catastrophe event for losses incurred, in all states, up to a first event loss of ~~$2.71~~$3.00 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 the first event, $3 million in the second event and only $1 million under its Other States Reinsurance Program for the ~~second~~third through ~~fourth~~fifth events. These retention amounts are gross of any potential tax benefit we would receive in paying such losses.

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 reinsurance 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 second and fourth catastrophic events. This coverage has been obtained from ~~three~~four contracts as follows:

For the first ~~two~~three contracts above, 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 reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. All of these contracts extend coverage to all states.

Above the first ~~layer,~~layers, for losses exceeding $90 million and $111 million, we have purchased a second layer of coverage for losses up to $445 million – in other words, for the next $355 or $334 million of losses. This coverage has been obtained from ~~two~~three contracts as follows:

In ~~this layer,~~these layers, 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 reinstatement premium protection ~~insurance~~ to pay the required premium necessary for the reinstatement of these coverages. ~~Both~~All of these contracts extend coverage to all states.

Above the first and second layers, we have purchased a third layer of coverage for losses up to ~~$540~~$529 million – in other words, for the next ~~$95~~$84 million of losses. This coverage was obtained from two contracts as follows:

In ~~this layer,~~these layers, 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 reinstatement premium protection ~~insurance~~ to pay the required premium necessary for the reinstatement of these coverages. Both of these contracts extend coverage to all states.

~~In the fourth, fifth and sixth~~third layers, we have purchased ~~reinsurance~~a fourth layer of coverage for ~~$55~~losses up to $635 million – in other words, for the next $106 million of losses. This coverage was obtained from two contracts as follows:

In these layers, 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 reinstatement premium protection to pay the required premium necessary for the reinstatement of ~~this coverage. All three layers’~~these coverages. Both of these contracts extend coverage ~~extends~~ to all states.

Above the first, second, third and fourth layers, we have purchased a fifth layer of coverage for losses up to $680 million – in other words, for the next $45 million of losses. This coverage was obtained from two contracts as follows:

In these layers, 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 reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. Both of these contracts extend coverage to all states.

In the sixth and seventh layers, we have purchased reinsurance for $218 million of coverage in excess of $680 million in losses incurred by us (net of the FHCF layer), and $140 million of coverage in excess of $898 million (net of the FHCF layer), respectively, for a total of $1.0 billion of coverage (net of the FHCF layer) by third-party reinsurers. In these layers, 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 reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. Both of these contracts extend coverage to all states.

UPCIC structures its reinsurance coverage into layers and utilizes a cascading feature such that the second, third, fourth, fifth, sixth and ~~sixth~~seventh reinsurance layers all attach at ~~$90~~$111 million. Any layers above the ~~$90~~$111 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 the top layer of our coverage, we are exposed to only $35 million in losses, pre-tax, per catastrophe for each of the first four events. In addition to tax benefits that could reduce our ultimate loss, we anticipate that ~~certain~~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 claim-related losses we would have to pay on our insurance policies.~~season.

The total cost of UPCIC’s private catastrophe reinsurance program for other states as described below, effective June 1, ~~2017~~2018 through May 31, ~~2018,~~2019, is ~~$8.9~~$9.74 million. In addition, UPCIC has purchased reinstatement premium protection as described below, the cost of which is ~~$1.85~~$2.25 million.

Effective June 1, ~~2017~~2018 through June 1, ~~2018,~~2019, under an excess catastrophe contract specifically covering risks located outside the state of Florida and intended 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. For this catastrophe coverage, which is placed in three layers, 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 reinstatement premium protection to pay the required premium necessary for the reinstatement of this coverage. 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~~five catastrophe events including hurricanes. Specifically, UPCIC obtained catastrophe coverage that covers 100% of $4,000,000 excess of $1,000,000 in excess of ~~$4,000,000~~$6,000,000 otherwise recoverable. This coverage has two and a half free reinstatements and a total of ~~$12,000,000~~$14,000,000 of coverage available to UPCIC.

In certain circumstances involving a first catastrophic event impacting both Florida and other states, UPCIC’s retention could result 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%~~1.5% of UPCIC’s statutory policyholders’ surplus as of ~~September~~June 30, ~~2017.~~2018.

UPCIC’s third-party reinsurance program supplements the FHCF coverage 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,~~2018, we estimate our FHCF coverage includes a maximum provisional limit of 90% of ~~$1,996.5 million,~~$2.18 billion, or ~~$1,797 million,~~$1.96 billion, in excess of ~~$618~~$680 million. The estimated premium that UPCIC plans to cede to the FHCF for the ~~2017~~2018 hurricane season is ~~$124~~$128.3 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.~~land falling hurricane.

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~~$3.00 billion 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.

The total cost of APPCIC’s private catastrophe and multiple line excess reinsurance program, effective June 1, ~~2017~~2018 through May 31, ~~2018,~~2019, is ~~$1.88~~$2.27 million. In addition, APPCIC has purchased reinstatement premium protection as described below, the cost of which is ~~$59,500.~~$103,950. 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 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~~$36.2 million. This retention amount is gross of any potential tax benefit we would receive in paying such losses.

Immediately above APPCIC’s net retention we have ~~$3.2~~$4.2 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.

In the second, third and ~~third~~fourth layers, we have purchased reinsurance for ~~$1.7~~$2.0 million of coverage in excess of ~~$5.2~~$6.2 million in losses incurred by us (net of the FHCF layer) ~~and $7~~, $5 million of coverage in excess of ~~$6.9~~$8.2 million in losses incurred by us (net of the FHCF layer), and $5 million of coverage in excess of $13.2 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, third and ~~third~~fourth 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, the next layer cascades down in its place for future events. This means that, unless losses exhaust the top layer of our coverage, we are only exposed to $2 million in losses, pre-tax, per catastrophe for each 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.~~season.

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,~~2018, we estimate our FHCF coverage includes a maximum provisional limit of 90% of ~~$15.2~~$20 million, or ~~$13.7~~$18 million, in excess of ~~$4.7~~$6.2 million. The estimated premium that APPCIC plans to cede to the FHCF for the ~~2017~~2018 hurricane season is ~~$943 thousand.~~$1.2 million. 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 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 portfolio ~~due to~~impacted by a ~~declared hurricane that causes storm losses in Florida.~~land falling hurricane.

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~~$36.2 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 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~~June 30, ~~2017~~2018 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2017

Net income ~~decreased by $16.9~~was $46.1 million, an increase of $16.7 million, or ~~62.9%~~56.9%, for the three months ended June 30, 2018, compared to ~~$10.0~~$29.4 million for the three months ended ~~September~~June 30, ~~2017, compared~~2017. The increase is the result of double digit revenue growth, continued underwriting profitability, and a reduced effective tax rate. Diluted earnings per common share increased by $0.47 to ~~$26.9 million~~$1.29 for the three months ended ~~September~~June 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, 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%, over the same period in 2016, were more than offset by an increase in losses and loss adjustment expenses for the quarter2018, compared to the same period 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~~$0.82 per ~~common~~ share ~~decreased by $0.47 to $0.28~~ for the three months ended ~~September~~June 30, 2017, ~~compared to $0.75 for~~reflecting the ~~three months ended September 30, 2016, as a result of the decrease~~increase in net ~~income.~~income and a slight reduction in our weighted average diluted common shares outstanding. A ~~more~~ detailed discussion of ~~this and other factors~~our results of operations follows the table below.

