

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

11. Other Comprehensive Income (Loss)

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

Three Months Ended June 30,
2019 2018
Pre-tax Tax After-tax Pre-tax Tax After-tax
Net changes related to available-for-sale securities:
Unrealized holding gains (losses) arising during the period $ 15,825
$ 3,896
$ 11,929
$ (2,488 ) $ (618 ) $ (1,870 )
Less: Reclassification adjustments for (gains) losses realized
in net income
36
10
26
32
11
21
Other comprehensive income (loss) $ 15,861
$ 3,906
$ 11,955
$ (2,456 ) $ (607 ) $ (1,849 )

Six Months Ended June 30,
2019 2018
Pre-tax Tax After-tax Pre-tax Tax After-tax
Net changes related to available-for-sale securities:
Unrealized holding gains (losses) arising during the period $ 31,870
$ 7,849
$ 24,021
$ (10,522 ) $ (2,507 ) $ (8,015 )
Less: Reclassification adjustments for (gains) losses realized
in net income
(109 ) (27 ) (82 ) 2,797
681
2,116
Other comprehensive income (loss) $ 31,761
$ 7,822
$ 23,939
$ (7,725 ) $ (1,826 ) $ (5,899 )


	Three Months Ended March 31,
	2020										2019
	Pre-tax		Tax		After-tax		Pre-tax		Tax		After-tax
Net changes related to available-for-sale securities:
Unrealized holding gains (losses) arising during the period	$	(11,226)	$	(2,505)	$	(8,721)	$	16,045	$	3,953	$	12,092
Less: Reclassification adjustments for (gains) losses realized in net income	(299)		(74)		(225)		(145)		(37)		(108)
Other comprehensive income (loss)	(11,525)		(2,579)		(8,946)		15,900		3,916		11,984
Reclassification adjustment to retained earnings (1)	791		194		597		—		—		—
Change in accumulated other comprehensive income (loss)	$	(10,734)	$	(2,385)	$	(8,349)	$	15,900	$	3,916	$	11,984

(1)This amount represents reclassifications to retained earnings associated with the allowance for expected credit losses within accumulated other comprehensive income relating to available for sale debt security investments. See “—Note 2 (Significant Accounting Policies—Recently Adopted Accounting Pronouncements)” for more information.

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

Details about Accumulated
Other Comprehensive
Income (Loss) Components

Amount Reclassified from Accumulated
Other Comprehensive Income (Loss)

Affected Line Item in the Statement
Where Net Income is Presented
Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Unrealized gains (losses) on
available-for-sale debt securities

$ (36 ) $ (32 ) $ 109
$ (2,797 ) Net realized gains (losses) on sale of securities
10
11
(27 ) 681
Income taxes
Total reclassification for the period $ (26 ) $ (21 ) $ 82
$ (2,116 ) Net of tax


Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)							Affected Line Item in the Statement Where Net Income is Presented
			Three Months Ended March 31,
			2020			2019
Unrealized gains (losses) on available-for-sale debt securities
	$	299		$	145		Net realized gains (losses) on sale of securities
	(74)			(37)			Income taxes
Total reclassification for the period	$	225		$	108		Net of tax

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12. Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contracts

The Company purchases reinsurance coverage to protect its capital and to limit its losses when certain major events occur. ~~Reinsurance~~Our reinsurance commitments run from June 1 of the current year to May 31 of the following year. Certain of ~~the Company’s~~our reinsurance agreements are for periods longer than one year. Amounts payable for coverage during the current June 1^st to May 31^st contract period are recorded as “Reinsurance Payable” in the financial statements. Multi-year contract commitments for future years will be recorded at the commencement of the coverage period. Amounts payable for future reinsurance contract years that the Company is obligated to pay are: (1) ~~$117.6~~$118.9 million in 2020 and (2) ~~$83.6~~$84.3 million in 2021.

Litigation

Lawsuits are filed against the Company from time to time. Many of these lawsuits involve claims under policies that we underwrite and reserve for as an insurer. We are also involved in various other legal proceedings and litigation unrelated to claims under our policies that arise in the ordinary course of business operations. Management believes that any liabilities that may arise as a result of these legal matters will not have a material adverse effect on our financial condition or results of operations. The Company contests liability and/or the amount of damages as appropriate in each pending matter.

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

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

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13. Fair Value Measurements

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

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

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

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

Summary of Significant Valuation Techniques for Assets Measured at Fair Value on a Recurring Basis

Level 1

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

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

Level 2

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

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

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

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

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

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

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

Fair Value Measurements
June 30, 2019
Level 1 Level 2 Level 3 Total
Available-For-Sale Debt Securities:

  U.S. government obligations and agencies $ —
$ 73,576
$ —
$ 73,576
  Corporate bonds —
458,443
—
458,443
  Mortgage-backed and asset-backed securities —
335,423
—
335,423
  Municipal bonds —
3,507
—
3,507
  Redeemable preferred stock —
13,144
—
13,144
Equity securities:
  Common stock 2,724
—
—
2,724
  Mutual funds 39,644
—
—
39,644
Total assets accounted for at fair value $ 42,368
$ 884,093
$ —
$ 926,461

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


	Fair Value Measurements
	March 31, 2020
	Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:
U.S. government obligations and agencies	$	—	$	62,084	$	—	$	62,084
Corporate bonds	—		468,725		—		468,725
Mortgage-backed and asset-backed securities	—		323,382		—		323,382
Municipal bonds	—		3,586		—		3,586
Redeemable preferred stock	—		9,472		—		9,472
Equity Securities:
Common stock	1,904		—		—		1,904
Mutual funds	43,934		—		—		43,934
Total assets accounted for at fair value	$	45,838	$	867,249	$	—	$	913,087


	Fair Value Measurements
	December 31, 2019
	Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:
U.S. government obligations and agencies	$	—	$	54,364	$	—	$	54,364
Corporate bonds	—		476,218		—		476,218
Mortgage-backed and asset-backed securities	—		311,079		—		311,079
Municipal bonds	—		3,496		—		3,496
Redeemable preferred stock	—		10,127		—		10,127
Equity Securities:
Common stock	2,377		—		—		2,377
Mutual funds	41,340		—		—		41,340

Total assets accounted for at fair value	$	43,717	$	855,284	$	—	$	899,001

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

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

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


	March 31, 2020						December 31, 2019
	Carrying Value		(Level 3) Estimated Fair Value		Carrying Value		(Level 3) Estimated Fair Value
Liabilities (debt):
Surplus note	$	9,559	$	8,975	$	9,926	$	9,365

Level 3

Long-term debt: The fair value of the surplus note was determined by management from the expected cash flows discounted using the interest rate quoted by the holder. The SBA is the holder of the surplus note and the quoted interest rate is below prevailing rates quoted by private lending institutions. However, as the Company’s use of funds from the surplus note is limited by the terms of the agreement, the Company has determined the interest rate quoted by the SBA to be appropriate for purposes of establishing the fair value of the note.

