AMERICAN COASTAL INSURANCE (ACIC) 10-Q 2021 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549  

_______________________

FORM 10-Q

_______________________

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from ________ to ________

Commission File Number 001-35761 

____________________

United Insurance Holdings Corp.

(Exact Name of Registrant as Specified in its Charter)

Delaware	75-3241967
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

800 2nd Avenue S.		33701
St. Petersburg,	Florida
(Address of Principle Executive Offices)		(Zip Code)

727-895-7737

(Registrant's telephone number, including area code)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share	UIHC	Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

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

As of May 4, 2021, 43,171,027 shares of common stock, par value $0.0001 per share, were outstanding.

UNITED INSURANCE HOLDINGS CORP.

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements	4
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	5
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
	Item 4. Controls and Procedures	39
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings	40
	Item 1A. Risk Factors	40
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	40
	Item 3. Defaults Upon Senior Securities	40
	Item 4. Mine Safety Disclosures	40
	Item 5. Other Information	40
	Item 6. Exhibits	41
Signatures		42

Throughout this Quarterly Report on Form 10-Q (Form 10-Q), we present amounts in all tables in thousands, except for share amounts, per share amounts, policy counts or where more specific language or context indicates a different presentation. In the narrative sections of this Form 10-Q, we show full values rounded to the nearest thousand.

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UNITED INSURANCE HOLDINGS CORP.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about anticipated growth in revenues, gross written premium, earnings per share, estimated unpaid losses on insurance policies, investment returns, and diversification and expectations about our liquidity, our ability to meet our investment objectives and our ability to manage and mitigate market risk with respect to our investments. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “endeavor,” “project,” “believe,” “plan,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and management's beliefs and assumptions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:

•our exposure to catastrophic events and severe weather conditions;

•the regulatory, economic and weather conditions present in Florida, Texas, and Louisiana, the states in which we are most concentrated;

•our ability to cultivate and maintain agent relationships, particularly our relationship with AmRisc, LLC (AmRisc);

•our reliance on certain agencies that account for a substantial portion of our policies-in-force;

•the possibility that actual claims incurred may exceed our loss reserves for claims;

•assessments charged by various governmental agencies;

•our ability to implement and maintain adequate internal controls over financial reporting;

•our ability to maintain information technology and data security systems, and to outsource relationships;

•our reliance on key vendor relationships, and the ability of our vendors to protect the personally identifiable information of our customers, claimants or employees;

•our ability to attract and retain the services of senior management;

•risks and uncertainties relating to our acquisitions, mergers and other strategic transactions;

•risks associated with joint ventures and investments in which we share ownership or management with third parties;

•our ability to generate sufficient cash to service all of our indebtedness and comply with covenants and other requirements related to our indebtedness;

•our ability to increase or maintain our market share;

•changes in the regulatory environment present in the states in which we operate;

•the impact of new federal or state regulations that affect the insurance industry;

•the cost, variability and availability of reinsurance;

•our ability to collect from our reinsurers on our reinsurance claims;

•dependence on investment income and the composition of our investment portfolio and related market risks;

•the possibility of the pricing and terms for our products to decline due to the historically cyclical nature of the property and casualty insurance and reinsurance industry;

•the outcome of litigation pending against us, including the terms of any settlements;

•downgrades in our financial strength or stability ratings;

•the impact of future transactions of substantial amounts of our common stock by us or our significant stockholders on our stock price;

•our ability to pay dividends in the future, which may be constrained by our holding company structure;

•the ability of our subsidiaries to pay dividends in the future, which may affect our liquidity and our ability to meet our obligations;

•the ability of R. Daniel Peed and his affiliates to exert significant control over us due to substantial ownership of our common stock, subject to certain restrictive covenants that may restrict our ability to pursue certain opportunities;

•the impact of transactions by R. Daniel Peed and his affiliates on the price of our common stock;

•provisions in our charter documents that may make it harder for others to obtain control of us;

•the impact of the novel strain of coronavirus (COVID-19) and related business disruption and economic uncertainty on our business, results of operations and financial condition; and

•other risks and uncertainties described in the section entitled "Risk Factors" in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2020 and in Part II, Item 1A of this Form 10-Q.

We caution you to not place reliance on these forward-looking statements, which are valid only as of the date they were made. Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements to reflect new information, the occurrence of unanticipated events or otherwise.

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UNITED INSURANCE HOLDINGS CORP.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)

	March 31, 2021		December 31, 2020
ASSETS
Investments, at fair value:
Fixed maturities, available-for-sale (amortized cost of $884,220 and $926,714, respectively)	$	875,275	$	940,011
Equity securities	19,036		7,445
Other investments (amortized cost of $41,510 and $47,535, respectively)	42,445		47,595
Total investments	$	936,756	$	995,051
Cash and cash equivalents	228,454		239,420
Restricted cash	44,102		62,078
Total cash, cash equivalents and restricted cash	$	272,556	$	301,498
Accrued investment income	4,275		4,680
Property and equipment, net	32,949		34,187
Premiums receivable, net (credit allowance of $57 and $140, respectively)	78,714		87,339
Reinsurance recoverable on paid and unpaid losses, net (credit allowance of $511 and $386, respectively)	956,058		821,156
Ceded unearned premiums	296,118		384,588
Goodwill	73,045		73,045
Deferred policy acquisition costs, net	71,747		74,414
Intangible assets, net	20,887		21,930
Other assets, net (credit allowance of $167 and $20, respectively)	60,219		51,053
Total Assets	$	2,803,324	$	2,848,941
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses	$	1,217,791	$	1,089,966
Unearned premiums	678,913		723,938
Reinsurance payable on premiums	151,110		241,636
Payments outstanding	76,370		77,912
Accounts payable and accrued expenses	79,677		91,173
Operating lease liability	2,166		2,311
Other liabilities	59,909		46,365
Notes payable, net	157,450		158,041
Total Liabilities	$	2,423,386	$	2,431,342
Commitments and contingencies (Note 10)	0		0
Stockholders' Equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding	$	0	$	0
Common stock, $0.0001 par value; 50,000,000 shares authorized; 43,310,496 and 43,250,731 issued, respectively; 43,147,180 and 43,075,877 outstanding, respectively	4		4
Additional paid-in capital	393,382		393,122
Treasury shares, at cost: 212,083 shares	(431)		(431)
Accumulated other comprehensive income	(6,945)		9,693
Retained earnings	(27,001)		(6,635)
Total stockholders' equity attributable to United Insurance Holdings Corp. (UIHC) stockholders	$	359,009	$	395,753
Noncontrolling interests (NCI)	20,929		21,846
Total Stockholders' Equity	$	379,938	$	417,599
Total Liabilities and Stockholders' Equity	$	2,803,324	$	2,848,941

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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UNITED INSURANCE HOLDINGS CORP.

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

	Three Months Ended
	March 31,
		2021		2020
REVENUE:
Gross premiums written		$	311,638	$	335,183
Change in gross unearned premiums		45,025		9,436
Gross premiums earned		356,663		344,619
Ceded premiums earned		(210,714)		(153,023)
Net premiums earned		145,949		191,596
Net investment income		3,583		6,917
Net realized investment gains (losses)		503		(68)
Net unrealized gains (losses) on equity securities		2,564		(26,456)
Other revenue		9,190		4,315
Total revenue		161,789		176,304
EXPENSES:
Losses and loss adjustment expenses		115,781		102,837
Policy acquisition costs		40,821		58,875
Operating expenses		13,222		9,704
General and administrative expenses		15,882		18,301
Interest expense		2,375		2,419
Total expenses		188,081		192,136
Loss before other income		(26,292)		(15,832)
Other income		10		28
Loss before income taxes		(26,282)		(15,804)
Benefit for income taxes		(7,822)		(3,288)
Net Loss		$	(18,460)	$	(12,516)
Less: Net income (loss) attributable to NCI		(689)		207
Net loss attributable to UIHC		$	(17,771)	$	(12,723)
OTHER COMPREHENSIVE LOSS:
Change in net unrealized losses on investments		(21,739)		(4,110)
Reclassification adjustment for net realized investment losses (gains)		(503)		68
Income tax benefit related to items of other comprehensive loss		5,376		983
Total comprehensive loss		$	(35,326)	$	(15,575)
Less: Comprehensive loss attributable to NCI		(917)		(26)
Comprehensive loss attributable to UIHC		$	(34,409)	$	(15,549)
Weighted average shares outstanding
Basic		42,898,488		42,805,527
Diluted		42,898,488		42,805,527
Earnings available to UIHC common stockholders per share
Basic		$	(0.41)	$	(0.30)
Diluted		$	(0.41)	$	(0.30)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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UNITED INSURANCE HOLDINGS CORP.

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended

(Unaudited)

	Common Stock			Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Income		Retained Earnings		Stockholders' Equity Attributable to UIHC		NCI		Total Stockholders’ Equity
	Number of Shares	Dollars
December 31, 2019	43,028,074	$	4	$	391,852	$	(431)	$	11,319	$	100,394	$	503,138	$	20,727	$	523,865
Net income (loss)	—	—		—		—		—		(12,723)		(12,723)		207		(12,516)
Other comprehensive loss, net	—	—		—		—		(2,826)		—		(2,826)		(233)		(3,059)
Reclassification due to adoption of ASU 2016-13	—	—		—		—		—		(262)		(262)		—		(262)
Stock Compensation	(84,627)	—		700		—		—		—		700		—		700
Cash dividends on common stock ($0.06 per common share)	—	—		—		—		—		(2,571)		(2,571)		—		(2,571)
March 31, 2020	42,943,447	$	4	$	392,552	$	(431)	$	8,493	$	84,838	$	485,456	$	20,701	$	506,157

	Common Stock			Additional Paid-in Capital		Treasury Stock		Accumulated Other Comprehensive Income		Retained Earnings		Stockholders' Equity Attributable to UIHC		NCI		Total Stockholders’ Equity
	Number of Shares	Dollars
December 31, 2020	43,075,877	$	4	$	393,122	$	(431)	$	9,693	$	(6,635)	$	395,753	$	21,846	$	417,599
Net loss	—	—		—		—		—		(17,771)		(17,771)		(689)		(18,460)
Other comprehensive loss, net	—	—		—		—		(16,638)		—		(16,638)		(228)		(16,866)
Stock Compensation	71,303	—		260		—		—		—		260		—		260
Cash dividends on common stock ($0.06 per common share)	—	—		—		—		—		(2,595)		(2,595)		—		(2,595)
March 31, 2021	43,147,180	$	4	$	393,382	$	(431)	$	(6,945)	$	(27,001)	$	359,009	$	20,929	$	379,938