	(in thousands)												(in thousands)
	Three Months Ended												Three Months Ended
	September 30,						Change						June 30,						Change
	2017			2016			$			%			2018			2017			$			%
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	274,744		$	241,888		$	32,856			13.6	%	$	342,781		$	296,191		$	46,590			15.7	%
Change in unearned premium		(19,935	)		(7,388	)		(12,547	)		169.8	%		(68,754	)		(51,568	)		(17,186	)		33.3	%
Direct premium earned		254,809			234,500			20,309			8.7	%		274,027			244,623			29,404			12.0	%
Ceded premium earned		(80,292	)		(74,966	)		(5,326	)		7.1	%		(81,755	)		(75,614	)		(6,141	)		8.1	%
Premiums earned, net		174,517			159,534			14,983			9.4	%		192,272			169,009			23,263			13.8	%
Net investment income (expense)		3,085			2,304			781			33.9	%		5,786			3,223			2,563			79.5	%
Net realized gains (losses) on investments		803			101			702			695.0	%
Net realized gains (losses) on sale of securities														145			1,710			(1,565	)	NM
Net change in unrealized gains (losses) of equity securities														(1,521	)		—			(1,521	)	NM
Commission revenue		5,304			4,603			701			15.2	%		5,709			4,644			1,065			22.9	%
Policy fees		4,861			4,226			635			15.0	%		5,764			5,250			514			9.8	%
Other revenue		1,673			1,668			5			0.3	%		1,633			1,651			(18	)		-1.1	%
Total premiums earned and other revenues		190,243			172,436			17,807			10.3	%		209,788			185,487			24,301			13.1	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		116,375			73,548			42,827			58.2	%		89,842			80,184			9,658			12.0	%
General and administrative expenses		57,269			54,725			2,544			4.6	%		58,698			57,380			1,318			2.3	%
Total operating costs and expenses		173,644			128,273			45,371			35.4	%		148,540			137,564			10,976			8.0	%
INCOME BEFORE INCOME TAXES		16,599			44,163			(27,564	)		-62.4	%		61,248			47,923			13,325			27.8	%
Income tax expense		6,635			17,281			(10,646	)		-61.6	%		15,164			18,547			(3,383	)		-18.2	%
NET INCOME	$	9,964		$	26,882		$	(16,918	)		-62.9	%	$	46,084		$	29,376		$	16,708			56.9	%
Other comprehensive income (loss), net of taxes		251			(491	)		742		NM				(1,849	)		1,486			(3,335	)	NM
COMPREHENSIVE INCOME	$	10,215		$	26,391		$	(16,176	)		-61.3	%	$	44,235		$	30,862		$	13,373			43.3	%
DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share													$	1.29		$	0.82		$	0.47			57.3	%
Weighted average diluted common shares outstanding														35,589			35,958			(369	)		-1.0	%

Direct premiums written increased by $46.6 million, or 15.7%, for the ~~three months~~quarter ended ~~September~~June 30, ~~2017,~~2018, driven by growth within our Florida business of $33.9 million, or 13.0%, as compared to the prior period, and growth in ~~written~~our Other States business of $12.7 million, or 36.5%, as compared to the prior period. Florida growth was driven by growth in policy count as well as the impact of an average statewide rate increase of 3.4%, which was approved in early December and effective for new business beginning on December 7, 2017 and for renewal business beginning on January 26, 2018. Geographic expansion efforts in our Other States business continued to add to overall premium levels, and we are now actively writing policies in ~~Florida~~16 states other than our home state of Florida. We commenced operations and wrote our first policy in New Hampshire in early April 2018.

Direct premium earned increased ~~10.5% to $238.3~~by $29.4 million, ~~and in states outside Florida increased 38.8% to $36.4 million. Premiums earned, net in~~or 12.0%, for the ~~current period reflect~~quarter ended June 30, 2018, reflecting the earning of premiums written over the past 12 months and any changes in rates or policy count during that time.

Ceded premium earned increased by $6.1 million, or 8.1%, for the quarter ended June 30, 2018, reflecting an increase in total insured value covered by our reinsurance program and the coverage terms of the reinsurance agreements in effect during the treaty periods which begin on June 1 of each year and extend through May 31 of the following year. Ceded premium earned as a percent of direct premiums earned was 29.8% for the three months ended June 30, 2018 compared to 30.9% for the three months ended June 30, 2017.

Premiums earned, net ~~were $174.5~~grew by 13.8%, or $23.3 million, to $192.3 million for the three months ended ~~September~~June 30, ~~2017, compared to $159.5~~2018, reflecting the increase in direct premium earned discussed above.

Net investment income was $5.8 million for the three months ended ~~September~~June 30, ~~2016. The increase in net earned premiums of $15.0~~2018, compared to $3.2 million or 9.4%, includes an increase in direct earned premiums of $20.3 million offset by an increase in ceded earned premiums of $5.3 million. Direct written premiums increased $32.9 million, or 13.6%, due in part to an increase in Florida business of $22.7 million, or 10.5%, over the prior period and an increase in other states of $10.2 million, or 38.8% overfor 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. 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~~ ~~million for the three months ended September 30, 2017, compared to $2.3 million for the same three months in 2016.~~2017. The increase in net investment income of ~~$0.8~~$2.6 million is primarily the result of an increase in ~~fixed maturities,~~investment income from our available-for-sale debt securities, which grew as a result of growth in total invested assets, favorable market trends and actions taken to increase yield ~~by investing funds along with maturities in higher yielding securities~~ while maintaining high credit quality. Also contributing to the increase in investment income is a higher level of return from our cash and cash equivalents due to actions taken to optimize treasury management coupled with an increase in interest rates on short-term investments. Total ~~average investments~~invested assets were ~~$644.1~~$747.2 million with an average credit rating of AA- during the three months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$634.4~~$634.9 million with an average credit rating of AA- for the same period in ~~2016.~~2017.

We sell investment securities from our investment portfolio of securities, including equity securities and available for sale debt securities, from time to time when opportunities arise or circumstances could result in greater losses or lower yields if held. We sold investment securities available for sale and equity securities during the three months ended ~~September~~June 30, ~~2017,~~2018, generating net realized ~~gains~~gain of ~~$803 thousand~~$0.1 million compared to net realized ~~gains~~gain of ~~$101 thousand~~$1.7 million for the three months ended ~~September~~June 30, ~~2016.~~2017.

In the second quarter of 2018, the net change in unrealized gains (losses) of equity securities was a loss of $1.5 million, driven by a decline in value of our equity securities portfolio. We highlight that this line item was added during the quarter ended March 31, 2018 because of the adoption of new accounting guidance for equity securities. See “Note 2 - Significant Accounting Policies – Recently Adopted Accounting Pronouncements” for more information. The comparable change in unrealized gains (losses) within our equity portfolio for the prior period in 2017 was $0.6 million of pretax losses, which was not included in net income in the prior period, but was included in other comprehensive income (loss), which is presented net of taxes.

Commission revenue is comprised principally of brokerage commissions we earn from reinsurers on reinsurance placed for the Insurance Entities. For the three months ended ~~September~~June 30, ~~2017,~~2018, commission revenue was ~~$5.3~~$5.7 million, compared to $4.6 million for the three months ended ~~September~~June 30, ~~2016.~~2017. The increase in commission revenue of ~~$701 thousand,~~$1.1 million, or ~~15.2%~~22.9%, for the three months ended ~~September~~June 30, ~~2017,~~2018 compared to the three months ended ~~September~~June 30, ~~2016~~2017 was primarily the result of ~~overall changes in~~$873 thousand of reinstatement commissions received by Blue Atlantic Reinsurance Corporation during the ~~structure~~second quarter 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.~~2018.

Policy fees for the three months ended ~~September~~June 30, ~~2017,~~2018, were ~~$4.9~~$5.8 million compared to ~~$4.2~~$5.3 million for the same period in ~~2016.~~2017. The increase of ~~$635~~$514 thousand, or ~~15.0%~~9.8%, was the result of an increase in the number of new and renewal policies written during the three months ended ~~September~~June 30, ~~2017~~2018 compared to the same period in ~~2016.~~2017.

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~~which represents revenue from premium financing and other miscellaneous ~~income.~~income, was $1.6 million for the three months ended June 30, 2018 compared to $1.7 million for the same period in 2017.