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14. Subsequent Events

On April 16, 2020, the Company declared a dividend of $0.16 per share on its outstanding common stock payable on May 21, 2020, to shareholders of record on May 14, 2020.

The Company performed an evaluation of subsequent events through the date the ~~Financial Statements~~financial statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the ~~Financial Statements~~condensed consolidated financial statements as of ~~June 30, 2019.~~March 31, 2020.

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

Unless the context otherwise requires, all references to “we,” “us,” “our,” and “Company” refer to Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries. You should read the following discussion together with our unaudited condensed consolidated financial statements (“Financial Statements”) and the related notes thereto included in “Part I, Item 1—Financial Statements”, and our audited condensed consolidated financial statements and the related notes thereto included in “Part II, Item 8—Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Operating results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for the year.

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These forward-looking statements may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure and other risk management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements as a result of the risks set forth below, which are a summary of those set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Risks and uncertainties that may affect our financial condition and operating results include, but are not limited to, the following:

•Unanticipated increases in the severity or frequency of claims, including those relating to catastrophes, severe weather events and changing climate conditions, which, in some instances, have exceeded, and in the future may exceed our ~~current~~ reserves established for claims;

•Failure of our risk mitigation strategies, including failure to accurately and adequately price the risks we underwrite and to write effective exclusions and other loss limitation methods in our insurance policies;

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

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

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

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

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

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

•Failure to comply with existing and future guidelines, policies and legal and regulatory standards;

•The ability of our claims professionals to effectively manage claims;

•Litigation or regulatory actions that could result in significant damages, fines or penalties;

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

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

•Our dependence on the returns of our investment portfolio, which are subject to market risk;

•Legal, regulatory or tax changes that increase our operating costs and decrease our profitability, such as limitations on rate changes or requirements to participate in loss sharing;

•Our dependence on dividends and permissible payments from our subsidiaries; ~~and~~

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

•The ongoing impact of the COVID-19 pandemic on our business and the economy in general (see “Part II, Item 1A—Risk Factors”).

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OVERVIEW

We are a vertically integrated holding company offering property and casualty ~~(“P&C”)~~ insurance and value-added insurance services. We develop, market and underwrite insurance products for consumers predominantly in the personal residential homeowners line of business and perform substantially all other insurance-related services for our primary insurance entities, including risk management, claims management, and distribution. Our primary insurance entities, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC” and together with UPCIC, the “Insurance Entities”), offer insurance products through both our appointed independent agent network and our online distribution channels across 18 states (primarily in Florida), with licenses to write insurance in antwo additional ~~twostates. In the second quarter, we surrendered our license~~states and applications submitted and pending in West Virginia, a state in which we have not written premium and have no current plans to do business. Also during the second quarter, we received a Certificate of Authority in Wisconsin, approving UPCIC as a licensed insurance entity in Wisconsin.two additional states. The Insurance Entities seek to produce an underwriting profit ~~over the long term~~ (defined as earned premium less losses, loss adjustment expense (“LAE”), policy acquisition costs and other operating costs); over the long term; maintain a ~~strong~~conservative balance sheet to prepare for years in which the Insurance Entities are not able to achieve an underwriting profit; and generate investment income on ~~assets exceeding short-term operating needs.~~assets.

The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A should be read in conjunction with our Financial Statements and accompanying Notes appearing elsewhere in this Report (the “Notes”). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed above under “Cautionary Note Regarding Forward-Looking Statements.”

~~RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION~~Trends - Impact of COVID-19

~~Highlights~~

~~Results~~The global COVID-19 pandemic has had a profound worldwide effect on social interactions and on the global, national and local economies. We took early measures in March, in advance of governmental mandates, to help reduce the spread of COVID-19 by directing substantially all employees with the ability to do so to immediately self-quarantine by working at home. In addition to this measure to secure the health and wellness of our employees, we worked to facilitate our personnel being able to continue safely providing services to the Company’s policyholders and independent agents, fulfilling our financial and reporting obligations, including responding to regulatory requirements and guidelines, and generally maintaining business continuity. As a provider of residential homeowners’ insurance offered in hurricane-prone areas and being headquartered in Florida, we had previously developed contingency plans to address catastrophic events and were prepared to maintain operations ~~for~~as COVID-19 unfolded. As a result of our disaster preparedness, most employees were immediately prepared to work from home while the ~~second~~Company addressed emerging workflow issues to ensure that all employees remained effective in fulfilling their roles. Since the first week of engaging our work from home strategy, nearly all aspects of our business have been, and continue to be, conducted remotely while striving to maintain the quality of our service standards. Through the first quarter of ~~fiscal 2019, in each case compared~~2020, we have not seen a material impact from COVID-19 on our business, our financial position, our liquidity, or our ability to service our policyholders and maintain critical operations, with the ~~second quarter~~exception of ~~fiscal 2018 (unless otherwise specified), include:~~a decrease in fair value of our investment securities. As a provider of services that have been deemed essential under most directives and guidelines, we are confident in our ability to maintain consistent operations and believe we can manage with our remote workforce, as a result of our disaster preparedness planning, with little impact on our business and service levels and our standards of care for both underwriting and claims. Although we have not yet experienced a material impact from COVID-19, the ultimate impact of the pandemic on our business cannot be predicted. Please refer to “Part II, Item 1A—Risk Factors” for more information.

