UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended June 30, ~~2018~~

2019

☐

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

For the transition period from to

Commission File Number 001-33251

UNIVERSAL INSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

~~Delaware~~		~~65-0231984~~

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

1110 W. Commercial Blvd., Fort Lauderdale, Florida33309

(Address of principal executive offices)

~~(954)~~

(954) 958-1200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	UVE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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.



Large accelerated filer	☒	☒	Accelerated filer	☐

Non-accelerated filer	☐	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

			Emerging growth company	☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~34,872,073~~34,160,015 shares of common stock, par value $0.01 per share, outstanding on July ~~23, 2018~~.

29, 2019.

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS

~~PART I – FINANCIAL INFORMATION~~

						~~Page No.~~

~~Item 1.~~				~~Financial Statements:~~PART I – FINANCIAL INFORMATION		4
				Page No.
Item 1.	Financial Statements:	4
	Condensed Consolidated Balance Sheets as of June 30, ~~2018 (unaudited)~~2019 and December 31, ~~2017~~2018 (unaudited)		4

		Condensed Consolidated Statements of Income for the three and six-month periods ended June 30, 2019 and 2018 ~~and 2017~~ (unaudited)		5

		Condensed Consolidated Statements of Comprehensive Income for the three and six-month periods ended June 30, 2019 and 2018 ~~and 2017~~ (unaudited)		5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six-month periods ended June 30, 2019 and 2018 (unaudited)			6
		Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2019 and 2018 ~~and 2017~~ (unaudited)		6 8

		Notes to Condensed Consolidated Financial Statements (unaudited)		7 9

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		27 29

Item 3.		Quantitative and Qualitative ~~Disclosure~~Disclosures about Market Risk		47 43

Item 4.		Controls and Procedures		49 45

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings			45
Item 1. 1A.	Risk Factors	~~Legal Proceedings~~45		49

~~Item 1A.~~		~~Risk Factors~~		50

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		50 45
Item 6.	Exhibits			47
~~Item 6.~~ Signatures			~~Exhibits~~48		51

~~Signatures~~				52

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of

Universal Insurance Holdings, Inc. and Subsidiaries

Fort Lauderdale, Florida

We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries (the “Company”) as of June 30, ~~2018~~2019 and the related condensed consolidated statements of income, ~~and~~ comprehensive income, and stockholders’ equity for the three-month and six-month periods ended June 30, ~~2018~~2019 and ~~2017~~2018 and the related condensed consolidated statement of cash flows for the six-month periods ended June 30, ~~2018~~2019 and ~~2017.~~2018. 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, ~~2017~~2018 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, 2018.~~March 1, 2019. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, ~~2017,~~2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Plante & Moran, PLLC

Chicago, Illinois

~~July 27, 2018~~

August 2, 2019

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except per share data)

As of

June 30,

December 31,

2018

2017

(unaudited)

ASSETS

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

19,539

18,474

Total invested assets

747,167

730,023

Cash and cash equivalents

311,088

213,486

Restricted cash and cash equivalents

2,635

2,635

Prepaid reinsurance premiums

310,618

132,806

Reinsurance recoverable

117,851

182,405

Reinsurance receivable, net

1,402

—

Premium receivable, net

67,186

56,500

Property and equipment, net

34,792

32,866

Deferred policy acquisition costs

88,756

73,059

Income taxes recoverable

11,839

9,472

Deferred income tax asset, net

177

9,286

Other assets

17,766

12,461

Total assets
$
1,711,277

$
1,454,999

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:

Unpaid losses and loss adjustment expenses
$
151,916

$
248,425

Unearned premiums

608,921

532,444

Advance premium

38,230

26,216

Accounts payable

2,778

2,866

Book overdraft

2,982

36,715

Reinsurance payable, net

341,912

110,381

Dividends payable

5,638

—

Other liabilities and accrued expenses

54,695

45,096

Long-term debt

12,132

12,868

Total liabilities

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

463

458

Authorized shares - 55,000

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

85,925

86,186

Accumulated other comprehensive income (loss), net of taxes

(9,161
)

(6,281
)
Retained earnings

531,085

464,748

Total stockholders' equity

492,073

439,988

Total liabilities and stockholders' equity
$
1,711,277

$
1,454,999



	As of
	June 30, 2019			December 31, 2018
ASSETS
Available-for-sale debt securities, at fair value (amortized cost: $863,021 and $831,127)	$	884,093		$	820,438
Equity securities, at fair value (amortized cost: $43,571 and $86,271)	42,368			63,277
Investment real estate, net	15,792			24,439
Total invested assets	942,253			908,154

Cash and cash equivalents	181,614			166,428
Restricted cash and cash equivalents	2,635			2,635
Prepaid reinsurance premiums	381,982			142,750
Reinsurance recoverable	331,567			418,603
Premium receivable, net	66,756			59,858
Property and equipment, net	40,498			34,991
Deferred policy acquisition costs	90,530			84,686
Income taxes recoverable	8,897			11,159
Deferred income tax asset, net	—			14,586
Other assets	17,391			14,540
Total assets	$	2,064,123		$	1,858,390
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses	$	288,296		$	472,829
Unearned premiums	650,388			601,679
Advance premium	39,471			26,222
Accounts payable	3,024			3,059
Book overdraft	25,649			102,843
Reinsurance payable, net	424,187			93,306
Dividends payable	5,517			—
Deferred income tax liability, net	5,079			—
Other liabilities and accrued expenses	45,784			45,422
Long-term debt	10,662			11,397
Total liabilities	1,498,057			1,356,757

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	467			465
Authorized shares - 55,000
Issued shares - 46,698 and 46,514
Outstanding shares - 34,160 and 34,783
Treasury shares, at cost - 12,538 and 11,731	(154,623		)	(130,399		)
Additional paid-in capital	90,226			86,353
Accumulated other comprehensive income (loss), net of taxes	15,929			(8,010		)
Retained earnings	614,067			553,224
Total stockholders’ equity	566,066			501,633
Total liabilities and stockholders’ equity	$	2,064,123		$	1,858,390

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

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

PREMIUMS EARNED AND OTHER REVENUES

Direct premiums written
$
342,781

$
296,191

$
612,765

$
541,606

Change in unearned premium

(68,754
)

(51,568
)

(76,477
)

(60,608
)

Direct premium earned

274,027

244,623

536,288

480,998

Ceded premium earned

(81,755
)

(75,614
)

(161,439
)

(150,430
)

Premiums earned, net

192,272

169,009

374,849

330,568

Net investment income (expense)

5,786

3,223

10,571

5,927

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

5,709

4,644

10,980

9,242

Policy fees

5,764

5,250

10,539

9,733

Other revenue

1,633

1,651

3,475

3,244

Total premiums earned and other revenues

209,788

185,487

401,288

360,361

OPERATING COSTS AND EXPENSES

Losses and loss adjustment expenses

89,842

80,184

165,768

150,754

General and administrative expenses

58,698

57,380

122,573

114,313

Total operating costs and expenses

148,540

137,564

288,341

265,067

INCOME BEFORE INCOME TAXES

61,248

47,923

112,947

95,294

Income tax expense

15,164

18,547

26,808

34,719

NET INCOME
$
46,084

$
29,376

$
86,139

$
60,575

Basic earnings per common share
$
1.32

$
0.84

$
2.47

$
1.73

Weighted average common shares outstanding - Basic

34,909

34,959

34,874

35,049

Diluted earnings per common share
$
1.29

$
0.82

$
2.42

$
1.68

Weighted average common shares outstanding - Diluted

35,589

35,958

35,636

36,061

Cash dividend declared per common share
$
0.14

$
0.14

$
0.28

$
0.28



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	357,960		$	342,781		$	647,194		$	612,765
Change in unearned premium	(54,852		)	(68,754		)	(48,709		)	(76,477		)
Direct premium earned	303,108			274,027			598,485			536,288
Ceded premium earned	(92,751		)	(81,755		)	(178,401		)	(161,439		)
Premiums earned, net	210,357			192,272			420,084			374,849
Net investment income	7,410			5,786			15,552			10,571
Net realized gains (losses) on investments	(1,605		)	145			(13,130		)	(2,496		)
Net change in unrealized gains (losses) of equity securities	3,759			(1,521		)	21,791			(6,630		)
Commission revenue	6,048			5,709			11,553			10,980
Policy fees	5,997			5,764			11,018			10,539
Other revenue	1,756			1,633			3,440			3,475
Total premiums earned and other revenues	233,722			209,788			470,308			401,288
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	113,296			89,842			226,390			165,768
General and administrative expenses	69,496			58,698			139,244			122,573
Total operating costs and expenses	182,792			148,540			365,634			288,341
INCOME BEFORE INCOME TAXES	50,930			61,248			104,674			112,947
Income tax expense	13,637			15,164			27,233			26,808
NET INCOME	$	37,293		$	46,084		$	77,441		$	86,139
Basic earnings per common share	$	1.09		$	1.32		$	2.24		$	2.47
Weighted average common shares outstanding - Basic	34,311			34,909			34,525			34,874
Diluted earnings per common share	$	1.08		$	1.29		$	2.22		$	2.42
Weighted average common shares outstanding - Diluted	34,612			35,589			34,903			35,636
Cash dividend declared per common share	$	0.16		$	0.14		$	0.32		$	0.28

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Net income
$
46,084

$
29,376

$
86,139

$
60,575

Other comprehensive income (loss), net of taxes

(1,849
)

1,486

(5,899
)

3,950

Comprehensive income
$
44,235

$
30,862

$
80,240

$
64,525



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Net income	$	37,293	$	46,084		$	77,441	$	86,139
Other comprehensive income (loss), net of taxes	11,955		(1,849		)	23,939		(5,899		)
Comprehensive income	$	49,248	$	44,235		$	101,380	$	80,240

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

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (unaudited)

(in thousands)



	Treasury Shares			Common Shares Issued		Preferred Shares Issued	Common Stock Amount			Preferred Stock Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Shares, at Cost			Total Stockholders’ Equity
Balance, December 31, 2018	(11,731	)		46,514		10	$	465		$	—	$	86,353		$	553,224		$	(8,010	)	$	(130,399	)	$	501,633
Vesting of performance share units	(56	)	⁽¹⁾	148		—	2			—		(2		)	—			—			(2,069		)	(2,069		)
Grants and vesting of restricted stock	(5	)	⁽¹⁾	25		—	—			—		—			—			—			(166		)	(166		)
Stock option exercises	(36	)	⁽¹⁾	84		—	1			—		1,438			—			—			(1,367		)	72
Retirement of treasury shares	97			(97	)	—	(1		)	—		(3,601		)	—			—			3,602			—
Purchases of treasury stock	(321	)		—		—	—			—		—			—			—			(10,117		)	(10,117		)
Share-based compensation	—			—		—	—			—		3,140			—			—			—			3,140
Net income	—			—		—	—			—		—			40,148			—			—			40,148
Change in net unrealized gains (losses), net of taxes	—			—		—	—			—		—			—			11,984			—			11,984
Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—			—		—	—			—		—			(5,575		)	—			—			(5,575		)
Balance, March 31, 2019	(12,052	)		46,674		10	467			—		87,328			587,797			3,974			(140,516		)	539,050
Grants and vesting of restricted stock	(14	)	⁽¹⁾	25		—	—			—		—			—			—			(402		)	(402		)
Stock option exercises	(14	)	⁽¹⁾	27		—	—			—		403			—			—			(414		)	(11		)
Retirement of treasury shares	28			(28	)	—	—			—		(816		)	—			—			816			—
Purchases of treasury stock	(486	)		—		—	—			—		—			—			—			(14,107		)	(14,107		)
Share-based compensation	—			—		—	—			—		3,311			—			—			—			3,311
Net income	—			—		—	—			—		—			37,293			—			—			37,293
Change in net unrealized gains (losses), net of taxes	—			—		—	—			—		—			—			11,955			—			11,955
Declaration of dividends for second quarter ($0.16 per common share and $0.25 per preferred share)	—			—		—	—			—		—			(5,547		)	—			—			(5,547		)
Declaration of dividends for third quarter ($0.16 per common share)	—			—		—	—			—		—			(5,476		)	—			—			(5,476		)
Balance, June 30, 2019	(12,538	)		46,698		10	$	467		$	—	$	90,226		$	614,067		$	15,929		$	(154,623	)	$	566,066

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

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

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(in thousands)



	Treasury Shares			Common Shares Issued		Preferred Shares Issued	Common Stock Amount			Preferred Stock Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Shares, at Cost			Total Stockholders’ Equity
Balance, December 31, 2017	(11,043	)		45,778		10	$	458		$	—	$	86,186		$	464,748		$	(6,281	)	$	(105,123	)	$	439,988
Cumulative effect of change in accounting principle (ASU 2016-01)	—			—		—	—			—		—			(3,601		)	3,601			—			—
Balance January 1, 2018	(11,043	)		45,778		10	458			—		86,186			461,147			(2,680		)	(105,123		)	439,988
Vesting of performance share units	(43	)	⁽¹⁾	127		—	1			—		(1		)	—			—			(1,273		)	(1,273		)
Grants and vesting of restricted stock	—			50		—	—			—		—			—			—			—			—
Stock option exercises	(568	)	⁽¹⁾	804		—	8			—		15,195			—			—			(18,723		)	(3,520		)
Retirement of treasury shares	611			(611	)	—	(6		)	—		(19,990		)	—			—			19,996			—
Purchases of treasury stock	(93	)		—		—	—			—		—			—			—			(2,746		)	(2,746		)
Share-based compensation	—			—		—	—			—		2,904			—			—			—			2,904
Net income	—			—		—	—			—		—			40,055			—			—			40,055
Change in net unrealized gains (losses), net of taxes	—			—		—	—			—		—			—			(4,050		)	—			(4,050		)
Reclassification of income taxes upon adoption of ASU 2018-02	—			—		—	—			—		—			582			(582		)	—			—
Declaration of dividends ($0.14 per common share and $0.25 per preferred share)	—			—		—	—			—		—			(4,906		)	—			—			(4,906		)
Balance, March 31, 2018	(11,136	)		46,148		10	461			—		84,294			496,878			(7,312		)	(107,869		)	466,452
Stock option exercises	(244	)	⁽¹⁾	353		—	4			—		6,295			—			—			(8,015		)	(1,716		)
Retirement of treasury shares	244			(244	)	—	(2		)	—		(8,013		)	—			—			8,015			—
Purchases of treasury stock	(249	)		—		—	—			—		—			—			—			(8,370		)	(8,370		)
Share-based compensation	—			—		—	—			—		3,349			—			—			—			3,349
Net income	—			—		—	—			—		—			46,084			—			—			46,084
Change in net unrealized gains (losses), net of taxes	—			—		—	—			—		—			—			(1,849		)	—			(1,849		)
Declaration of dividends for second quarter ($0.14 per common share and $0.25 per preferred share)	—			—		—	—			—		—			(4,923		)	—			—			(4,923		)
Declaration of dividends for third quarter ($0.16 per common share)	—			—		—	—			—		—			(5,596		)	—			—			(5,596		)
Balance, June 30, 2018	(11,385	)		46,257		10	$	463		$	—	$	85,925		$	532,443		$	(9,161	)	$	(116,239	)	$	493,431

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

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Six Months Ended June 30,

2018

2017

Cash flows from operating activities:

Net cash provided by (used in) operating activities
$
158,081

$
140,965

Cash flows from investing activities:

Proceeds from sale of property and equipment

17

15

Purchases of property and equipment

(4,024
)

(2,757
)
Purchases of equity securities

(19,106
)

(13,275
)
Purchases of available-for-sale debt securities

(205,738
)

(67,517
)
Purchases of investment real estate, net

(1,269
)

(3,759
)
Proceeds from sales of equity securities

4,127

56,971

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

(32,291
)

20,329

Cash flows from financing activities:

Preferred stock dividend

(5
)

(5
)
Common stock dividend

(9,821
)

(9,803
)
Issuance of common stock for stock option exercises

73

—

Purchase of treasury stock

(11,116
)

(8,919
)
Payments related to tax withholding for share-based compensation

(6,583
)

(1,367
)
Repayment of debt

(736
)

(1,435
)
Net cash provided by (used in) financing activities

(28,188
)

(21,529
)
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



	Six Months Ended
	June 30,
	2019			2018
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	55,988		$	158,081
Cash flows from investing activities:
Proceeds from sale of property and equipment	18			17
Purchases of property and equipment	(8,030		)	(4,024		)
Purchases of equity securities	(890		)	(19,106		)
Purchases of available-for-sale debt securities	(143,728		)	(205,738		)
Purchases of investment real estate, net	(883		)	(1,269		)
Proceeds from sales of equity securities	29,137			4,127
Proceeds from sales of available-for-sale debt securities	43,205			119,222
Proceeds from sales of investment real estate	10,537			—
Maturities of available-for-sale debt securities	68,525			64,480
Maturities of available-for-sale short-term investments	—			10,000
Net cash provided by (used in) investing activities	(2,109		)	(32,291		)
Cash flows from financing activities:
Preferred stock dividend	(5		)	(5		)
Common stock dividend	(11,153		)	(9,821		)
Issuance of common stock for stock option exercises	239			73
Purchase of treasury stock	(24,224		)	(11,116		)
Payments related to tax withholding for share-based compensation	(2,815		)	(6,583		)
Repayment of debt	(735		)	(736		)
Net cash provided by (used in) financing activities	(38,693		)	(28,188		)
Cash and cash equivalents, and restricted cash and cash equivalents:
Net increase (decrease) during the period	15,186			97,602
Balance, beginning of period	169,063			216,121
Balance, end of period	$	184,249		$	313,723

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

June 30, 2018

December 31, 2017

Cash and cash equivalents
$
311,088

$
213,486

Restricted cash and cash equivalents (1)

2,635

2,635

Total cash and cash equivalents and restricted cash and cash equivalents
$
313,723

$
216,121



	June 30,		December 31,
	2019		2018
Cash and cash equivalents	$	181,614	$	166,428
Restricted cash and cash equivalents (1)	2,635		2,635
Total cash and cash equivalents and restricted cash and cash equivalents	$	184,249	$	169,063

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

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

Table of Contents

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of Operations and Basis of Presentation

Nature of Operations

Universal Insurance Holdings, Inc. ~~(“UVE”~~(together with its wholly-owned subsidiaries, “the Company”) is a Delaware corporation incorporated in 1990. ~~UVE with its wholly-owned subsidiaries (the “Company”)~~The Company is a vertically integrated insurance holding company performing all aspects of insurance underwriting, distribution and claims. Through its wholly-owned insurance company subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”), and together ~~referred to as~~with UPCIC, the “Insurance ~~Entities,”~~Entities”), the Company is principally engaged in the property and casualty insurance business offered primarily through its 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 ~~seventeen~~18 states as of June 30, ~~2018,~~2019, including Florida, which comprises the vast majority of the Company’s ~~in-force policies.~~policies in force. See “—Note 5 (Insurance Operations)” for more information regarding the Company’s insurance operations.