Losses and LAE, net of reinsurance, were ~~$116.4~~$89.8 million for the three months ended ~~September~~June 30, ~~2017,~~2018, compared to ~~$73.5~~$80.2 million during the same period in ~~2016~~2017 as follows (dollars in thousands):

	Three Months Ended September 30, 2017																Three Months Ended June 30, 2018
	Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio			Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio
Premiums earned	$	254,809				$	80,292					$	174,517				$	274,027				$	81,755					$	192,272

Loss and loss adjustment expenses:
Hurricane Irma losses and loss adjustment expenses	$	452,000		177.4	%	$	415,000			516.8	%	$	37,000		21.2	%
Weather events*																	$	5,000		1.8	%	$	—			—		$	5,000		2.6	%
Prior year adverse/(favorable) reserve development																		161,400		58.9	%		159,090			194.6	%		2,310		1.2	%
All other losses and loss adjustment expenses		79,268		31.1	%		(107	)		(0.1	%)		79,375		45.5	%		80,222		29.3	%		(2,310	)		(2.8	%)		82,532		42.9	%
Total losses and loss adjustment expenses	$	531,268		208.5	%	$	414,893			516.7	%	$	116,375		66.7	%	$	246,622		90.0	%	$	156,780			191.8	%	$	89,842		46.7	%

	Three Months Ended September 30, 2016																Three Months Ended June 30, 2017
	Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio			Direct		Loss Ratio			Ceded		Loss Ratio			Net		Loss Ratio
Premiums earned	$	234,500				$	74,966					$	159,534				$	244,623				$	75,614				$	169,009

Loss and loss adjustment expenses:
Weather events*																	$	6,000		2.5	%	$	—		—		$	6,000		3.6	%
Prior year adverse/(favorable) reserve development																		6,581		2.7	%		5,472		7.2	%		1,109		0.7	%
All other losses and loss adjustment expenses																		73,075		29.9	%		—		—			73,075		43.2	%
Total losses and loss adjustment expenses	$	73,487		31.3	%	$	(61	)		(0.1	%)	$	73,548		46.1	%	$	85,656		35.1	%	$	5,472		7.2	%	$	80,184		47.4	%

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

~~Losses~~For the quarter ended June 30, 2018, we experienced $5.0 million of weather events beyond expectations (on both a direct and net basis), related to the eruption of the Kilauea volcano in Hawaii and several other meaningful weather-related events that occurred in

2018. This compares to losses and LAE ~~were significantly affected this~~(on both a direct and net basis) of $6.0 million from weather events beyond those expected for the quarter byended June 30, 2017, which was the result of an increase to our underlying core loss ratio in 2017 to reflect an increase of unexpected weather-related losses.

During the second quarter in 2018, the Company increased its estimate of ultimate losses on Hurricane ~~Irma. For~~Irma to $603.5 million for both the ~~third~~Insurance Entities from $447.4 million recorded in the first quarter in 2018. The prior year development of ~~2017~~$156.1 million in gross losses resulted in a net retention benefit of $0.3 million after cessions to the Company’s reinsurers. The increase in the ultimate loss and LAE for Hurricane Irma was the result of a continuation of new reported claims and the aggressive nature of plaintiff attorneys on claims in Florida.

Also, the Company recorded ~~gross losses and LAE~~prior year loss reserve development of ~~$452.0~~$5.3 million ~~resulting from Hurricane Irma. The Company’s reinsurance program limited~~on a direct basis ($2.6 million on a net ~~losses from Hurricane Irma to $37 million adding 21.2 percentage points to the net losses and LAE ratio~~basis) 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~~quarter ended June 30, 2018, reflecting strengthening 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 APPCICreserves for the ~~remainder~~fourth quarter 2016 storm, Hurricane Matthew. Reserve strengthening on Hurricane Matthew is based on our revised estimate to settle the remaining 78 open claims. The three months ending June 30, 2017 included prior period loss reserve development of $6.6 million on a direct basis ($1.1 million on a net basis), also reflecting strengthening of reserves for the ~~2017/2018 hurricane season. See~~ ~~UPCIC’s and APPCIC’s 2017-2018 Reinsurance Program~~ ~~for a discussion of the Company’s reinsurance program.~~fourth quarter 2016 storm, Hurricane Matthew.

All other net losses and LAE ~~net was $79.4~~were $82.5 million for the three months ended ~~September~~June 30, ~~2017,~~2018, compared to ~~$73.5~~$73.1 million during the same period in ~~2016, which reflects $11~~2017. Our service company subsidiaries, particularly UAC, generated additional revenues servicing Hurricane Irma claims and during the second quarter ended June 30, 2018 generated $8.4 million of ~~incremental~~earnings which reduced amounts recorded as 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~~this quarter. This had a favorable effect on our underlying loss and LAE ratio ~~for the three months ended September 30, 2016. Beginning in the second quarter~~ of ~~2017, the Company added 1.8~~approximately 3.4 percentage points ~~to its~~on a direct basis (or 5.0 percentage points on a net basis). The Company’s underlying ~~quarterly net losses~~loss 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~~as well as claims trends inside of Florida including the growth in claim costs and challenges faced ~~by insurers~~ when policyholders assign ~~benefits underlying~~ their ~~policies~~policy benefits to third ~~parties.~~parties and including the increased litigation arising from these claims.

General and administrative expenses were ~~$57.3~~$58.7 million for the three months ended ~~September~~June 30, ~~2017,~~2018, compared to ~~$54.7~~$57.4 million during the same period in ~~2016~~2017 as follows (dollars in thousands):

	Three Months Ended																Three Months Ended
	September 30,										Change						June 30,										Change
	2017					2016					$			%			2018					2017					$		%
	$		Ratio			$		Ratio									$		Ratio			$		Ratio
Premiums earned, net	$	174,517				$	159,534				$	14,983			9.4	%	$	192,272				$	169,009				$	23,263		13.8	%
General and administrative expenses:
Policy acquisition costs		35,304		20.2	%		32,216		20.2	%		3,088			9.6	%		33,545		17.4	%		33,022		19.5	%		523		1.6	%
Other operating costs		21,965		12.6	%		22,509		14.1	%		(544	)		(2.4	%)		25,063		13.0	%		24,272		14.4	%		791		3.3	%
Total general and administrative expenses	$	57,269		32.8	%	$	54,725		34.3	%	$	2,544			4.6	%
Interest expense																		90		—			86		—			4		4.7	%
Total general and administrative expenses (1)																	$	58,698		30.4	%	$	57,380		33.9	%	$	1,318		2.3	%

~~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~~expenses of ~~$2.6~~$1.3 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 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~~modest increases in both policy acquisition costs 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~~$0.5 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~~$0.8 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 2017respectively, 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~~prior year’s quarter. General and administrative expenses for the ~~nine months~~quarter ended ~~September~~June 30, ~~2017, compared~~2018 included a $6.5 million benefit (included within policy acquisition costs) related to ~~$214.1 million for the nine months ended September 30, 2016. The net increase in ceded earned premiums~~a settlement of ~~$16.6 million is attributable to increased costs associated~~prior year premium tax audits 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~~Department of Revenue, which ~~$2.4 million was earned during~~reduced 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 yieldexpense ratio 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. The increase in commission revenue of $1.6 million, or 12.5%, for the nine months ended September 30, 2017, compared to the nine 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 nine months ended September 30, 2017, were $14.6 million as compared to $13.1 million for the same period in 2016. The increase of $1.5 million, or 11.5%, was the result of an increase in the number of policies written during the nine months ended September 30, 2017 compared to the same period in 2016.

Other revenue for the nine months ended September 30, 2017 was $4.9 million and for the same period in 2016 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 million for the nine months ended September 30, 2017, compared to $199.7 million during the same period in 2016 as follows (dollars in thousands):~~

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
%

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

During the nine months ended September 30, 2017 the Company recorded gross losses and LAE of $452.0 million resulting from Hurricane Irma. The Company’s reinsurance program limited losses from Hurricane Irma to $37 million adding 7.3 percentage points to the net losses and LAE ratio for the nine-month period ended September 30, 2017. 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 all 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 $230.1 million for the nine months ended September 30, 2017, compared to $199.7 million during the same period in 2016. The increase reflects general growth and an increase in the underlying losses and LAE ratio of 3.03.4 percentage points.

~~The trend in the Company’s~~ Our underlying ~~losses~~policy acquisition costs continued to be driven by increased premium volume and ~~LAE ratio presented in the table above reflects~~ continued geographic expansion into states ~~outside of Florida where non-catastrophe loss ratios are generally~~that typically have 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 $171.6 million for the nine months ended September 30, 2017,~~commission rates as compared to ~~$166.8 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 of the above items, the expense ratio ~~as a percentage of net earnings~~ decreased to ~~34.0%~~30.4% for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 compared to ~~35.6%~~33.9% for the same period in ~~2016.~~2017.