~~Direct premiums written overall grew by $15.2 million, or 4.4%, to $358.0 million.~~

~~In Florida,~~Our level of direct premiums written ~~grew by $1.6 million, or 0.5%,~~during March and the first quarter of 2020 was strong and outperformed the same periods in the prior year. We are cautiously optimistic in our ~~other~~belief that our customers and agent force will continue to renew and place business with us, especially as our customers in hurricane-exposed states ~~direct premiums written grew by $13.6 million, or 28.7%.~~

~~Net earned premiums grew by $18.1 million, or 9.4%, to $210.4 million.~~

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

~~Loss ratio was 53.9% as compared to 46.7%.~~

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

~~Book value per share increased by $2.15, or 14.9%, to $16.57 at June 30, 2019 from $14.42 at December 31, 2018.~~

~~Declared and paid dividends of $0.16 per share~~prepare for the upcoming 2020 hurricane season. In the event there is a slow-down in the ~~second quarter in 2019~~production and/or collection of premiums, we intend to take measures to maintain liquidity while continuing to protect our capital and ~~declared dividends of $0.16 per share payable in the third quarter of 2019.~~policyholders. See “—Liquidity and Capital Resources” and “Part II, Item 1A—Risk Factors.”

~~Repurchased 485,882 shares during the quarter at an aggregate purchase price of $14.1 million.~~

Reinsurance

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

Developing and implementing our reinsurance strategy to adequately protect our balance sheet and Insurance Entities in the event of one or more catastrophes while maintaining efficient reinsurance costs has been a key strategic priority for us. In order to limit the Insurance Entities’ potential exposure to catastrophic events, we purchase significant reinsurance from third-party reinsurers and the Florida Hurricane Catastrophe Fund (“FHCF”). The Florida Office of Insurance Regulation (“FLOIR”) requires the Insurance Entities, like all residential property insurance companies doing business in Florida, to have a certain amount of capital and reinsurance coverage in order to cover losses upon the occurrence of a single catastrophic event and a series of catastrophic

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events occurring in the same hurricane season. The Insurance Entities’ respective 2019-2020 reinsurance programs meet the FLOIR’s requirements, which are based on, among other things, successfully demonstrating a cohesive and comprehensive reinsurance ~~program~~programs that ~~protects~~protect the policyholders of our Insurance Entities as well as satisfying a series of stress test catastrophe loss scenarios based on past historical events.

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We believe the Insurance Entities’ retentions under their respective reinsurance programs are appropriate and structured to protect policyholders. We test the sufficiency of the reinsurance programs by subjecting the Insurance Entities’ personal residential exposures to statistical testing using a third-party hurricane model, RMS RiskLink ~~v17.0~~v18.1 (Build ~~1825)~~1945). This model combines simulations of the natural occurrence patterns and characteristics of hurricanes, tornadoes, earthquakes and other catastrophes with information on property values, construction types and occupancy classes. The model outputs provide information concerning the potential for large losses before they occur, so companies can prepare for their financial impact. Furthermore, as part of our operational excellence initiatives, we continually look to enable new technology to refine our data intelligence on catastrophe risk modeling.

Effective June 1, 2019, the Insurance Entities entered into multiple reinsurance agreements comprising our 2019-2020 reinsurance program. See “Item 1—Note 4 (Reinsurance).”

UPCIC’s 2019-2020 Reinsurance Program

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

•All States first event tower expanded to ~~$3.28~~$3.34 billion, an increase of ~~$134~~$170 million over the final 2018-2019 program.

•Assuming a first event completely exhausts the ~~$3.28~~$3.34 billion tower, the second event exhaustion point would be $1.3 billion, an increase of $262 million over the final 2018-2019 program on the same assumptions.

•Full reinstatement available for all private market first event catastrophe layers for guaranteed second event coverage. For all layers purchased below the FHCF, to the extent that all coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, UPCIC has purchased reinstatement premium protection (“RPP”) to pay the premium necessary for the reinstatement of these coverages.

•Private market reinsurance coverage continues to be structured into layers. This structure utilizes a cascading feature such that any layers above a $111 million attachment point are excess of loss over the immediately preceding layer. If the aggregate limit of the preceding layer is exhausted, the next layer cascades down in its place for future events.

•Specific ~~3rd~~3^rd and ~~4th~~4^th event private market catastrophe excess of loss coverage of $76 million in excess of $35 million provides robust frequency protection for a multiple event storm season.

•For the FHCF Reimbursement Contracts effective June 1, 2019, UPCIC has continued the election of the 90% coverage level. The total mandatory FHCF layer is estimated to provide approximately ~~$1.980~~$2.038 billion of coverage for UPCIC, which inures to the benefit of the open market coverage secured from private reinsurers.

APPCIC’s 2019-2020 Reinsurance Program

•First event All States retention of $2 million.

•All States first event tower of ~~$27.5~~$30.7 million.

•Full reinstatement available for all private market first event catastrophe layers for guaranteed second event coverage. For the layer purchased below the FHCF, to the extent that all coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, APPCIC has purchased RPP to pay the premium necessary for the reinstatement of this coverage.

•Private market reinsurance coverage continues to be structured into layers. This structure utilizes a cascading feature such that any layers above the $2 million attachment point are excess of loss over the immediately preceding layer. If the aggregate limit of the preceding layer is exhausted, the next layer cascades down in its place for future events.

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

•For the FHCF Reimbursement Contracts effective June 1, 2019, APPCIC has continued the election of the 90% coverage level. The total mandatory FHCF layer is estimated to provide approximately ~~$11.7~~$14.8 million of coverage for APPCIC, which inures to the benefit of the open market coverage secured from private reinsurers.

The total cost of the 2019-2020 reinsurance programs for UPCIC and APPCIC is projected to be ~~$417~~$420 million, representing approximately ~~33.3%~~33.5% of estimated direct premium earned for the 12-month treaty period.

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RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION

Highlights

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

~~Net income was $37.3 million~~operations for the ~~three months ended June 30,~~first quarter of fiscal 2020, in each case compared with the first quarter of fiscal 2019 (unless otherwise specified), include:

•COVID-19: Maintained operations and quality standards as workforce transitioned to working remotely.

•COVID-19: Currently no material impact to our business, our financial position and our liquidity, other than a decrease in fair value of investment securities.

•Direct premiums written overall grew by $45.3 million, or 15.7%, to $334.6 million.