The Company generates revenues primarily from the collection of premiums and invests 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 agent subsidiary and payment plan fees charged to policyholders who choose to pay their premiums in installments.

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

Basis of Presentation

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.~~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, ~~2017,~~2018, filed with the SEC on ~~February 23, 2018.~~March 1, 2019. The condensed consolidated balance sheet at December 31, ~~2017,~~2018 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’ condensed consolidated financial statements and notes have been reclassified. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity.

The Financial Statements include the accounts of ~~UVE~~the Company 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.

Table of Contents

2. Significant Accounting Policies

The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, ~~2017. The following~~2018. There are no new or revised disclosures or disclosures required on a quarterly basis.

~~Recently Adopted Accounting Pronouncements~~

~~In January 2016, the Financial Accounting Standards Board (“FASB”) revised U.S. GAAP with the issuance~~

Table 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 recognition and measurement of financial instruments. The new ASU requires certain investments in equity securities 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 Company adopted this ASU effective January 1, 2018 using the 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 adoption of this ASU also resulted in the recognition of the change in 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.

Contents~~In 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 receipts and cash payments 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 and application of the predominance principle. Historically, the items outlined above have not been applicable to the Company. The 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 reduce diversity in the classification and presentation of changes in restricted cash in the statement of cash 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 amounts generally described as restricted cash or restricted cash equivalents. The Company is required to reconcile such total to amounts on the Condensed Consolidated Balance Sheets and disclose the nature of the restrictions. The Company adopted this ASU effective 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 Jobs Act of 2017 (the “Tax Act”) on December 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, 2018 and made an election to reclassify the income tax effects of the 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 U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances at the date of 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 effects relating to the available for sale equity portfolio were included in the transition adjustment when adopting ASU 2016-01.

3. Investments

Securities Available for Sale

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

June 30, 2018

Gross

Gross

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

Debt Securities:

U.S. government obligations and agencies
$
59,086

$
—

$
(1,374
)

$
57,712

Corporate bonds

339,730

424

(6,190
)

333,964

Mortgage-backed and asset-backed securities

242,492

31

(5,091
)

237,432

Municipal bonds

15,798

—

(81
)

15,717

Redeemable preferred stock

11,762

318

(143
)

11,937

Total
$
668,868

$
773

$
(12,879
)

$
656,762

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized					June 30, 2019
	Cost		Gains		Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt Securities:
U.S. government obligations and agencies	$	60,481	$	—	$	(877	)	$	59,604	$	73,073	$	817	$	(314	)	$	73,576
Corporate bonds		228,336		476		(1,308	)		227,504	444,052		14,726		(335		)	458,443
Mortgage-backed and asset-backed securities		221,956		19		(2,523	)		219,452	329,492		7,056		(1,125		)	335,423
Municipal bonds		120,883		599		(1,187	)		120,295	3,401		112		(6		)	3,507
Redeemable preferred stock		12,059		485		(65	)		12,479	13,003		295		(154		)	13,144
Short-term investments		10,000		—		—			10,000
Total	$	653,715	$	1,579	$	(5,960	)	$	649,334	$	863,021	$	23,006	$	(1,934	)	$	884,093



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt Securities:
U.S. government obligations and agencies	$	67,435	$	241	$	(1,039	)	$	66,637
Corporate bonds	434,887		714		(6,736		)	428,865
Mortgage-backed and asset-backed securities	312,840		912		(4,155		)	309,597
Municipal bonds	3,405		—		(43		)	3,362
Redeemable preferred stock	12,560		55		(638		)	11,977
Total	$	831,127	$	1,922	$	(12,611	)	$	820,438

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

	June 30, 2018					December 31, 2017 (1)
			% of Total					% of Total
Credit Ratings	Fair Value		Fair Value			Fair Value		Fair Value
											June 30, 2019				December 31, 2018
Equivalent S&P Credit Ratings											Fair Value		% of Total Fair Value		Fair Value		% of Total Fair Value
AAA	$	310,359		47.3	%	$	317,313		48.9	%	$	419,914	47.5	%	$	388,672	47.4	%
AA		73,207		11.1	%		129,573		20.0	%	102,686		11.6	%	100,791		12.3	%
A		182,479		27.8	%		146,749		22.6	%	232,297		26.3	%	214,503		26.1	%
BBB		87,007		13.3	%		51,020		7.8	%	124,880		14.1	%	112,613		13.7	%
BB+ and Below		114		0.0	%		1,569		0.2	%
BB and Below											—		—	%	494		0.1	%
No Rating Available		3,596		0.5	%		3,110		0.5	%	4,316		0.5	%	3,365		0.4	%
Total	$	656,762		100.0	%	$	649,334		100.0	%	$	884,093	100.0	%	$	820,438	100.0	%

~~(1)~~

~~The credit ratings in the table above have been reclassified from the prior periods’ consolidated financial statements to conform to the current periods’ presentation.~~

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

Inc. and Fitch Ratings, Inc. The Company ~~modified the presentation of this table by presenting~~has presented the highest rating of the three rating agencies for each investment position.

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

June 30, 2018

December 31, 2017

Amortized

Amortized

Cost

Fair Value

Cost

Fair Value

Mortgage-backed Securities:

Agency

$
140,252

$
137,247

$
118,014

$
116,014

Non-agency

29,023

28,608

17,676

17,488

Asset-backed Securities:

Auto loan receivables

30,187

29,845

35,105

34,962

Credit card receivables

16,258

16,074

38,844

38,719

Other receivables

26,772

25,658

12,317

12,269

Total

$
242,492

$
237,432

$
221,956

$
219,452

Table of Contents



	June 30, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Mortgage-backed Securities:
Agency	$	148,574	$	148,889	$	139,418	$	136,291
Non-agency	73,639		78,169		61,689		61,933
Asset-backed Securities:
Auto loan receivables	50,798		51,215		53,449		53,341
Credit card receivables	25,670		25,982		29,594		29,366
Other receivables	30,811		31,168		28,690		28,666
Total	$	329,492	$	335,423	$	312,840	$	309,597

The following table summarizes the fair value and gross unrealized losses on available-for-sale debt securities, 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~~(in thousands):

June 30, 2018

Less Than 12 Months

12 Months or Longer

Number of

Unrealized

Number of

Unrealized

Issues

Fair Value

Losses

Issues

Fair Value

Losses

Debt Securities:

U.S. government obligations and agencies

9

$
35,148

$
(608
)

8

$
22,564

$
(766
)
Corporate bonds

346

266,868

(5,103
)

33

31,018

(1,087
)
Mortgage-backed and asset-backed securities

100

135,607

(2,172
)

61

84,444

(2,919
)
Municipal bonds

7

3,521

(81
)

—

—

—

Redeemable preferred stock

66

3,808

(143
)

—

—

—

Total

528

$
444,952

$
(8,107
)

102

$
138,026

$
(4,772
)


	December 31, 2017
	Less Than 12 Months							12 Months or Longer							June 30, 2019
	Number of				Unrealized			Number of				Unrealized			Less Than 12 Months						12 Months or Longer
	Issues		Fair Value		Losses			Issues		Fair Value		Losses			Number of Issues	Fair Value		Unrealized Losses			Number of Issues	Fair Value		Unrealized Losses
Debt Securities:
U.S. government obligations and agencies		7	$	35,464	$	(301	)		9	$	24,140	$	(576	)	—	$	—	$	—		9	$	46,478	$	(314	)
Corporate bonds		159		142,208		(792	)		39		29,796		(516	)	23	12,768		(28		)	79	68,066		(307		)
Mortgage-backed and asset-backed securities		83		137,481		(955	)		37		70,218		(1,568	)	10	13,813		(67		)	71	102,029		(1,058		)
Municipal bonds		36		28,265		(246	)		30		48,370		(941	)	—	—		—			1	274		(6		)
Redeemable preferred stock		21		2,464		(65	)		—		—		—		26	3,337		(47		)	7	1,595		(107		)
Total		306	$	345,882	$	(2,359	)		115	$	172,524	$	(3,601	)	59	$	29,918	$	(142	)	167	$	218,442	$	(1,792	)



	December 31, 2018
	Less Than 12 Months						12 Months or Longer
	Number of Issues	Fair Value		Unrealized Losses			Number of Issues	Fair Value		Unrealized Losses
Debt Securities:
U.S. government obligations and agencies	—	$	—	$	—		13	$	56,531	$	(1,039	)
Corporate bonds	228	210,152		(3,318		)	160	131,225		(3,418		)
Mortgage-backed and asset-backed securities	36	57,487		(196		)	103	148,436		(3,959		)
Municipal bonds	6	3,362		(43		)	—	—		—
Redeemable preferred stock	61	8,092		(506		)	5	1,034		(132		)
Total	331	$	279,093	$	(4,063	)	281	$	337,226	$	(8,548	)

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

As of June 30, ~~2018,~~2019, the Company held available-for-sale debt securities that were in an unrealized loss position as presented in the table above. For 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 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, our fixed income portfolio is of high quality and we believe that we will recover the amortized cost basis of our available-for-sale debt securities. We continually monitor the credit quality of our 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 of the available-for-sale debt securities as of June 30, ~~2018~~2019 are other than temporary.

Table of Contents

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


	June 30, 2018				June 30, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	49,496	$	49,286	$	125,392	$	125,260
Due after one year through five years		216,335		211,886	430,647		437,007
Due after five years through ten years		124,206		121,788	296,314		310,958
Due after ten years		24,577		24,433	9,515		9,656
Mortgage-backed and asset-backed securities		242,492		237,432
Perpetual maturity securities		11,762		11,937	1,153		1,212
Total	$	668,868	$	656,762	$	863,021	$	884,093

~~Expected~~

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

maturity dates.

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Proceeds from sales and maturities (fair value):
Available-for-sale debt securities	$	68,875		$	30,822		$	193,702		$	50,651		$	60,545		$	68,875		$	111,730		$	193,702
Equity securities	$	3,082		$	54,471		$	4,127		$	56,971		$	11,976		$	3,082		$	29,137		$	4,127
Gross realized gains on sale of securities:
Available-for-sale debt securities	$	10		$	28		$	317		$	28		$	112		$	10		$	299		$	317
Equity securities	$	177		$	1,785		$	301		$	1,785		$	170		$	177		$	335		$	301
Gross realized losses on sale of securities:
Available-for-sale debt securities	$	(42	)	$	(4	)	$	(3,114	)	$	(40	)	$	(148	)	$	(42	)	$	(190	)	$	(3,114	)
Equity securities	$	—		$	(99	)	$	—		$	(126	)	$	(2,952	)	$	—		$	(14,787	)	$	—
Realized gains on sale of real estate investment													$	1,213		$	—		$	1,213		$	—

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

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Available-for-sale debt securities
$
4,095

$
3,206

$
7,795

$
5,916

Equity securities

711

338

1,294

720

Available-for-sale short-term investments

56

7

145

22

Other (1)

1,605

188

2,659

332

Total investment income

6,467

3,739

11,893

6,990

Less: Investment expenses (2)

(681
)

(516
)

(1,322
)

(1,063
)
Net investment (expense) income
$
5,786

$
3,223

$
10,571

$
5,927



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Available-for-sale debt securities	$	6,041		$	4,095		$	12,192		$	7,795
Equity securities	562			711			1,604			1,294
Available-for-sale short-term investments	—			56			—			145
Cash and cash equivalents (1)	1,392			1,359			2,692			2,246
Other (2)	252			246			511			413
Total investment income	8,247			6,467			16,999			11,893
Less: Investment expenses (3)	(837		)	(681		)	(1,447		)	(1,322		)
Net investment income	$	7,410		$	5,786		$	15,552		$	10,571

~~(1)~~

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

~~(2)~~

)

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

Table of Contents

Equity Securities

The following table ~~presents~~provides the ~~portion of~~ unrealized gains and losses ~~related to equity securities for~~recorded during the periods presented on equity securities still held at the end of the reporting period (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Net gains and (losses) recognized during the period
     on equity securities
$
(1,344
)

$
1,686

$
(6,329
)

$
1,659

Less: Net (gains) and losses recognized during the period on
          equity securities sold during the period

(177
)

(1,686
)

(301
)

(1,659
)
Unrealized gains and (losses) recognized during the reporting
     period on equity securities still held at the reporting period
$
(1,521
)

$
—

$
(6,630
)

$
—



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting period	$	880	$	(1,521	)	$	2,766	$	(6,630	)

Investment Real Estate

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


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Income Producing:
Investment real estate (1)	$	14,619		$	6,918
Investment real estate							$	14,679		$	14,619
Less: Accumulated depreciation		(664	)		(460	)	(1,077		)	(870		)
		13,955			6,458		13,602			13,749
Non-Income Producing:
Properties under development (1)		5,584			12,016
Investment real estate							2,190			10,690
Investment real estate, net	$	19,539		$	18,474		$	15,792		$	24,439

~~(1)~~

During the six months ended June 30, ~~2018,~~2019, the Company ~~transferred $7.4 million from properties under development to~~completed the sale of investment real estate.

The Company received net cash proceeds of approximately $10.5 million and recognized a pre-tax gain of approximately $1.2 million that is included in net realized gains (losses) on investments on the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019.

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Depreciation expense on investment real estate
$
101

$
44

$
204

$
89



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Depreciation expense on investment real estate	$	104	$	101	$	207	$	204

Table of Contents

4. Reinsurance

The Company seeks to reduce ~~their~~its risk of loss by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers, generally as of the beginning of the hurricane season on June 1st of each year. The Company’s current reinsurance programs consist principally 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 that exceed coverage provided by ~~their~~the reinsurance programs. The Company remains responsible for the settlement of insured losses irrespective of whether any of ~~their~~the reinsurers fail to make payments otherwise due.

Amounts recoverable from reinsurers are estimated in a manner consistent with the ~~terms~~provisions of the reinsurance ~~contracts.~~agreements and consistent with the establishment of the gross liability for losses, loss adjustment expenses (“LAE”) and expenses. Reinsurance premiums, losses and ~~loss adjustment expenses (“LAE”)~~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.

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~~balances exceeded 3% of the Company’s stockholders’ equity as of the dates presented (in thousands):

Ratings as of June 30, 2018

Due from as of

Standard

and Poor's

Moody's

AM Best

Rating

Investors

June 30,

December 31,

Reinsurer

Company

Services

Service, Inc.

2018

2017

Lloyd's of London Syndicate

A

A+

n/a

$
33,966

$
—

Allianz Risk Transfer

A+

AA-

n/a

18,406

105,573

Florida Hurricane Catastrophe Fund (1)

n/a

n/a

n/a

—

52,054

Renaissance Reinsurance Ltd

n/a

n/a

n/a

—

22,545

Total (2)

$
52,372

$
180,172

Ratings as of June 30, 2019

Due from as of

Reinsurer

AM Best

Company

Standard

and Poor’s

Rating

Services, Inc.

Moody’s

Investors Service, Inc.

June 30, 2019

December 31, 2018

Florida Hurricane Catastrophe Fund (1)

n/a

128,720

165,022

Allianz Risk Transfer

A+

Aa3

69,891

139,565

Renaissance Reinsurance Ltd

A+

19,881

39,459

Chubb Tempest Reinsurance Ltd

n/a

—

16,208

Total (2)

218,492

360,254

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

~~(2)~~
(2)	Amounts represent prepaid reinsurance premiums, reinsurance receivables and net recoverables for paid and unpaid losses, including incurred but not reported reserves, and loss adjustment ~~expenses, and offsetting reinsurance payables~~. expenses.