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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UNITED INSURANCE HOLDINGS CORP.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended March 31,
	2021		2020
OPERATING ACTIVITIES
Net loss	$	(18,460)	$	(12,516)
Adjustments to reconcile net losses to net cash provided by (used in) operating activities:
Depreciation and amortization	3,207		2,510
Bond amortization and accretion	2,290		1,564
Net realized losses (gains) on investments	(503)		68
Net unrealized losses (gains) on equity securities	(2,564)		26,456
Provision for uncollectable premiums	83		10
Provision for uncollectable reinsurance recoverables	(125)		0
Provision for uncollectable notes receivable	(147)		0
Deferred income taxes, net	(7,580)		(3,461)
Stock based compensation	260		700
Stock received as consideration for renewal rights agreement	(5,007)		0
Fixed asset disposal	15		0
Changes in operating assets and liabilities:
Accrued investment income	405		423
Premiums receivable	8,542		(3,854)
Reinsurance recoverable on paid and unpaid losses	(134,777)		35,395
Ceded unearned premiums	88,470		90,521
Deferred policy acquisition costs, net	2,667		(310)
Other assets	3,937		(6,999)
Unpaid losses and loss adjustment expenses	127,825		(49,315)
Unearned premiums	(45,025)		(9,436)
Reinsurance payable on premiums	(90,526)		(53,741)
Payments outstanding	(1,542)		(12,526)
Accounts payable and accrued expenses	(11,496)		(8,086)
Operating lease liability	(145)		2,097
Other liabilities	13,544		17,998
Net cash provided by (used in) operating activities	$	(66,652)	$	17,498
INVESTING ACTIVITIES
Proceeds from sales, maturities and repayments of:
Fixed maturities	80,563		63,743
Equity securities	117		1,233
Other investments	13,483		212
Purchases of:
Fixed maturities	(39,836)		(58,266)
Equity securities	(5,012)		(21,116)
Other investments	(7,478)		(1,481)
Cost of property, equipment and capitalized software acquired	(857)		(3,515)
Net cash provided by (used in) investing activities	$	40,980	$	(19,190)
FINANCING ACTIVITIES
Repayments of borrowings	(675)		(381)
Dividends	(2,595)		(2,571)
Net cash used in financing activities	$	(3,270)	$	(2,952)
Decrease in cash, cash equivalents and restricted cash	(28,942)		(4,644)
Cash, cash equivalents and restricted cash at beginning of period	301,498		287,057
Cash, cash equivalents and restricted cash at end of period	$	272,556	$	282,413
Supplemental Cash Flows Information
Interest paid	$	43	$	70
Income taxes refunded	$	2,506	$	0

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

1)    ORGANIZATION, CONSOLIDATION AND PRESENTATION

(a)Business

United Insurance Holdings Corp. (referred to in this document as we, our, us, the Company or UPC Insurance) is a property and casualty insurance holding company that sources, writes and services residential personal and commercial property and casualty insurance policies using a network of agents, 4 wholly-owned insurance subsidiaries, and 1 majority-owned insurance subsidiary. Our largest insurance subsidiary is United Property & Casualty Insurance Company (UPC), which was formed in Florida in 1999 and has operated continuously since that time. Our four other insurance subsidiaries are Family Security Insurance Company, Inc. (FSIC), acquired via merger on February 3, 2015; Interboro Insurance Company (IIC), acquired via merger on April 29, 2016; American Coastal Insurance Company (ACIC), acquired via merger on April 3, 2017; and Journey Insurance Company (JIC). JIC was formed in strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Kiln) on August 30, 2018. The Kiln subsidiary holds a noncontrolling interest in JIC.

Our other subsidiaries include United Insurance Management, L.C. (UIM), a managing general agent that manages

substantially all aspects of UPC and FSIC's business, as well as JIC's personal residential business; Skyway Claims Services, LLC, which provides claims adjusting services to UPC, FSIC, ACIC and IIC; AmCo Holding Company, LLC (AmCo) and Family Security Holdings, LLC (FSH), which are holding company subsidiaries that consolidate their respective insurance companies; BlueLine Cayman Holdings (BlueLine), which reinsures portfolios of excess and surplus policies; UPC Re, which provides a portion of the reinsurance protection purchased by our insurance subsidiaries when needed; Skyway Reinsurance Services, LLC, which provides reinsurance brokerage services for our insurance companies; and Skyway Legal Services, LLC, which provides claims litigation services to our insurance companies; and Skyway Technology Services, LLC, which provides technological and distribution services to our insurance companies.

Our primary products are homeowners' and commercial residential property insurance, which we currently offer in 11 states, under authorization from the insurance regulatory authorities in each state. In addition, we write commercial residential insurance in three states: Florida, South Carolina, and Texas. We are also licensed to write property and casualty insurance in an additional 6 states; however, we have not commenced writing in these states.

Effective December 31, 2020, we entered into a quota share reinsurance agreement with Homeowners Choice Property and Casualty, Inc (HCP). Under the terms of this agreement, HCP will provide 69.5% quota share reinsurance on in-force, new and renewal policies in Connecticut, Massachusetts, New Jersey, and Rhode Island effective December 31, 2020, until June 1, 2021.

We conduct our operations under 1 reportable segment, property and casualty insurance policies. Our chief operating decision maker is our President, who makes decisions to allocate resources and assesses performance at the corporate level.

(b)Consolidation and Presentation

We prepare our unaudited condensed consolidated interim financial statements in conformity with U.S. generally accepted accounting principles (GAAP). We have condensed or omitted certain information and footnote disclosures normally included in the annual consolidated financial statements presented in accordance with GAAP. In management's opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of interim periods. We include all of our subsidiaries in our consolidated financial statements, eliminating intercompany balances and transactions during consolidation. Our unaudited condensed consolidated interim financial statements and footnotes should be read in conjunction with our consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2020.

While preparing our unaudited condensed consolidated financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us to make extensive use of estimates include our reserves for unpaid losses and loss adjustment expenses, investments and goodwill. Except for the captions on our Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Comprehensive Income, we generally use the term loss(es) to collectively refer to both loss and loss adjustment expenses.

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Our results of operations and our cash flows as of the end of the interim periods reported herein do not necessarily indicate our results for the remainder of the year or for any other future period.

(c)Impact of COVID-19 and Financial Status

We are committed to maintaining a stable and secure business for our employees, agents, customers and stockholders. During the second half of 2020, we were able to resume hiring activities, despite the limits on in-person interviews and on-boarding procedures resulting from COVID-related protocols. In addition, we have converted to virtual sales processes to enable our agents to continue their activities. We believe these activities, collectively, help ensure the health and safety of our employees through adherence to CDC, state and local government work guidelines.

We have not experienced a material impact from COVID-19 on our business operations, financial position, liquidity or our ability to service our policyholders to date, with the exceptions of fluctuations in our investment portfolios due to volatility of the equity securities markets, as further described in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q. The COVID-19 pandemic and resulting global disruptions did not have a material impact on our access to credit and capital markets needed to maintain sufficient liquidity for our continued operating needs during the quarter ended March 31, 2021.

We did not incur material claims or significant disruptions to our business for the three-months ended March 31, 2021. At this time, it is not possible to reasonably estimate the extent of the impact of the economic uncertainties on our business, results of operations and financial condition in future periods, due to uncertainty regarding the duration of the COVID-19 pandemic, but we will continue to respond to the COVID-19 pandemic and take reasonable measures to make sure customers continue to be served without interruption.

2)    SIGNIFICANT ACCOUNTING POLICIES

(a) Changes to Significant Accounting Policies

We have made no changes to our significant accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2020, except for the standards adopted in 2021 as noted below.

(b) Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (ASU 2019-12). This update enhances and simplifies various aspects of the income tax guidance, including intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. We adopted this guidance as of January 1, 2021. The newly adopted guidance did not have a material impact on our consolidated financial statements and related disclosures.

(c) Pending Accounting Pronouncements

We have evaluated pending accounting pronouncements and do not believe any would have an impact on the operations or financial reporting of our company.

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

3)    INVESTMENTS

The following table details fixed-maturity available-for-sale securities, by major investment category, at March 31, 2021 and December 31, 2020:

	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2021
U.S. government and agency securities	$	112,616	$	706	$	2,665	$	110,657
Foreign government	1,371		112		0		1,483
States, municipalities and political subdivisions	123,106		1,100		1,790		122,416
Public utilities	29,754		290		1,103		28,941
Corporate securities	268,640		3,594		6,551		265,683
Mortgage-backed securities	277,184		2,161		4,973		274,372
Asset-backed securities	65,636		363		292		65,707
Redeemable preferred stocks	5,913		117		14		6,016
Total fixed maturities	$	884,220	$	8,443	$	17,388	$	875,275
December 31, 2020
U.S. government and agency securities	$	129,417	$	1,147	$	139	$	130,425
Foreign government	1,374		142		0		1,516
States, municipalities and political subdivisions	132,336		2,318		272		134,382
Public utilities	29,526		482		28		29,980
Corporate securities	285,814		6,633		118		292,329
Mortgage-backed securities	285,639		3,039		466		288,212
Asset-backed securities	56,351		525		219		56,657
Redeemable preferred stocks	6,257		266		13		6,510
Total fixed maturities	$	926,714	$	14,552	$	1,255	$	940,011

Equity securities are summarized as follows:

	March 31, 2021				December 31, 2020
	Estimated Fair Value		Percent of Total		Estimated Fair Value		Percent of Total
Mutual funds	$	5,170	27.2	%	$	152	2.0	%
Other common stocks	6,914		36.3		0		0
Nonredeemable preferred stocks	6,952		36.5		7,293		98.0
Total equity securities	$	19,036	100.0	%	$	7,445	100.0	%

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following table details our realized gains (losses) by major investment category for the three-months ended March 31, 2021 and 2020, respectively:

	2021				2020
	Gains (Losses)		Fair Value at Sale		Gains (Losses)		Fair Value at Sale
Three Months Ended March 31,
Fixed maturities	$	612	$	56,137	$	345	$	59,225
Equity securities	2		23		12		280
Short-term investments	0		7,056		0		35
Total realized gains	614		63,216		357		59,540
Fixed maturities	(96)		24,426		(337)		4,518
Equity securities	(2)		94		(88)		953
Short-term investments	(13)		5,986		0		128
Total realized losses	(111)		30,506		(425)		5,599
Net realized investment gains (losses)	$	503	$	93,722	$	(68)	$	65,139

The table below summarizes our fixed maturities at March 31, 2021 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations.

	March 31, 2021
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	65,306	7.4	%	$	65,694	7.5	%
Due after one year through five years	179,535		20.2		182,453		20.8
Due after five years through ten years	277,246		31.4		268,740		30.7
Due after ten years	19,313		2.2		18,309		2.1
Asset and mortgage-backed securities	342,820		38.8		340,079		38.9
Total	$	884,220	100.0	%	$	875,275	100.0	%

The following table summarizes our net investment income by major investment category:

	Three Months Ended  March 31,
	2021		2020
Fixed maturities	$	3,689	$	5,470
Equity securities	129		771
Cash and cash equivalents	58		671
Other investments	(10)		266
Other assets	41		9
Investment income	3,907		7,187
Investment expenses	(324)		(270)
Net investment income	$	3,583	$	6,917

11

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Portfolio monitoring

We have a quarterly portfolio monitoring process to identify and evaluate each fixed-income security whose carrying value may be impaired as the result of a credit loss. For each fixed-income security in an unrealized loss position, if we determine that we intend to sell the security or that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, the security's entire decline in fair value is recorded in earnings.