•Reduction in net unrealized gains in the quarter resulted in an $8.0 million reduction in equity securities, which was recorded in the income statement, and an $11.5 million, before credit losses of $0.8 million, reduction in available-for-sale debt securities net unrealized gains. Ending balance of net unrealized gains was $7.6 million at March 31, 2020 compared to ~~$46.1~~$27.1 million ~~for the three months ended June 30, 2018, a decrease of $8.8~~at December 31, 2019.

•In Florida, direct premiums written grew by $36.4 million, or ~~19.1%~~15.0%, and in our other states, direct premiums written grew by $9.0 million, or 19.0%. ~~Diluted EPS~~

•Premiums earned, net, grew by $11.1 million, or 5.3%, to $220.8 million.

•UPCIC filed for ~~the current quarter~~a 12.4% rate hike in Florida on February 7, 2020, which is anticipated to be effective May 25, 2020, pending regulatory review.

•Total revenues decreased by $1.3 million, or 0.6%, to $235.3 million.

•Net loss ratio was ~~$1.08~~61.2% as compared to ~~$1.29 in 2018, a decrease~~53.9%, driven by the factors outlined below.

•Diluted earnings per share (“EPS”) of ~~$0.21 or 16.3%.~~ $0.61 compared to $1.14.

•Weighted average diluted common shares outstanding were lower by ~~2.7%~~7.0% to ~~34.6~~32.7 million shares compared to 35.2 million shares.

•Book value per share increased by $0.13, or 0.9%, to $15.26 at March 31, 2020 from ~~35.6~~$15.13 at December 31, 2019.

•Paid dividends of $5.2 million, or $0.16 per share, in the first quarter of 2020.

•Repurchased 312,107 shares at ~~June 30, 2018.~~ an average price of $21.11 for an aggregate purchase price of $6.6 million during the quarter.

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Results of Operations

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


	Three Months Ended March 31,						Change
	2020		2019		$		%
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	334,553	$	289,234	$	45,319	15.7	%
Change in unearned premium	(8,602)		6,143		(14,745)		(240.0)	%
Direct premium earned	325,951		295,377		30,574		10.4	%
Ceded premium earned	(105,122)		(85,650)		(19,472)		22.7	%
Premiums earned, net	220,829		209,727		11,102		5.3	%
Net investment income	6,834		8,142		(1,308)		(16.1)	%
Net realized gains (losses) on investments	299		(11,525)		11,824		NM
Net change in unrealized gains (losses) of equity securities	(8,024)		18,032		(26,056)		NM
Commission revenue	7,015		5,505		1,510		27.4	%
Policy fees	5,540		5,021		519		10.3	%
Other revenue	2,782		1,684		1,098		65.2	%
Total premiums earned and other revenues	235,275		236,586		(1,311)		(0.6)	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	135,048		113,094		21,954		19.4	%
General and administrative expenses	72,643		69,748		2,895		4.2	%
Total operating costs and expenses	207,691		182,842		24,849		13.6	%
INCOME BEFORE INCOME TAXES	27,584		53,744		(26,160)		(48.7)	%
Income tax expense	7,517		13,596		(6,079)		(44.7)	%
NET INCOME	$	20,067	$	40,148	$	(20,081)	(50.0)	%
Other comprehensive income (loss), net of taxes	(8,946)		11,984		(20,930)		NM
COMPREHENSIVE INCOME	$	11,121	$	52,132	$	(41,011)	(78.7)	%
DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share	$	0.61	$	1.14	$	(0.53)	(46.5)	%
Weighted average diluted common shares outstanding	32,731		35,206		(2,475)		(7.0)	%

NM – Not Meaningful

Benefiting the quarter were increases in premiums earned, net, ~~earned premium,~~net realized gains on investments, commission revenue, policy fees and other revenues, offset by a decrease in net investment income, ~~and increases in the~~ net change in unrealized ~~gains~~losses of equity securities ~~offset by realized losses from sales on investments~~ and increased operating costs for losses and ~~LAE~~LAE. Direct premium earned and ~~general and administrative costs. Direct and~~premiums earned, net ~~earned premium~~ were up ~~10.6%~~10.4% and ~~9.4%~~5.3%, respectively, due to growth in ~~all~~ states in which we are licensed and writing during the past 12 months. Increases in losses and LAE were the result of several factors including (1) premium growth and change in mix between Florida and other states, (2) increased estimated core losses and LAE for the current year compared to prior year ~~offset by a lower level of unexpected weather events over expectations this year~~ and ~~a lower level of prior year~~(3) adverse development ~~compared to the~~on prior year. In the second quarter there was a lower level of benefits recognized from claim adjustment fees, including claims fees ceded to reinsurers, as there is a lower level of hurricane claims compared to the prior year. As discussed further below, certain non-recurring items from 2018 impacted the quarter over quarter comparison such as a $6.5 million benefit associated with a premium tax refund in 2018years’ loss and ~~a greater amount of discrete items in 2018 giving rise to a lower effective rate in 2018.~~LAE reserves.

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

Three Months Ended
June 30, Change
2019 2018 $ %
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written $ 357,960
$ 342,781
$ 15,179
4.4 %
Change in unearned premium (54,852 ) (68,754 ) 13,902
(20.2 )%
Direct premium earned 303,108
274,027
29,081
10.6 %
Ceded premium earned (92,751 ) (81,755 ) (10,996 ) 13.4 %
Premiums earned, net 210,357
192,272
18,085
9.4 %
Net investment income 7,410
5,786
1,624
28.1 %
Net realized gains (losses) on investments (1,605 ) 145
(1,750 ) NM
Net change in unrealized gains (losses) of equity securities 3,759
(1,521 ) 5,280
NM
Commission revenue 6,048
5,709
339
5.9 %
Policy fees 5,997
5,764
233
4.0 %
Other revenue 1,756
1,633
123
7.5 %
Total premiums earned and other revenues 233,722
209,788
23,934
11.4 %
OPERATING COSTS AND EXPENSES

Losses and loss adjustment expenses 113,296
89,842
23,454
26.1 %
General and administrative expenses 69,496
58,698
10,798
18.4 %
Total operating costs and expenses 182,792
148,540
34,252
23.1 %
INCOME BEFORE INCOME TAXES 50,930
61,248
(10,318 ) (16.8 )%
Income tax expense 13,637
15,164
(1,527 ) (10.1 )%
NET INCOME $ 37,293
$ 46,084
$ (8,791 ) (19.1 )%
Other comprehensive income (loss), net of taxes 11,955
(1,849 ) 13,804
NM
COMPREHENSIVE INCOME $ 49,248
$ 44,235
$ 5,013
11.3 %
DILUTED EARNINGS PER SHARE DATA:

Diluted earnings per common share $ 1.08
$ 1.29
$ (0.21 ) (16.3 )%
Weighted average diluted common shares outstanding 34,612
35,589
(977 ) (2.7 )%

NM – Not Meaningful

~~Policy count, premium in force and total insured value increased at June 30, 2019 when compared to June 30, 2018.~~ Direct premiums written increased by ~~$15.2~~$45.3 million, or ~~4.4%~~15.7%, for the quarter ended ~~June 30, 2019,~~March 31, 2020, driven by growth within our Florida business of ~~$1.6~~$36.4 million, or ~~0.5%~~15.0%, and growth in our other states business of ~~$13.6~~$9.0 million, or ~~28.7%~~19.0%, as compared to the same period of the prior year. Rate increases in Florida and in certain other states ~~was~~along with slightly improved retention also ~~a source of~~contributed to the premium growth. As discussed below in losses and LAE, we ~~implemented new binding~~intend to update our underwriting guidelines ~~during the first quarter of 2019~~ on new business to address emerging loss trends that have impacted the rate of growth in Florida. ~~Premiums in force increased~~Direct premiums written in every state in which we are writing increased compared to the prior year. We actively wrote policies in 18 states during 2019 and 2020. In ~~early March 2019, we commenced writing in Illinois, and~~addition, we are ~~now actively writing~~authorized to do business in Iowa and Wisconsin and are proceeding with product filings in those states. We also have applications submitted and pending to write policies in ~~17 states outside our home state~~Connecticut and Tennessee. Policy count, premium in force and total insured value increased at March 31, 2020 when compared to March 31, 2019. Policies in force are a count of ~~Florida.~~insurance policies that have been written which are still active as of the reporting date. Premium in force is the amount of the annual premiums previously recorded by the Company for policies which are still active as of the reporting date. Total insured value is the total amount of insurance limits available on a policy for a single loss based on all policies active as of the reporting date. These measures assist management in measuring the level of insured exposure and progress toward meeting revenue goals for the current year and to provide an indication of business available for renewal in the next twelve months. See “Item 7—

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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, 2019 for a further discussion on total insured value, policies in force and premiums in force.

The following table provides direct premiums written for Florida and Other States for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and~~ ~~2018~~ (dollars in thousands):


	For the Three Months Ended
	March 31, 2020						March 31, 2019						Growth year over year
State	Direct Premiums Written		%		Direct Premiums Written		%		$		%
Florida	$	278,511	83.2	%	$	242,148	83.7	%	$	36,363	15.0	%
Other states	56,042		16.8	%	47,086		16.3	%	8,956		19.0	%
Total	$	334,553	100.0	%	$	289,234	100.0	%	$	45,319	15.7	%

For the Three Months Ended
June 30, 2019 June 30, 2018
Growth
year over year
State
Direct Premiums
Written
%
Direct Premiums
Written
% $ %
Florida $ 296,896
82.9 % $ 295,337
86.2 % $ 1,559
0.5 %
Other states 61,064
17.1 % 47,444
13.8 % 13,620
28.7 %
Total $ 357,960
100.0 % $ 342,781
100.0 % $ 15,179
4.4 %
Diversified sources of business are an important objective and premium growth outside Florida is a measure monitored by management toward meeting that objective.

Direct premium earned increased by ~~$29.1~~$30.6 million, or ~~10.6%~~10.4%, for the quarter ended ~~June 30, 2019,~~March 31, 2020, reflecting the earning of premiums written over the past 12 months and changes in rates and policy count during that time.

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Ceded premium represents amounts paid to reinsurers for this protection. Ceded premium earned ~~increased by $11.0~~was $105.1 million ~~or 13.4%,~~ for the quarter ended ~~June 30,~~March 31, 2020, compared to $85.7 million during the same period in 2019. Reinsurance costs, as a percentage of direct premium earned, increased from ~~29.8% to 30.6%, reflecting new pricing~~29.0% for the ~~cost~~three months ended March 31, 2019 to 32.3% for the three months ended March 31, 2020. The increase in the ratio is a result of ~~reinsurance as our annual~~higher costs for the Company’s 2019-2020 reinsurance program ~~renews~~compared to the expired program. Costs associated with each ~~year on June 1. The increase was the result of reinsurance costs to support the growth in our policies in force and increased costs for reinsurance in our 2019-2020 new~~year’s reinsurance program ~~effective June 1. The increased costs associated with the 2019-2020 Reinsurance Program will be~~are earned over the June 1 ~~2019~~^st to May 31 ~~2020~~^st coverage period. See the discussion above for the ~~new~~Insurance Entities’ 2019-2020 ~~Reinsurance Program~~reinsurance programs and “Item 1—Note 4 (Reinsurance).”

Premiums earned, net of ceded premium earned, grew by ~~9.4%~~5.3%, or ~~$18.1~~$11.1 million, to ~~$210.4~~$220.8 million for the three months ended ~~June 30, 2019,~~March 31, 2020, reflecting an increase in direct ~~premiums~~premium earned offset by increased cost for reinsurance.

Net investment income was ~~$7.4~~$6.8 million for the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$5.8~~$8.1 million for the same period in ~~2018, an increase~~2019, a decrease of ~~$1.6~~$1.3 million, or ~~28.1%~~16.1%. The ~~increase~~decrease is ~~the result of several factors including the growth in~~driven by lower yields on cash and ~~invested assets~~short term investments during 2020 when compared to ~~the~~2019. The prior year ~~and an increase in yields~~also included one-time income benefits from a ~~shift~~special dividend received and a one-time reduction in ~~asset mix and rising interest rates.~~investment expenses. Total invested assets were ~~$942.3~~$928.6 million ~~with an average Standard & Poor’s equivalent~~as of March 31, 2020 compared to $914.6 million as of December 31, 2019. The credit rating on our fixed income securities was A+ as of March 31, 2020 and December 31, 2019. Credit ratings are a measure of collection risk on invested assets. Credit ratings are provided by third party nationally recognized rating agencies and are periodically updated. Management establishes guidelines for minimum credit rating and overall credit ratings for all investments. The duration of ~~A+ during the three months ended June 30, 2019~~our fixed income securities was 3.6 years at March 31, 2020 compared to ~~$747.2~~3.8 years at December 31, 2019. Duration is a measure of a bond’s sensitivity to interest rate changes and is used by management to limit the potential impact of longer-term investments. Cash and cash equivalents were $180.8 million ~~with an average Standard & Poor’s equivalent fixed income credit rating~~at March 31, 2020 compared to $182.1 million at December 31, 2019, a decrease of ~~AA- for the same period in 2018.~~0.7%. Cash and cash equivalents are invested short term until needed to settle loss and LAE payments, reinsurance premium payments and operating cash ~~needs.~~ needs or until they are deployed to investment advisors.