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 June 30,

2018

2017

��

Losses and Loss

Losses and Loss

Premiums

Premiums

Adjustment

Premiums

Premiums

Adjustment

Written

Earned

Expenses

Written

Earned

Expenses

Direct
$
342,781

$
274,027

$
246,622

$
296,191

$
244,623

$
85,656

Ceded

(339,251
)

(81,755
)

(156,780
)

(311,338
)

(75,614
)

(5,472
)
Net
$
3,530

$
192,272

$
89,842

$
(15,147
)

$
169,009

$
80,184

Six Months Ended June 30,

2018

2017

Losses and Loss

Losses and Loss

Premiums

Premiums

Adjustment

Premiums

Premiums

Adjustment

Written

Earned

Expenses

Written

Earned

Expenses

Direct
$
612,765

$
536,288

$
323,261

$
541,606

$
480,998

$
156,439

Ceded

(339,251
)

(161,439
)

(157,493
)

(311,524
)

(150,430
)

(5,685
)
Net
$
273,514

$
374,849

$
165,768

$
230,082

$
330,568

$
150,754



	Three Months Ended June 30,
	2019									2018
	Premiums Written			Premiums Earned			Losses and Loss Adjustment Expenses			Premiums Written			Premiums Earned			Losses and Loss Adjustment Expenses
Direct	$	357,960		$	303,108		$	213,586		$	342,781		$	274,027		$	246,622
Ceded	(417,633		)	(92,751		)	(100,290		)	(339,251		)	(81,755		)	(156,780		)
Net	$	(59,673	)	$	210,357		$	113,296		$	3,530		$	192,272		$	89,842



	Six Months Ended June 30,
	2019									2018
	Premiums Written			Premiums Earned			Losses and Loss Adjustment Expenses			Premiums Written			Premiums Earned			Losses and Loss Adjustment Expenses
Direct	$	647,194		$	598,485		$	329,328		$	612,765		$	536,288		$	323,261
Ceded	(417,633		)	(178,401		)	(102,938		)	(339,251		)	(161,439		)	(157,493		)
Net	$	229,561		$	420,084		$	226,390		$	273,514		$	374,849		$	165,768

Table of Contents

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


	June 30,		December 31,		June 30,		December 31,
	2018		2017		2019		2018
Prepaid reinsurance premiums	$	310,618	$	132,806	$	381,982	$	142,750
Reinsurance recoverable on paid losses and LAE	$	21,002	$	—	$	134,450	$	25,238
Reinsurance recoverable on unpaid losses and LAE		96,849		182,405	197,117		393,365
Reinsurance receivable, net		1,402		—
Reinsurance recoverable and receivable	$	119,253	$	182,405
Reinsurance recoverable					$	331,567	$	418,603

Table of Contents

5. Insurance Operations

Deferred Policy Acquisition Costs

The Company defers certain costs relating to written 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						Six Months Ended
	June 30,						June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
DPAC, beginning of period	$	78,007		$	66,524		$	73,059		$	64,912		$	83,284		$	78,007		$	84,686		$	73,059
Capitalized Costs		50,430			39,898			92,369			73,654		50,694			50,430			92,215			92,369
Amortization of DPAC		(39,681	)		(32,831	)		(76,672	)		(64,975	)	(43,448		)	(39,681		)	(86,371		)	(76,672		)
DPAC, end of period	$	88,756		$	73,591		$	88,756		$	73,591		$	90,530		$	88,756		$	90,530		$	88,756

Regulatory Requirements and Restrictions

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, Protection Solutions, Inc. (“PSI”, formerly known as Universal Insurance Holding Company of ~~Florida (“UVECF”)~~Florida), without prior regulatory approval is limited by the provisions of the Florida Insurance Code. These dividends are referred to as “ordinary dividends.” However, if 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 Insurance Code, and based on the calculations performed by the Company as of December 31, ~~2017,~~2018, UPCIC has the capacity to pay ordinary dividends of ~~$36.2~~$14.0 million during ~~2018.~~ 2019. APPCIC ~~does~~did not ~~currently~~ meet the earnings or surplus regulatory requirements as of December 31, 2018 to pay ordinary dividends during ~~2018.~~2019. For the six months ended June 30, ~~2018,~~2019, no dividends were paid from UPCIC or APPCIC to ~~UVECF.~~

PSI.

The Florida Insurance Code requires insurance companies to maintain capitalization equivalent to the greater of ten percent of the insurer’s total liabilities ~~but not less than~~or $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):


	June 30,		December 31,
	2018		2017		June 30, 2019		December 31, 2018
Ten percent of total liabilities
UPCIC	$	86,454	$	72,633	$	98,843	$	90,610
APPCIC	$	624	$	572	$	632	$	489
Statutory capital and surplus
UPCIC	$	340,933	$	307,686	$	344,609	$	291,438
APPCIC	$	16,278	$	16,633	$	15,898	$	15,973

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 June 30, ~~2018.~~2019. 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):

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Combined net income
$
29,244

$
31,433

$
43,722

$
43,194



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Combined net income	$	26,717	$	29,244	$	34,340	$	43,722

Table of Contents

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):


	June 30,		December 31,
	2018		2017		June 30, 2019		December 31, 2018
Restricted cash and cash equivalents	$	2,635	$	2,635	$	2,635	$	2,635
Investments	$	3,908	$	3,910	$	3,931	$	3,876

Table of Contents

6.Liability for Unpaid Losses and Loss Adjustment Expenses

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


	Three Months Ended					Six Months Ended
	June 30,					June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017		2018			2017			2019			2018			2019			2018
Balance at beginning of period	$	129,637		$	31,463	$	248,425		$	58,494		$	366,356		$	129,637		$	472,829		$	248,425
Less: Reinsurance (recoverable)/payable		(70,351	)		2,353		(182,405	)		(106	)
Less: Reinsurance recoverable												(269,071		)	(70,351		)	(393,365		)	(182,405		)
Net balance at beginning of period		59,286			33,816		66,020			58,388		97,285			59,286			79,464			66,020
Incurred (recovered) related to:
Current year		87,532			79,075		163,502			149,549		112,626			87,532			225,905			163,502
Prior years		2,310			1,109		2,266			1,205		670			2,310			485			2,266
Total incurred		89,842			80,184		165,768			150,754		113,296			89,842			226,390			165,768
Paid related to:
Current year		50,572			62,141		67,979			85,031		89,093			50,572			123,642			67,979
Prior years		43,373			30,607		108,626			102,859		30,309			43,373			91,033			108,626
Total paid		93,945			92,748		176,605			187,890		119,402			93,945			214,675			176,605
Net balance at end of period		55,183			21,252		55,183			21,252		91,179			55,183			91,179			55,183
Plus: Reinsurance recoverable/(payable)		96,733			1,393		96,733			1,393
Plus: Reinsurance recoverable												197,117			96,733			197,117			96,733
Balance at end of period	$	151,916		$	22,645	$	151,916		$	22,645		$	288,296		$	151,916		$	288,296		$	151,916

~~The Company’s losses incurred for the three and six months ended June 20, 2018 include prior year net reserve development~~

Table of ~~$2.3 million which was principally caused by~~ Contentsloss 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.

7. Long-Term Debt

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

June 30,

December 31,

2018

2017

Surplus note
$
12,132

$
12,868



	June 30,		December 31,
	2019		2018
Surplus note	$	10,662	$	11,397

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

Principal and interest are paid periodically pursuant to terms of the surplus note.

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

2019.

Table of Contents

8. Stockholders’ Equity

~~Common Stock~~

~~The following table summarizes~~

On May 6, 2019, the ~~activity relating to shares of the~~ Company’s ~~common stock during the six months ended June 30, 2018 (in thousands):~~

Issued

Treasury

Outstanding

Shares

Shares

Shares

Balance, as of December 31, 2017

45,778

(11,043
)

34,735

Shares repurchased

—

(342
)

(342
)
Vesting of performance share units

127

—

127

Stock option exercises

1,156

—

1,156

Restricted stock grants

50

—

50

Shares acquired through cashless exercise (1)

—

(854
)

(854
)
Shares cancelled

(854
)

854

—

Balance, as of June 30, 2018

46,257

(11,385
)

34,872

~~(1)~~

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

~~In September 2017, UVE’s~~ Board of Directors authorized a share repurchase program under which ~~UVE~~the Company may repurchase in the open market up to $40 million of the Company’s outstanding shares of common stock through December 31, 2020. Following such authorization through June 30, 2019, the Company repurchased 338,274 shares, at an aggregate purchase price of approximately $9.7 million, pursuant to such repurchase program.

On December 12, 2018, the Company’s Board of Directors authorized a share repurchase program under which the Company was authorized to repurchase in ~~compliance with Exchange Act Rule 10b-18,~~the open market up to $20 million of the Company’s outstanding shares of common stock through May 31, 2020. During the six months ended June 30, 2019, the Company repurchased 468,108 shares, at an aggregate purchase price of approximately $14.5 million, pursuant to such repurchase program. The Company completed this share repurchase program in May 2019.

On September 5, 2017, the Company’s Board of Directors authorized a share repurchase program under which the Company was authorized to repurchase in the open market up to $20 million of the Company’s outstanding shares of common stock through December 31, 2018. During the six months ended June 30, 2018, ~~UVE~~the Company repurchased 342,749 shares, at an aggregate price of approximately $11.1 million, pursuant to such repurchase program.

~~Dividends~~

~~The following table summarizes the dividends declared and paid by the Company:~~

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

Table of Contents

9. Income Taxes

During the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recorded approximately ~~$15.2~~$13.6 million and ~~$18.5~~$15.2 million of income tax expense, respectively. The effective tax rate (“ETR”)for for the three months ended June 30, ~~2018~~2019 was ~~24.8%~~26.8% compared to a ~~38.7%~~24.8% ETR for the same period in ~~2017.~~

2018.

During the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recorded approximately ~~$26.8~~$27.2 million and ~~$34.7~~$26.8 million of income tax expense, respectively. The ETR for the six months ended June 30, ~~2018~~2019 was ~~23.7%~~26.0% compared to a ~~36.4%~~23.7% ETR for the same period in ~~2017.~~

2018.

In arriving at these rates, the Company ~~considers~~considered a variety of factors including the forecasted full year pre-tax results, the U.S. federal tax rate,, expected non-deductible expenses and estimated state income taxes. The Company’s final 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 toCompany’s 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%,~~26.6% for 2019, 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~~

Deferred tax assets and liabilities are recorded based on the difference inbetween the ~~statutory~~financial statement and tax ~~rate, 24.7%,~~bases of assets and liabilities at the ~~annual ETR, 25.7%, is largely attributable to the new~~enacted tax ~~law’s impact on Internal Revenue Code Section 162(m). The effect~~rates. We review our deferred tax assets regularly for recoverability. As of ~~reporting discrete items in the three months and six months ended~~ June 30, ~~2018 amounts~~2019, we determined that we did not need a valuation allowance on our gross deferred tax assets. Although realization of the deferred tax assets is not assured, management believes that it is more likely than not the deferred tax assets will be realized based on our expectation that we will be able to ~~an additional decrease to~~fully utilize the ~~annual ETR rate of 1.0% and 2.0%, respectively, resulting in a total estimated ETR of 24.8% and 23.7%, respectively.~~

deductions that are ultimately recognized for tax purposes.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. ~~The~~As of June 30, 2019, the Company’s ~~2014~~2016 through ~~2016~~2018 tax years are still subject to examination by the Internal Revenue Service and 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~~

Table 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.~~

Contents

10. Earnings Per Share

Basic earnings per share (“EPS”) is computed based on the weighted average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution resulting from the 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~~EPS computations for the periods presented (in thousands, except per share data):

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

Numerator for EPS:

Net income
$
46,084

$
29,376

$
86,139

$
60,575

Less: Preferred stock dividends

(2
)

(2
)

(5
)

(5
)
Income available to common stockholders
$
46,082

$
29,374

$
86,134

$
60,570
��
Denominator for EPS:

Weighted average common shares outstanding

34,909

34,959

34,874

35,049

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

655

974

737

987

Assumed conversion of preferred stock

25

25

25

25

Weighted average diluted common shares
   outstanding

35,589

35,958

35,636

36,061

Basic earnings per common share
$
1.32

$
0.84

$
2.47

$
1.73

Diluted earnings per common share
$
1.29

$
0.82

$
2.42

$
1.68



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Numerator for EPS:
Net income	$	37,293		$	46,084		$	77,441		$	86,139
Less: Preferred stock dividends	(2		)	(2		)	(5		)	(5		)
Income available to common stockholders	$	37,291		$	46,082		$	77,436		$	86,134
Denominator for EPS:
Weighted average common shares outstanding	34,311			34,909			34,525			34,874
Plus: Assumed conversion of share-based compensation (1)	276			655			353			737
Assumed conversion of preferred stock	25			25			25			25
Weighted average diluted common shares outstanding	34,612			35,589			34,903			35,636
Basic earnings per common share	$	1.09		$	1.32		$	2.24		$	2.47
Diluted earnings per common share	$	1.08		$	1.29		$	2.22		$	2.42

~~(1)~~

(1)		Represents the dilutive effect of unvested restricted stock, unvested performance share units and unexercised stock options.

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11. Other Comprehensive Income (Loss)

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

Three Months Ended 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

~~(1)~~

This amount represents reclassifications to retained earnings associated with the disproportional income tax effects of the Tax Act on items within AOCI and Unrealized Losses in AOCI relating to Available for Sale equity security investments. See “—Note 2 — Significant Accounting Policies – Recently Adopted Accounting Pronouncements” for more information.



	Three Months Ended June 30,
	2019						2018
	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	$	15,825	$	3,896	$	11,929	$	(2,488	)	$	(618	)	$	(1,870	)
Less: Reclassification adjustments for (gains) losses realized in net income	36		10		26		32			11			21
Other comprehensive income (loss)	$	15,861	$	3,906	$	11,955	$	(2,456	)	$	(607	)	$	(1,849	)



	Six Months Ended June 30,
	2019									2018
	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	$	31,870		$	7,849		$	24,021		$	(10,522	)	$	(2,507	)	$	(8,015	)
Less: Reclassification adjustments for (gains) losses realized in net income	(109		)	(27		)	(82		)	2,797			681			2,116
Other comprehensive income (loss)	$	31,761		$	7,822		$	23,939		$	(7,725	)	$	(1,826	)	$	(5,899	)

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

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



Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)												Affected Line Item in the Statement Where Net Income is Presented
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Unrealized gains (losses) on available-for-sale debt securities
	$	(36	)	$	(32	)	$	109		$	(2,797	)	Net realized gains (losses) on sale of securities
	10			11			(27		)	681			Income taxes
Total reclassification for the period	$	(26	)	$	(21	)	$	82		$	(2,116	)	Net of tax

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12. Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contracts

The Company purchases reinsurance coverage to protect its capital and to limit its losses when major events occur. Reinsurance commitments run from June 1 of the current year to May 31 of the following year. Certain of the Company’s reinsurance agreements are for periods longer than one year. Amounts payable for coverage during the current June 1 to May 31 contract period are recorded as “Reinsurance Payable” in the financial statements. Multi-year contract commitments for future years will be recorded at the commencement of the coverage period. Amounts payable for future reinsurance contract years that the Company is obligated to pay are: (1) $117.6 million in 2020 and (2) $83.6 million in 2021.

Litigation

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 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.

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13. Fair Value Measurements

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:

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

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

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

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

Recurring Basis

Level 1

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.

Level 2

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.

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

Fair Value Measurements

June 30, 2018

Level 1

Level 2

Level 3

Total

Available-For-Sale Debt Securities:

Fixed Maturities:

U.S. government obligations and agencies
$
—

$
57,712

$
—

$
57,712

Corporate bonds

—

333,964

—

333,964

Mortgage-backed and asset-backed securities

—

237,432

—

237,432

Municipal bonds

—

15,717

—

15,717

Redeemable preferred stock

—

11,937

—

11,937

Equity Securities:

Common stock

22,320

—

—

22,320

Mutual funds

48,546

—

—

48,546

Total assets accounted for at fair value
$
70,866

$
656,762

$
—

$
727,628


	Fair Value Measurements								Fair Value Measurements
	December 31, 2017								June 30, 2019
	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	$	—	$	59,604	$	—	$	59,604	$	—	$	73,576	$	—	$	73,576
Corporate bonds		—		227,504		—		227,504	—		458,443		—		458,443
Mortgage-backed and asset-backed securities		—		219,452		—		219,452	—		335,423		—		335,423
Municipal bonds		—		120,295		—		120,295	—		3,507		—		3,507
Redeemable preferred stock		—		12,479		—		12,479	—		13,144		—		13,144
Equity Securities:
Equity securities:
Common stock		18,811		—		—		18,811	2,724		—		—		2,724
Mutual funds		43,404		—		—		43,404	39,644		—		—		39,644
Available-for-sale short-term investments		—		10,000		—		10,000
Total assets accounted for at fair value	$	62,215	$	649,334	$	—	$	711,549	$	42,368	$	884,093	$	—	$	926,461



	Fair Value Measurements
	December 31, 2018
	Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:
U.S. government obligations and agencies	$	—	$	66,637	$	—	$	66,637
Corporate bonds	—		428,865		—		428,865
Mortgage-backed and asset-backed securities	—		309,597		—		309,597
Municipal bonds	—		3,362		—		3,362
Redeemable preferred stock	—		11,977		—		11,977
Equity securities:
Common stock	15,564		—		—		15,564
Mutual funds	47,713		—		—		47,713
Total assets accounted for at fair value	$	63,277	$	820,438	$	—	$	883,715

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

	June 30, 2018				December 31, 2017
			(Level 3)				(Level 3)
			Estimated Fair				Estimated Fair		June 30, 2019				December 31, 2018
	Carrying Value		Value		Carrying Value		Value		Carrying Value		(Level 3) Estimated Fair Value		Carrying Value		(Level 3) Estimated Fair Value
Liabilities (debt):
Surplus note	$	12,132	$	10,823	$	12,868	$	11,630	$	10,662	$	9,768	$	11,397	$	10,125

Level 3

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 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.

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14. Subsequent Events

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 June 30, ~~2018.~~

2019.

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I~~tem~~

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 unaudited condensed consolidated financial statements (“Financial Statements”) and the related notes thereto included in ~~Part~~“Part I, Item ~~1 “Financial Statements.”~~1—Financial Statements”, and our audited condensed consolidated financial statements and the related notes thereto included in “Part II, Item 8—Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the year ended December 31, 2018. Operating results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for the year.