If our management decides not to sell the fixed-income security and it is more likely than not that we will not be required to sell the fixed-income security before recovery of its amortized cost basis, we evaluate whether the decline in fair value has resulted from credit losses or other factors. This is typically indicated by a change in the rating of the security assigned by a rating agency, and any adverse conditions specifically related to the security or industry, among other factors. If the assessment indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded in earnings. Credit loss is limited to the difference between a security's amortized cost basis and its fair value. Any additional impairment not recorded through an allowance for credit losses is recognized in other comprehensive income.

During the three-months ended March 31, 2021, we determined that none of our fixed-income securities shown in the table below that are in an unrealized loss position have declines in fair value that are reflected as a result of credit losses. Therefore, no credit loss allowance was recorded at March 31, 2021. The issuers of our debt security investments continue to make interest payments on a timely basis. We do not intend to sell, nor is it likely that we would be required to sell the debt securities before we recover our amortized cost basis. Equity securities are reported at fair value with changes in fair value recognized in the valuation of equity investments.

The following table presents an aging of our unrealized investment losses by investment class:

	Less Than Twelve Months					Twelve Months or More
	Number of Securities(1)	Gross Unrealized Losses		Fair Value		Number of Securities(1)	Gross Unrealized Losses		Fair Value
March 31, 2021
U.S. government and agency securities	70	$	2,661	$	73,990	14	$	4	$	7,778
States, municipalities and political subdivisions	91	1,790		73,926		0	0		0
Public utilities	18	1,103		20,661		0	0		0
Corporate securities	194	6,497		155,057		7	54		2,325
Mortgage-backed securities	160	4,951		182,028		6	22		730
Asset-backed securities	48	168		32,456		8	124		3,245
Redeemable preferred stocks	11	9		898		1	5		94
Total fixed maturities	592	$	17,179	$	539,016	36	$	209	$	14,172
December 31, 2020
U.S. government and agency securities	44	$	129	$	40,341	18	$	10	$	10,482
States, municipalities and political subdivisions	22	272		30,538		0	0		0
Public utilities	8	28		9,472		0	0		0
Corporate securities	40	116		25,052		3	2		753
Mortgage-backed securities	87	397		100,171		8	69		3,479
Asset-backed securities	21	207		17,682		1	12		988
Redeemable preferred stocks	5	13		358		0	0		0
Total fixed maturities	227	$	1,162	$	223,614	30	$	93	$	15,702

(1) This amount represents the actual number of discrete securities, not the number of shares or units of those securities. The numbers are not presented in thousands.

12

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Fair value measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Unaudited Condensed Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.

Level 2: Assets and liabilities whose values are based on the following:

    (a) Quoted prices for similar assets or liabilities in active markets;

    (b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or

(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.

We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the NYSE, Nasdaq and NYSE American. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on March 31, 2021 and March 31, 2020. Changes in interest rates subsequent to March 31, 2021 may affect the fair value of our investments.

The fair value of our fixed maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed-income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.

Any change in the estimated fair value of our fixed-income securities would impact the amount of unrealized gain or loss we have recorded, which could change the amount we have recorded for our investments and other comprehensive income (loss) on our Unaudited Condensed Consolidated Balance Sheet as of March 31, 2021.

13

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

The following table presents the fair value of our financial instruments measured on a recurring basis by level at March 31, 2021 and December 31, 2020:

	Total		Level 1		Level 2		Level 3
March 31, 2021
U.S. government and agency securities	$	110,657	$	0	$	110,657	$	0
Foreign government	1,483		0		1,483		0
States, municipalities and political subdivisions	122,416		0		122,416		0
Public utilities	28,941		0		28,941		0
Corporate securities	265,683		0		265,683		0
Mortgage-backed securities	274,372		0		274,372		0
Asset-backed securities	65,707		0		65,707		0
Redeemable preferred stocks	6,016		1,511		4,505		0
Total fixed maturities	875,275		1,511		873,764		0
Mutual funds	5,170		5,170		0		0
Other common stocks	6,914		6,914		0		0
Non-redeemable preferred stocks	6,952		6,952		0		0
Total equity securities	19,036		19,036		0		0
Other investments (1)	27,251		300		26,951		0
Total investments	$	921,562	$	20,847	$	900,715	$	0
December 31, 2020
U.S. government and agency securities	$	130,425	$	0	$	130,425	$	0
Foreign government	1,516		0		1,516		0
States, municipalities and political subdivisions	134,382		0		134,382		0
Public utilities	29,980		0		29,980		0
Corporate securities	292,329		0		292,329		0
Mortgage-backed securities	288,212		0		288,212		0
Asset-backed securities	56,657		0		56,657		0
Redeemable preferred stocks	6,510		1,554		4,956		0
Total fixed maturities	940,011		1,554		938,457		0
Mutual Funds	152		152		0		0
Non-redeemable preferred stocks	7,293		7,293		0		0
Total equity securities	7,445		7,445		0		0
Other investments (1)	38,002		300		37,702		0
Total investments	$	985,458	$	9,299	$	976,159	$	0

(1) Other investments included in the fair value hierarchy exclude these limited partnership interests that are measured at estimated fair value using the net asset value per share (or its equivalent) practical expedient.

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; this is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). There were no financial instruments measured on a non-recurring basis at March 31, 2021 and December 31, 2020.

The carrying amounts for the following financial instrument categories approximate their fair values at March 31, 2021 and December 31, 2020, because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, other assets, and other liabilities. The carrying amount of the notes payable to the Florida State Board of Administration, Truist Financial Corporation (Truist) (formerly known as Branch Banking & Trust Corporation or BB&T), and our senior notes approximate fair value as the interest rates and terms are variable.

14

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

We are responsible for the determination of fair value and the supporting assumptions and methodologies. We have implemented a system of processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties, our processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded.

At the end of each quarter, we determine whether we need to transfer the fair values of any securities between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. During the quarter ended March 31, 2021, we transferred no investments between levels.

For our investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, we obtain the fair values from our investment custodians, which use a third-party valuation service. The valuation service calculates prices for our investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, and adds final spreads to the U.S. Treasury curve at 3 p.m. (ET) as of quarter end. Since the inputs the valuation service uses in its calculations are not quoted prices in active markets, but are observable inputs, they represent Level 2 inputs.

Other investments

We acquired investments in limited partnerships, recorded in the other investments line of our Unaudited Condensed Consolidated Balance Sheets, and these investments are currently being accounted for at fair value utilizing a net asset value per share equivalent methodology.

The information presented in the table below is as of March 31, 2021:

	Book Value		Unrealized Gain		Unrealized Loss		Fair Value
Limited partnership investments (1)	$	14,258	$	1,065	$	(129)	$	15,194
Certificates of deposit	300		0		0		300
Short-term investments	26,952		0		(1)		26,951
Total other investments	$	41,510	$	1,065	$	(130)	$	42,445

(1) Distributions will be generated from investment gains, from operating income, from underlying investments of funds, and from liquidation of the underlying assets of the funds. We estimate that the underlying assets of the funds will be liquidated over the next few months to seven years.

Restricted Cash

We are required to maintain assets on deposit with various regulatory authorities to support our insurance operations. The cash on deposit with state regulators is available to settle insurance liabilities. We also use trust funds in certain reinsurance transactions.

The following table presents the components of restricted assets:

	March 31, 2021		December 31, 2020
Trust funds	$	43,064	$	61,142
Cash on deposit (regulatory deposits)	1,038		936
Total restricted cash	$	44,102	$	62,078

15

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

In addition to the cash held on deposit described above, we also have securities on deposit with regulators, which are presented within our Fixed Maturities or Other Investments lines on the Unaudited Condensed Balance Sheets, dependent upon if they are short-term or long-term in nature. The table below shows the carrying value of those securities held on deposit with regulators.

	March 31, 2021		December 31, 2020
Invested assets on deposit (regulatory deposits)	$	4,019	$	4,023

4)    EARNINGS PER SHARE (EPS)

Basic EPS is based on the weighted average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution resulting from the vesting of outstanding restricted stock awards, restricted stock units, performance stock units and stock options. The following table shows the computation of basic and diluted EPS for the three-month periods ended March 31, 2021 and 2020, respectively:

	Three Months Ended March 31,
	2021		2020
Numerator:
Net loss attributable to UIHC common stockholders	$	(17,771)	$	(12,723)
Denominator:
Weighted-average shares outstanding	42,898,488		42,805,527
Effect of dilutive securities	0		0
Weighted-average diluted shares	42,898,488		42,805,527
Earnings available to UIHC common stockholders per share
Basic	$	(0.41)	$	(0.30)
Diluted	$	(0.41)	$	(0.30)

See Note 15 of these Notes to Unaudited Condensed Consolidated Financial Statements for additional information on the stock grants related to dilutive securities.

5)    PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

	March 31, 2021		December 31, 2020
Land	$	2,114	$	2,114
Building and building improvements	9,211		9,211
Computer hardware and software (software in progress of $2,342 and $1,485, respectively)	40,805		41,910
Office furniture and equipment	3,125		3,172
Leasehold improvements	753		768
Leased vehicles(1)	2,346		2,346
Total, at cost	58,354		59,521
Less: accumulated depreciation and amortization	(25,405)		(25,334)
Property and equipment, net	$	32,949	$	34,187

(1) Includes vehicles under capital leases. See Note 10 of these Notes to Unaudited Condensed Consolidated Financial Statements for further information on leases.

16

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Depreciation and amortization expense under property and equipment was $2,080,000 and $1,287,000 for the three-months ended March 31, 2021 and 2020, respectively. During the three-months ended March 31, 2021, we disposed of computer hardware and software totaling $1,961,000, primarily related to the retirement of one of our claim systems. This system was fully depreciated prior to disposal.

6) GOODWILL AND INTANGIBLE ASSETS

Goodwill

The carrying amount of goodwill, both at March 31, 2021 and December 31, 2020, was $73,045,000. There was no goodwill acquired or disposed of during the three-month periods ended March 31, 2021 and 2020.

We completed our most recent goodwill impairment testing during the fourth quarter of 2020 and determined that there was no impairment in the value of the asset as of December 31, 2020.

No impairment loss in the value of goodwill was recognized during the three-month periods ended March 31, 2021 and 2020. Additionally, there was no accumulated impairment related to goodwill at March 31, 2021 or December 31, 2020.

Intangible Assets

The following is a summary of intangible assets excluding goodwill recorded as intangible assets on our Unaudited Condensed Consolidated Balance Sheets:

	March 31, 2021		December 31, 2020
Intangible assets subject to amortization	$	17,130	$	18,173
Indefinite-lived intangible assets(1)	3,757		3,757
Total	$	20,887	$	21,930

(1) Indefinite-lived intangible assets are comprised of state insurance and agent licenses, as well as perpetual software licenses.