Yields from the fixed income portfolio are dependent on future market forces, monetary policy and interest rate policy from the Federal Reserve. The Federal Reserve has broadly been lowering and maintaining lower interest rates, which has impacted effective yields on new fixed income and overnight cash purchases. The impact from this trend over the past year has been somewhat limited as investments mature over many future years based on the effective maturity of the portfolio, subjecting only the current year redemptions to the lower interest rate environment. The Company’s investment strategy is to invest in assets with multi-year effective maturities, locking in book yields for future years which dampers the impact that market fluctuations have on current investment income. The overall trend has been lower interest rates on new purchases over the past year.

We sell securities from our investment portfolio from time to time to meet our investment objectives. During the three months ended March 31, 2020, sales resulted in a net realized gain of $0.3 million. We sold securities ~~and investment real estate~~ during the three months ended ~~June 30,~~March 31, 2019, generating net realized loss of ~~$1.6 million compared to net~~$11.5 million. See “Item 1—(Note 3 Investments).”The realized gain during the quarter ended March 31, 2020 resulted primarily from the sale of ~~$0.1 million~~available-for-sale debt securities, whereas the realized loss for the ~~three months~~quarter ended ~~June 30, 2018. The realized losses this quarter~~March 31, 2019 resulted primarily from the sale of equity securities.

There was ~~a $3.8~~an $8.0 million ~~favorable~~unfavorable net unrealized ~~gain~~loss in equity securities during the three months ended ~~June 30, 2019~~March 31, 2020 compared to ~~a $1.5~~an $18.0 million ~~unfavorable~~favorable net unrealized ~~loss~~gain during the three months ended ~~June 30, 2018.~~March 31, 2019. Unrealized gains or losses are the result of changes in the fair market value of our equity securities during the period for securities still held and the reversal of unrealized gains or losses for securities sold during the period. See “Item 1—(Note 3 Investments).”

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The COVID-19 pandemic has negatively impacted the financial markets and most investment assets. We believe the adverse impact to our investment portfolio has been minimized during this COVID-19-induced market dislocation as a result of our conservative investment strategy’s focus on capital preservation and adequate liquidity to pay claims. During March 2020, we saw extreme instability in the fixed-income market, which stabilized as the Federal Reserve provided liquidity to that marketplace in mid-March. Although we had a decline in our unrealized gains in the fixed income portfolio, we ended the quarter with an overall unrealized gain in our fixed income portfolio, which totaled $16.2 million, before credit losses of $0.8 million at March 31, 2020, compared to $26.9 million in unrealized gains at December 31, 2019. Our equity securities were negatively impacted by the decline in valuations in the equity market with $8.0 million of unrealized losses being recorded in the first quarter of 2020. As a precaution, we are building cash in our portfolio as a defensive measure to support our liquidity needs in the event of a business downturn. We believe the credit and duration foundation of our portfolio, as described above, and portfolio diversification will help us weather these difficult market conditions, thereby limiting the impact of future economic financial market downturns on the portfolio. We will continue to monitor the impact of COVID-19 on our portfolio. Significant uncertainties still exist regarding the potential long-term impact of COVID-19 on our investment portfolio, as well as new emerging risks. See “Part II, Item1A—Risk Factors.”

Commission revenue is comprised principally of brokerage commissions we earn from third party reinsurers (excluding the FHCF) on reinsurance placed for the Insurance Entities. Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1^st to May 31^st of the following year. For the three months ended ~~June 30, 2019,~~March 31, 2020, commission revenue was ~~$6.0~~$7.0 million, compared to ~~$5.7~~$5.5 million for the three months ended ~~June 30, 2018.~~March 31, 2019. The increase in commission revenue of ~~$0.3~~$1.5 million, or ~~5.9%~~27.4%, for the three months ended ~~June 30, 2019~~March 31, 2020 was primarily ~~from~~due to increased commissions from third-party reinsurers earned on increased reinsurance premiums as well as the difference in structure associated with our reinsurance program when compared to the ~~Reinsurance Program.~~prior year.

Policy fees for the three months ended ~~June 30, 2019~~March 31, 2020 were ~~$6.0~~$5.5 million compared to ~~$5.8~~$5.0 million for the same period in ~~2018.~~2019. The increase of ~~$0.2~~$0.5 million, or ~~4.0%~~10.3%, was the result of an increase in the total number of new and renewal policies written during the three months ended ~~June 30, 2019~~March 31, 2020 compared to the same period in ~~2018.~~

~~Table of Contents~~

2019.

Losses and LAE, net of reinsurance, were ~~$113.3~~$135.0 million for the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$89.8~~$113.1 million during the same period in ~~2018~~2019 as follows (dollars in thousands):


	Three Months Ended March 31, 2020
	Direct		Loss Ratio		Ceded		Loss Ratio		Net		Loss Ratio
Premiums earned	$	325,951			$	105,122			$	220,829

Loss and loss adjustment expenses:
Weather events*	$	1,000	0.3	%	$	—	—	%	$	1,000	0.5	%
Prior year adverse/(favorable) reserve development	42,515		13.0	%	38,174		36.3	%	4,341		2.0	%
All other losses and loss adjustment expenses	129,728		39.8	%	21		—	%	129,707		58.7	%
Total losses and loss adjustment expenses	$	173,243	53.2	%	$	38,195	36.3	%	$	135,048	61.2	%

*Includes only current year weather events beyond those expected.