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, ~~the following discussion~~this report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange ~~Act. Forward-looking~~Act of 1934, as amended (the “Exchange Act”). The forward-looking statements anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These forward-looking statements may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure and other risk management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on ~~various factors~~reasonable estimates, assumptions and plans. However, if the estimates, assumptions ~~that include known and unknown~~or plans underlying the forward-looking statements prove inaccurate or if other risks ~~and~~or uncertainties some of which are beyond our control and cannot be predicted or quantified. Certain statements made in this report reflect management’s expectations regarding future events, and the words “expect,” “estimate,” “anticipate,” “believe,” “intend,” “project,” “plan” and similar expressions and variations thereof, speak only as of the date the statement was made and are intended to identify forward-looking statements. Such statements may include, but not be limited to, projections of revenues, income or loss, expenses, plans, as well as assumptions relating to the foregoing. Futurearise, actual results could differ materially from those communicated in ~~the following discussion and those described in~~these 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, ~~2017.~~

2018. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

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

the following:

~~As a property and casualty insurer, we may face significant losses from~~Unanticipated increases in the severity or frequency of claims, including those relating to catastrophes, ~~and~~ severe weather events

~~Actual claims incurred~~ and changing climate conditions, which may exceed our current reserves established for ~~claims and may adversely affect~~claims;

Failure of our ~~operating results and financial condition,~~

~~Our success depends in part on our ability~~risk mitigation strategies, including failure to accurately and adequately price the risks we underwrite

~~Unanticipated increases in the severity or frequency of claims may adversely affect our profitability~~ and ~~financial condition,~~

~~The failure of the risk mitigation strategies we utilize could have a material adverse effect on our financial condition or results of operations,~~

Because we rely on independent insurance agents, the loss of these independent agent relationships and the business they control or our ability to attract new independent agents could have an adverse impact on our business,

~~The inherent uncertainty of models and our reliance on such models as a tool to evaluate risk may have an adverse effect on our financial results,~~

~~Reinsurance may be unavailable in the future at current levels and prices, which may limit our ability~~ to write ~~new business or to adequately mitigate our exposure to loss,~~

~~Reinsurance subjects us to the credit risk of our reinsurers, which could have a material adverse effect on our operating results and financial condition,~~

Our financial condition and operating results and the financial condition and operating results of our Insurance Entities (as defined below) may be adversely affected by the cyclical nature of the property and casualty business,

~~Because we conduct the substantial majority of our business in Florida, our financial results depend on the regulatory, economic and weather conditions in Florida,~~

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

~~We have entered and in the future, may enter new markets, but there can be no assurance that our diversification and growth strategy will be~~ effective

~~Loss of key executives or our inability to otherwise attract and retain talent could affect our operations,~~

~~We could be adversely affected if our controls designed to ensure compliance with guidelines, policies and legal regulatory standards are not effective,~~

~~The failure of our claims department to effectively manage claims could adversely affect our insurance business, financial results and capital requirements,~~

~~Litigation or regulatory actions could have a material adverse impact on us,~~

~~Our future results are dependent in part on our ability to successfully operate in a highly competitive insurance industry,~~

•

~~A downgrade in our Financial Stability Rating~~^® ~~may have an adverse effect on our competitive position, the marketability of our product offerings, and our liquidity, operating results and financial condition,~~

•

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

~~We may not be able to effectively implement or adapt to changes in technology, and~~

~~Lack of effectiveness of~~ exclusions and other loss limitation methods in our insurance policies;

Loss of independent insurance agents and inability to attract new independent agents;

Reliance on models, which are inherently uncertain, as a tool to evaluate risks;

The continued availability of reinsurance at current levels and prices, and our ability to collect payments from our reinsurers;

Changes in industry trends, including changes due to the ~~insurance~~cyclical nature of the industry and increased competition;

Geographic concentration of our business in Florida and the effectiveness of our growth and diversification strategy in new markets;

Loss of key personnel and inability to attract and retain talented employees;

Failure to comply with existing and future guidelines, policies ~~we write~~and legal and regulatory standards;

The ability of our claims professionals to effectively manage claims;

Litigation or regulatory actions that could ~~have a material adverse effect~~result in significant damages, fines or penalties;

A downgrade in our Financial Stability Rating® and its impact on our ~~financial condition~~competitive position, the marketability of our product offerings, our liquidity and profitability;

The impact on our business and reputation of data and security breaches due to cyber-attacks or our ~~results~~inability to effectively adapt to changes in technology;

Our dependence on the returns of ~~operations.~~

~~Risks Relating to Investments~~

Weour investment portfolio, which are subject to market ~~risk, which could adversely affect investment income, and~~

risk;

~~Our overall financial performance is dependent in part on the returns on our investment portfolio, which could have a material adverse effect on our financial condition~~Legal, regulatory or ~~results of operations or cause such results to be volatile.~~

~~Risks Relating to the Insurance Industry~~

~~We are subject to extensive regulation and potential further restrictive regulation may~~tax changes that increase our operating costs and ~~limit~~decrease our ~~growth and~~ profitability,

~~UVE is a holding company and, consequently, its cash flow is dependent~~ such as limitations on ~~dividends and other permissible payments from its subsidiaries,~~

~~Regulations limiting~~ rate changes ~~and requiring us~~or requirements to participate in loss ~~sharing or assessments may decrease~~sharing;

Our dependence on dividends and permissible payments from our ~~profitability,~~

subsidiaries; and

The ~~amount~~ability of our Insurance Entities to comply with statutory capital and surplus ~~that each~~minimums and other regulatory and licensing requirements.

Table of ~~the Insurance Entities has~~Contents

OVERVIEW

We are a vertically integrated holding company offering property and ~~the amount of statutory capital~~casualty (“P&C”) insurance and ~~surplus it must hold can vary~~value-added insurance services. We develop, market and ~~are sensitive to a number of factors outside of our control, including market conditions and~~underwrite insurance products for consumers predominantly in the ~~regulatory environment and rules, and~~

~~Our Insurance Entities are subject to examination and actions by state insurance departments.~~

~~Risks Relating to Debt Obligations~~

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

~~Risks Relating to Ownership of Our Common Stock~~

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

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

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

The following Management’s Discussion and Analysis 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.

~~Overview~~

~~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 10.3% market share as~~homeowners line of ~~March 31, 2018, according to the most recent data reported by the Florida Office of Insurance Regulation (“FLOIR”). We~~business and perform substantially all ~~aspects of~~other insurance-related services for our primary insurance ~~underwriting, policy issuance, general administration~~entities, including risk management, claims management, and ~~claims processing and settlement internally through our vertically integrated operations.~~distribution. Our ~~wholly-owned licensed~~primary insurance ~~subsidiaries,~~entities, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC” and together with UPCIC, the “Insurance Entities”), ~~currently~~offer insurance products through both our appointed independent agent network and our online distribution channels across 18 states (primarily in Florida), with licenses to write ~~personal residential~~ insurance ~~policies, predominantly~~ in ~~Florida with $529.5 million~~an additional twostates. In the second quarter, we surrendered our license in ~~direct~~West Virginia, a state in which we have not written premium and have no current plans to do business. Also during the second quarter, we received a Certificate of Authority in Wisconsin, approving UPCIC as a licensed insurance entity in Wisconsin. The Insurance Entities seek to produce an underwriting profit over the long term (defined as earned premium less losses, loss adjustment expense (“LAE”), policy acquisition costs and other operating costs); maintain a strong balance sheet to prepare for years in which the Insurance Entities are not able to achieve an underwriting profit; and generate investment income on assets exceeding short-term operating needs.

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A should be read in conjunction with our Financial Statements and accompanying Notes appearing elsewhere in this Report (the “Notes”). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and “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 ~~six months~~year ended ~~June 30,~~December 31, 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 $83.3 million in direct written premiumExcept for the ~~six months ended June 30, 2018. UPCIC is also licensed~~historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to ~~issue policies in Illinois, Iowa, and West Virginia. APPCIC also is currently writing Fire, Commercial Multi-Peril, and Other Liability lines~~such differences include, but are not limited to, those discussed above under “Cautionary Note Regarding Forward-Looking Statements.”

RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION

Highlights

Results of business in 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 tooperations for the second quarter of ~~our~~ fiscal ~~year and tends to decrease approaching~~2019, in each case compared with the ~~fourth quarter. Other sources~~second quarter of ~~revenue~~fiscal 2018 (unless otherwise specified), 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 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 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 and reinsurers through our vertically integrated structure. We believe each of these strategies has contributed 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 six months ended June 30, 2018 compared to the same periods in 2017.~~

Our overall organic growth strategy emphasizes taking prudent measures to increase our footprint, grow our policy count and improve the quality of our business rather than merely increasing our 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 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 three years. The percentage of our total insured value for states outside of Florida increased from 23.7% as of June 30, 2017 to 28.9% as of June 30, 2018. The following table provides direct premiums written ~~premium for Florida and other states for the three and six months ended June 30, 2018 and 2017 (dollars in thousands):~~

For the Three Months Ended

June 30, 2018

June 30, 2017

Growth
year over year

State
Direct Written Premium

%

Direct Written Premium

%

$

%

Florida
$
295,337

86.2
%

$
261,430

88.3
%

$
33,907

13.0
%
Other states

47,444

13.8
%

34,761

11.7
%

12,683

36.5
%
Total
$
342,781

100.0
%

$
296,191

100.0
%

$
46,590

15.7
%

For the Six Months Ended

June 30, 2018

June 30, 2017

Growth
year over year

State
Direct Written Premium

%

Direct Written Premium

%

$

%

Florida
$
529,515

86.4
%

$
479,868

88.6
%

$
49,647

10.3
%
Other states

83,250

13.6
%

61,738

11.4
%

21,512

34.8
%
Total
$
612,765

100.0
%

$
541,606

100.0
%

$
71,159

13.1
%

~~Second-Quarter 2018 Highlights~~

~~Gross direct written premiums~~ overall grew by ~~$46.6~~$15.2 million, or ~~15.7%~~4.4%, to ~~$342.8~~$358.0 million.

In Florida, direct premiums written grew by $1.6 million, ~~compared to the second quarter~~or 0.5%, and in ~~2017.~~

our other states, direct premiums written grew by $13.6 million, or 28.7%.

~~Total direct written premium rate of growth improved from 8.9% in 2017 to 15.7% in 2018, quarter over quarter.~~

Net earned premiums grew by ~~$23.3~~$18.1 million, or ~~13.8%~~9.4%, to ~~$192.3 million compared to the second quarter in 2017.~~

$210.4 million.

Total revenues increased by ~~$24.3~~$23.9 million, or ~~13.1%~~11.4%, to ~~$209.8 million~~$233.7 million.

Loss ratio was 53.9% as compared to ~~the second quarter in 2017.~~

46.7%.

Diluted earnings per share (“EPS”) of $1.08.

~~Loss ratio improved~~Book value per share increased by $2.15, or 14.9%, to $16.57 at June 30, 2019 from ~~47.4% as of the end of the second quarter in 2017 to 46.7% as of the end of the second quarter in~~$14.42 at December 31, 2018.

•

~~Expense ratio improved from 33.9% as of the end of the second quarter in 2017 to 30.4% as of the end of the second quarter in 2018.~~

~~UAC generated $8.4 million of estimated pretax profits principally from the handling of Hurricane Irma claims.~~

~~Primarily as a result of the Tax Cuts and Jobs Act of 2017 (“Tax Act”), our effective tax rate decreased from 38.7% in 2017 to 24.8% in 2018.~~

~~Completed negotiation and execution of contracts representing our 2018 – 2019 reinsurance program.~~

Declared and paid dividends of ~~$0.14~~$0.16 per share ~~during~~in the second quarter in ~~2018~~2019 and declared dividends of $0.16 per share payable in the third quarter ~~in 2018.~~

of 2019.

Repurchased ~~250,000~~485,882 shares during the quarter at an aggregate ~~cost~~purchase price of ~~$8.4 million pursuant~~$14.1 million.

Reinsurance

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events. Reinsurance contracts are typically classified as treaty or facultative contracts. Treaty reinsurance provides coverage for all or a portion of a specified group or class of risks ceded by the ~~Company’s 2018~~primary insurer, while facultative reinsurance provides coverage for specific individual risks. Within each classification, reinsurance can be further classified as quota share ~~repurchase program.~~

or excess of loss. Quota-share reinsurance is where the primary insurer and the reinsurer share proportionally or pro-rata in the direct premiums and losses of the insurer. Excess of loss reinsurance indemnifies the direct insurer or reinsurer for all or a portion of the loss in excess of an agreed upon amount or retention.

~~Wrote~~Developing and implementing our ~~first policy~~reinsurance strategy to adequately protect our balance sheet and Insurance Entities in ~~New Hampshire.~~

~~UPCIC’s 2018-2019 Reinsurance Program~~

~~Third-Party Reinsurance~~

~~Our annual~~the event of one or more catastrophes while maintaining efficient reinsurance ~~program, which is segmented into layers of coverage, as is industry practice, protects us against excess property catastrophe losses. Our 2018-2019~~costs has been a key strategic priority for us. In order to limit the Insurance Entities’ potential exposure to catastrophic events, we purchase significant reinsurance ~~program includes the mandatory coverage required by law to be placed with~~from third-party reinsurers and the Florida Hurricane Catastrophe Fund (“FHCF”),. The Florida Office of Insurance Regulation (“FLOIR”) requires the Insurance Entities, like all insurance companies doing business in Florida, to have a certain amount of capital and reinsurance coverage in order to cover losses upon the occurrence of a single catastrophic event and a series of catastrophic events occurring in the same hurricane season. The Insurance Entities’ 2019-2020 reinsurance programs meet the FLOIR’s requirements, which ~~we have elected to participate at 90%, the highest level,~~are based on, among other things, successfully demonstrating a cohesive and ~~also includes private reinsurance below, alongside and above the FHCF layer. In placing our 2018-2019~~comprehensive reinsurance program ~~we obtained multiple years~~that protects the policyholders of ~~coverage for an additional portion~~our Insurance Entities as well as satisfying a series of stress test catastrophe loss scenarios based on past historical events.

Table of Contents

We believe the Insurance Entities’ retentions under their respective reinsurance programs are appropriate and structured to protect policyholders. We test the sufficiency of the ~~program. We believe this multi-year arrangement will allow us~~reinsurance programs by subjecting the Insurance Entities’ personal residential exposures to ~~capitalize~~statistical testing using a third-party hurricane model, RMS RiskLink v17.0 (Build 1825). This model combines simulations of the natural occurrence patterns and characteristics of hurricanes, tornadoes, earthquakes and other catastrophes with information on ~~favorable pricing~~property values, construction types and ~~contract terms and conditions and allow us to mitigate uncertainty with respect to~~occupancy classes. The model outputs provide information concerning the ~~price of future reinsurance coverage, one~~potential for large losses before they occur, so companies can prepare for their financial impact. Furthermore, as part of our ~~largest costs.~~

~~The total cost of UPCIC’s private~~operational excellence initiatives, we continually look to enable new technology to refine our data intelligence on catastrophe ~~reinsurance program for all states as described below, effective~~risk modeling.

Effective June 1, ~~2018 through May 31,~~ 2019, ~~is $175.30 million. In addition, UPCIC has purchased reinstatement premium protection as described below,~~ the ~~cost of which is $14.97 million. The largest private participants in~~ Insurance Entities entered into multiple reinsurance agreements comprising our 2019-2020 reinsurance program. See “Item 1—Note 4 (Reinsurance).”

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’s Retention~~

~~UPCIC has a net~~2019-2020 Reinsurance Program

First event All States retention of ~~$35~~$43 million; First event Non-Florida retention of $10 million.

All States first event tower expanded to $3.28 billion, an increase of $134 million ~~per catastrophe event for losses incurred, in all states, up to~~over the final 2018-2019 program.

Assuming a first event loss of $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 incompletely exhausts the ~~first event, $3 million in~~$3.28 billion tower, the second event ~~and only $1~~exhaustion point would be $1.3 billion, an increase of $262 million ~~under its Other States Reinsurance Program for~~over the ~~third through fifth events. These retention amounts are gross of any potential tax benefit we would receive in paying such losses.~~

~~First Layer~~

~~Immediately above UPCIC’s net retention, we have reinsurance coverage from third-party reinsurers for up to four separate catastrophic events,~~final 2018-2019 program on the same assumptions.

Full reinstatement available for all ~~states. Specifically, we have~~private market first event catastrophe layers for guaranteed second event coverage. For all layers purchased ~~reinsurance coverage for~~below 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 four contracts as follows:

~~59% of $76 million in excess of $35 million provides coverage for the 2018-2019 period;~~

~~20% of $55 million in excess of $35 million provides coverage on a multi-year basis through May 31, 2021;~~

~~21% of $55 million in excess of $35 million provides coverage for the 2018-2019 period; and~~

100% of $76 million in excess of $35 million and in excess of $152 million otherwise recoverable (from the first and second events) provides the third and fourth event coverage for the 2018-2019 period.

~~For the first three contracts above,~~FHCF, 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~~UPCIC has purchased reinstatement premium protection (“RPP”) to pay the ~~required~~ premium necessary for the reinstatement of these coverages. ~~All of these contracts extend coverage to all states.~~

~~Second Layer~~

Above the first 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 three contracts as follows:

~~58% of $355 million in excess of $90 million provides coverage on a multi-year basis through May 31, 2020;~~

~~19.5% of $334 million in excess of $111 million provides coverage on a multi-year basis through May 31, 2021; and~~

~~22.5% of $334 million in excess of $111 million provides coverage for the 2018-2019 period.~~

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. All of these contracts extend coverage to all states.

~~Third Layer~~

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

~~65% of $84 million in excess of $445 million provides coverage on a multi-year basis through May 31, 2021; and~~

~~35% of $84 million in excess of $445 million provides coverage for the 2018-2019 period.~~

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.

~~Fourth Layer~~

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

~~65% of $106 million in excess of $529 million provides coverage for the 2018-2019 period; and~~

~~35% of $106 million in excess of $529 million provides coverage for the 2018-2019 period.~~

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.

~~Fifth Layer~~

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:

~~65% of $45 million in excess of $635 million provides coverage on a multi-year basis through May 31, 2021; and~~

~~35% of $45 million in excess of $635 million provides coverage for the 2018-2019 period.~~

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.

~~Sixth and Seventh Layers~~

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~~Private market reinsurance coverage continues to be structured into ~~layers and~~layers. This structure utilizes a cascading feature such that ~~the second, third, fourth, fifth, sixth and seventh reinsurance layers all attach at $111 million. Any~~any layers above ~~the~~a $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~~

Specific 3rd and 4th event private market catastrophe excess 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 fees paid to our subsidiary service providers by our Insurance Entities and, indirectly, our reinsurers, would also increase during an active hurricane season.~~

~~Other States Reinsurance Program~~

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

Effective June 1, 2018 through June 1, 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~~$76 million in excess of $5$35 million ~~covering certain loss occurrences, including hurricanes, in states outside~~provides robust frequency protection for a multiple event storm season.

For the FHCF Reimbursement Contracts effective June 1, 2019, UPCIC has continued the election of ~~Florida. This~~the 90% coverage level. The total mandatory FHCF layer is estimated to provide approximately $1.980 billion of coverage for UPCIC, which inures to the benefit of the open market coverage secured from private reinsurers.

APPCIC’s 2019-2020 Reinsurance Program

First event All States retention of $2 million.

All States first event tower of $27.5 million.

Full reinstatement available for all private market first event catastrophe ~~coverage has a~~layers for guaranteed second ~~full limit available with additional premium calculated pro rata as to amount and 100% as to time, as applicable.~~event coverage. For ~~this catastrophe coverage, which is placed in three layers,~~the layer purchased below the FHCF, 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~~APPCIC has purchased ~~reinstatement premium protection~~RPP 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 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 $6,000,000 otherwise recoverable. This coverage has two and a half free reinstatements and a total of $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 1.5% of UPCIC’s statutory policyholders’ surplus as of June 30, 2018.