Intangible assets subject to amortization consisted of the following:

	Weighted-average remaining amortization period (in years)	Gross carrying amount		Accumulated amortization		Net carrying amount
March 31, 2021
Value of business acquired	—	$	42,788	$	(42,788)	$	0
Agency agreements acquired	6.0	34,661		(19,957)		14,704
Trade names acquired	3.0	6,381		(3,955)		2,426
Total		$	83,830	$	(66,700)	$	17,130
December 31, 2020
Value of business acquired	—	$	42,788	$	(42,788)	$	0
Agency agreements acquired	6.1	34,661		(19,116)		15,545
Trade names acquired	3.3	6,381		(3,753)		2,628
Total		$	83,830	$	(65,657)	$	18,173

No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the three-months ended March 31, 2021 and 2020.

Amortization expense of our intangible assets was $1,043,000 and $1,137,000 for the three-months ended March 31, 2021 and 2020, respectively.

17

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Estimated amortization expense of our intangible assets to be recognized by the Company during the remainder of 2021 and over the next five years is as follows:

Year ending December 31,	Estimated Amortization Expense
Remaining in 2021	$	2,512
2022	3,246
2023	3,246
2024	2,640
2025	2,438

7)    REINSURANCE

Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophes. Our program provides reinsurance protection for catastrophes, including hurricanes, tropical storms and tornadoes. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our stockholders an acceptable return on the risks assumed in our property business, and to reduce variability of earnings, while providing protection to our policyholders. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for the agreed-upon portion of our gross paid losses, they do not discharge our primary liability.

Our program includes excess of loss, aggregate excess of loss and quota share treaties. Our excess of loss treaty, in effect from June 1, 2020 through May 31, 2021, provides coverage for catastrophe losses from named or numbered windstorms and earthquakes up to an exhaustion point of approximately $3,300,000,000. Effective January 1, 2021, we renewed our all other perils catastrophe excess of loss agreement agreement. The agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $110,000,000. During the three-months ended March 31, 2021, we ceded $70,256,000. As a result of Winter Storm Uri, we incurred reinstatement premiums totaling $15,059,000 related to this agreement as of March 31, 2021.

The quota share agreements, effective June 1, 2020 to May 31, 2021, provide coverage for all catastrophe perils and attritional losses incurred by two of our insurance subsidiaries, UPC and FSIC, and were extended to cover ACIC effective December 31, 2020 through May 31, 2022 with an additional 8% coverage for UPC and FSIC. For all catastrophe perils, the quota share agreements provide ground-up protection effectively reducing our retention for catastrophe losses. Effective December 31, 2020, we entered into a quota share reinsurance agreement with Homeowners Choice Property and Casualty, Inc (HCP). Under the terms of this agreement, HCP will provide 69.5% quota share reinsurance on in-force, new and renewal policies in Connecticut, Massachusetts, New Jersey, and Rhode Island effective December 31, 2020, through June 1, 2021.

Reinsurance recoverable at the balance sheet dates consists of the following:

	March 31,		December 31,
	2021		2020
Reinsurance recoverable on unpaid losses and loss adjustment expenses	$	821,364	$	674,746
Reinsurance recoverable on paid losses and loss adjustment expenses	134,694		146,410
Reinsurance recoverable	$	956,058	$	821,156

We write the majority of our flood insurance policies under an agreement with the National Flood Insurance Program. We cede 100% of the premiums written and the related risk of loss to the federal government. We earn commissions for the issuance of flood policies based upon a fixed percentage of net written premiums and the processing of flood claims based upon a fixed percentage of incurred losses, and we can earn additional commissions by meeting certain growth targets for the number of in-force policies. We recognized commission revenue from our flood program of $282,000 and $333,000 for the three-month periods ended March 31, 2021 and 2020, respectively.

18

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

8) LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSE (LAE)

We determine the reserve for unpaid losses on an individual case basis for all incidents reported. The liability also includes amounts for incurred but not reported (IBNR) claims as of the balance sheet date.

The table below shows the analysis of our reserve for unpaid losses for the three-months ended March 31, 2021 and 2020 on a GAAP basis:

	March 31,
	2021		2020
Balance at January 1	$	1,089,966	$	760,357
Less: reinsurance recoverable on unpaid losses	674,746		482,315
Net balance at January 1	$	415,220	$	278,042
Incurred related to:
Current year	86,012		103,966
Prior years	29,769		(1,129)
Total incurred	$	115,781	$	102,837
Paid related to:
Current year	30,597		30,935
Prior years	103,977		62,511
Total paid	$	134,574	$	93,446
Net balance at March 31	$	396,427	$	287,433
Plus: reinsurance recoverable on unpaid losses	821,364		423,609
Balance at March 31	$	1,217,791	$	711,042
Composition of reserve for unpaid losses and LAE:
Case reserves	$	432,537	$	294,679
IBNR reserves	785,254		416,363
Balance at March 31	$	1,217,791	$	711,042

Based upon our internal analysis and our review of the annual statement of actuarial opinion provided by our actuarial consultants at December 31, 2020, along with our assessment of litigation claim trends that developed during the first quarter of 2021, we believe that the reserve for unpaid losses reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.

As reflected in the table above, we had adverse development in 2021 related to prior year losses. This adverse development came as a result of the strengthening of our reserves based on increased litigation related claims being filed in the state of Florida. The loss payments made by the Company during the three months ended March 31, 2021 were higher than the loss payments we made during the three months ended March 31, 2020, due to the settling of claims related to the unprecedented catastrophe activity that took place in 2020. IBNR reserves increased when compared to the prior period as a result of Winter Storm Uri in 2021.

19

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

9)    LONG-TERM DEBT

Long-Term Debt

The table below presents all long-term debt outstanding as of March 31, 2021 and December 31, 2020:

		Effective Interest Rate	Carrying Value at
	Maturity		March 31, 2021		December 31, 2020
Senior Notes	December 15, 2027	6.25%	$	150,000	$	150,000
Florida State Board of Administration Note	July 1, 2026	0.93%	6,177		6,765
Truist Term Note Payable	May 26, 2031	1.81%	3,524		3,611
Total long-term debt			$	159,701	$	160,376

Senior Notes Payable

On December 13, 2017, we issued $150,000,000 of 10-year senior notes (the Senior Notes) that will mature on December 15, 2027 and bear interest at a rate equal to 6.25% per annum payable semi-annually on each June 15 and December 15, commencing June 15, 2018. The Senior Notes are senior unsecured obligations of the Company. We may redeem the Senior Notes at our option, at any time and from time to time in whole or in part, prior to September 15, 2027, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the date of redemption to the date that is three months prior to maturity. On or after that date, we may redeem the Senior Notes at par.

Florida State Board of Administration Note Payable

On September 22, 2006, we issued a $20,000,000, 20-year note payable to the Florida State Board of Administration (the SBA Note). For the first three years of the SBA Note we were required to pay interest only. On October 1, 2009, we began to repay the principal in addition to interest. The SBA Note bears an annual interest rate equivalent to the 10-year Constant Maturity Treasury rate (as defined in the SBA Note agreement), which resets quarterly.

Truist Term Note Payable

On May 26, 2016, we issued a $5,200,000, 15-year term note payable to Truist (the Truist Note), with the intent to use the funds to purchase, renovate, furnish and equip our principal executive office. The Truist Note bears interest at 1.65% in excess of the one-month LIBOR, which resets monthly. LIBOR is expected to be phased out by the end of 2021. In the event of default, Truist may, among other things, declare its loan immediately due and payable, require us to pledge additional collateral to the bank, and take possession of and foreclose upon our principal executive office, which has been pledged to the bank as security for the loan.

Financial Covenants

Senior Notes - Our Senior Notes provide that the Company and its subsidiaries shall not incur any indebtedness unless no default exists and the Company’s leverage ratio as of the last day of any annual or quarterly period (the balance sheet date) immediately preceding the date on which such additional indebtedness is incurred would have been no greater than 0.3:1, determined on a pro forma basis as if the additional indebtedness and all other indebtedness incurred since the immediately preceding balance sheet date had been incurred and the proceeds therefrom applied as of such day. The Company and its subsidiaries also may not create, assume, incur or permit to exist any indebtedness for borrowed money that is secured by a lien on the voting stock of any significant subsidiary without securing the Senior Notes equally. The Company may not issue, sell, assign, transfer or otherwise dispose of, directly or indirectly, any of the capital stock of the Company’s significant subsidiaries as of the issue date of the Senior Notes (except to the Company or to one or more of the Company’s other subsidiaries, or for the purpose of qualifying directors or as may be required by law or regulation), subject to certain exceptions. At March 31, 2021, we were in compliance with the covenants in the Senior Notes.

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

SBA Note - Our SBA Note requires that UPC maintain either a 2:1 ratio of net written premium to surplus, or net writing ratio, or a 6:1 ratio of gross written premium to surplus, or gross writing ratio, to avoid additional interest penalties. The SBA Note agreement defines surplus for the purpose of calculating the required ratios as the $20,000,000 of capital contributed to UPC under the agreement plus the outstanding balance of the note. Should UPC fail to exceed either a net writing ratio of 1.5:1 or a gross writing ratio of 4.5:1, UPC's interest rate will increase by 450 basis points above the 10-year Constant Maturity Treasury rate, which was 0.64% at the end of March 2021. Any other writing ratio deficiencies result in an interest rate penalty of 25 basis points above the stated rate of the note. Our SBA Note further provides that the Florida State Board of Administration may, among other things, declare its loan immediately due and payable upon any default existing under the SBA Note; however, any payment is subject to approval by the insurance regulatory authority. At March 31, 2021, we were in compliance with the covenants in the SBA Note.

Truist Note - Our Truist Note requires that, at all times while there has been no losses from our insurance subsidiaries' operations (non-recurring losses), we will maintain a minimum cash flow coverage ratio of 1.2:1. The cash flow coverage ratio is defined as the ratio of our cash flow to debt service charges. This ratio will be tested annually, based on our audited financial statements. For the one-year period following a non-recurring loss, we are required to maintain a minimum cash flow coverage ratio of 1.0:1. This covenant will only be effective if the pre non-recurring losses test is failed, and is only available and effective for one annual test period. Thereafter, the non-recurring loss cash flow coverage ratio of 1.2:1 will immediately apply. At the time of the most recent annual test period, December 31, 2020, we were not in compliance with the minimum cash flow coverage ratio covenant in the Truist Note. As a result, the Company has obtained a waiver for the period ended December 31, 2020.

In addition, the Truist Note requires that we establish and maintain with Truist at all times during the term of the loan a non-interest bearing demand deposit account with a minimum balance of $500,000, and an interest-bearing account with a minimum balance of $1,500,000. In the event of default, Truist may, among other things, declare its loan immediately due and payable, require us to pledge additional collateral to the bank, and take possession of and foreclose upon our corporate headquarters, which has been pledged to the bank as security for the loan. At March 31, 2021, we were in compliance with the covenants in the Truist Note other than the minimum cash flow coverage ratio covenant.        