Income tax expense decreased by $3.4 million, or 18.2%, for the ~~nine~~three months ended ~~September~~June 30, ~~2017 decreased by $13.0 million, or 24.0%,~~2018, when compared towith the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2017. Our effective tax rate decreased to 24.8% for the three months ended June 30, 2018, as compared to 38.7% for the three months ended June 30, 2017. The decrease in both income tax expense and our effective tax rate is primarily ~~as a~~the result of the enactment of the Tax Act. The second quarter of 2018 included a ~~decrease in income before income taxes, offset by the benefit derived from two discrete items.~~ ~~The first was a~~net credit to income tax expense of ~~$0.8~~$0.6 million ~~for~~primarily driven by the excess tax benefits resulting from stock-based awards that vested and/or were exercised during the ~~nine~~second quarter, thereby benefitting the quarter’s effective tax rate by 1.0 percentage points. See “Item 1 – Note 9 (Income Taxes)” for an explanation of the change in our effective tax rates.

Other comprehensive loss, net of taxes for the three months ended ~~September~~June 30, 2018 was $1.8 million compared to other comprehensive income of $1.5 million for the same period in 2017. See “Item 1 — Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income and loss for these periods.

Results of Operations — Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Net income was $86.1 million, an increase of $25.6 million, or 42.2%, for the six months ended June 30, 2018, compared to $60.6 million for the six months ended June 30, 2017. The increase is the result of double digit revenue growth, continued underwriting profitability, and a reduced effective tax rate. Diluted earnings per common share increased by $0.74 to $2.42 for the six months ended June 30, 2018, compared to $1.68 per share for the six months ended June 30, 2017, reflecting the increase in net income and a slight reduction in our weighted average diluted common shares outstanding. A detailed discussion of our results of operations follows the table below.

	(in thousands)
	Six Months Ended
	June 30,						Change
	2018			2017			$			%
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	612,765		$	541,606		$	71,159			13.1	%
Change in unearned premium		(76,477	)		(60,608	)		(15,869	)		26.2	%
Direct premium earned		536,288			480,998			55,290			11.5	%
Ceded premium earned		(161,439	)		(150,430	)		(11,009	)		7.3	%
Premiums earned, net		374,849			330,568			44,281			13.4	%
Net investment income (expense)		10,571			5,927			4,644			78.4	%
Net realized gains (losses) on sale of securities		(2,496	)		1,647			(4,143	)	NM
Net change in unrealized gains (losses) of equity securities		(6,630	)		—			(6,630	)	NM
Commission revenue		10,980			9,242			1,738			18.8	%
Policy fees		10,539			9,733			806			8.3	%
Other revenue		3,475			3,244			231			7.1	%
Total premiums earned and other revenues		401,288			360,361			40,927			11.4	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		165,768			150,754			15,014			10.0	%
General and administrative expenses		122,573			114,313			8,260			7.2	%
Total operating costs and expenses		288,341			265,067			23,274			8.8	%
INCOME BEFORE INCOME TAXES		112,947			95,294			17,653			18.5	%
Income tax expense		26,808			34,719			(7,911	)		-22.8	%
NET INCOME	$	86,139		$	60,575		$	25,564			42.2	%
Other comprehensive income (loss), net of taxes		(5,899	)		3,950			(9,849	)	NM
COMPREHENSIVE INCOME	$	80,240		$	64,525		$	15,715			24.4	%
DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share	$	2.42		$	1.68		$	0.74			44.0	%
Weighted average diluted common shares outstanding		35,636			36,061			(425	)		-1.2	%

Direct premiums written increased by $71.2 million, or 13.1%, for the six months ended June 30, 2018, driven by growth within our Florida business of $49.6 million, or 10.3%, as compared to the prior period, and growth in our Other States business of $21.5 million, or 34.8%, as compared to the prior period. Florida growth was driven by growth in policy count as well as the impact of an average statewide rate increase of 3.4%, which was approved in early December and effective for new business beginning on December 7, 2017 and for renewal business beginning on January 26, 2018. Geographic expansion efforts in our Other States business continued to add to overall premium levels, and we are now actively writing policies in 16 states other than our home state of Florida. We commenced operations and wrote our first policy in New Hampshire in early April 2018.

Direct premium earned increased by $55.3 million, or 11.5%, for the six months ended June 30, 2018, reflecting the earning of premiums written over the past 12 months and any changes in rates or policy count during that time.

Ceded premium earned increased by $11.0 million, or 7.3%, for the six months ended June 30, 2018, reflecting an increase in total insured value covered by our reinsurance program and the coverage terms of the reinsurance agreements in effect during the treaty

periods which begin on June 1 of each year and extend through May 31 of the following year. Ceded premium earned as a percent of direct premiums earned was 30.1% for the six months ended June 30, 2018 compared to 31.3% for the six months ended June 30, 2017.

Premiums earned, net grew by 13.4%, or $44.3 million, to $374.8 million for the six months ended June 30, 2018, reflecting the increase in direct earned premiums discussed above.

Net investment income was $10.6 million for the six months ended June 30, 2018, compared to $5.9 million for the same six-month period in 2017. The increase in net investment income of $4.6 million is primarily the result of an increase in investment income from our available-for-sale debt securities, which grew as a result of growth in total invested assets, favorable market trends and actions taken to increase yield while maintaining high credit quality. Also contributing to the increase in investment income is a higher level of return from our cash and cash equivalents due to actions taken to optimize treasury management coupled with an increase in interest rates on short-term investments. Total invested assets were $747.2 million with an average credit rating of AA- during the six months ended June 30, 2018 compared to $634.9 million with an average credit rating of AA- for the same period in 2017.

We sell investment securities from our investment portfolio including, equity securities and available for sale debt securities, from time to time when opportunities arise or circumstances could result in greater losses or lower yields if held. We sold investment securities available for sale and equity securities during the six months ended June 30, 2018, generating net realized losses of $2.5 million compared to net realized gains of $1.6 million for the six months ended June 30, 2017. The investment securities sold during the six months ended June 30, 2018 were comprised primarily of municipal securities, which were liquidated in light of their diminished after-tax returns following the enactment of the Tax Act.

During the first six months in 2018, the net change in unrealized gains (losses) of equity securities, was a loss of $6.6 million, driven by a decline in value of our equity securities portfolio. We highlight that this line item was added during the six months ended June 30, 2018, because of the adoption of new accounting guidance for equity securities. See “Note 2 - Significant Accounting Policies – Recently Adopted Accounting Pronouncements” for more information. The comparable change in unrealized gains (losses) within our equity portfolio for the prior period in 2017 was $1.1 million of pretax gains, which was not included in net income in the prior period, but was included in other comprehensive income (loss), which is presented net of taxes.

Commission revenue is comprised principally of brokerage commissions we earn from reinsurers on reinsurance placed for the Insurance Entities. For the six months ended June 30, 2018, commission revenue was $11.0 million, compared to $9.2 million for the six months ended June 30, 2017. The increase in commission revenue of $1.7 million, or 18.8%, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was primarily the result of $1.4 million of reinstatement commissions received by Blue Atlantic Reinsurance Corporation during the first six months ended of 2018.

Policy fees for the six months ended June 30, 2018, were $10.5 million compared to $9.7 million for the same period in 2017. The increase of $0.8 million, or 8.3%, was the result of an increase in the number of new and renewal policies written during the six months ended June 30, 2018 compared to the same period in 2017.

Other revenue, which represents revenue from premium financing and other miscellaneous income, was $3.5 million for the six months ended June 30, 2018 compared to $3.2 million for the same period in 2017.