~~FHCF~~

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, 2018, we estimate our FHCF coverage includes a maximum provisional limit of 90% of $2.18 billion, or $1.96 billion, in excess of $680 million. The estimated premium that UPCIC plans to cede to the FHCF for the 2018 hurricane season is $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 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~~

Private market reinsurance coverage ~~of up~~continues to ~~$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.~~

~~All States 1~~st ~~Event~~

~~Non-Florida 1~~st ~~Event~~

~~APPCIC’s 2018-2019 Reinsurance Program~~

~~Third-Party Reinsurance~~

The total cost of APPCIC’s private catastrophe and multiple line excess reinsurance program, effective June 1, 2018 through May 31, 2019, is $2.27 million. In addition, APPCIC has purchased reinstatement premium protection as described below, the cost of which is $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’s Retention~~

~~APPCIC has a net retention of $2 million for all losses per catastrophe event for losses incurred up to a first event loss of $36.2 million.~~structured into layers. This ~~retention amount is gross of any potential tax benefit we would receive in paying such losses.~~

~~First Layer~~

Immediately above APPCIC’s net retention we have $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.

~~Second, Third and Fourth Layers~~

In the second, third and fourth layers, we have purchased reinsurance for $2.0 million of coverage in excess of $6.2 million in losses incurred by us (net of the FHCF layer), $5 million of coverage in excess of $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~~structure utilizes a cascading feature such that ~~the second, third and fourth reinsurance layers all attach at $2 million. Any~~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.

~~FHCF~~

APPCIC’s third-party reinsurance program is used to supplement the FHCF reinsurance we are required to purchase every year. The limit and retention of the FHCF coverage we receive each year is subject to upward or downward adjustment based on, among other things, submitted exposures to the FHCF by all participants. As of June 1, 2018, we estimate our FHCF coverage includes a maximum provisional limit of 90% of $20 million, or $18 million, in excess of $6.2 million. The estimated premium that APPCIC plans to cede to the FHCF for the 2018 hurricane season is $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 impacted by a 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 $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 1~~st ~~Event~~

~~Multiple Line Excess of Loss~~

APPCIC also purchases extensive multiple line excess per risk reinsurance with various reinsurers due to the ~~high valued~~high-value 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~~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~~profit-sharing feature ~~available to APPCIC~~ if ~~the contract meets~~ specific performance ~~measures.~~

measures are met.

For the FHCF Reimbursement Contracts effective June 1, 2019, APPCIC has continued the election of the 90% coverage level. The total mandatory FHCF layer is estimated to provide approximately $11.7 million of coverage for APPCIC, which inures to the benefit of the open market coverage secured from private reinsurers.

The total cost of the 2019-2020 reinsurance programs for UPCIC and APPCIC is projected to be $417 million, representing approximately 33.3% of estimated direct premium earned for the 12-month treaty period.

Table of Contents

Results of Operations —- Three Months Ended June 30, ~~2018~~2019 Compared to Three Months Ended June 30, ~~2017~~

2018

Net income was $37.3 million for the three months ended June 30, 2019 compared to $46.1 million ~~an increase of $16.7 million, or 56.9%,~~ for the three months ended June 30, 2018, a decrease of $8.8 million or 19.1%. Diluted EPS for the current quarter was $1.08 compared to ~~$29.4 million for the three months ended June 30, 2017. The increase is the result~~$1.29 in 2018, a decrease of double digit revenue growth, continued underwriting profitability, and a reduced effective tax rate. Diluted earnings per common share increased by $0.47 to $1.29 for the three months ended June 30, 2018, compared to $0.82 per share for the three months ended June 30, 2017, ~~reflecting the increase in net income and a slight reduction in our weighted~~$0.21 or 16.3%. Weighted average diluted common shares ~~outstanding.~~ outstanding were lower by 2.7% to 34.6 million shares from 35.6 million shares at June 30, 2018. Benefiting the quarter were increases in net earned premium, net investment income and increases in the net change in unrealized gains of equity securities, offset by realized losses from sales on investments and increased operating costs for losses and LAE and general and administrative costs. Direct and net earned premium were up 10.6% and 9.4%, respectively, due to growth in all states in which we are licensed and writing during the past 12 months. Increases in losses and LAE were the result of premium growth, increased estimated core losses and LAE for the current year compared to prior year, offset by a lower level of unexpected weather events over expectations this year and a lower level of prior year adverse development compared to the prior year. In the second quarter there was a lower level of benefits recognized from claim adjustment fees, including claims fees ceded to reinsurers, as there is a lower level of hurricane claims compared to the prior year. As discussed further below, certain non-recurring items from 2018 impacted the quarter over quarter comparison such as a $6.5 million benefit associated with a premium tax refund in 2018 and a greater amount of discrete items in 2018 giving rise to a lower effective rate in 2018.

A detailed discussion of our results of operations follows the table ~~below.~~

below (in thousands, except per share data).

	(in thousands)
	Three Months Ended
	June 30,						Change						Three Months Ended June 30,						Change
	2018			2017			$			%			2019			2018			$			%
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	342,781		$	296,191		$	46,590			15.7	%	$	357,960		$	342,781		$	15,179		4.4	%
Change in unearned premium		(68,754	)		(51,568	)		(17,186	)		33.3	%	(54,852		)	(68,754		)	13,902			(20.2	)%
Direct premium earned		274,027			244,623			29,404			12.0	%	303,108			274,027			29,081			10.6	%
Ceded premium earned		(81,755	)		(75,614	)		(6,141	)		8.1	%	(92,751		)	(81,755		)	(10,996		)	13.4	%
Premiums earned, net		192,272			169,009			23,263			13.8	%	210,357			192,272			18,085			9.4	%
Net investment income (expense)		5,786			3,223			2,563			79.5	%
Net realized gains (losses) on sale of securities		145			1,710			(1,565	)	NM
Net investment income													7,410			5,786			1,624			28.1	%
Net realized gains (losses) on investments													(1,605		)	145			(1,750		)	NM
Net change in unrealized gains (losses) of equity securities		(1,521	)		—			(1,521	)	NM			3,759			(1,521		)	5,280			NM
Commission revenue		5,709			4,644			1,065			22.9	%	6,048			5,709			339			5.9	%
Policy fees		5,764			5,250			514			9.8	%	5,997			5,764			233			4.0	%
Other revenue		1,633			1,651			(18	)		-1.1	%	1,756			1,633			123			7.5	%
Total premiums earned and other revenues		209,788			185,487			24,301			13.1	%	233,722			209,788			23,934			11.4	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		89,842			80,184			9,658			12.0	%	113,296			89,842			23,454			26.1	%
General and administrative expenses		58,698			57,380			1,318			2.3	%	69,496			58,698			10,798			18.4	%
Total operating costs and expenses		148,540			137,564			10,976			8.0	%	182,792			148,540			34,252			23.1	%
INCOME BEFORE INCOME TAXES		61,248			47,923			13,325			27.8	%	50,930			61,248			(10,318		)	(16.8	)%
Income tax expense		15,164			18,547			(3,383	)		-18.2	%	13,637			15,164			(1,527		)	(10.1	)%
NET INCOME	$	46,084		$	29,376		$	16,708			56.9	%	$	37,293		$	46,084		$	(8,791	)	(19.1	)%
Other comprehensive income (loss), net of taxes		(1,849	)		1,486			(3,335	)	NM			11,955			(1,849		)	13,804			NM
COMPREHENSIVE INCOME	$	44,235		$	30,862		$	13,373			43.3	%	$	49,248		$	44,235		$	5,013		11.3	%
DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share	$	1.29		$	0.82		$	0.47			57.3	%	$	1.08		$	1.29		$	(0.21	)	(16.3	)%
Weighted average diluted common shares outstanding		35,589			35,958			(369	)		-1.0	%	34,612			35,589			(977		)	(2.7	)%

NM – Not Meaningful

~~NM – Not Meaningful~~

Policy count, premium in force and total insured value increased at June 30, 2019 when compared to June 30, 2018. Direct premiums written increased by ~~$46.6~~$15.2 million, or ~~15.7%~~4.4%, for the quarter ended June 30, ~~2018,~~2019, driven by growth within our Florida business of ~~$33.9~~$1.6 million, or ~~13.0%~~0.5%, and growth in our other states business of $13.6 million, or 28.7%, as compared to the same period of the prior ~~period,~~year. Rate increases in Florida and in other states was also a source of premium growth. As discussed below in losses and LAE, we implemented new binding guidelines during the first quarter of 2019 on new business to address emerging loss trends that have impacted the rate of growth in ~~our Other States business of $12.7 million, or 36.5%, as~~Florida. Premiums in force increased in every state in which we are writing compared to the prior ~~period. Florida growth was driven by growth~~year. In early March 2019, we commenced writing 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,Illinois, and we are now actively writing policies in 1617 states ~~other than~~outside our home state of Florida. ~~We commenced operations~~

Table of Contents

The following table provides direct premiums written for Florida and ~~wrote our first policy~~Other States for the three months ended June 30, 2019 and 2018 (dollars in ~~New Hampshire in early April 2018.~~

thousands):



	For the Three Months Ended
	June 30, 2019				June 30, 2018				Growth year over year
State	Direct Premiums Written		%		Direct Premiums Written		%		$		%
Florida	$	296,896	82.9	%	$	295,337	86.2	%	$	1,559	0.5	%
Other states	61,064		17.1	%	47,444		13.8	%	13,620		28.7	%
Total	$	357,960	100.0	%	$	342,781	100.0	%	$	15,179	4.4	%

Direct premium earned increased by ~~$29.4~~$29.1 million, or ~~12.0%~~10.6%, for the quarter ended June 30, ~~2018,~~2019, reflecting the earning of premiums written over the past 12 months and ~~any~~ changes in rates orand policy count during that time.

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events. Ceded premium represents amounts paid to reinsurers for this protection. Ceded premium earned increased by ~~$6.1~~$11.0 million, or ~~8.1%~~13.4%, for the quarter ended June 30, ~~2018,~~2019. Reinsurance costs, as a percentage of direct premium earned, increased from 29.8% to 30.6%, reflecting ~~an increase in total insured value covered by~~new pricing for the cost of reinsurance as our annual reinsurance program ~~and the coverage terms of the reinsurance agreements in effect during the treaty periods which begin~~renews each year on June 1. The increase was the result of reinsurance costs to support the growth in our policies in force and increased costs for reinsurance in our 2019-2020 new reinsurance program effective June 1. The increased costs associated with the 2019-2020 Reinsurance Program will be earned over the June 1, ~~of each year and extend through~~2019 to May 31, of2020 coverage period. See the ~~following year. Ceded premium earned as a percent of direct premiums earned was 29.8%~~discussion above for the ~~three months ended June 30, 2018 compared to 30.9% for the three months ended June 30, 2017.~~

new 2019-2020 Reinsurance Program and “Item 1—Note 4 (Reinsurance).”

Premiums earned, net of ceded premium earned, grew by ~~13.8%~~9.4%, or ~~$23.3~~$18.1 million, to ~~$192.3~~$210.4 million for the three months ended June 30, ~~2018,~~2019, reflecting ~~the~~an increase in direct ~~premium~~premiums earned ~~discussed above.~~

offset by increased cost for reinsurance.

Net investment income was ~~$5.8~~$7.4 million for the three months ended June 30, ~~2018,~~2019, compared to ~~$3.2~~$5.8 million for the same period in ~~2017.~~2018, an increase of $1.6 million, or 28.1%. The increase ~~in net investment income of $2.6 million~~ is ~~primarily~~ the result of several factors including the growth in cash and invested assets compared to the prior year and an increase in ~~investment income~~yields from ~~our available-for-sale debt securities, which grew as~~ a ~~result of growth~~shift in ~~total invested assets, favorable market trends~~asset mix 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 inrising interest ~~rates on short-term investments.~~rates. Total invested assets were ~~$747.2~~$942.3 million with an average Standard & Poor’s equivalent fixed income credit rating of ~~AA-~~A+ during the three months ended June 30, ~~2018~~2019 compared to ~~$634.9~~$747.2 million with an average Standard & Poor’s equivalent fixed income credit rating of AA- for the same period in ~~2017.~~

2018. Cash and cash equivalents are invested short term until needed to settle loss and LAE payments, reinsurance premium payments and operating cash needs. Yields from the fixed income portfolio are dependent on future market forces, monetary policy and interest rate policy from the Federal Reserve.

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.~~to meet our investment objectives. We sold securities and investment ~~securities available~~real estate during the three months ended June 30, 2019, generating net realized loss of $1.6 million compared to net realized gain of $0.1 million for the three months ended June 30, 2018. The realized losses this quarter resulted primarily from the sale ~~and~~of equity securities.

There was a $3.8 million favorable net unrealized gain in equity securities during the three months ended June 30, ~~2018, generating net realized gain of $0.1 million~~2019 compared to a $1.5 million unfavorable net ~~realized gain of $1.7 million for~~unrealized loss during the three months ended June 30, ~~2017.~~

In2018. Unrealized gains or losses are the ~~second quarter~~result of ~~2018,~~changes in the ~~net change in unrealized gains (losses) of equity securities was a loss of $1.5 million, driven by a decline in~~fair market value of our equity securities ~~portfolio. We highlight that this line item was added~~ during the ~~quarter ended March 31, 2018 because~~period for securities still held and the reversal 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~~or losses for securities sold during 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.

period. See “Item 1—(Note 3 Investments).”

Commission revenue is comprised principally of brokerage commissions we earn from reinsurers on reinsurance placed for the Insurance Entities. Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1 to May 31 of the following year. For the three months ended June 30, ~~2018,~~2019, commission revenue was ~~$5.7~~$6.0 million, compared to ~~$4.6~~$5.7 million for the three months ended June 30, ~~2017.~~2018. The increase in commission revenue of ~~$1.1~~$0.3 million, or ~~22.9%~~5.9%, for the three months ended June 30, ~~2018 compared to the three months ended June 30, 2017~~2019 was primarily from increased commissions earned on reinsurance premiums associated with the ~~result of $873 thousand of reinstatement commissions received by Blue Atlantic~~ Reinsurance ~~Corporation during the second quarter of 2018.~~

Program.

Policy fees for the three months ended June 30, ~~2018,~~2019 were ~~$5.8~~$6.0 million compared to ~~$5.3~~$5.8 million for the same period in ~~2017.~~2018. The increase of ~~$514 thousand,~~$0.2 million, or ~~9.8%~~4.0%, was the result of an increase in the total number of new and renewal policies written during the three months ended June 30, ~~2018~~2019 compared to the same period in ~~2017.~~

~~Other revenue, which represents revenue from premium financing~~2018.

Table of Contents

Losses and ~~other miscellaneous income, was $1.6~~LAE, net of reinsurance, were $113.3 million for the three months ended June 30, ~~2018~~2019, compared to ~~$1.7 million for the same period in 2017.~~

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

Three Months Ended June 30, 2018

Direct

Loss Ratio

Ceded

Loss Ratio

Net

Loss Ratio

Premiums earned
$
274,027

$
81,755

$
192,272

Loss and loss adjustment expenses:

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

80,222

29.3
%

(2,310
)

(2.8
%)

82,532

42.9
%
Total losses and loss adjustment expenses
$
246,622

90.0
%

$
156,780

191.8
%

$
89,842

46.7
%


	Three Months Ended June 30, 2017															Three Months Ended June 30, 2019
	Direct		Loss Ratio			Ceded		Loss Ratio			Net		Loss Ratio			Direct		Loss Ratio		Ceded		Loss Ratio		Net		Loss Ratio
Premiums earned	$	244,623				$	75,614				$	169,009				$	303,108			$	92,751			$	210,357

Loss and loss adjustment expenses:
Weather events*	$	6,000		2.5	%	$	—		—		$	6,000		3.6	%	$	4,917	1.6	%	$	2,917	3.1	%	$	2,000	1.0	%
Prior year adverse/(favorable) reserve development		6,581		2.7	%		5,472		7.2	%		1,109		0.7	%	98,043		32.4	%	97,373		105.0	%	670		0.3	%
All other losses and loss adjustment expenses		73,075		29.9	%		—		—			73,075		43.2	%	110,626		36.5	%	—		—		110,626		52.6	%
Total losses and loss adjustment expenses	$	85,656		35.1	%	$	5,472		7.2	%	$	80,184		47.4	%	$	213,586	70.5	%	$	100,290	108.1	%	$	113,296	53.9	%

*Includes only current year weather events beyond those expected.																*Includes only current year weather events beyond those expected.

*~~Includes only~~ ~~weather events beyond those expected.~~



	Three Months Ended June 30, 2018
	Direct		Loss Ratio		Ceded			Loss Ratio		Net		Loss Ratio
Premiums earned	$	274,027			$	81,755				$	192,272

Loss and loss adjustment expenses:
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	80,222		29.3	%	(2,310		)	(2.8	)%	82,532		42.9	%
Total losses and loss adjustment expenses	$	246,622	90.0	%	$	156,780		191.8	%	$	89,842	46.7	%

*Includes only current year weather events beyond those expected.

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

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~~Losses and LAE, ~~(on both a direct and~~ net ~~basis) of $6.0 million from weather events beyond those expected~~ for the second quarter ~~ended June 30, 2017, which was~~of 2019 were $113.3 million compared to $89.8 million in the ~~result~~second quarter of ~~an increase to our underlying core loss ratio in 2017 to reflect~~2018, 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~~$23.5 million, for both the 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 lossor 26.1%. Losses 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 quarter 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 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 fourth quarter 2016 storm, Hurricane Matthew.

All other net losses and LAE were $82.5 million for the three months ended June 30, 2018, compared to $73.1 million during the same period in 2017. Our service company subsidiaries, particularly UAC, generated additional revenues servicing Hurricane Irma claims andincreased during the second quarter ended June 30, 2019 principally due to three key factors: (1) increased losses in connection with the growth in our underlying business; (2) increased core loss ratio (as defined below) from 33% in 2018 ~~generated $8.4~~to 37% in 2019; and (3) reduced level of benefits from claim settlement fees ceded to reinsurers as hurricanes claims conclude. To a lesser extent, the quarter included net $2.0 million for weather events beyond those expected. In the second quarter of ~~earnings which reduced amounts recorded as~~2019, there was adverse prior year reserve development of $98.0 million gross, less $97.4 million ceded resulting in $0.7 million net. The reserve development for the quarter ended June 30, 2019 was to increase ultimate direct losses and LAE ~~this quarter. This had~~for Hurricanes Matthew, Florence and Irma, with minimal impact on net losses and LAE. In the quarter ended June 30, 2018 the increase in prior year reserves was principally to increase expected Hurricane Irma claims.