Three Months Ended June 30, 2019
Direct Loss Ratio Ceded Loss Ratio Net Loss Ratio
Premiums earned $ 303,108

$ 92,751

$ 210,357

Loss and loss adjustment expenses:

Weather events* $ 4,917
1.6 % $ 2,917
3.1 % $ 2,000
1.0 %
Prior year adverse/(favorable) reserve
development
98,043
32.4 % 97,373
105.0 % 670
0.3 %
All other losses and loss adjustment
expenses
110,626
36.5 % —
—
110,626
52.6 %
Total losses and loss adjustment expenses $ 213,586
70.5 % $ 100,290
108.1 % $ 113,296
53.9 %

*Includes only current year weather events beyond those expected.

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

$ 81,755

$ 192,272

Loss and loss adjustment expenses:

Weather events* $ 5,000
1.8 % $ —
—
$ 5,000
2.6 %
Prior year adverse/(favorable) reserve
development
161,400
58.9 % 159,090
194.6 % 2,310
1.2 %
All other losses and loss adjustment
expenses
80,222
29.3 % (2,310 ) (2.8 )% 82,532
42.9 %
Total losses and loss adjustment expenses $ 246,622
90.0 % $ 156,780
191.8 % $ 89,842
46.7 %

*Includes only current year weather events beyond those expected.


	Three Months Ended March 31, 2019
	Direct		Loss Ratio		Ceded		Loss Ratio		Net		Loss Ratio
Premiums earned	$	295,377			$	85,650			$	209,727

Loss and loss adjustment expenses:
Weather events*	$	5,000	1.7	%	$	—	—	%	$	5,000	2.4	%
Prior year adverse/(favorable) reserve development	2,165		0.7	%	2,350		2.7	%	(185)		(0.1)	%
All other losses and loss adjustment expenses	108,577		36.8	%	298		0.3	%	108,279		51.6	%
Total losses and loss adjustment expenses	$	115,742	39.2	%	$	2,648	3.1	%	$	113,094	53.9	%

*Includes only current year weather events beyond those expected.

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

~~Losses~~

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The increases in losses and LAE, net, were the result of a higher core loss ratio for ~~the second quarter of 2019 were $113.3 million~~2020 compared to ~~$89.8 million~~2019 and increased prior year adverse development, offset by a lower level of weather events in ~~the second quarter of 2018, an increase of $23.5 million, or 26.1%. Losses~~2020. All other losses and LAE increased during the ~~second~~first quarter ended ~~June 30, 2019~~March 31, 2020 principally due to ~~three~~two key factors: (1) increased losses in connection with the growth in our underlying business; and (2) increased core loss ratio (as defined below) from ~~33% in 2018 to~~ 37% in ~~2019;~~2019 to 40% in 2020. The increase in the core losses primarily reflects increased losses and ~~(3) reduced level of benefits from claim settlement fees ceded to reinsurers as hurricanes~~LAE primarily associated with litigated and represented claims ~~conclude. To a lesser extent,~~in the ~~quarter included net $2.0 million for weather events beyond those expected.~~Florida market. In the ~~second~~first quarter of ~~2019,~~2020, there was adverse prior year reserve development of ~~$98.0~~$42.5 million gross, less ~~$97.4~~$38.2 million ceded, resulting in ~~$0.7~~$4.3 million net. The reserve development for the quarter ended June 30, 2019 was to increase ultimate direct losses and LAE for Hurricanes Matthew, Florence and Irma, with minimal impact on net losses and LAE. In the quarter ended June 30, 2018 the increase in prior year reserves was principally to increase expected Hurricane Irma claims.

~~We increased our core~~Core loss ratio to be in line with recent claim experience, specifically in the Florida market, as we continue to address: (1) the assignment of benefit issue (“AOB”) and increases in the systemic solicitation and representation of claims; and (2) emerging trends impacting the severity and frequency of claims. Claims paid under an AOB often involve unnecessary litigation and as a result cost significantly more than claims settled when an AOB is not involved, with most of the increase going to the attorneys or representatives of policyholders. The increase in the underlying core loss and LAE ratio also reflects continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida. “Core loss ratio” is a common operational metric used in the insurance industry to describe the ratio of current accident year expected losses and LAE to premiums earned. Core loss ratio is an important measure identifying profitability trends of in-force premiums. The direct and net prior year reserve development for the quarter ended March 31, 2020 was principally due to increased ultimate losses and LAE for Hurricane Irma. For the first quarter of 2020, we experienced $1.0 million of losses and LAE for weather events beyond those expected. This compares to $5.0 million of losses and LAE for weather events beyond those expected in the first quarter of 2019. Weather events are an estimate of losses and LAE from weather events occurring during the current accident year that exceed initial estimates of expected weather events when establishing the core loss ratio for each accident year; such a metric informs management of factors impacting overall current year profitability.

~~On May 23,~~The net loss ratio for the first quarter ended March 31, 2020 was 61.2% compared to 53.9% in the first quarter of the prior year. The increase of 7.3% loss ratio points was a result of: (1) increased estimated core losses and LAE ratio for the current year (6.9% loss ratio points which includes 2.4% as a result of higher reinsurance costs); (2) increased level of prior year adverse development on prior years’ loss and LAE reserves (2.1% loss ratio points); and (3) reduced financial benefit from the management of claims, including claims fees ceded to reinsurers (0.2% loss ratio points). The increase was partially offset by lower level weather events in excess of plan (1.9% loss ratio points).

The Company continues to experience increased costs for losses and LAE in the Florida market where an industry has developed around the personal residential claims process, resulting in historically high levels of represented claims and inflated claims. Active solicitation of personal residential claims in Florida by policyholder representatives, remediation companies and repair companies has led to a frequency and severity of personal residential claims in the state exceeding historical levels in Florida and levels seen in other jurisdictions.