Losses and LAE, net of reinsurance were $165.8 million for the six months ended June 30, 2018, compared to $150.8 million during the same period in 2017 as follows (dollars in thousands):

	Six Months Ended June 30, 2018
	Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio
Premiums earned	$	536,288				$	161,439					$	374,849

Loss and loss adjustment expenses:
Weather events*	$	5,000		0.9	%	$	—			—		$	5,000		1.3	%
Prior year adverse/(favorable) reserve development		162,050		30.2	%		159,784			99.0	%		2,266		0.6	%
All other losses and loss adjustment expenses		156,211		29.1	%		(2,291	)		(1.4	%)		158,502		42.3	%
Total losses and loss adjustment expenses	$	323,261		60.2	%	$	157,493			97.6	%	$	165,768		44.2	%

	Six Months Ended June 30, 2017
	Direct		Loss Ratio			Ceded		Loss Ratio			Net		Loss Ratio
Premiums earned	$	480,998				$	150,430				$	330,568

Loss and loss adjustment expenses:
Weather events*	$	9,000		1.9	%	$	—		—		$	9,000		2.7	%
Prior year adverse/(favorable) reserve development		6,890		1.4	%		5,685		3.8	%		1,205		0.4	%
All other losses and loss adjustment expenses		140,549		29.2	%		—		—			140,549		42.5	%
Total losses and loss adjustment expenses	$	156,439		32.5	%	$	5,685		3.8	%	$	150,754		45.6	%

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

For the six months ended June 30, 2018, we experienced $5.0 million of weather events beyond expectations (on both a direct and net basis), related to the eruption of the Kilauea volcano in Hawaii and several other meaningful weather-related events that occurred in 2018. This compares to losses and LAE (on both a direct and net basis) of $9.0 million from weather events beyond those expected for the six months ended June 30, 2017, including an increase to our underlying core loss ratio in 2017 to reflect an increase of unexpected weather-related losses.

During the second quarter in 2018, the Company increased its estimate of ultimate losses on Hurricane Irma to $603.5 million for both Insurance Entities from $446.7 million recorded in 2017. The prior year development of $156.8 million in gross losses resulted in a net retention benefit of $0.3 million after cessions to the Company’s reinsurers. The increase in the ultimate loss and LAE for Hurricane Irma was the result of a continuation of new reported claims and the aggressive nature of plaintiff attorneys on claims in Florida.

Also, the Company recorded prior year loss reserve development of $5.3 million on a direct basis, $2.6 million on a net basis, for the six months ended June 30, 2018, reflecting strengthening of reserves for the fourth quarter 2016 storm, Hurricane Matthew. Reserve strengthening on Hurricane Matthew is based on our revised estimate to settle the remaining 78 open claims. The six months ended June 30, 2017 included prior period loss reserve development of $6.9 million on a direct basis ($1.2 million on a net basis), also primarily reflecting strengthening of reserves for the fourth quarter 2016 storm, Hurricane Matthew.

All other net losses and LAE were $158.5 million for the six months ended June 30, 2018, compared to $140.5 million during the same period in 2017. Our service company subsidiaries, particularly UAC, generated additional revenues servicing Hurricane Irma claims and during the six months ended June 30, 2018 generated $18.9 million of earnings which reduced amounts recorded as losses and LAE in 2018. This had a favorable effect on our underlying loss and LAE ratio of approximately 3.5 percentage points on a direct basis (or 5.0 percentage points on a net basis). The Company’s underlying loss and LAE ratio reflects continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida, as well as the marketplace dynamics inside of Florida including challenges faced when policyholders assign their policy benefits to third parties including the increased litigation from these claims.

General and administrative expenses were $122.6 million for the six months ended June 30, 2018, compared to $114.3 million during the same period in 2017 as follows (dollars in thousands):

	Six Months Ended
	June 30,										Change
	2018					2017					$			%
	$		Ratio			$		Ratio
Premiums earned, net	$	374,849				$	330,568				$	44,281			13.4	%
General and administrative expenses:
Policy acquisition costs		71,588		19.1	%		65,450		19.8	%		6,138			9.4	%
Other operating costs		50,816		13.6	%		48,674		14.7	%		2,142			4.4	%
Interest expense		169		—			189		—			(20	)		(10.6	%)
Total general and administrative expenses (1)	$	122,573		32.7	%	$	114,313		34.5	%	$	8,260			7.2	%

The increase in general and administrative expenses of $8.3 million was primarily the result of increases in policy acquisition costs of $6.1 million, which were driven by increased premium volume and continued geographic expansion into states that have higher typical commission rates compared to our home state of Florida, and to a lesser extent due to an increase in other operating costs of $2.1 million. General and administrative expenses for the six months ended June 30, 2018 included a $6.5 million benefit (included within policy acquisition costs) related to a settlement of prior year premium tax audits with the Florida Department of Revenue, which reduced the expense ratio by 1.7 percentage points. Our underlying policy acquisition costs continued to be driven by increased premium volume and continued geographic expansion into states where the comparable commission rates are higher than 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 of the above items, the expense ratio decreased to 32.7% for the six months ended June 30, 2018 compared to 34.5% for the same period in 2017.

Income tax expense decreased by $7.9 million, or 22.8%, for the six months ended June 30, 2018, when compared with the six months ended June 30, 2017. Our effective tax rate decreased to 23.7% for the six months ended June 30, 2018, as compared to 36.4% for the six months ended June 30, 2017. The decrease in both income tax expense and our effective tax rate is primarily the result of the enactment of the Tax Act. The six months ended June 30, 2018 included a net credit to income tax expense ~~represents~~of $2.3 million primarily driven by excess tax benefits resulting from stock-based awards that vested and/or were exercised during the ~~application~~six months ended June 30, 2018, thereby benefitting the six month ended June 30, 2018 effective tax rate by 2.0 percentage points. Discrete items for the six months ended June 30, 2017 included $0.8 million of ~~a new accounting pronouncement. Prior to 2017,~~ excess tax benefit benefits resulting from stock-based awards that had vested and/or were ~~recorded in stockholders’ equity. The other discrete item is~~exercised during that period and a credit to income tax expense of $1.2 million resulting from anticipated recoveries of income taxes paid from 2014 and 2015, thereby benefitting the six months ended June 30, 2017 effective tax rate by 1.9 percentage points. See “Item 1 – Note 9 (Income Taxes)” for an explanation of the ~~2014-2015 tax years. Collectively, these discrete items, lowered~~change in our effective tax ~~rate to~~ ~~37.0%~~ ~~for the nine months ended September 30, 2017~~ ~~as compared to 38.8% for the nine months ended nine months ended September 30, 2016.~~rates.

Other comprehensive ~~income,~~loss, net of taxes for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~$4.2~~$5.9 million compared to ~~$5.6~~other comprehensive income of $4.0 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.2017. See “Item 1 — Note 11 (Other Comprehensive Income (Loss)).” for additional information about the amounts comprising other comprehensive income and loss for these periods.

Analysis of Financial Condition—As of ~~September~~June 30, ~~2017~~2018 Compared to December 31, ~~2016~~2017

We believe that 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 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):

					As of
	September 30,		December 31,		June 30,		December 31,
Type of Investment	2017		2016		2018		2017
Fixed maturities	$	609,179	$	584,361
Available-for-sale debt securities					$	656,762	$	639,334
Available-for-sale short-term investments						—		10,000
Equity securities		26,075		50,803		70,866		62,215
Short-term investments		—		5,002
Investment real estate, net		16,324		11,435		19,539		18,474
Total	$	651,578	$	651,601	$	747,167	$	730,023

See “Item 1 —Condensed Consolidated Statements of Cash Flows” for explanations of changes in investments.

Prepaid reinsurance premiums represent the portion of unearned ceded written premiums that will be earned pro-rata over the coverage period inof our reinsurance program, which runs from June 1 to May 31 of the ~~future.~~following year. The increase of ~~$88.1~~$177.8 million to ~~$212.5~~$310.6 million as of ~~September~~June 30, ~~2017,~~2018 was due ~~primarily~~ to additional ceded written premium of $338.9 million recorded this quarter for the reinsurance costs relating to our ~~2017-2018~~new 2018-2019 catastrophe reinsurance program beginning June 1, ~~2017.~~2018 less amortization recorded during the period.

Reinsurance recoverable represents the estimated amount of losses and ~~LAE~~loss adjustment expenses that are recoverable from reinsurers. The ~~increase~~decrease of ~~$412.6~~$64.6 million to ~~$412.7~~$117.9 million as of ~~September~~June 30, ~~2017~~2018 was primarily due to the settlement of amounts due from reinsurers for claims ceded to reinsurers relating to Hurricane ~~Irma.~~Irma and to a lesser extent Hurricane Matthew.

Premiums receivable, net represents amounts receivable from policyholders. The increase in premiums receivable, net of ~~$12.9~~$10.7 million to ~~$66.7~~$67.2 million as of ~~September~~June 30, ~~2017~~2018 relates to both the growth in and seasonality of the Company’s ~~business including increased consumer demand during storm periods.~~business.