We increased our core loss ratio to be in line with recent claim experience, specifically in the Florida market, as we continue to address: (1) the assignment of benefit issue (“AOB”) and increases in the systemic solicitation and representation of claims; and (2) emerging trends impacting the severity and frequency of claims. Claims paid under an AOB often involve unnecessary litigation and as a ~~favorable effect on our~~result cost significantly more than claims settled when an AOB is not involved, with most of the increase going to the attorneys or representatives of policyholders. The increase in the underlying core loss and LAE ratio ~~of approximately 3.4 percentage points on a direct basis (or 5.0 percentage points on a net basis). The Company’s underlying loss and LAE ratio~~also reflects continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida. “Core loss ratio” is a common operational metric used in the insurance industry to describe the ratio of current accident year expected losses to premiums earned.

On May 23, 2019, Florida Governor Ron DeSantis signed HB 7065: Insurance Assignment Agreements, which aims to curtail the abuse of AOB. We are evaluating this bill to determine its impact on our business.

Table of Contents

These market trends in losses and LAE led us to file for an overall 2.6% rate increase in Florida (effective April 2019 for new business and May 2019 for renewals), make changes to certain new business binding requirements and develop specialized claims and litigation management efforts to address market trends driving up claim costs.

The financial benefit from the management of claims, including claims fees ceded to reinsurers, was $1.3 million for the second quarter of 2019 compared to $8.4 million during the second quarter of 2018. The benefit is reflected in our financial statements as ~~well as claims trends inside~~a reduction of ~~Florida including~~direct claim costs. This reduction in the ~~growth in~~second quarter of 2019 reflects a lower volume of hurricane claim costs ~~and challenges faced when policyholders assign their policy benefits~~ceded to ~~third parties and including the increased litigation arising from these claims.~~

reinsurers.

General and administrative expenses were ~~$58.7~~$69.5 million for the three months ended June 30, ~~2018,~~2019, compared to ~~$57.4~~$58.7 million during the same period in ~~2017~~2018, as follows (dollars in thousands):

Three Months Ended

June 30,

Change

2018

2017

$

%

$

Ratio

$

Ratio

Premiums earned, net
$
192,272

$
169,009

$
23,263

13.8
%
General and administrative expenses:

Policy acquisition costs

33,545

17.4
%

33,022

19.5
%

523

1.6
%
Other operating costs

25,063

13.0
%

24,272

14.4
%

791

3.3
%
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
%

~~(1)~~

~~Total general and administrative expense ratio does not include interest expense.~~



	Three Months Ended
	June 30,								Change
	2019				2018				$		%
	$		Ratio		$		Ratio
Premiums earned, net	$	210,357			$	192,272			$	18,085	9.4	%
General and administrative expenses:
Policy acquisition costs	44,221		21.0	%	33,545		17.4	%	10,676		31.8	%
Other operating costs	25,275		12.0	%	25,153		13.1	%	122		0.5	%
Total general and administrative expenses	$	69,496	33.0	%	$	58,698	30.5	%	$	10,798	18.4	%

~~The increase in general~~

General and administrative ~~expenses of $1.3~~costs increased by $10.8 million, which was primarily the result of ~~modest~~ increases in ~~both~~policy acquisition costs of $10.7 million and to a lesser extent due to an increase in other operating costs of $0.1 million. As a percentage of earned premiums, general and administrative costs increased from 30.5% of earned premiums for the three months ended June 30, 2018 to 33.0% of earned premiums for the same period in 2019. The increase in policy acquisition costs and ~~other operating costs, which increased by $0.5 million and $0.8 million, respectively, as compared to the prior year’s quarter. General and administrative expenses~~ratio for the quarter ended June 30, ~~2018 included~~2019 was due to a non-recurring benefit of $6.5 million ~~benefit (included within policy acquisition costs)~~recorded in 2018 related to a ~~settlement~~refund of prior year premium ~~tax audits~~taxes as a result of an audit settlement with the Florida Department of Revenue, which reduced the ~~expense~~policy acquisition costs ratio by 3.4 percentage ~~points. Our underlying policy acquisition costs continued to be driven~~points in 2018. Excluding this benefit in the prior year, the overall total general and administrative expense ratio in 2019 would have improved by ~~increased premium volume and continued geographic expansion into states that typically have higher commission rates as~~0.9 percentage points compared to ~~Florida.~~the same period in 2018 before the impact of the premium tax refund. Other operating costs for the three months ended June 30, 2019 increased $0.1 million, reflecting lower amounts recorded for executive compensation and temporary employee expenses offset by added costs to support the growth in business. Other operating costs ratio for the three months ended June 30, 2019 was 12.0% in 2019 compared to 13.1% in 2018, reflecting lower amounts recorded for executive compensation. Overall, the expense ratio (general and administrative expenses as a percentage of net earned premiums) benefited from the items mentioned above and 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 30.4% for the three months ended June 30, 2018 compared to 33.9% for the same period in 2017.~~

net premiums earned.

Income tax expense decreased by ~~$3.4~~$1.5 million, or ~~18.2%~~10.1%, for the three months ended June 30, ~~2018,~~2019, when compared with the three months ended June 30, ~~2017.~~2018. Our effective tax rate ~~decreased~~(“ETR”) increased to 26.8% for the three months ended June 30, 2019, as compared to 24.8% for the three months ended June 30, ~~2018,~~2018. Income tax expense decreased as ~~compared to 38.7% for the three months ended June 30, 2017. The~~a result of a decrease in taxable income partially offset by an increase in the ETR. The ETR increased by 2.0 percentage points from both ~~income tax expense and our effective tax rate is primarily the result of the enactment of the Tax Act. The second quarter of 2018 included~~ a net credit to income tax expense of $0.6 million primarily driven by the excess tax benefits resulting from stock-based awards that vested and/or were exercised during the 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~~permanent differences between book and taxable income and a lower amount of net discrete items both of which increase the tax ~~rates.~~

rate.

Other comprehensive ~~loss,~~income, net of taxes for the three months ended June 30, ~~2018~~2019, was ~~$1.8~~$12.0 million compared to other comprehensive ~~income~~loss of ~~$1.5~~$1.8 million for the same period in ~~2017.~~2018. See “Item ~~1 —~~ 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~~2019 Compared to Six Months Ended June 30, ~~2017~~

2018

Net income was $77.4 million for the six months ended June 30, 2019 compared to $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~~a decrease of $8.7 million. Diluted EPS 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~~2019 was $2.22 compared to $2.42 ~~for~~in 2018, a decrease of $0.20 or 8.3%. Weighted average diluted common shares outstanding were lower by 2.1% to 34.9 million shares from 35.6 million shares at June 30, 2018. Benefiting the six months ended June 30, ~~2018,~~2019 were increases in net earned premium, net investment income and increases in the net change in unrealized gains of equity securities, offset by realized losses on investments and increased operating costs for losses and LAE and general and administrative costs. Direct and net earned premium were up 11.6% and 12.1%, respectively, due to growth in all states in which we are licensed and writing during the past 12 months. Increases in losses and LAE were the result of premium growth, increased estimated core losses and LAE for the current year compared to ~~$1.68 per share for~~prior year and unexpected weather events this year. During 2019, there was a lower level of benefits recognized from claim adjustment fees, including claim fees ceded to reinsurers, as there is a lower level of hurricane claims compared to prior year. As discussed further below, certain non-recurring items from 2018 impacted the ~~six months ended June 30, 2017,~~ ~~reflecting the increase~~period over period comparison such as a $6.5 million benefit associated with a premium tax refund in ~~net income~~2018 and a ~~slight reduction~~greater amount of discrete items in ~~our weighted average diluted common shares outstanding.~~ 2018 giving rise to a lower effective rate in 2018.

Table of Contents

A detailed discussion of our results of operations follows the table ~~below.~~

below (in thousands, except per share data).

(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
%

~~NM – Not Meaningful~~



	Six Months Ended June 30,						Change
	2019			2018			$			%
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	647,194		$	612,765		$	34,429		5.6	%
Change in unearned premium	(48,709		)	(76,477		)	27,768			(36.3	)%
Direct premium earned	598,485			536,288			62,197			11.6	%
Ceded premium earned	(178,401		)	(161,439		)	(16,962		)	10.5	%
Premiums earned, net	420,084			374,849			45,235			12.1	%
Net investment income (expense)	15,552			10,571			4,981			47.1	%
Net realized gains (losses) on investments	(13,130		)	(2,496		)	(10,634		)	426.0	%
Net change in unrealized gains (losses) of equity securities	21,791			(6,630		)	28,421			NM
Commission revenue	11,553			10,980			573			5.2	%
Policy fees	11,018			10,539			479			4.5	%
Other revenue	3,440			3,475			(35		)	(1.0	)%
Total premiums earned and other revenues	470,308			401,288			69,020			17.2	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	226,390			165,768			60,622			36.6	%
General and administrative expenses	139,244			122,573			16,671			13.6	%
Total operating costs and expenses	365,634			288,341			77,293			26.8	%
INCOME BEFORE INCOME TAXES	104,674			112,947			(8,273		)	(7.3	)%
Income tax expense	27,233			26,808			425			1.6	%
NET INCOME	$	77,441		$	86,139		$	(8,698	)	(10.1	)%
Other comprehensive income (loss), net of taxes	23,939			(5,899		)	29,838			NM
COMPREHENSIVE INCOME	$	101,380		$	80,240		$	21,140		26.3	%
DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share	$	2.22		$	2.42		$	(0.20	)	(8.3	)%
Weighted average diluted common shares outstanding	34,903			35,636			(733		)	(2.1	)%

NM – Not Meaningful

Policy count, premium in force and total insured value increased at June 30, 2019 when compared to June 30, 2018. Direct premiums written increased by ~~$71.2~~$34.4 million, or ~~13.1%~~5.6%, for the six months ended June 30, ~~2018,~~2019, driven by growth within our Florida business of ~~$49.6~~$9.5 million, or ~~10.3%~~1.8%, and growth in our other states business of $24.9 million, or 29.9%, as compared to the same period of the prior ~~period,~~year. Rate increases in Florida and in other states were also a source of premium growth. We implemented new binding guidelines during the six months ended June 30, 2019 on new business to address emerging loss trends that have impacted the rate of growth in ~~our Other States business of $21.5 million, or 34.8%, as~~Florida. Premiums in force increased in every state in which we are writing compared to ~~the prior period. Florida growth was driven by growth~~June 30, 2018. In early March 2019, we commenced writing 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,Illinois, and we are now actively writing policies in 1617 states ~~other than~~outside our home state of Florida. ~~We commenced operations~~

The following table provides direct premiums written for Florida and ~~wrote our first policy~~Other States for the six months ended June 30, 2019 and 2018 (dollars in ~~New Hampshire in early April 2018.~~

thousands):



	For the Six Months Ended
	June 30, 2019				June 30, 2018				Growth year over year
State	Direct Premiums Written		%		Direct Premiums Written		%		$		%
Florida	$	539,044	83.3	%	$	529,515	86.4	%	$	9,529	1.8	%
Other states	108,150		16.7	%	83,250		13.6	%	24,900		29.9	%
Total	$	647,194	100.0	%	$	612,765	100.0	%	$	34,429	5.6	%

Table of Contents

Direct premium earned increased by ~~$55.3~~$62.2 million, or ~~11.5%~~11.6%, for the six months ended June 30, ~~2018,~~2019, reflecting the earning of premiums written over the past 12 months and ~~any~~ changes in rates orand policy count during that time.

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events. Ceded premium represents amounts paid to reinsurers for this protection. Ceded premium earned increased ~~by $11.0~~$17.0 million, or ~~7.3%~~10.5%, for the six months ended June 30, 2019. Reinsurance costs, as a percentage of direct premium earned, decreased from 30.1% in 2018 ~~reflecting an~~to 29.8% in 2019. The lower ratio was a result of the higher base of direct premium earned in 2019 compared to 2018. The increase in ~~total insured value covered by~~reinsurance costs was to support the growth in our policies in force and increased costs for reinsurance in our 2019-2020 new reinsurance program effective June 1. Costs associated with the renewal of our reinsurance program ~~and~~will be earned over the ~~coverage terms of the reinsurance agreements in effect during the treaty~~

~~periods which begin on~~ June 1, ~~of each year and extend through~~2019 to May 31, of2020 coverage period. See the ~~following year. Ceded premium earned as a percent of direct premiums earned was 30.1%~~discussion above for the ~~six months ended June 30, 2018 compared to 31.3% for the six months ended June 30, 2017.~~

new 2019-2020 Reinsurance Program and “Item 1— (Note 4 Reinsurance).”

Premiums earned, net of ceded premium earned, grew by ~~13.4%~~12.1%, or ~~$44.3~~$45.2 million, to ~~$374.8~~$420.1 million for the six months ended June 30, ~~2018,~~2019, reflecting the increase in direct premiums earned ~~premiums discussed above.~~

offset by increased costs for reinsurance.

Net investment income was ~~$10.6~~$15.6 million for the six months ended June 30, ~~2018,~~2019, compared to ~~$5.9~~$10.6 million for the same ~~six-month~~ period in ~~2017.~~2018, an increase of $5.0 million, or 47.1%. The increase ~~in net investment income of $4.6 million~~ is ~~primarily~~ the result of several factors including the growth in cash and invested assets compared to the prior year and an increase in ~~investment income~~yields from ~~our available-for-sale debt securities, which grew as~~ a ~~result of growth~~shift in ~~total invested assets, favorable market trends~~asset mix 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 inrising interest ~~rates on short-term investments.~~rates. Total invested assets were ~~$747.2~~$942.3 million with an average Standard & Poor’s equivalent fixed income credit rating of ~~AA-~~A+ during the six months ended June 30, ~~2018~~2019 compared to ~~$634.9~~$747.2 million with an average Standard & Poor’s equivalent fixed income credit rating of AA- for the same period in ~~2017.~~

We sell ~~investment securities~~investments 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.~~to meet our investment objectives. We sold securities and investment ~~securities available for sale and equity securities~~real estate during the six months ended June 30, ~~2018,~~2019, generating net realized ~~losses~~loss of ~~$2.5~~$13.1 million compared to net realized ~~gains~~loss of ~~$1.6~~$2.5 million for the six months ended June 30, ~~2017.~~2018. The ~~investment securities sold~~realized losses during the six months ended June 30, 2019 resulted primarily from the sale of equity securities, whereas the realized loss for the six months ended June 30, 2018 ~~were comprised~~resulted primarily from the sale 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,~~ See “Item 1—(Note 3 Investments).”

There was a ~~loss of $6.6~~$21.8 million ~~driven by a decline~~favorable net unrealized gain in ~~value of our~~ equity securities ~~portfolio. We highlight that this line item was added~~ during the six months ended June 30, ~~2018, because~~2019 compared to a $6.6 million unfavorable net unrealized loss during the six months ended June 30, 2018. Unrealized gains or losses are the result of changes in the ~~adoption~~fair market value of ~~new accounting guidance~~our equity securities during the period for ~~equity securities. See “Note 2 - Significant Accounting Policies – Recently Adopted Accounting Pronouncements” for more information. The comparable change in~~securities still held and the reversal of unrealized gains ~~(losses) within our equity portfolio~~or losses for securities sold during 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.~~

period. See “Item 1—(Note 3 Investments).”

Commission revenue is comprised principally of brokerage commissions we earn from reinsurers on reinsurance placed for the Insurance Entities. Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1 to May 31 of the following year. For the six months ended June 30, ~~2018,~~2019, commission revenue was ~~$11.0~~$11.6 million, compared to ~~$9.2~~$11.0 million for the six months ended June 30, ~~2017.~~2018. The increase in commission revenue of ~~$1.7~~$0.6 million, or ~~18.8%~~5.2%, for the six months ended June 30, ~~2018 compared to the six months ended June 30, 2017~~2019 was primarily ~~the result of $1.4 million of reinstatement~~from increased commissions ~~received by Blue Atlantic~~earned on reinsurance premiums associated with our Reinsurance ~~Corporation during the first six months ended of 2018.~~

Program.

Policy fees for the six months ended June 30, ~~2018,~~2019 were ~~$10.5~~$11.0 million compared to ~~$9.7~~$10.5 million for the same period in ~~2017.~~2018. The increase of ~~$0.8~~$0.5 million, or ~~8.3%~~4.5%, was the result of an increase in the total number of new and ~~renewal~~renewed policies written during the six months ended June 30, ~~2018~~2019 compared to the same period in ~~2017.~~

~~Other revenue, which represents revenue from premium financing~~2018.

Losses and ~~other miscellaneous income, was $3.5~~LAE, net of reinsurance, were $226.4 million for the six months ended June 30, ~~2018~~2019, 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~~2018 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
%

* ~~Includes~~ ~~only weather events beyond those expected.~~

Table of Contents



	Six Months Ended June 30, 2019
	Direct		Loss Ratio		Ceded		Loss Ratio		Net		Loss Ratio
Premiums earned	$	598,485			$	178,401			$	420,084

Loss and loss adjustment expenses:
Weather events*	$	9,917	1.7	%	$	2,917	1.6	%	$	7,000	1.7	%
Prior year adverse/(favorable) reserve development	100,208		16.7	%	99,723		55.9	%	485		0.1	%
All other losses and loss adjustment expenses	219,203		36.6	%	298		0.2	%	218,905		52.1	%
Total losses and loss adjustment expenses	$	329,328	55.0	%	$	102,938	57.7	%	$	226,390	53.9	%

*Includes only current year weather events beyond those expected.



	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	%

*Includes only current year weather events beyond those expected.