Debt Issuance Costs

The table below presents the rollforward of our debt issuance costs paid, in conjunction with the debt instruments described above, during the three-months ended March 31, 2021 and 2020:

	2021		2020
Balance at January 1,	$	2,335	$	2,672
Additions	0		0
Amortization	(84)		(84)
Balance at March 31,	$	2,251	$	2,588

10)    COMMITMENTS AND CONTINGENCIES

Litigation

We are involved in claims-related legal actions arising in the ordinary course of business. We accrue amounts resulting from claims-related legal actions in unpaid losses and LAE during the period that we determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes revisions to our estimates based on its analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation.

At March 31, 2021, we were not involved in any material non-claims-related legal actions.

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Commitments to fund partnership investments

We have fully funded three limited partnership investments and have committed to fund our remaining five limited partnership investments. The amount of unfunded commitments was $1,977,000 and $2,056,000 at March 31, 2021 and December 31, 2020, respectively.

Leases

We, as lessee, have entered into leases of commercial office space of various term lengths. In addition to office space, we lease office equipment and a parking lot under operating leases and vehicles under finance leases.

The classification of operating and finance lease asset and liability balances within the Unaudited Condensed Consolidated Balance Sheets was as follows:

	Financial Statement Line	March 31, 2021		December 31, 2020
Assets
Operating lease assets	Other assets	$	2,021	$	2,168
Financing lease assets	Property and equipment, net	1,019		1,214
Total lease assets		$	3,040	$	3,382
Liabilities
Operating lease liabilities	Operating lease liability	$	2,166	$	2,311
Financing lease liabilities	Other liabilities	31		36
Total lease liabilities		$	2,197	$	2,347

The components of lease expenses were as follows:

	Three Months Ended
	March 31, 2021		March 31, 2020
Operating lease expense	$	165	$	127
Financing lease expense:
Amortization of leased assets	196		151
Net lease expense	$	361	$	278

At March 31, 2021, future minimum gross lease payments relating to these non-cancellable operating and finance lease agreements were as follows:

	Operating Leases		Finance Leases		Total
Remaining in 2021	$	450	$	18	$	468
2022	603		14		617
2023	586		4		590
2024	588		0		588
2025	254		0		254
Thereafter	1,190		0		1,190
Total undiscounted future minimum lease payments	3,671		36		3,707
Less: Imputed interest	(1,505)		(5)		(1,510)
Present value of lease liabilities	$	2,166	$	31	$	2,197

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Weighted average remaining lease term and discount rate related to operating and finance leases were as follows:

	March 31, 2021		December 31, 2020
Weighted average remaining lease term (months)
Operating leases	64		67
Financing leases	21		23
Weighted average discount rate
Operating leases	3.58	%	3.57	%
Financing leases	3.27	%	3.27	%

Other cash and non-cash related activities were as follows:

	Three Months Ended
	March 31, 2021		March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities
Investing cash flows from financing leases	$	0	$	197
Right-of-use assets obtained in exchange for new operating lease liabilities	0		2,136
Right-of-use assets obtained in exchange for new financing lease liabilities	0		203

See Note 9 of these Notes to Unaudited Condensed Consolidated Financial Statements for information regarding commitments related to long-term debt, and Note 12 of these Notes to Unaudited Condensed Consolidated Financial Statements for information regarding commitments related to regulatory actions.

11)    ALLOWANCE FOR EXPECTED CREDIT LOSSES

We are exposed to credit losses primarily through three different pools of assets based on similar risk characteristics: premiums receivable for direct written business; reinsurance recoverables from ceded losses to our reinsurers; and our note receivable. We estimate the expected credit losses based on historical trends, credit ratings assigned to reinsurers by rating agencies, average default rates, current economic conditions, and reasonable and supportable forecasts of future economic conditions that affect the collectability of the reported amounts over its expected life. Changes in the relevant information may significantly affect the estimates of expected credit losses.

The allowance for credit losses is deducted from the amortized cost basis of the assets to present their net carrying value at the amount expected to be collected. Each period, the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets.

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

The following tables summarize our allowance for expected credit losses by pooled asset for the three-months ended March 31, 2021 and 2020:

March 31, 2021
	December 31, 2020		Provision for expected credit losses		Write-offs		March 31, 2021
Premiums Receivable	$	140	$	(118)	$	35	$	57
Reinsurance Recoverables	386		125		0		511
Note Receivable	20		147		0		167
Total	$	546	$	154	$	35	$	735
March 31, 2020
	December 31, 2019		Provision for expected credit losses		Write-offs		March 31, 2020
Premiums Receivable	$	165	$	(39)	$	0	$	126
Reinsurance Recoverables	256		(15)		0		241
Note Receivable	141		(29)		0		112
Total	$	562	$	(83)	$	0	$	479

12)    STATUTORY ACCOUNTING AND REGULATION

The insurance industry is heavily regulated. State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as our insurance subsidiaries. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict insurers' ability to pay dividends, specify allowable investment types and investment mixes, and subject insurers to assessments. Our insurance subsidiaries UPC, ACIC and JIC are domiciled in Florida, while IIC is domiciled in New York. On April 2, 2021, our insurance subsidiary, FSIC, was redomiciled from Hawaii to Florida. At March 31, 2021, and during the three-months then ended, our insurance subsidiaries met all regulatory requirements of the states in which they operate. We did not receive any significant assessments from regulatory authorities in the states in which our insurance subsidiaries operate.

The National Association of Insurance Commissioners (NAIC) has Risk-Based Capital (RBC) guidelines for insurance companies that are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. Most states, including Florida and New York, have enacted statutory requirements adopting the NAIC RBC guidelines, and insurers having less statutory surplus than required will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. State insurance regulatory authorities could require an insurer to cease operations in the event the insurer fails to maintain the required statutory capital.

The state laws of Florida and New York permit an insurer to pay dividends or make distributions out of that part of statutory surplus derived from net operating profit and net realized capital gains. The state laws further provide calculations to determine the amount of dividends or distributions that can be made without the prior approval of the insurance regulatory authorities in those states and the amount of dividends or distributions that would require prior approval of the insurance regulatory authorities in those states. Statutory RBC requirements may further restrict our insurance subsidiaries' ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause statutory surplus to fall below minimum RBC requirements.

The SBA Note is considered a surplus note pursuant to statutory accounting principles. As a result, UPC is subject to the authority of the Insurance Commissioner of the State of Florida with regard to its ability to repay principal and interest on the SBA Note. Any payment of principal or interest requires permission from the insurance regulatory authority.

Our insurance subsidiaries must each file with the various insurance regulatory authorities an “Annual Statement” which reports, among other items, statutory net income (loss) and surplus as regards policyholders, which is called stockholders' equity under GAAP. For the three-months ended March 31, 2021, our combined recorded statutory net loss was $43,993,000. For the three-months ended March 31, 2020, our combined recorded statutory net income was $7,208,000.

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Our insurance subsidiaries must maintain capital and surplus ratios or balances as determined by the regulatory authority of the states in which they are domiciled. At March 31, 2021, we met these requirements. The amount of surplus as regards policyholders for our regulated entities at March 31, 2021 and December 31, 2020 was $330,467,000 and $370,720,000, respectively.

13)    ACCUMULATED OTHER COMPREHENSIVE INCOME

We report changes in other comprehensive income items within comprehensive loss on the Unaudited Condensed Consolidated Statements of Comprehensive Loss, and we include accumulated other comprehensive loss as a component of stockholders' equity on our Unaudited Condensed Consolidated Balance Sheets.

The table below details the components of accumulated other comprehensive loss at period end:

	Pre-Tax Amount		Tax (Expense) Benefit		Net-of-Tax Amount
December 31, 2020	$	12,789	$	(3,096)	$	9,693
Changes in net unrealized gains on investments	(21,443)		5,180		(16,263)
Reclassification adjustment for realized gains	(500)		125		(375)
March 31, 2021	$	(9,154)	$	2,209	$	(6,945)

14)    STOCKHOLDERS' EQUITY

Our Board of Directors declared dividends on our outstanding shares of common stock to stockholders of record as follows for the periods presented (in thousands, except per share amounts):

	Three Months Ended March 31,
	2021				2020
	Per Share Amount		Aggregate Amount		Per Share Amount		Aggregate Amount
First Quarter	$	0.06	$	2,595	$	0.06	$	2,571

In July 2019, our Board of Directors authorized a stock repurchase plan of up to $25,000,000 of our common stock. As of March 31, 2021, we had not yet repurchased any shares under this stock repurchase plan. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of UIHC common stock, and general market conditions. The plan has no expiration date, and the plan may be suspended or discontinued at any time.

See Note 15 in these Notes to Unaudited Condensed Consolidated Financial Statements for information regarding stock-based compensation activity.

15) STOCK-BASED COMPENSATION

We account for stock-based compensation under the fair value recognition provisions of ASC Topic 718 - Compensation - Stock Compensation. We recognize stock-based compensation cost over the award’s requisite service period on a straight-line basis for time-based restricted stock grants and performance-based restricted stock grants. We record forfeitures as they occur for all stock-based compensation.

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

The following table presents our total stock-based compensation expense:

	Three Months Ended March 31,
		2021		2020
Employee stock-based compensation expense
Pre-tax		$	163	$	526
Post-tax (1)		129		416
Director stock-based compensation expense
Pre-tax		97		174
Post-tax (1)		77		137

(1) The after tax amounts are determined using the 21% corporate federal tax rate.

We had approximately $1,753,000 of unrecognized stock compensation expense at March 31, 2021 related to non-vested stock-based compensation granted, which we expect to recognize over a weighted-average period of approximately 2.1 years. We had approximately $38,000 of unrecognized director stock-based compensation expense at March 31, 2021 related to non-vested director stock-based compensation granted, which we expect to recognize over a weighted-average period of approximately 0.1 years.

Restricted stock, restricted stock units and performance stock units

Stock-based compensation cost for restricted stock awards, restricted stock units and performance stock units is measured based on the closing fair market value of our common stock on the date of grant, which vest in equal installments over the requisite service period of typically three years. Restricted stock awards granted to non-employee directors vest over a one-year period. Each restricted stock unit and performance stock unit represents our obligation to deliver to the holder one share of common stock upon vesting.

Performance stock units vest based on the Company's return on average equity compared to a defined group of peer companies. On the grant date, we issue the target number of performance stock units. They are subject to forfeitures if performance goals are not met. The actual number of performance stock units earned can vary from zero to 150 percent of the target for the 2020, 2019, and 2018 awards.

We granted 79,214 and 1,175 shares of restricted common stock during the three-month periods ended March 31, 2021 and 2020, respectively, which had a weighted-average grant date fair value of $5.97 and $8.75 per share, respectively.