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~~six months ended ~~September~~June 30, ~~2017,~~2018, deferred tax assets decreased by ~~$5.4~~$9.1 million to ~~$5.3~~$0.2 million, primarily due to an increase in deferred policy acquisition costs and ~~decrease~~an increase in ~~unrealized gains and losses.~~ceded unearned premiums.

Deferred policy acquisition costs increased ~~$11.0~~by $15.7 million to ~~$75.9~~$88.8 million as of ~~September~~June 30, ~~2017,~~2018, which is in line with the underlying premium growth. See “Item 1 — Note 5 (Insurance Operations)” for a roll-forward in the balance of our deferred policy acquisition costs.

Income taxes recoverable increased ~~$15.9~~by $2.4 million to ~~$19.2~~$11.8 million as of ~~September~~June 30, ~~2017,~~2018, from ~~$3.3~~$9.5 million as of December 31, ~~2016.~~2017. The 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~~June 30, ~~2017~~2018 were ~~$19.2~~$11.8 million, which represents amounts recoverable or to be applied to future periods for federal and state income taxes.

See “Item 1 — Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for a roll-forward in the balance of our unpaid losses and ~~LAE.~~loss adjustment expenses. Unpaid losses and ~~LAE increased $381.9~~loss adjustment expenses decreased by $96.5 million to ~~$440.4~~$151.9 million as of ~~September~~June 30, ~~2017.~~2018. The ~~increase~~reduction in unpaid losses and loss adjustment expenses was principally due to the settlement of Hurricane Irma claims that were unpaid as of December 31, 2017, ~~was a result of~~offset from losses ~~recorded~~incurred from weather related activity and other claims in ~~the third quarter of 2017 for Hurricane Irma.~~2018. Unpaid losses and ~~LAE~~loss adjustment expenses 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 written ~~premiums~~premium that will be earned pro rata in the future. The increase of ~~$80.5~~$76.5 million to ~~$556.3~~$608.9 million as of ~~September~~June 30, ~~2017~~2018 reflects both organic growth and seasonality of our business~~including increased consumer demand during storm periods~~ as described under “– Overview”.

Advance premium represents premium payments made by policyholders ahead of the effective date of the policies. The increase of ~~$10.9~~$12.0 million to ~~$28.7~~$38.2 million as of ~~September~~June 30, ~~2017~~2018 reflects both organic growth and seasonality of our business ~~including increased consumer demand during storm periods~~as described under “– Overview”.

Book overdrafts represent outstanding checks or drafts in excess of cash on deposit and are examined to determine if a legal right of offset exists for accounts within the same banking institution at each balance sheet date. The Company maintains a short-term cash investment sweep to maximize investment returns on cash balances. Due to sweep activities, certain outstanding items are recorded as book overdrafts which totaled $3.0 million as of June 30, 2018 compared to $36.7 million as of December 31, 2017. The decrease of $33.7 million is the result of higher cash balances available for offset as of June 30, 2018 and to a lesser amount less outstanding items as of June 30, 2018 compared to December 31, 2017 due to lower Hurricane Irma drafts outstanding.

Reinsurance payable, net ~~increased $260.5 million to $341.4 million as of September 30, 2017 and is comprised of~~represents the unpaid ~~amounts~~ceded written premiums owed to reinsurers in connection with the renewal of the Company’s ~~2017/2018~~2018-2019 catastrophe reinsurance program ~~which began~~on June 1, ~~2017. It also includes $114 million in~~2018, unpaid reinstatement premiums and cash advances received from reinsurers in connection with Hurricane Irma’s anticipated recoveries.

~~Other liabilities and accrued expenses~~ The balance increased ~~$10.0~~by $231.5 million to $341.9 million as of June 30, 2018 as a result of ~~increased expenses that relate~~the above items. Ceded premiums for the 2018-2019 catastrophe reinsurance program are paid in installments over the June 1 to ~~Hurricane Irma and costs, such as commissions and taxes, related to increases in our business.~~

~~Dividend payable represents the unpaid dividends liability of $0.14 per share declared on August~~May 31 ~~2017, based on shareholders of record on September 12, 2017 and payable on October 24, 2017.~~policy term.

Capital ~~Resources~~resources, net increased ~~net $47.6~~by $51.3 million and includes increases in stockholders’ equity of ~~$49.4~~$52.0 million, offset by reduction in long-term debt of ~~$1.8~~$0.7 million. The increases in stockholders’ equity was principally the result of ~~2017~~$86.1 million of 2018 net income and $4.7 million of stock-based compensation, offset by $11.1 million in treasury stock purchases, and $15.4 million in dividends to ~~shareholders and stock based compensation.~~shareholders. The reduction in long-term debt was the result of principal payments on debt during ~~2017.~~2018. See “– Liquidity and Capital Resources” and “Item 1 – Note 8 (Stockholders’ Equity)” for explanation of changes in treasury stock.

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet its short and long-term obligations. Funds generated from operations have been sufficient to meet our liquidity requirements and we expect that, in the future, funds from operations will continue to meet such requirements.

The balance of cash and cash equivalents as of ~~September~~June 30, ~~2017~~2018 was ~~$366.2~~$311.1 million compared to ~~$105.7~~$213.5 million at December 31, ~~2016.~~2017. See “Item 1 — Condensed Consolidated Statements of Cash Flows” for a reconciliation of the balance of cash and cash equivalents between ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The increase in cash and cash equivalents was driven by ~~significant~~ cash flows generated from operating ~~and investing~~ activities in excess of those used for investing and financing activities. The ~~increase~~Company maintains a short-term investment cash sweep to maximize investment returns on cash balances. Due to the sweep activities, certain outstanding items were recorded as “Book Overdraft” in ~~cash balances at September 30, 2017 also includes $114.0 million of advance payments received from reinsurers, (“cash calls”) available under~~ the ~~Company’s reinsurance program. Most of the balance of cash~~Consolidated Financial Statements. Cash and cash equivalents ~~maintained is~~balances are available ~~for the payment of claims~~to settle book overdrafts, pay expenses and ~~operation of the Company.~~pay claims.

The balance of restricted cash and cash equivalents as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 includes cash equivalents on deposit with regulatory agencies in the various states in which our Insurance Entities do business.

Liquidity for UVE and its non-insurance subsidiaries is required to cover the payment of general operating expenses, dividends to shareholders (if and when authorized and declared by our Board of Directors), payment for the possible repurchase of our common stock (if and when authorized by our Board of Directors), payment of income taxes, and interest and principal payments on outstanding debt obligations, if any. The declaration and payment of future dividends by UVE to its shareholders, and any future repurchases of UVE common stock, will be at the discretion of our Board of Directors and will depend upon many factors, including our operating results, financial condition, debt covenants and any regulatory constraints. Principal sources of liquidity for UVE and its non-insurance subsidiaries include revenues generated from fees paid by the Insurance Entities to affiliated companies for policy administration, inspections and claims adjusting services. Additional sources of liquidity include brokerage commissions earned on reinsurance contracts and policy ~~fees and any unused credit lines.~~fees. UVE also maintains certain other investments, ~~in equity securities,~~ which are a source of ongoing interest and dividend income and would generate funds upon sale. As discussed in “Item 1 – Note 5 (Insurance Operations),” there are limitations on the dividends the Insurance Entities may pay to their immediate parent company, Universal Insurance Holding Company of Florida (“UVECF”).

The maximum amount of dividends that can be paid by Florida insurance companies without prior approval of the Commissioner of the FLOIR is subject to restrictions as referenced in “Item I – Note 5 – Insurance Operations.” During the ~~nine~~six months ended ~~September~~June 30, ~~2017, UPCIC paid $30.0 million in dividends to UVECF. The~~2018, the Insurance Entities did not pay dividends to ~~UVECF during the year ended December 31, 2016.~~UVECF. During 2017 UPCIC paid a $30 million dividend to UVECF.