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

Losses and LAE, net for the six months ended June 30, 2019 were $226.4 million compared to $165.8 million in the same period in 2018, an increase of $60.6 million, or 36.6%. Losses and LAE increased during the six months ended June 30, 2019 principally due to three key factors: (1) increased losses in connection with the growth in our underlying business; (2) increased core loss ratio (as defined below) from 33% in 2018 to 37% in 2019; and (3) reduced level of benefits from claim settlement fees ceded to reinsurers as hurricanes claims conclude. As of June 30, 2019, there was adverse prior year reserve development of $100.2 million gross, less $99.7 million ceded resulting in $0.5 million net. For the six months ended June 30, 2018, ~~we experienced $5.0~~there was $162.1 million ~~of weather events beyond expectations (on both~~gross less $159.8 million ceded resulting in $2.3 million net. To 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 forlesser extent, the six months ended June 30, ~~2017, including an~~2019 included net $7.0 million for weather events beyond those expected compared to net $5.0 million in the prior year. The reserve development for 2019 was to increase ultimate direct losses and LAE for Hurricanes Matthew, Florence and Irma, with minimal impact on net losses and LAE. For 2018 the increase in prior year reserves was principally to increase expected Hurricane Irma claims.

We increased our ~~underlying~~ core loss ratio to be in ~~2017~~line with recent claim experience, specifically in the Florida market, as we continue to ~~reflect~~address: (1) the AOB issue and increases in the systemic solicitation and representation of claims; and (2) emerging trends impacting the severity and frequency of claims. Claims paid under an AOB often involve unnecessary litigation and as a result cost significantly more than claims settled when an AOB is not involved, with most of the 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 cessionsgoing to the ~~Company’s reinsurers.~~attorneys or representatives of policyholders. 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 core 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~~also reflects continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida. “Core loss ratio” is a common operational metric used in the insurance industry to describe the ratio of current accident year expected losses to premiums earned.

On May 23, 2019, Florida ~~as well as~~Governor Ron DeSantis signed HB 7065: Insurance Assignment Agreements which aims to curtail the ~~marketplace dynamics inside~~abuse of AOB. We are evaluating this bill to determine its impact on our business.

These market trends in losses and LAE have led us to file for an overall 2.6% rate increase in Florida (effective April 2019 for new business and May 2019 for renewals), make changes to certain new business binding requirements and develop specialized claims and litigation management efforts to address market trends driving up claim costs.

Table of Contents

The financial benefit from the management of claims ceded, including ~~challenges faced when policyholders assign their policy benefits~~claim fees ceded to ~~third parties including the increased litigation from these claims.~~

~~General and administrative expenses were $122.6~~reinsurers, was $2.1 million for the six months ended June 30, ~~2018,~~2019 compared to ~~$114.3~~$18.9 million during the six months ended June 30, 2018. The benefit is reflected in our financial statements as a reduction of direct claim costs. This reduction in the six months ended June 30, 2019 reflects a lower volume of hurricane claim costs ceded to reinsurers.

General and administrative expenses were $139.2 million for the six months ended June 30, 2019, compared to $122.6 million during the same period in ~~2017~~2018, 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
%

~~(1)~~

~~Total general and administrative expense ratio does not include interest expense.~~



	Six Months Ended June 30,								Change
	2019				2018				$		%
	$		Ratio		$		Ratio
Premiums earned, net	$	420,084			$	374,849			$	45,235	12.1%
General and administrative expenses:
Policy acquisition costs	87,732		20.9	%	71,588		19.1	%	16,144		22.6	%
Other operating costs	51,512		12.3	%	50,985		13.6	%	527		1.0	%
Total general and administrative expenses	$	139,244	33.2	%	$	122,573	32.7	%	$	16,671	13.6	%

~~The increase in general~~General and administrative ~~expenses of $8.3~~costs increased by $16.7 million, which was primarily the result of increases in policy acquisition costs of ~~$6.1~~$16.1 million ~~which were driven by~~due to commissions associated with increased premium volume ~~and continued geographic expansion into states that have higher typical commission rates compared~~as well as a non-recurring audit settlement related to ~~our home state of Florida,~~premium taxes, and to a lesser extent due to an increase in other operating costs of ~~$2.1~~$0.5 million. ~~General~~As a percentage of earned premiums, general and administrative ~~expenses~~costs increased from 32.7% of earned premiums for the six months ended June 30, 2018 ~~included~~to 33.2% of earned premiums for the same period in 2019. The increase in policy acquisition costs and ratio for the six months ended June 30, 2019 was due to a non-recurring benefit of $6.5 million ~~benefit (included within policy acquisition costs)~~recorded in 2018 related to a ~~settlement~~refund of prior year premium ~~tax audits~~taxes as a result of an audit settlement with the Florida Department of Revenue, which reduced the ~~expense~~policy acquisition costs ratio by 1.7 percentage ~~points. Our underlying policy acquisition~~points in 2018. Excluding this benefit in the prior year, the overall total general and administrative expense ratio in 2019 would have improved 1.2 percentage points compared to the same period in 2018 before the impact of the premium tax refund. Other operating costs ~~continued~~for the six months ended June 30, 2019 increased $0.5 million, reflecting lower amounts recorded for executive compensation and temporary employee expenses offset by added costs to ~~be driven by increased~~support the growth in business. Other operating costs as a percentage of earned premium ~~volume and continued geographic expansion into states where~~reduced from 13.6% of net earned premium for the ~~comparable commission rates are higher than Florida.~~six months ended June 30, 2018 compared to 12.3% of net earned premium for the same period in 2019. Overall, the expense ratio for 2019 (general and administrative expenses as a percentage of net ~~earned premiums)~~premiums earned) benefited from reduced executive compensation and 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~~revenues when compared to ~~34.5% for~~ the same period ~~in 2017.~~

of 2018 excluding the non-recurring premium tax benefit.

Income tax expense ~~decreased~~increased by ~~$7.9~~$0.4 million, or ~~22.8%~~1.6%, for the six months ended June 30, ~~2018,~~2019, when compared with the six months ended June 30, ~~2017.~~2018. Our ~~effective tax rate decreased~~ETR increased to 26.0% for the six months ended June 30, 2019, as compared to 23.7% for the six months ended June 30, ~~2018, as compared to 36.4% for the six months ended June 30, 2017.~~2018. The ~~decrease~~increase 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 of ~~$2.3~~$0.4 million ~~primarily driven~~was the result of an increase in the ETR mostly offset by ~~excess~~a decrease in taxable income. The ETR increased by 2.3 percentage points from both a change in permanent differences between book and tax benefits resulting from stock-based awards that vested and/or were exercised during the 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 excess tax benefit benefits resulting from stock-based awards that had vested and/or were exercised during that periodincome and a ~~credit to income~~lower amount of net discrete items both of which increased the 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 change in our effective tax rates.

rate.

Other comprehensive ~~loss,~~income, net of taxes for the six months ended June 30, ~~2018~~2019, was ~~$5.9~~$23.9 million compared to other comprehensive ~~income~~loss of ~~$4.0~~$5.9 million for the same period in ~~2017.~~2018. See “Item ~~1 —~~ 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income and loss for these periods.

Table of Contents

Analysis of Financial Condition—As of June 30, ~~2018~~2019 Compared to December 31, ~~2017~~

2018

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~~We invest amounts considered to be in excess of current working capital requirements.

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

As of

June 30,

December 31,

Type of Investment

2018

2017

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

19,539

18,474

Total

$
747,167

$
730,023



	As of
	June 30,		December 31,
Type of Investment	2019		2018
Available-for-sale debt securities	$	884,093	$	820,438
Equity securities	42,368		63,277
Investment real estate, net	15,792		24,439
Total	$	942,253	$	908,154

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

investments and “Item 1—Note 3 (Investments).” Investment real estate, net reduced $8.6 million during 2019 as a result of the sale of two investment properties. The gain on the sale of the two investment properties was $1.2 million.

Prepaid reinsurance premiums represent the portion of unearned ceded written ~~premiums~~premium that will be earned pro-rata over the coverage period of our reinsurance program, which runs from June 1 to May 31 of the following year. The increase of ~~$177.8~~$239.2 million to ~~$310.6~~$382.0 million as of June 30, ~~2018~~2019 was due to additional ceded written premium of ~~$338.9~~$417.6 million recorded this quarter for the reinsurance costs relating to our new ~~2018-2019~~2019-2020 catastrophe reinsurance program beginning June 1, ~~2018~~2019, less amortization of prepaid reinsurance premiums recorded during ~~the period.~~

2019.

Reinsurance recoverable represents the estimated amount of paid and unpaid losses, LAE and ~~loss adjustment~~ expenses that are expected to be recoverable from reinsurers. The decrease of ~~$64.6~~$87.0 million during the quarter to ~~$117.9~~$331.6 million as of June 30, ~~2018~~2019 was primarily due to the ~~settlement~~collection of amounts ~~due~~ from ~~reinsurers for claims ceded to~~ reinsurers relating to ~~Hurricane Irma~~previous hurricanes and ~~to a lesser extent Hurricane Matthew.~~

storm events.

Premiums receivable, net represents amounts receivable from policyholders. The increase in premiums receivable, net of ~~$10.7~~$6.9 million to ~~$67.2~~$66.8 million as of June 30, ~~2018~~2019 relates to ~~both~~ the growth, seasonality and consumer payment behavior of our business. The nature of our business tends to be seasonal during the year, reflecting consumer behaviors in connection with the Florida residential real estate market and ~~seasonality~~the hurricane season. The amount of direct premiums written tends to increase just prior to the second quarter and tends to decrease approaching the fourth quarter.

Property and equipment, net increased $5.5 million during 2019 primarily as the result of the ~~Company’s business.~~

~~Deferred income tax assets and liabilities represent temporary differences between U.S. GAAP and~~purchase of a new office building in Fort Lauderdale, Florida, which will be used to meet the ~~tax basis~~staffing needs of the ~~Company's assets and liabilities. During~~company as the ~~six months ended June 30, 2018, deferred tax assets decreased by $9.1 million~~business continues to ~~$0.2 million, primarily due to an increase in deferred policy acquisition costs and an increase in ceded unearned premiums.~~

expand.

Deferred policy acquisition costs (“DPAC”) increased by ~~$15.7~~$5.8 million to ~~$88.8~~$90.5 million as of June 30, ~~2018,~~2019, which is ~~in line~~consistent with the underlying premium ~~growth.~~growth and the seasonality of our business. See “Item ~~1 —~~ 1—Note 5 (Insurance Operations)” for a roll-forward in the balance of our ~~deferred policy acquisition costs.~~

DPAC.

Income taxes recoverable ~~increased by $2.4 million~~represents the difference between estimated tax obligations and tax payments made to ~~$11.8 million as of~~taxing authorities. At June 30, ~~2018,~~2019, the balance recoverable was $8.9 million, representing amounts due from ~~$9.5~~taxing authorities at that date, compared to a balance recoverable of $11.2 million as of December 31, ~~2017. The increase represents~~2018.

Deferred income taxes represent the estimated tax asset or tax liability caused by temporary differences between the tax return basis of certain assets and liabilities and amounts ~~due from taxing jurisdictions within one year and when income tax payments exceed income tax liabilities. Income taxes recoverable as of~~recorded in the financial statements. During the six months ended June 30, ~~2018 were $11.8~~2019, deferred tax assets decreased by $19.7 million ~~which represents amounts recoverable or~~ to ~~be applied~~a deferred tax liability of $5.1 million. The change was primarily due to increase in unrealized gains on investment, prepaid reinsurance premiums and unearned premiums. Deferred income taxes reverse in future ~~periods for federal~~years as the temporary differences between book and ~~state income taxes.~~

tax reverse.

See “Item ~~1 —~~ 1—Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for a roll-forward in the balance of our unpaid losses and ~~loss adjustment expenses.~~ LAE. Unpaid losses and ~~loss adjustment expenses~~LAE decreased by ~~$96.5~~$184.5 million to ~~$151.9~~$288.3 million as of June 30, ~~2018.~~2019. The reduction in unpaid losses and ~~loss adjustment expenses~~LAE was principally due to the settlement of ~~Hurricane Irma~~ claims ~~that were~~from previous hurricane and storm events, as more claims from those events concluded during the six months ended June 30, 2019. Overall unpaid losses and LAE decreased, as ~~of December 31, 2017, offset from losses incurred from weather related activity and other claims in 2018.~~claim settlements exceeded new emerging claims. Unpaid losses and ~~loss adjustment expenses~~LAE are net of estimated subrogation recoveries. ~~The Company is continuing its initiatives to expedite claims payments including the ability of our mobile claims teams to rapidly settle certain claims, which we refer to as “Fast Track,”and pursuing the anticipated benefits from subrogation collections.~~

Unearned premiums represent the portion of direct premiums written ~~premium~~ that will be earned ~~pro rata~~pro-rata in the future. The increase of ~~$76.5~~$48.7 million from December 31, 2018 to ~~$608.9~~$650.4 million as of June 30, ~~2018~~2019 reflects both organic growth and the seasonality of our business, ~~as described under “–~~ ~~Overview~~”.

which is the variability of premiums written by month.

Advance premium represents premium payments made by policyholders ahead of the effective date of the policies. The increase of ~~$12.0~~$13.2 million to ~~$38.2~~$39.5 million as of June 30, ~~2018~~2019 reflects ~~both~~customer payment behavior and the organic growth and the seasonality of our ~~business as described under “–~~ ~~Overview~~”.

business.

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Book overdrafts represent outstanding checks or drafts in excess of cash on deposit with banking institutions 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~~We maintain 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~~$25.6 million as of June 30, ~~2018~~2019, compared to ~~$36.7~~$102.8 million as of December 31, ~~2017.~~2018. The decrease of ~~$33.7~~$77.2 million is the result of ~~higher cash balances available for offset as of June 30, 2018 and to a lesser amount less~~fewer outstanding items as of June 30, ~~2018~~2019 compared to December 31, ~~2017 due to lower Hurricane Irma drafts~~2018, as outstanding claims payments for hurricane and storm events are settled and are no longer outstanding.

Reinsurance payable, net, represents the unpaid ~~ceded written premiums~~installments owed to reinsurers, ~~in connection with the renewal of the Company’s 2018-2019 catastrophe reinsurance program on June 1, 2018,~~ unpaid reinstatement premiums due to reinsurers and cash advances received from ~~reinsurers in connection with Hurricane Irma’s anticipated recoveries.~~reinsurers. On June 1st of each year, we renew our catastrophe reinsurance program and record the estimated annual cost of our reinsurance program. The annual cost initially increases reinsurance payable which is then reduced as installment payments are made over the policy period of the reinsurance, which runs from June 1st to May 31st. The balance increased by ~~$231.5~~$330.9 million to ~~$341.9~~$424.2 million as of June 30, ~~2018~~2019 as a result of the timing of the above items. ~~Ceded premiums for the 2018-2019 catastrophe reinsurance program are paid in installments over the~~

Dividend payable increased $5.5 million and primarily represents a 16 cents per share dividend declared on June 15, 2019 and payable to ~~May 31 policy term.~~

shareholders on July 17, 2019.

Capital resources, net increased by ~~$51.3~~$63.7 million ~~and includes~~during the six months ended June 30, 2019, reflecting increases in stockholders’ equity ~~of $52.0 million,~~ offset by a reduction in long-term ~~debt of $0.7 million.~~debt. The increases in stockholders’ equity was principally the result of ~~$86.1 million of 2018~~our 2019 net income and ~~$4.7 million~~after-tax changes in fair value of ~~stock-based compensation,~~our investment portfolio unrealized gains in 2019 offset by ~~$11.1 million in~~ treasury stock ~~purchases,~~repurchases and ~~$15.4 million in~~ dividends to shareholders. See “Item 1—Condensed Consolidated Statements of Stockholders’ Equity” and “Item 1—Note 8 (Stockholders’ Equity).”

The reduction in long-term debt of $0.7 million was the result of principal payments on debt during ~~2018.~~2019. See “– “—Liquidity and Capital ~~Resources”~~ ~~and “Item 1 – Note 8 (Stockholders’ Equity)~~Resources.” ~~for explanation of changes in treasury stock.~~

LIQUIDITY AND CAPITAL RESOURCES

Liquidity ~~and Capital Resources~~

~~Liquidity~~

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 June 30, ~~2018~~2019 was ~~$311.1~~$181.6 million compared to ~~$213.5~~$166.4 million at December 31, ~~2017.~~2018. See “Item ~~1 —~~ 1—Condensed Consolidated Statements of Cash Flows” for a reconciliation of the balance of cash and cash equivalents between June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The increase in cash and cash equivalents was driven by cash flows generated from operating activities in excess of those used for investing and financing activities. ~~The Company maintains~~We maintain a short-term investment cash sweep to maximize investment returns on cash balances. Due to ~~the~~these sweep activities, certain outstanding items ~~were~~are routinely recorded as “Book ~~Overdraft”~~overdraft” in the Condensed Consolidated Financial Statements. Cash and cash equivalents balances are available to settle book overdrafts, and to pay reinsurance premiums, expenses and ~~pay~~ claims.

Reinsurance premiums are paid in installments during the reinsurance policy period, which runs from June 1 to May 31 of the following year. The Florida Hurricane Catastrophe Fund (“FHCF”) is paid in three installments on August 1, October 1, and December 1, and third-party reinsurance is paid in four installments on July 1, October 1, January 1 and April 1, resulting in significant payments at those times. See “Item 1—Note 12 (Commitments and Contingencies)” and “—Contractual Obligations” for more information.

The balance of restricted cash and cash equivalents as of June 30, ~~2018~~2019 and December 31, ~~2017 includes~~2018 represents 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 for us 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~~our shareholders, and any future repurchases of ~~UVE~~our 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~~us include revenues generated from fees paid by the Insurance Entities to affiliated companies for ~~policy administration,~~general agency, inspections and claims adjusting services. Additional sources of liquidity include brokerage commissions earned on reinsurance contracts, policy fees and ~~policy fees. UVE~~remittances from the Insurance Entities for their respective share of income taxes. We also ~~maintains certain other~~maintain investments, 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~~

There are limitations on the dividends the Insurance Entities may pay to their immediate parent company, Protection Solutions, Inc. (“PSI”, formerly known as Universal Insurance Holding Company of ~~Florida (“UVECF”)~~Florida).