The following table presents certain information related to the activity of our non-vested common stock grants:

	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2020	259,006	$	10.06
Granted	79,214	5.97
Less: Forfeited	26,723	10.47
Less: Vested	9,418	17.57
Outstanding as of March 31, 2021	302,079	$	8.72

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UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

Stock options

Stock option fair value was estimated on the grant date using the Black-Scholes-Merton formula. Stock options vest in equal installments over the requisite service period of typically three years. The following weighted-average assumptions were used to value the stock options granted:

	2021
Expected annual dividend yield	1.70	%
Expected volatility	41.59	%
Risk-free interest rate	2.35	%
Expected term	6

Expected annual dividend yield is based on the current quarterly dividend of $0.06 per share and the stock price on the grant date. The expected volatility is a historical volatility calculated based on the daily closing prices over a period equal to the expected term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the grant date. Expected term takes into account the three-year graded vesting term and the 10-year contractual term of the option.

The following table presents certain information related to the activity of our non-vested stock option grants:

	Number of Stock Options	Weighted Average Exercise Prices		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2020	144,006	$	13.00	8.77	$	0
Granted	0	0		—	0
Less: Forfeited	21,777	10.49		—	0
Less: Expired	—	—		—	—
Less: Exercised	—	0		—	0
Outstanding as of March 31, 2021	122,229	$	13.44	8.30	$	0
Vested as of March 31, 2021(1)	90,190	$	19.11	7.06	$	0
Exercisable as of March 31, 2021	30,596	$	19.11	7.06	$	0

(1) The vested shares and weighted average exercise prices are calculated based on all vested shares at March 31, 2021, inclusive of those that expired during the year. The weighted-average remaining contractual term is calculated based on only vested shares that are outstanding and exercisable at March 31, 2021.

16)    SUBSEQUENT EVENTS

We evaluate all subsequent events and transactions for potential recognition or disclosure in our financial statements.

On April 2, 2021, our insurance subsidiary, FSIC, was redomiciled from the state of Hawaii to the state of Florida.

On May 3, 2021, our Board of Directors declared a $0.06 per share quarterly cash dividend payable on May 24, 2021, to stockholders of record on May 17, 2021.

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UNITED INSURANCE HOLDINGS CORP.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-Q, as well as with the Consolidated Financial Statements and related footnotes under Part II. Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these forward-looking statements as a result of certain known and unknown risks and uncertainties. See "Forward-Looking Statements."

EXECUTIVE SUMMARY

Overview

    United Insurance Holdings Corp. (referred to in this document as we, our, us, the Company or UPC Insurance) is a holding company primarily engaged in residential personal and commercial property and casualty insurance in the United States. We conduct our business principally through four wholly-owned insurance subsidiaries and one majority-owned insurance subsidiary: United Property & Casualty Insurance Company (UPC); American Coastal Insurance Company (ACIC); Family Security Insurance Company, Inc. (FSIC); Interboro Insurance Company (IIC); and Journey Insurance Company (JIC). Collectively, we refer to the holding company and all our subsidiaries, including non-insurance subsidiaries, as “UPC Insurance,” which is the preferred brand identification for our Company.

Our Company’s primary source of revenue is generated from writing insurance in Connecticut, Florida, Georgia,

Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina and Texas. Effective January 1, 2021, we no longer write in the state of Hawaii. We are also licensed to write property and casualty insurance in an additional six states; however, we have not commenced writing in these states. Our target market in such areas consists of states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies. We believe an opportunity exists for UPC Insurance to write profitable business in such areas.

Our Company, together with our wholly-owned subsidiaries UPC and UIM, entered into a Renewal Rights Agreement, dated as of January 18, 2021 with HCP and HCI Group, Inc. (HCI), pursuant to which our Company, UPC and UIM agreed to sell, and HPC agreed to purchase, the renewal rights to UPC’s personal lines homeowners business in Connecticut, Massachusetts, New Jersey and Rhode Island. The transfer of policies is subject to regulatory approval. The sale was also consummated on January 18, 2021.

As part of the sale of the renewal rights, HCI issued to UPC 100,000 shares of HCI common stock, no par value, which are subject to a six-month contractual lock-up period. The fair value of these shares is $6,914,000 at March 31, 2021.

We have historically grown our business through strong organic growth complemented by strategic acquisitions and partnerships, including our acquisitions of AmCo Holding Company, LLC (AmCo) and its subsidiaries, including ACIC, in April 2017, IIC in April 2016, and Family Security Holdings, LLC (FSH), including its subsidiary FSIC, in February 2015, and our strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited, which formed JIC in August 2018. As a result of underwriting actions implemented during the fourth quarter of 2020, our policies in-force decreased by 3.6% from 628,355 policies in-force at March 31, 2020 to 605,753 policies in-force at March 31, 2021.

The following discussion highlights significant factors influencing the consolidated financial position and results of

operations of UPC Insurance. In evaluating our results of operations, we use premiums written and earned, policies in-force and

new and renewal policies by geographic concentration. We also consider the impact of catastrophe losses and prior year

development on our loss ratios, expense ratios and combined ratios. In monitoring our investments, we use credit quality,

investment income, cash flows, realized gains and losses, unrealized gains and losses, asset diversification and portfolio

duration. To evaluate our financial condition, we consider our liquidity, financial strength, ratings, book value per share and

return on equity.

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UNITED INSURANCE HOLDINGS CORP.

Impact of COVID-19

We are committed to maintaining a stable and secure business for our employees, agents, customers and stockholders. During the second half of 2020, we were able to resume hiring activities, despite the limits on in-person interviews and on-boarding procedures resulting from COVID-related protocols. In addition, we have converted to virtual sales processes to enable our agents to continue their activities. We believe these activities, collectively, help ensure the health and safety of our employees through adherence to CDC, state and local government work guidelines.

We have not experienced a material impact from COVID-19 on our business operations, financial position, liquidity or our ability to service our policyholders to date, with the exception of fluctuations in our investment portfolios due to volatility of the equity securities markets, as further described in this Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q. The COVID-19 pandemic and resulting global disruptions did not have a material impact on our access to credit and capital markets needed to maintain sufficient liquidity for our continued operating needs during the quarter ended March 31, 2021.

We did not incur material claims or significant disruptions to our business for the three-months ended March 31, 2021. At this time, it is not possible to reasonably estimate the extent of the impact of the economic uncertainties on our business, results of operations and financial condition in future periods, due to uncertainty regarding the duration of the COVID-19 pandemic, but we will continue to respond to the COVID-19 pandemic and take reasonable measures to make sure customers continue to be served without interruption.

2021 Highlights

	Three Months Ended March 31,
		2021		2020
Gross premiums written		$	311,638	$	335,183
Gross premiums earned		356,663		344,619
Net premiums earned		145,949		191,596
Total revenues		161,789		176,304
Earnings before income tax		(26,282)		(15,804)
Consolidated net loss attributable to UIHC		(17,771)		(12,723)
Net loss available to UIHC stockholders per diluted share		$	(0.41)	$	(0.30)
Reconciliation of net loss to core income (loss):
Plus: Non-cash amortization of intangible assets		$	1,043	$	1,137
Less: Realized gains (losses) on investment portfolio		503		(68)
Less: Unrealized gains (losses) on equity securities		2,564		(26,456)
Less: Net tax impact (1)		(425)		5,809
Core income (loss) (2)		(19,370)		9,129
Core income (loss) per diluted share(2)		$	(0.45)	$	0.21
Book value per share		$	8.32	$	11.30

(1) In order to reconcile the net loss to the core income (loss) measure, we included the tax impact of all adjustments using the 21% corporate federal tax rate.

(2) Core income (loss), a measure that is not based on U.S. generally accepted accounting principles (GAAP), is reconciled above to net loss, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-Q is in "Definitions of Non-GAAP Measures" below.

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UNITED INSURANCE HOLDINGS CORP.

Consolidated Net Loss

	Three Months Ended  March 31,
		2021			2020
REVENUE:
Gross premiums written		$	311,638		$	335,183
Change in gross unearned premiums		45,025			9,436
Gross premiums earned		356,663			344,619
Ceded premiums earned		(210,714)			(153,023)
Net premiums earned		145,949			191,596
Net investment income		3,583			6,917
Net realized investment gains (losses)		503			(68)
Net unrealized gains (losses) on equity securities		2,564			(26,456)
Other revenue		9,190			4,315
Total revenue		161,789			176,304
EXPENSES:
Losses and loss adjustment expenses		115,781			102,837
Policy acquisition costs		40,821			58,875
Operating expenses		13,222			9,704
General and administrative expenses		15,882			18,301
Interest expense		2,375			2,419
Total expenses		188,081			192,136
Loss before other income		(26,292)			(15,832)
Other income		10			28
Loss before income taxes		(26,282)			(15,804)
Benefit for income taxes		(7,822)			(3,288)
Net loss		$	(18,460)		$	(12,516)
Less: Net income (loss) attributable to noncontrolling interests		(689)			207
Net loss attributable to UIHC		$	(17,771)		$	(12,723)
Earnings available to UIHC common stockholders per diluted share		$	(0.41)		$	(0.30)
Book value per share		$	8.32		$	11.30
Return on equity based on GAAP net loss		(15.9)		%	(9.7)		%
Loss ratio, net (1)		79.3		%	53.7		%
Expense ratio (2)		47.9		%	45.3		%
Combined ratio (3)		127.2		%	99.0		%
Effect of current year catastrophe losses on combined ratio		16.4		%	8.9		%
Effect of prior year development on combined ratio		20.4		%	(0.6)		%
Underlying combined ratio (4)		90.4		%	90.7		%

(1) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.

(2) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate this component separately from our loss expenses.

(3) Combined ratio is the sum of the loss ratio, net and the expense ratio, net. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.

(4) Underlying combined ratio, a measure that is not based on GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-Q is in "Definitions of Non-GAAP Measures" below.

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UNITED INSURANCE HOLDINGS CORP.

Definitions of Non-GAAP Measures

We believe that investors' understanding of UPC Insurance's performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Combined ratio excluding the effects of current year catastrophe losses and prior year reserve development (underlying combined ratio) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year development from the combined ratio. We believe that this ratio is useful to investors and it is used by management to highlight the trends in our business that may be obscured by current year catastrophe losses and prior year development. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their frequency of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.

Net loss and LAE excluding the effects of current year catastrophe losses and prior year reserve development (underlying loss and LAE) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and LAE. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these two items can have a significant impact on our loss trends in a given period. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net loss and LAE and does not reflect the overall profitability of our business.

Core income excluding the effects of named windstorms, net of tax (core income excluding named windstorms) is a non-GAAP measure that is computed by adding current accident year net incurred losses and loss adjustment expenses resulting from named and numbered storms, net of tax, to core income. Named windstorm expenses are related to losses that arise when hurricanes and tropical storms make landfall in our geographic regions of coverage. These storms cause loss trends to vary significantly between periods as a result of their frequency of occurrence and severity and can significantly impact net and core income. We believes it is useful for investors to evaluate these components both separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is net income. The core income excluding named windstorms measure should not be considered a substitute for net income and does not reflect the overall profitability of the our business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

When we prepare our consolidated financial statements and accompanying notes in conformity with GAAP, we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the three-months ended March 31, 2021, we reassessed our critical accounting policies and estimates as disclosed in Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements and our Annual Report on Form 10-K for the year ended December 31, 2020; however, we have made no material changes or additions with regard to those policies and estimates, except for those standards adopted in 2021 as described in Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements.