Liquidity for the Insurance Entities is primarily required to cover payments for reinsurance premiums, claims payments including potential payments of catastrophe losses ~~offset~~(offset by recovery of any reimbursement amounts under our reinsurance ~~agreements,~~agreements), fees paid to affiliates for managing general agency services, inspections and claims adjusting services, agent commissions, premiums and income taxes, regulatory assessments, general operating expenses, and interest and principal payments on debt obligations. The principal source of liquidity for the Insurance Entities consists of the revenue generated from the collection of net premiums, interest and dividend income from the investment portfolio, ~~and~~ the collection of reinsurance ~~recoverable.~~recoverable, and financing fees.

Our insurance operations provide liquidity in that premiums are generally received months or even years before losses are paid under the policies written. In the event of catastrophic events, many of the Company’s reinsurance agreements provide for “cash ~~calls”~~advance” whereby reinsurers advance or prepay amounts to the Company, providing liquidity, which the Company utilizes in the claim settlement process. ~~At September 30, 2017 reinsurers advanced $114 million to~~In addition, the ~~Company for Hurricane Irma claims. The~~ Insurance Entities maintain substantial investments in highly liquid, marketable securities, which would generate funds upon sale.

The Insurance Entities are responsible for losses related to catastrophic events in excess of coverage provided by the Insurance Entities’ reinsurance programs ~~and~~or retentions before the Company’s reinsurance protection commences. Also, the Insurance Entities are responsible for all other losses that otherwise may not be covered by the reinsurance ~~programs.~~programs and any amounts arising in the event of a reinsurer default. Losses or a reinsurer default may have a material adverse effect on either of the Insurance Entities or our business, financial condition, results of operations and liquidity.

Capital resources provide protection for policyholders, ~~provide for~~furnish the financial strength to support the business of underwriting insurance risks, and ~~support~~facilitate continued business growth. ~~At September 30, 2017, we had total capital of $433.8 million~~, ~~comprised of stockholders’~~The following table provides our stockholder equity, of ~~$420.6~~ ~~million and~~ total long-term debt, ~~of $13.2 million. Our debt-to-total-capital~~total capital, debt-to-equity capital ratio and debt-to-equity ratio were 3.0% and 3.1%, respectively, at September 30, 2017. At December 31, 2016, we had total capital of $386.2 million, comprised of stockholders’ equity of $371.2 million and total long-term debt of $15.0 million. Our debt-to-total-capital ratio and debt-to-equity ratio were 3.9% and 4.0%, respectively, at December 31, 2016.for the periods presented (dollars in thousands):

As described in our Form 10-K for the year ended December 31, ~~2016,~~2017, UPCIC entered into a surplus note with the State Board of Administration of Florida under Florida’s Insurance Capital Build-Up Incentive Program on November 9, 2006. The surplus note has a twenty-year term, with quarterly payments of principal and interest that ~~accrues~~accrue per the terms of the note agreement. At ~~September~~June 30, ~~2017,~~2018, UPCIC was in compliance with the terms of the surplus note. Total adjusted capital surplus, which includes the surplus note, was in excess of regulatory requirements for both UPCIC and APPCIC.

On September 5, 2017, our Board of Directors authorized the repurchase of up to $20 million of the Company’s outstanding common stock through December 31, 2018. The Company may repurchase shares from time to time at its discretion, based on ongoing assessments of the capital needs of the Company, the market price of its common stock and general market conditions. The Company will fund the share repurchase program with cash from operations. ~~At September 30, 2017, there were two authorized repurchase plans in effect:~~

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we repurchased an aggregate of ~~760,559~~342,749 shares of UVE’s common stock in the open market at an aggregate cost of ~~$17.9~~$11.1 million. Also, see “Part II, Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds” for share repurchase activity during the three months ended ~~September~~June 30, ~~2017.~~2018.

~~On January 23, 2017, we~~The following table summarizes the dividends declared ~~a cash dividend of $0.14 per share on our outstanding common stock, which was paid on March 2, 2017, to~~by the ~~shareholders of record at the close of business on February 17, 2017.~~Company:

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

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

The following table represents our contractual obligations for which cash flows are fixed or determinable as of ~~September~~June 30, ~~2017~~2018 (in thousands):

			Less than						Over				Less than						Over
	Total		1 year		1-3 years		3-5 years		5 years		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	$	151,916	$	77,477	$	43,904	$	23,851	$	6,684
Long-term debt		14,624		1,322		5,100		3,233		4,969		13,561		1,347		5,160		3,237		3,817
Total contractual obligations	$	455,067	$	283,206	$	132,388	$	26,136	$	13,337	$	165,477	$	78,824	$	49,064	$	27,088	$	10,501

Other than as disclosed in “Item 1 — Note 2 (Significant Accounting Policies),” there have been no material changes during the period covered by this Quarterly Report on Form 10-Q to Critical Accounting Policies and Estimates previously disclosed in 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 year ended December 31, ~~2016.~~2017.

In ~~March 2017,~~June 2016, the Financial Accounting Standards Board (“FASB”) ~~issued guidance~~revised U.S. GAAP with the issuance of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments -Credit Losses (Topic 326) that introduces a new process for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new ASU will apply to: 1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, 2) loan commitments and certain other off-balance sheet credit exposures, 3) debt securities and other financial assets measured at fair value through other comprehensive income, and 4) beneficial interests in securitized financial assets. The ASU changes the current practice of recording a permanent write down, (other than temporary impairment), for probable credit losses, which is more restrictive than the new ASU requirement that would estimate credit losses, then recorded through a temporary allowance account that can be re-measured as estimated credit losses change. The ASU further limited estimated credit losses relating to available for sale securities to the amount which fair value is below amortized cost. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

In March 2017, FASB revised U.S. GAAP with the issuance of ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs to amend the amortization period for certain purchased callable debt securities held at a premium. Current U.S. GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. ~~Thus, the exercise of a call on a callable debt security held at a premium can result in the unamortized premium recorded at a loss in earnings.~~ The ~~guidance~~new ASU shortens the amortization period of certain purchased callable debt securities to the earliest call date. The ~~guidance~~ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Under the current ~~guidance,~~U.S. GAAP, you could consider the call dates and estimate if you had a large number of similar securities and you were basing your judgment on actual experience. Our service provider (who processes the accounting for our investment transactions) has many similar securities on their system and can make that type of determination. As a result, we currently account for the amortization under the proposed ~~guidance~~ASU and there will be no impact to our results of operations, financial position or liquidity.

In November 2016, the FASB issued guidance intended to reduce diversity in the classification and presentation of changes in restricted cash in the statement of cash flows. The new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The balance of restricted cash is currently not material and is not expected to be material and we will comply with the new guidance requirements at the time of adoption. The adoption of this guidance will result in a change in the presentation only in the statement of cash flows and will impact our results of operations, financial position or liquidity.

In August 2016, the FASB issued guidance intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new guidance will apply to: 1) debt prepayment or debt extinguishment costs, 2) settlement of zero-coupon debt instruments, 3) contingent consideration payments made after business combination, 4) proceeds from the settlement of insurance claims, 5) proceeds from the settlement of corporate-owned life insurance policies, 6) distributions received from equity method investments, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows and application of the predominance principle. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Historically, the items outlined above have not been applicable to the Company. Should they occur in the future, we will address them in accordance with the new guidance upon and subsequent to adoption.

In June 2016, the FASB issued guidance that introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new guidance will apply to: 1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, 2) loan commitments and certain other off-balance sheet credit exposures, 3) debt securities and other financial assets measured at fair value through other comprehensive income, and 4) beneficial interests in securitized financial assets. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact that this standard will have on our consolidated financial statements.

In January 2016, the FASB issued guidance on recognition and measurement of financial instruments. The new guidance requires certain equity investments to be measured at fair value with changes in fair value reported in earnings and requires changes in instrument-specific credit risk for financial liabilities recorded at fair value under the fair value option to be reported in other comprehensive income (“OCI”). The new guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted for the provisions related to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in OCI. The adoption of this guidance will impact how we account for unrealized gains and losses for equity investments and may result in a change of presentation in the statement of cash flows and is expected to impact our results of operations.

Market risk is the potential for economic losses due to adverse changes in fair value of ~~fixed maturities,~~available-for-sale debt securities, available-for-sale short-term investments and equity securities ~~and short-term investments~~ (“Financial Instruments”) and investment real estate. We carry all of our Financial Instruments at market value and investment real estate at net book value in our statement of financial condition. Our investment portfolio as of ~~September~~June 30, ~~2017~~2018 is comprised of ~~fixed maturities~~available-for-sale debt securities and equities securities, which ~~thereby~~ expose us to changes in interest rates and equity prices.