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 below and in “Item ~~I –~~ 1—Note 5 –(Insurance Operations).” The maximum dividend that may be paid by the Insurance ~~Operations.”~~Entities to PSI without prior approval is limited to the lesser of statutory net income from operations of the preceding calendar year or statutory unassigned surplus as of the preceding year end. During the six months ended June 30, 2019 and the year ended December 31, 2018, the Insurance Entities did not pay dividends to ~~UVECF. During 2017 UPCIC paid a $30 million dividend to UVECF.~~

PSI.

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Liquidity for the Insurance Entities is primarily required to cover payments for reinsurance premiums, claims payments including potential payments of catastrophe losses (offset by recovery of any reimbursement amounts under our reinsurance agreements), fees paid to affiliates for managing general agency services, inspections and claims adjusting services, agent commissions, ~~premiums~~premium 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, the collection of reinsurance recoverable and financing fees.

Our insurance operations provide liquidity ~~in that~~as 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~~our reinsurance agreements provide for “cash advance” whereby reinsurers advance or prepay amounts to ~~the Company,~~us, thereby providing liquidity, which ~~the Company utilizes~~we utilize in the claim settlement process. In addition, 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 or retentions before ~~the Company’s~~our reinsurance protection commences. Also, the Insurance Entities are responsible for all other losses that otherwise may not be covered by the reinsurance programs and any amounts arising in the event of a reinsurer default. Losses or a ~~reinsurer~~ default by reinsurers may have a material adverse effect on either of the Insurance Entities or our business, financial condition, results of operations and liquidity.

Capital Resources

Capital resources provide protection for policyholders, furnish the financial strength to support the business of underwriting insurance risks and facilitate continued business growth. The following table provides our ~~stockholder~~stockholders’ equity, total long-term debt, total capital ~~debt-to-equity~~resources, debt-to-total capital ratio and debt-to-equity ratio for the periods presented (dollars in thousands):

As of

June 30,

December 31,

2018

2017

Stockholders' equity

$
492,073

$
439,988

Total long-term debt

12,132

12,868

Total capital

$
504,205

$
452,856

Debt-to-total capital ratio

2.4
%

2.8
%
Debt-to-equity ratio

2.5
%

2.9
%



	As of
	June 30,			December 31,
	2019			2018
Stockholders’ equity	$	566,066		$	501,633
Total long-term debt	10,662			11,397
Total capital resources	$	576,728		$	513,030

Debt-to-total capital ratio	1.8		%	2.2		%
Debt-to-equity ratio	1.9		%	2.3		%

As described in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, 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 accrue per the terms of the note agreement. At June 30, ~~2018,~~2019, 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~~

Common Stock Repurchases

We may repurchase shares from time to time at ~~its~~our discretion, based on ongoing assessments of ~~the~~our capital needs, ~~of the Company,~~ the market price of ~~its~~our common stock and general market conditions. ~~The Company~~We will fund the share repurchase program with cash from operations.

During the six months ended June 30, 2019, there were two authorized repurchase plans in effect:

On December 12, 2018, we announced that our Board of Directors authorized a share repurchase program under which we were authorized to repurchase shares in the open market up to $20 million of outstanding shares of our common stock through May 31, 2020 (the “May 2020 Share Repurchase Program”), pursuant to which we repurchased 606,342 shares of our common stock at an average price of $32.98 per share on the open market. We completed the May 2020 Share Repurchase Program in May 2019.

On May 6, 2019, we announced that our Board of Directors authorized a share repurchase program under which we may repurchase in the open market up to $40 million of outstanding shares of our common stock through December 31, 2020 (the “December 2020 Share Repurchase Program”). Under the December 2020 Share Repurchase Program, we repurchased 338,274 shares of our common stock at an average price of $28.71 during the six months ended June 30, 2019 at an aggregate cost of approximately $9.7 million.

During the six months ended June 30, 2019, we repurchased an aggregate of ~~342,749~~806,382 shares of ~~UVE’s~~our common stock in the open market at an aggregate ~~cost~~purchase price of ~~$11.1~~$24.2 million. Also, see ~~“Part~~“Part II, Item ~~2 —~~ 2—Unregistered Sales of Equity Securities and Use of Proceeds” for share repurchase activity during the three months ended June 30, ~~2018.~~

2019.

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Cash Dividends

The following table summarizes the dividends declared by ~~the Company:~~



2019	Dividend Declared Date	Shareholders Record Date	Dividend Payable Date	Cash Dividend Per Share Amount
First Quarter	January 31, 2019	March 11, 2019	March 25, 2019	$	0.16
Second Quarter	April 10, 2019	May 3, 2019	May 10, 2019	$	0.16
Third Quarter	June 5, 2019	July 3, 2019	July 17, 2019	$	0.16

~~Contractual Obligations~~

CONTRACTUAL OBLIGATIONS

The following table represents our contractual obligations for which cash flows are fixed or determinable as of June 30, ~~2018~~2019 (in thousands):

Less than

Over

Total

1 year

1-3 years

3-5 years

5 years

Unpaid losses and LAE, direct (1)
$
151,916

$
77,477

$
43,904

$
23,851

$
6,684

Long-term debt

13,561

1,347

5,160

3,237

3,817

Total contractual obligations
$
165,477

$
78,824

$
49,064

$
27,088

$
10,501



	Total		Less than 1 year		1-3 years		3-5 years		Over 5 years
Reinsurance payable and multi-year commitments (1)	$	625,346	$	424,187	$	201,159	$	—	$	—
Unpaid losses and LAE, direct (2)	288,296		178,455		80,435		22,199		7,207
Long-term debt	11,617		1,287		4,952		3,126		2,252
Total contractual obligations	$	925,259	$	603,929	$	286,546	$	25,325	$	9,459

~~(1)~~
(1)	The 1-3 years amount represents the payment of reinsurance premiums payable under multi-year commitments. See “Item 1—–Note 12 (Commitments and Contingencies).”

(2)

There are generally no notional or stated amounts related to unpaid losses and LAE. Both the amounts and timing of future loss and LAE payments are estimates and subject to the inherent variability of legal and market conditions affecting the obligations and make the timing of cash outflows uncertain. The ultimate amount and timing of unpaid losses and LAE could differ materially from the amounts in the table above. Further, the unpaid losses and LAE do not represent all the obligations that will arise under the contracts, but rather only the estimated liability incurred through June 30, ~~2018.~~

2019. Unpaid losses and LAE are net of estimated subrogation recoveries. In addition, these balances exclude amounts recoverable from the Company’s reinsurance program. See “Item 1—Note 4 (Reinsurance).”

~~Critical Accounting Policies and Estimates~~

~~Other than as disclosed in “Item 1 — Note 2 (Significant Accounting Policies),” there~~

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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~~“Part II, Item ~~7, “Management’s~~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, ~~2017.~~

2018.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) revised U.S. GAAP with the issuance of Accounting Standards Update (“ASU”) 2016-13, Financial ~~Instruments -Credit~~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)(1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, 2)(2) loan commitments and certain other off-balance sheet credit exposures, 3)(3) debt securities and other financial assets measured at fair value through other comprehensive income and 4)(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~~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,~~August 2018, the 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. The new ASU shortens the amortization period of certain purchased callable debt securities2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the ~~earliest call date.~~Disclosure Requirements for Fair Value Measurement. The ASU removes, modifies and adds certain disclosure requirements associated with fair value measurements. The ASU is effective for fiscal years, ~~beginning after December 15, 2018, including~~and interim periods within those fiscal ~~years.~~years, beginning after December 15, 2019. Early adoption is permitted. ~~Under~~The removed and modified disclosures will be adopted on a retrospective basis and the ~~current U.S. GAAP, you could consider the call dates and estimate if you had~~new disclosures will be adopted on a ~~large number of similar securities and you were basing your judgment on actual experience. Our service provider (who processes the accounting for~~prospective basis. We are currently evaluating our ~~investment transactions) has many similar securities on their system and can make that type of determination. As a result, we currently account~~timeline for the ~~amortization under~~adoption of this ASU, which only affects the ~~proposed ASU~~presentation of certain disclosures and ~~there will be no~~is not expected to impact to our results of operations, financial position or liquidity.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential for economic losses due to adverse changes in fair market value of available-for-sale debt securities, ~~available-for-sale short-term investments and~~ equity securities (“Financial Instruments”) and investment real estate. We carry all of our Financial Instruments at fair market value and investment real estate at net book value in our statement of financial condition. Our investment portfolio as of June 30, ~~2018~~2019 is

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comprised of available-for-sale debt securities and ~~equities~~equity securities, carried at fair market value, which expose us to ~~changes in~~changing market conditions, specifically interest rates and equity ~~prices.~~

price changes.

The primary objectives of the investment portfolio are the preservation of capital and providing adequate liquidity for potential 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 –~~ 1—Note 3 (Investments)” for more information about our Financial Instruments.

Interest Rate Risk

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

declines over the remaining term of the agreement.

The following ~~table provides~~tables provide information about our fixed income Financial Instruments as of June 30, 2019 compared to December 31, 2018, which are sensitive to changes in interest rates. The ~~table presents~~tables present the expected cash flows of ~~principal amounts and related weighted average interest rates by expected maturity dates for~~ Financial Instruments ~~available for sale as of~~based on years to effective maturity using amortized cost compared to fair market value and the ~~dates presented (in~~related book yield compared to coupon yield (dollars in thousands):

June 30, 2018

Amortized Cost

Fair Value

2018

2019

2020

2021

2022

Thereafter

Other (1)

Total

Total

Fixed income Financial
    Instruments
$
12,530

$
77,593

$
54,579

$
66,940

$
23,587

$
179,385

$
254,254

$
668,868

$
656,762

Weighted average
    interest rate

1.81
%

1.76
%

2.04
%

2.15
%

2.46
%

3.53
%

3.22
%

2.88
%

2.88
%

December 31, 2017

Amortized Cost

Fair Value

2018

2019

2020

2021

2022

Thereafter

Other (1)

Total

Total

Fixed income Financial
    Instruments
$
51,846

$
85,309

$
61,215

$
60,968

$
27,832

$
132,530

$
234,015

$
653,715

$
649,334

Weighted average
    interest rate

1.87
%

1.82
%

2.18
%

2.16
%

2.76
%

4.02
%

3.08
%

2.83
%

2.83
%

~~(1)~~

~~Comprised of mortgage-backed and asset-backed securities which have multiple maturity dates, and perpetual maturity securities, and are presented separately for~~
June 30, 2019
2019 2020 2021 2022 2023 Thereafter Other Total
Amortized cost $ 125,392
$ 143,713
$ 59,128
$ 108,872
$ 118,934
$ 305,829
$ 1,153
$ 863,021
Fair market value $ 125,260
$ 144,053
$ 59,747
$ 110,603
$ 122,604
$ 320,614
$ 1,212
$ 884,093
Coupon rate 2.32 % 2.44 % 3.12 % 3.32 % 3.47 % 3.82 % 5.79 % 3.23 %
Book yield 2.10 % 2.36 % 2.80 % 3.04 % 3.16 % 3.64 % 5.81 % 3.01 %
* Years to effective maturity - 3.3 years



	December 31, 2018
	2019			2020			2021			2022			2023			Thereafter			Other			Total
Amortized cost	$	123,110		$	109,690		$	114,580		$	55,542		$	121,363		$	301,454		$	5,388		$	831,127
Fair market value	$	122,333		$	108,564		$	112,917		$	54,309		$	119,945		$	297,214		$	5,156		$	820,438
Coupon rate	2.04		%	2.35		%	2.63		%	2.99		%	3.32		%	3.90		%	6.15		%	3.11		%
Book yield	1.88		%	2.24		%	2.43		%	2.83		%	3.18		%	3.68		%	5.96		%	2.94		%
* Years to effective maturity - 3.5 years

All securities, except those with perpetual maturities, were categorized in the ~~purposes of this table.~~

~~The~~ tables above ~~represent average contract rates~~utilizing years to effective maturity. Effective maturity takes into consideration all forms of potential prepayment, such as call features or prepayment schedules, that ~~differ from~~shorten the ~~book yield~~lifespan of the 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 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 income Financial Instruments in our available for sale portfolio at June 30, 2018 was ~~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.

contractual maturity dates.

Equity Price Risk

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 investment portfolio subject to price risk as of the dates presented (in thousands):

June 30, 2018

December 31, 2017

Fair Value

Percent

Fair Value

Percent

Equity Securities:

Common stock
$
22,320

31.5
%

$
18,811

30.2
%
Mutual funds

48,546

68.5
%

43,404

69.8
%
Total equity securities
$
70,866

100.0
%

$
62,215

100.0
%



	June 30, 2019				December 31, 2018
	Fair Value		Percent		Fair Value		Percent
Equity Securities:
Common stock	$	2,724	6.4	%	$	15,564	24.6	%
Mutual funds	39,644		93.6	%	47,713		75.4	%
Total equity securities	$	42,368	100.0	%	$	63,277	100.0	%

A hypothetical decrease of 20% in the market prices of each of the equity securities held at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 would have resulted in a decrease of ~~$14.2~~$8.5 million and ~~$12.4~~$12.7 million, respectively, in the fair value of those securities.

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I~~tem~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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 June 30, ~~2018,~~2019, 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.

Changes in Internal Control Over Financial Reporting

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.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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.

I~~tem~~

Item 1A. Risk Factors

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~~“Part I, Item ~~1A, “Risk~~1A—Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

2018.

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

The table below presents ~~our~~ purchases of ~~UVE~~our common stock during the three months ended June 30, ~~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)

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

2019.

~~(1)~~

~~Average price paid per share does not reflect brokerage commissions paid to acquire shares in open market transactions.~~

~~(2)~~

~~Number of shares was calculated using a closing price at June 29, 2018 of $35.10 per share.~~



				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)
4/1/2019 - 4/30/2019	50,000	$	29.81	50,000	—
5/1/2019 - 5/31/2019	392,500	$	28.90	392,500	—
6/1/2019 - 6/30/2019	43,382	$	28.99	43,382	1,085,990
Total	485,882	$	29.00	485,882	1,085,990

(1)Average price paid per share does not reflect brokerage commissions paid to acquire shares in open market transactions.

(2)Number of shares was calculated based on a closing price at June 28, 2019 of $27.90 per share.

Table of Contents

We may repurchase shares from time to time at our discretion, based on ongoing assessments of our capital needs, the market price of our common stock and general market conditions. ~~The Company~~We will fund the share repurchase program with cash from operations.

~~In September 2017, our~~ During the six months ended June 30, 2019, there were two authorized repurchase plans in effect:

On December 12, 2018, we announced that the Board of Directors ~~approved a share~~ authorized the repurchase ~~program authorizing us to purchase~~of up to $20 million of our outstanding shares of common stock through May 31, 2020, pursuant to which we repurchased 606,342 shares of our common stock at an aggregate price of $20.0 million. We completed the May 2020 Share Repurchase Program in May 2019.

On May 6, 2019, we announced that the ~~open market in compliance with Rule 10b-18 under~~Board of Directors authorized the ~~Securities Exchange Act~~repurchase of ~~1934, as amended,~~up to $40 million of our outstanding shares of common stock through December 31, ~~2018.~~

~~Since September 2017,~~2020. Under the December 2020 Share Repurchase Program, we repurchased ~~350,941~~338,274 shares of our common stock from May 2019 through June 30, 2019 at an aggregate cost of approximately $9.7 million.

During the six months ended June 30, 2019, we repurchased 806,382 shares of our common stock pursuant to ~~this program through June 30, 2018~~ the May 2020 Share Repurchase Program and the December 2020 Share Repurchase Program at an aggregate ~~cost~~purchase price of approximately ~~$11.3~~$24.2 million.

Table of Contents

I~~tem~~

Item 6. Exhibits

~~Exhibit No.~~		~~Exhibit~~

~~15.1~~ Exhibit No.	~~Accountants’ Acknowledgment~~ Exhibit

~~31.1~~ 15.1	Accountants’ Acknowledgment

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

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

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

~~101.INS-XBRL~~ 101.1	~~Instance Document~~ The following materials from Universal Insurance Holdings, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Statement of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.

~~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~~

Table of ContentsS~~IGNATURES~~

SIGNATURES

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



	UNIVERSAL INSURANCE HOLDINGS, INC.

Date: ~~July 27, 2018~~ August 2, 2019		/s/ ~~Sean P. Downes~~ Stephen J. Donaghy
		~~Sean P. Downes,~~Stephen J. Donaghy, Chief Executive Officer and Principal Executive Officer

Date: ~~July 27, 2018~~ August 2, 2019		/s/ Frank C. Wilcox
		Frank C. Wilcox, Chief Financial Officer and Principal Accounting Officer

	Issued			Treasury			Outstanding
	Shares			Shares			Shares
Balance, as of December 31, 2017		45,778			(11,043	)		34,735
Shares repurchased		—			(342	)		(342	)
Vesting of performance share units		127			—			127
Stock option exercises		1,156			—			1,156
Restricted stock grants		50			—			50
Shares acquired through cashless exercise (1)		—			(854	)		(854	)
Shares cancelled		(854	)		854			—
Balance, as of June 30, 2018		46,257			(11,385	)		34,872

	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


	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

	For the Three Months Ended
	June 30, 2018					June 30, 2017					Growth year over year
State	Direct Written Premium		%			Direct Written Premium		%			$		%
Florida	$	295,337		86.2	%	$	261,430		88.3	%	$	33,907		13.0	%
Other states		47,444		13.8	%		34,761		11.7	%		12,683		36.5	%
Total	$	342,781		100.0	%	$	296,191		100.0	%	$	46,590		15.7	%

	For the Six Months Ended
	June 30, 2018					June 30, 2017					Growth year over year
State	Direct Written Premium		%			Direct Written Premium		%			$		%
Florida	$	529,515		86.4	%	$	479,868		88.6	%	$	49,647		10.3	%
Other states		83,250		13.6	%		61,738		11.4	%		21,512		34.8	%
Total	$	612,765		100.0	%	$	541,606		100.0	%	$	71,159		13.1	%

	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	%

			Less than						Over
	Total		1 year		1-3 years		3-5 years		5 years
Unpaid losses and LAE, direct (1)	$	151,916	$	77,477	$	43,904	$	23,851	$	6,684
Long-term debt		13,561		1,347		5,160		3,237		3,817
Total contractual obligations	$	165,477	$	78,824	$	49,064	$	27,088	$	10,501