RECENT ACCOUNTING STANDARDS

Please refer to Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting standards that may affect us.

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ANALYSIS OF FINANCIAL CONDITION - MARCH 31, 2021 COMPARED TO DECEMBER 31, 2020

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying unaudited condensed consolidated interim financial statements and related notes, and in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020.

Investments

The primary goals of our investment strategy are to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors that represent the most attractive relative value, and we maintain a moderate equity exposure. Limiting equity exposure manages risks and helps to preserve capital for two reasons: first, bond market returns are less volatile than stock market returns, and second, should the bond issuer enter bankruptcy liquidation, bondholders generally have a higher priority than equity holders in a bankruptcy proceeding.

We must comply with applicable state insurance regulations that prescribe the type, quality and concentrations of investments our insurance subsidiaries can make; therefore, our current investment policy limits investment in non-investment-grade fixed maturities and limits total investment amounts in preferred stock, common stock and mortgage notes receivable. We do not invest in derivative securities.

Two outside asset management companies, which have authority and discretion to buy and sell securities for us, manage our investments subject to (i) the guidelines established by our Board of Directors and (ii) the direction of management. The Investment Committee of our Board of Directors reviews and approves our investment policy on a regular basis.

Our cash, cash equivalents, restricted cash and investment portfolio totaled $1,209,312,000 at March 31, 2021, compared to $1,296,549,000 at December 31, 2020.

The following table summarizes our investments, by type:

	March 31, 2021				December 31, 2020
	Estimated Fair Value		Percent of Total		Estimated Fair Value		Percent of Total
U.S. government and agency securities	$	110,657	9.2%		$	130,425	10.1%
Foreign government	1,483		0.1%		1,516		0.1%
States, municipalities and political subdivisions	122,416		10.1%		134,382		10.4%
Public utilities	28,941		2.4%		29,980		2.3%
Corporate securities	265,683		22.0%		292,329		22.4%
Mortgage-backed securities	274,372		22.7%		288,212		22.2%
Asset-backed securities	65,707		5.4%		56,657		4.4%
Redeemable preferred stocks	6,016		0.5%		6,510		0.5%
Total fixed maturities	875,275		72.4	%	940,011		72.4	%
Mutual funds	5,170		0.4%		152		—%
Other common stocks	6,914		0.6%		—		—%
Non-redeemable preferred stocks	6,952		0.6%		7,293		0.6%
Total equity securities	19,036		1.6	%	7,445		0.6	%
Other investments	42,445		3.5	%	47,595		3.7	%
Total investments	936,756		77.5%		995,051		76.7%
Cash and cash equivalents	228,454		18.9	%	239,420		18.5	%
Restricted cash	44,102		3.6%		62,078		4.8%
Total cash, cash equivalents, restricted cash and investments	$	1,209,312	100.0	%	$	1,296,549	100.0	%

We classify all of our investments as available-for-sale. Our investments at March 31, 2021 and December 31, 2020 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings consisted mainly of securities issued by

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companies in the energy, consumer products, financial, technology and industrial sectors. Most of the corporate bonds we hold reflected a similar diversification. At March 31, 2021, approximately 87.4% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 12.6% were corporate bonds rated “BBB” or "BB".

The most significant impact of COVID-19 on our business during the year ended December 31, 2020 was the fluctuations in our investment portfolios due to volatility in the equity securities markets that we were unable to predict. During the second half of 2020, we decreased our equity portfolio from 9.1% of our total invested assets (including cash, restricted cash and cash equivalents) at June 30, 2020 to 0.6% of our total invested assets at December 31, 2020. As a result of this decrease, we experienced a decreased impact from fluctuations in the equity securities markets on our financial statements. In the first quarter of 2021, we began to increase our investments in the equities market. Management is working closely with our investment asset managers to monitor the fluctuations in the markets and the corresponding impact to our portfolios.

Reinsurance

We follow the industry practice of reinsuring a portion of our risks. Reinsurance involves transferring, or "ceding", all or a

portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are

unable to meet the obligations they assume under our reinsurance agreements, we remain primarily liable for the entire insured loss under the policies we write.

Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophe losses. According to the Insurance Service Office (ISO), a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25,000,000 or more in U.S. industry-wide direct insured losses to property and that affect a significant number of policyholders and insurers (ISO catastrophes). In addition to ISO catastrophes, we also include as catastrophes those events (non-ISO catastrophes), which may include losses, that we believe are, or will be, material to our operations which we define as incidents that result in $1,000,000 or more in losses for multiple policyholders.

Effective January 1, 2021, we renewed our all other perils catastrophe excess of loss agreement agreement. The agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $110,000,000. During the three-months ended March 31, 2021, we ceded $70,256,000.

During the second quarter of 2020, we placed our reinsurance program for the 2020 hurricane season. We purchased catastrophe excess of loss reinsurance protection of approximately $3,300,000,000. The treaties reinsure for personal and commercial lines property excess catastrophe losses caused by multiple perils including hurricanes, tropical storms and tornadoes. The agreements became effective as of June 1, 2020, for a one-year term, and incorporate the mandatory coverage required by and placed with the Florida Hurricane Catastrophe Fund (FHCF). The FHCF covers Florida risks only and we participate at 90%. In addition, effective June 1, 2020, we renewed our quota share agreement for a one-year term expiring May 31, 2021.

Effective December 31, 2020, we extended our quota share agreement that was set to expire on May 31, 2021. This quota share reinsurance agreement has a cession rate of 30.5% for all subject business and provides coverage for all catastrophe perils and attritional losses. The cession rate is comprised of a quota share cession of 23.0% through May 31, 2022, which covers UPC, FSIC, and ACIC with the remaining 7.5% pending renewal at June 1, 2021 covering UPC and FSIC only.

Effective December 31, 2020, we entered into a property quota share reinsurance agreement with HPC, effective as of December 31, 2020. According to the terms of this reinsurance contract, UPC Insurance will cede and HPC will assume a 69.5% quota share of our personal lines homeowners business in Connecticut, Massachusetts, New Jersey, and Rhode Island on an in-force, new and renewal basis for the period from December 31, 2020 through June 1, 2021.

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Reinsurance costs as a percentage of gross earned premium during the three-month periods ended March 31, 2021 and 2020 were as follows:

	2021		2020
Non-at-Risk	(2.3)	%	(2.6)	%
Quota Share	(26.2)	%	(12.4)	%
All Other	(30.6)	%	(29.4)	%
Total Ceding Ratio	(59.1)	%	(44.4)	%

We amortized our ceded unearned premiums over the annual agreement period, and we record that amortization in ceded premiums earned on our Unaudited Condensed Consolidated Statements of Comprehensive Loss. The table below summarizes the amounts of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums:

	Three Months Ended March 31,
	2021		2020
Quota Share (1)	$	(80,199)	$	(39,561)
Excess-of-loss	(35,111)		(15,722)
Equipment, identity theft, and cyber security	(2,368)		(2,818)
Flood and inland flood	(4,566)		(4,400)
Ceded premiums written	$	(122,244)	$	(62,501)
Change in ceded unearned premiums	(88,470)		(90,522)
Ceded premiums earned	$	(210,714)	$	(153,023)

(1) The 2021 quota share ceded written premium includes our quota share agreement with HPC.

Current year catastrophe losses disaggregated between name and numbered storms and all other catastrophe loss events are shown in the following table.

	2021					2020
	Number of Events	Incurred Loss and LAE (1)		Combined Ratio Impact		Number of Events	Incurred Loss and LAE (1)		Combined Ratio Impact
Three Months Ended March 31,
Current period catastrophe losses incurred
Named and numbered storms	—	$	—	—	%	—	$	—	—	%
All other catastrophe loss events	10	23,965		16.4	%	5	17,118		8.9	%
Total	10	$	23,965	16.4	%	5	$	17,118	8.9	%

(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.

See Note 7 in our Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding our reinsurance program.

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UNITED INSURANCE HOLDINGS CORP.

Unpaid Losses and Loss Adjustments

We generally use the term “loss(es)” to collectively refer to both loss and LAE. We establish reserves for both reported and unreported unpaid losses that have occurred at or before the balance sheet date for amounts we estimate we will be required to pay in the future, including provisions for claims that have been reported but are unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the balance sheet date. Our policy is to establish these loss reserves after considering all information known to us at each reporting period. At any given point in time, our loss reserve represents our best estimate of the ultimate settlement and administration costs of our insured claims incurred and unpaid.

Unpaid losses and LAE totaled $1,217,791,000 and $1,089,966,000 as of March 31, 2021 and December 31, 2020, respectively. The balance increased from year end as a result of increased current year incurred losses primarily related to Winter Storm Uri. This change, along with the prior year adverse development resulting from increased litigation related claims being filed in Florida, resulted in an increase in our reinsurance recoverables on unpaid losses balance at March 31, 2021 compared to December 31, 2020.

Since the process of estimating loss reserves requires significant judgment due to a number of variables, such as fluctuations in inflation, judicial decisions, legislative changes and changes in claims handling procedures, our ultimate liability will likely differ from these estimates. We revise our reserve for unpaid losses as additional information becomes available, and reflect adjustments, if any, in our earnings in the periods in which we determine the adjustments as necessary.

See Note 8 in our Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding our losses and loss adjustments.

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UNITED INSURANCE HOLDINGS CORP.

RESULTS OF OPERATIONS - COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 2021 AND 2020

Net loss attributable to UIHC for the three months ended March 31, 2021 increased $5,048,000, or 39.7%, to $17,771,000 for the first quarter of 2021 from a net loss of $12,723,000 for the same period in 2020. The increase in net loss was primarily driven by a decrease in net premiums earned during the first quarter of 2021 compared to the first quarter of 2020 due to the underwriting actions implemented during the fourth quarter of 2020, as well as an increase in our ceded premiums earned related to changes made to our quota share agreements effective December 31, 2020. We also experienced and an increase in our loss and LAE due to catastrophe losses from Winter Storm Uri and the rise in litigation-related claims filed in Florida.

The increase in net loss was offset by a $29,020,000 increase in our unrealized gains on equity securities due to improved market conditions in the first quarter of 2021 compared to the first quarter of 2020 on a smaller equity investment portfolio and the overall decrease in policy acquisition costs in the first quarter of 2021 compared to the first quarter of 2020 as described below.

Revenue

Our gross written premiums decreased $23,545,000, or 7.0%, to $311,638,000 for the first quarter ended March 31, 2021 from $335,183,000 for the same period in 2020. This decrease was driven primarily by a decrease in assumed premiums due to the termination of a contract which includes commercial property business assumed from unaffiliated insurers. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by region and gross written premium by line of business is shown in the table below.