The primary objectives of the investment portfolio are the preservation of capital and providing adequate liquidity for claims payments and other cash needs. The portfolio’s secondary investment objective is to provide a total rate of return with an emphasis on investment income. None of our investments in risk-sensitive Financial Instruments were entered into for trading purposes.

See “Item 1 – Note 3 (Investments)” for more information about our Financial Instruments.

Interest rate risk is the sensitivity of a fixed-rate Financial Instrument to changes in interest rates. ~~When~~Generally, when interest rates rise, the fair value of our fixed-rate Financial Instruments declines.

The following table provides information about our fixed income Financial Instruments, which are sensitive to changes in interest rates. The table presents cash flows of principal amounts and related weighted average interest rates by expected maturity dates for ~~fixed income~~ Financial Instruments available for sale as of the dates presented (in thousands):

	September 30, 2017																											June 30, 2018
	Amortized Cost																								Fair Value			Amortized Cost																								Fair Value
	2017			2018			2019			2020			2021			Thereafter			Other (1)			Total			Total			2018			2019			2020			2021			2022			Thereafter			Other (1)			Total			Total
Fixed income Financial Instruments	$	5,063		$	45,502		$	84,654		$	57,499		$	59,236		$	125,946		$	232,657		$	610,557		$	609,179		$	12,530		$	77,593		$	54,579		$	66,940		$	23,587		$	179,385		$	254,254		$	668,868		$	656,762
Weighted average interest rate		2.10	%		2.36	%		1.95	%		2.16	%		2.19	%		4.16	%		3.06	%		2.90	%		2.90	%		1.81	%		1.76	%		2.04	%		2.15	%		2.46	%		3.53	%		3.22	%		2.88	%		2.88	%

	December 31, 2016																											December 31, 2017
	Amortized Cost																								Fair Value			Amortized Cost																								Fair Value
	2017			2018			2019			2020			2021			Thereafter			Other (1)			Total			Total			2018			2019			2020			2021			2022			Thereafter			Other (1)			Total			Total
Fixed income Financial Instruments	$	48,919		$	46,183		$	84,855		$	41,500		$	57,071		$	88,861		$	229,072		$	596,461		$	589,363		$	51,846		$	85,309		$	61,215		$	60,968		$	27,832		$	132,530		$	234,015		$	653,715		$	649,334
Weighted average interest rate		2.03	%		2.41	%		1.87	%		2.15	%		2.26	%		4.53	%		2.96	%		2.79	%		2.78	%		1.87	%		1.82	%		2.18	%		2.16	%		2.76	%		4.02	%		3.08	%		2.83	%		2.83	%

The tables above represent average contract rates that differ from the book yield of the ~~fixed maturities.~~available-for-sale debt securities. The fixed income Financial Instruments in our available for sale portfolio are comprised of United States government and agency securities, corporate bonds, municipal bonds, redeemable preferred stock, mortgage-backed and asset-backed ~~securities, municipal~~ securities and certificates of deposit. Duration is a measure of interest rate sensitivity expressed as a number of years. The weighted average duration of the fixed ~~maturity~~income Financial Instruments in our available for sale portfolio at ~~September~~June 30, ~~2017~~2018 was ~~2.9~~ ~~years~~.2.8 years.

To a lesser extent, we also have exposure to interest on our debt obligation which is in the form of a surplus note. The surplus note accrues interest at an adjustable rate based on the 10-year Constant Maturity Treasury rate.

Equity price risk is the potential for loss in fair value of Financial Instruments in common stock and mutual funds from adverse changes in the prices of those Financial Instruments.

The following table provides information about the Financial Instruments in our ~~available for sale~~investment portfolio subject to price risk as of the dates presented (in thousands):

	September 30, 2017					December 31, 2016					June 30, 2018					December 31, 2017
	Fair Value		Percent			Fair Value		Percent			Fair Value		Percent			Fair Value		Percent
Equity Securities:
Common stock	$	5,683		21.8	%	$	93		0.2	%	$	22,320		31.5	%	$	18,811		30.2	%
Mutual funds		20,392		78.2	%		50,710		99.8	%		48,546		68.5	%		43,404		69.8	%
Total equity securities	$	26,075		100.0	%	$	50,803		100.0	%	$	70,866		100.0	%	$	62,215		100.0	%

A hypothetical decrease of 20% in the market prices of each of the equity securities held at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 would have resulted in a decrease of ~~$5.2~~$14.2 million and ~~$10.2~~$12.4 million, respectively, in the fair value of those securities.

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017,~~2018, to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.

There was no change in the Company’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal matters when those matters present loss contingencies that are both probable and estimable.

~~In the opinion of management, there~~There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

~~A summary~~The table below presents our purchases of ~~UVE’s repurchases of~~UVE common stock ~~for~~during the three months ended ~~September~~June 30, ~~2017 is as follows:~~2018.

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

					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)
4/1/18 - 4/30/18		40,000	$	32.91		40,000		—
5/1/18 - 5/31/18		200,000	$	33.46		200,000		—
6/1/18 - 6/30/18		10,000	$	35.41		10,000		247,436
Total		250,000	$	33.45		250,000		247,436

~~In June 2016, we announced that~~We may repurchase shares from time to time at our discretion, based on ongoing assessments of our capital needs, the ~~Board~~market price of ~~Directors authorized a~~our common stock and general market conditions. The Company will fund the share repurchase program ~~under which the Company may repurchase in the open market in compliance~~ with Exchange Act Rule 10b-18 under the Securities Exchange Act of 1934, as amended, up to $20 million of its outstanding shares of common stock through December 31, 2017. Since June 2016, we have repurchased 859,488 shares of common stock pursuant to this program through September 30, 2017.cash from operations.

In September 2017, our Board of Directors ~~authorized~~approved a share repurchase program ~~under which the Company may repurchase~~authorizing us to purchase up to $20 million of our outstanding common stock in the open market in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, ~~up to $20 million of its outstanding shares of common stock~~ through December 31, 2018. ~~We did not repurchase any~~

Since September 2017, we repurchased 350,941 shares of our ~~shares of~~ common stock ~~under~~pursuant to this program ~~in September 2017.~~through June 30, 2018 at an aggregate cost of approximately $11.3 million.

~~(1) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on June 19, 2017.~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Page No.

Item 1.	Financial Statements:	4

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2018 (unaudited) and December 31, ~~2016 (unaudited)~~2017	4

	Condensed Consolidated Statements of Income for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 (unaudited)	5

	Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2627

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	4447

Item 4.	Controls and Procedures	4549

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	4549

Item 1A.	Risk Factors	4650

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4650

Item 6.	Exhibits	4751

Signatures		4852

	Dividend	Shareholders	Dividend	Cash Dividend
2018	Declared Date	Record Date	Payable Date	Per Share Amount
First Quarter	January 22, 2018	February 28, 2018	March 12, 2018	$	0.14
Second Quarter	April 12, 2018	April 27, 2018	May 4, 2018	$	0.14
Third Quarter	May 29, 2018	July 2, 2018	July 16, 2018	$	0.16

	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

	June 30, 2018				December 31, 2017
			(Level 3)				(Level 3)
			Estimated Fair				Estimated Fair
	Carrying Value		Value		Carrying Value		Value
Liabilities (debt):
Surplus note	$	12,132	$	10,823	$	12,868	$	11,630

	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

	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	%

Exhibit No.		Exhibit

~~3.1~~		~~Amended and Restated Bylaws of Universal Insurance Holdings, Inc. (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		Instance Document

101.SCH-XBRL		Taxonomy Extension Schema Document

101.CAL-XBRL		Taxonomy Extension Calculation Linkbase Document

101.DEF-XBRL		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~~July 27, 2018					/s/ Sean P. Downes
					Sean P. Downes, Chief Executive Officer and Principal Executive Officer

Date: ~~November 9, 2017~~July 27, 2018					/s/ Frank C. Wilcox
					Frank C. Wilcox, Chief Financial Officer and Principal Accounting Officer

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