($ in thousands)	Three Months Ended March 31,
	2021		2020		Change
Direct Written and Assumed Premium by Region (1)
Florida	$	195,585	$	193,696	$	1,889
Gulf	52,983		52,716		267
Northeast	38,615		42,797		(4,182)
Southeast	24,407		26,872		(2,465)
Total direct written premium by region	311,590		316,081		(4,491)
Assumed premium (2)	48		19,102		(19,054)
Total gross written premium by region	$	311,638	$	335,183	$	(23,545)
Gross Written Premium by Line of Business
Personal property	$	203,598	$	224,616	$	(21,018)
Commercial property	108,040		110,567		(2,527)
Total gross written premium by line of business	$	311,638	$	335,183	$	(23,545)

(1) "Gulf" is comprised of Louisiana and Texas in 2021 and Hawaii, Louisiana, and Texas in 2020; "Northeast" is comprised of Connecticut, Massachusetts, New Jersey, New York and Rhode Island; and "Southeast" is comprised of Georgia, North Carolina and South Carolina.

(2) Assumed premium written for 2021 and 2020 is primarily commercial property business assumed from unaffiliated insurers.

	Three Months Ended March 31,
New and Renewal Policies(1) by Region (2)	2021	2020	Change
Florida	50,006	59,167	(9,161)
Northeast	28,233	32,993	(4,760)
Gulf	27,172	32,698	(5,526)
Southeast	17,451	21,669	(4,218)
Total	122,862	146,527	(23,665)

(1) Only includes new and renewal homeowner, commercial and dwelling fire policies written during the quarter.

(2) "Gulf" is comprised of Louisiana and Texas in 2021 and Hawaii, Louisiana, and Texas in 2020; "Northeast" is comprised of Connecticut, Massachusetts, New Jersey, New York and Rhode Island; and "Southeast" is comprised of Georgia, North Carolina and South Carolina.

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UNITED INSURANCE HOLDINGS CORP.

Expenses

Expenses for the three-months ended March 31, 2021 decreased $4,055,000, or 2.1%, to $188,081,000 from $192,136,000 for the same period in 2020. The decrease in expenses was primarily due to a decrease in policy acquisition costs of $18,054,000 in the first quarter of 2021 compared to the first quarter of 2020. This was partially offset by an increase in loss and LAE expenses of $12,944,000 in the first quarter of 2021 compared to the first quarter of 2020.

The calculations of our loss ratios and underlying loss ratios are shown below.

	Three Months Ended March 31,
	2021			2020			Change
Net loss and LAE	$	115,781		$	102,837		$	12,944
% of Gross earned premiums	32.5		%	29.8		%	2.7 pts
% of Net earned premiums	79.3		%	53.7		%	25.6 pts
Less:
Current year catastrophe losses	$	23,965		$	17,118		$	6,847
Prior year reserve (favorable) development	29,769			(1,129)			30,898
Underlying loss and LAE (1)	$	62,047		$	86,848		$	(24,801)
% of Gross earned premiums	17.4		%	25.2		%	(7.8) pts
% of Net earned premiums	42.5		%	45.4		%	(2.9) pts

(1) Underlying loss and LAE is a non-GAAP measure and is reconciled above to Net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.

The calculations of our expense ratios are shown below.

	Three Months Ended March 31,
	2021			2020			Change
Policy acquisition costs	$	40,821		$	58,875		$	(18,054)
Operating and underwriting	13,222			9,704			3,518
General and administrative	15,882			18,301			(2,419)
Total Operating Expenses	$	69,925		$	86,880		$	(16,955)
% of Gross earned premiums	19.6		%	25.2		%	(5.6) pts
% of Net earned premiums	47.9		%	45.3		%	2.6 pts

Loss and LAE increased by $12,944,000, or 12.6%, to $115,781,000 for the first quarter of 2021 from $102,837,000 for the first quarter of 2020. Loss and LAE expense as a percentage of net earned premiums increased 25.6 points to 79.3% for the first quarter of 2021, compared to 53.7% for the first quarter of 2020.

Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the first quarter of 2021 would have been 17.4%, a decrease of 7.8 points from 25.2% during the first quarter of 2020, representing an improvement in current year non-catastrophe loss and LAE expenses.

Policy acquisition costs decreased by $18,054,000, or 30.7%, to $40,821,000 for the first quarter of 2021 from $58,875,000 for the first quarter of 2020, primarily due to an increase in ceding commission income of $18,983,000 related to our quota share reinsurance agreements.

Operating and underwriting expenses increased by $3,518,000, or 36.3%, to $13,222,000 for the first quarter of 2021 from $9,704,000 for the first quarter of 2020, primarily due to increased expenditures on technology software and services of $4,692,000.

General and administrative expenses decreased by $2,419,000, or 13.2%, to $15,882,000 for the first quarter of 2021 from $18,301,000 for the first quarter of 2020, primarily due to the increase in the allocation of claims adjuster payroll related costs of $2,972,000 to loss & LAE from general and administrative expenses in 2021.

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LIQUIDITY AND CAPITAL RESOURCES

We generate cash through premium collections, reinsurance recoveries, investment income, the sale or maturity of invested assets, the incurrence of debt and the issuance of additional shares of our stock. We use our cash to pay reinsurance premiums, claims and related costs, policy acquisition costs, salaries and employee benefits, other expenses and stockholder dividends, acquire subsidiaries and pay associated costs, as well as to repay debts and purchase investments.

As a holding company, we do not conduct any business operations of our own and, as a result, we rely on cash dividends or intercompany loans from our management subsidiaries to pay our general and administrative expenses. Insurance regulatory authorities heavily regulate our insurance subsidiaries, including restricting any dividends paid by our insurance subsidiaries and requiring approval of any management fees our insurance subsidiaries pay to our management subsidiaries for services rendered; however, nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency. Our management subsidiaries pay us dividends primarily using cash from the collection of management fees from our insurance subsidiaries, pursuant to the management agreements in effect between those entities. In accordance with state laws, our insurance subsidiaries may pay dividends or make distributions out of that part of their statutory surplus derived from their net operating profit and their net realized capital gains. The Risk-Based Capital (RBC) guidelines published by the National Association of Insurance Commissioners may further restrict our insurance subsidiaries’ ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause their respective surplus as it regards policyholders to fall below minimum RBC guidelines. See Note 12 in our Notes to Unaudited Condensed Consolidated Financial Statements for additional information.

During the three-months ended March 31, 2021, our insurance subsidiary, IIC, paid a dividend of $3,500,000 to the Company. In addition, the Company made a capital contribution of $3,500,000 to our insurance subsidiary, FSIC. During the three-months ended March 31, 2020, IIC paid a dividend of $12,000,000 to the Company. In addition, the Company made a $12,000,000 capital contribution to our insurance subsidiary, UPC.

The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial markets. However, during the three-month period ended March 31, 2021, the disruptions did not have an impact on our access to credit and capital markets needed to maintain sufficient liquidity for our continued operating needs. We expect to continue to maintain financing flexibility in the current market conditions. However, due to the rapidly evolving national and global situation, it is not possible to predict whether unanticipated consequences of the pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.

Cash Flows for the three-months ended March 31, 2021 and 2020 (in millions)

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Operating Activities

The principal cash inflows from our operating activities come from premium collections, reinsurance recoveries and investment income. The principal cash outflows from our operating activities are the result of claims and related costs, reinsurance premiums, policy acquisition costs and salaries and employee benefits. A primary liquidity concern with respect to these cash flows is the risk of large magnitude catastrophe events.

During the three-months ended March 31, 2021, we had cash outflows of $66,652,000 compared to cash inflows of $17,498,000 during the three-months ended March 31, 2020. This change can be attributed primarily to the increase in our reinsurance premiums payable balance at March 31, 2021 compared to March 31, 2020. This increase can be attributed to our increased quota share coverages and all other perils reinsurance contract effective December 31, 2020 and January 1, 2021, respectively. Please see "Reinsurance" above for more information regarding these agreements. In addition, during the three months ended March 31, 2021, in connection with our renewal rights agreement for all Northeast business excluding New York, HCI issued 100,000 shares of common stock to UPC. The fair value of the HCI common stock at the date of issuance was $5,007,000.

Investing Activities

The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to sales of investments. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the three-months ended March 31, 2021, we had net sales of investments totaling $41,837,000 compared to net purchases of investments totaling $15,675,000 during the three-months ended March 31, 2020.

Financing Activities

The principal cash outflows from our financing activities come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market disruption in the cost and availability of credit. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements. During the three-months ended March 31, 2021, cash used in financing activities increased $318,000 to $3,270,000 compared to $2,952,000 for the three-months ended March 31, 2020. The outflow for both periods was primarily due to our dividend payments made in each quarter. The increase year over year can be attributed to the timing of our repayment of our long-term debt borrowings.

OFF-BALANCE SHEET ARRANGEMENTS

At March 31, 2021, we did not have any off-balance sheet arrangements or material changes to our contractual obligations during the quarter.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks, including interest rate risk related to changes in interest rates in our fixed-maturity securities, credit risk related to changes in the financial condition of the issuers of our fixed-maturities and equity price risk related to changes in equity security prices. These risks are disclosed in Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" of our Annual Report on Form 10-K for the year ended December 31, 2020. We had no material changes in our market risk during the three-months ended March 31, 2021.

Item 4. Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that the information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. We designed our disclosure controls with the objective of ensuring we accumulate and communicate this information to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2021, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control performed during the fiscal year ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in routine claims-related legal actions arising in the ordinary course of business. We accrue amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that we determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes revisions to our estimates based on its analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation.

At March 31, 2021, we were not involved in any material non-claims-related legal actions.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I. Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2020.

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

During the three-months ended March 31, 2021, we did not sell any unregistered equity securities or repurchase any of our equity securities.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

The following exhibits are filed or furnished herewith or are incorporated herein by reference:

Exhibit	Description
10.1	Renewal Rights Agreement, dated as of January 18, 2021, by and among United Property and Casualty Insurance Company, United Insurance Holdings Corp., United Insurance Management, L.C., Homeowners Choice Property & Casualty Insurance Company, Inc., and HCI Group, Inc. (included as Exhibit 10.1 to the Form 8-K filed on January 22, 2021, and incorporated herein by reference).
10.2	Property Quota Share Reinsurance Contract, dated as of January 18, 2021 and effective as of December 31, 2020, by and between United Property and Casualty Insurance Company and Homeowners Choice Property & Casualty Insurance Company, Inc. (included as Exhibit 10.2 to the Form 8-K filed on January 22, 2021, and incorporated herein by reference).
10.3	Registration Rights Agreement, dated as of January 18, 2021, by and between United Property and Casualty Insurance Company and HCI Group, Inc. (included as Exhibit 10.3 to the Form 8-K filed on January 22, 2021, and incorporated herein by reference).
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

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UNITED INSURANCE HOLDINGS CORP.

SIGNATURES

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

		UNITED INSURANCE HOLDINGS CORP.
May 7, 2021	By:	/s/ R. Daniel Peed
		R. Daniel Peed, Chief Executive Officer  (principal executive officer and duly authorized officer)

May 7, 2021	By:	/s/ B. Bradford Martz
		B. Bradford Martz, Chief Financial Officer and President (principal financial officer and principal accounting officer)

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