We have taken steps to implement new claim settlement rules associated with the Florida legislation passed in 2019 designed to reduce the negative effects of claims involving assignments of benefits (“AOB”). An AOB is a document signed by a policyholder that allows a third party to be paid for services performed for an insured homeowner who would normally be reimbursed by the insurance company directly after making a claim. The Company has seen an increase in the use of AOBs involving litigation by Florida ~~Governor Ron DeSantis signed HB 7065: Insurance Assignment Agreements, which aims~~policyholders. Claims paid under an AOB often involve unnecessary litigation, with the Company required to ~~curtail~~pay both its own defense costs and those of the ~~abuse~~plaintiff, and, as a result, cost the Company significantly more than claims settled when an AOB is not involved. In 2019, the Florida legislature passed legislation designed to increase consumer protections against AOB abuses and reduce AOB-related litigation. While the Florida legislation addressing abuses associated with AOBs may be beneficial in reducing one aspect of ~~AOB. We are evaluating this bill~~the concerns affecting the Florida market, the overall impact of the deterioration in claims-related tactics and behaviors thus far has continued to ~~determine its impact on our business.~~outpace any benefits arising in the early months of the new legislation.

~~Table of Contents~~

~~These~~The market trends in losses and LAE led us to file in February 2020 for an overall ~~2.6%~~12.4% rate increase in Florida (effective ~~April 2019~~May 2020 for new business and ~~May 2019~~ for renewals), make changes to certain new business ~~binding requirements~~guidelines and develop specialized claims and litigation management efforts to address market trends driving up claim costs.

~~The financial benefit~~ Delayed approval of our rate filing for any reason, potentially including regulatory considerations arising from the management of claims, including claims fees ceded to reinsurers, was $1.3 million for the second quarter of 2019 compared to $8.4 million during the second quarter of 2018. The benefit is reflected in our financial statements as a reduction of direct claim costs. This reduction in the second quarter of 2019 reflects a lower volume of hurricane claim costs ceded to reinsurers.COVID-19 pandemic, may materially impact prospective expected loss ratios. See “Part II, Item 1A—Risk Factors.”

General and administrative expenses were ~~$69.5~~$72.6 million for the three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$58.7~~$69.7 million during the same period in ~~2018,~~2019, as follows (dollars in thousands):


	Three Months Ended
	March 31,													Change
	2020						2019						$	%
	$		Ratio		$		Ratio
Premiums earned, net	$	220,829			$	209,727			$	11,102	5.3	%
General and administrative expenses:
Policy acquisition costs	46,864		21.2	%	43,511		20.7	%	3,353		7.7	%
Other operating costs	25,779		11.7	%	26,237		12.5	%	(458)		(1.7)	%

Total general and administrative expenses	$	72,643	32.9	%	$	69,748	33.3	%	$	2,895	4.2	%

Three Months Ended
June 30, Change
2019 2018 $ %
$ Ratio $ Ratio
Premiums earned, net $ 210,357

$ 192,272

$ 18,085
9.4 %
General and administrative expenses:

Policy acquisition costs 44,221
21.0 % 33,545
17.4 % 10,676
31.8 %
Other operating costs 25,275
12.0 % 25,153
13.1 % 122
0.5 %
Total general and administrative expenses $ 69,496
33.0 % $ 58,698
30.5 % $ 10,798
18.4 %

Table of Contents

General and administrative ~~costs~~expenses increased by ~~$10.8~~$2.9 million, which was ~~primarily~~ the result of increases in policy acquisition costs of ~~$10.7~~$3.4 million, ~~and to~~offset by a ~~lesser extent due to an increase~~decrease in other operating costs of ~~$0.1~~$0.5 million. AsThe expense ratio (general and administrative expenses as a percentage of premiums earned, net) decreased from 33.3% of premiums ~~general and administrative costs increased from 30.5% of~~ earned, ~~premiums~~net for the three months ended ~~June 30, 2018~~March 31, 2019 to ~~33.0%~~32.9% of premiums earned, ~~premiums~~net for the same period in ~~2019. The increase in~~2020. Our underlying policy acquisition costs continued to be driven by increased premium volume and ~~ratio for the quarter ended June 30, 2019 was due to a non-recurring benefit of $6.5 million recorded in 2018 related to a refund of prior year premium taxes~~continued geographic expansion into states that typically have higher commission rates as a result of an audit settlement with the Florida Department of Revenue, which reduced the policy acquisition costs ratio by 3.4 percentage points in 2018. Excluding this benefit in the prior year, the overall total general and administrative expense ratio in 2019 would have improved by 0.9 percentage points compared to ~~the same period in 2018 before the impact of the premium tax refund.~~Florida. Other operating costs for the three months ended ~~June 30, 2019 increased $0.1~~March 31, 2020 decreased $0.5 million, reflecting lower amounts recorded for executive compensation and temporary employee expenses, partially offset by added costs to support the growth in business. Other operating costs ratio for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~12.0% in 2019~~11.7% compared to ~~13.1%~~12.5% in ~~2018,~~the first quarter of 2019, reflecting lower amounts recorded for executive compensation. The total general and administrative expense ratio is comprised of the policy acquisition cost ratio and the other operating cost ratio, as calculated in the above chart, and is an indicator to management of the Company’s efficiency in acquiring and servicing its business and its impact to overall profitability.

Overall, the expense ratio ~~(general and administrative expenses as a percentage of net earned premiums)~~ benefited from the items mentioned above and economies of scale as general and administrative expenses did not increase at the same rate as ~~net~~ premiums ~~earned.~~earned, net.

Income tax expense decreased by ~~$1.5~~$6.1 million, or ~~10.1%~~44.7%, for the three months ended ~~June 30, 2019,~~March 31, 2020, primarily as a result of a 48.7% reduction in income before income taxes, when compared with the three months ended ~~June 30, 2018.~~March 31, 2019. Our effective tax rate (“ETR”) increased to ~~26.8%~~27.3% for the three months ended ~~June 30, 2019,~~March 31, 2020, as compared to ~~24.8%~~25.3% for the three months ended ~~June 30, 2018. Income tax expense decreased~~March 31, 2019. The ETR increased by 2.0% as a result of a higher ratio of permanent items relative to the amount of income before taxes, principally non-deductible compensation, and a decrease in taxable income partially offset by an increase in the ETR. The ETR increased by 2.0 percentage points from both a change in permanent differences between book and taxable income and a lower amount of net discrete ~~items both of which increase the~~ tax ~~rate.~~benefits.

Other comprehensive ~~income,~~loss, net of taxes for the three months ended ~~June 30, 2019,~~March 31, 2020, was ~~$12.0~~$8.9 million compared to other comprehensive ~~loss~~income of ~~$1.8~~$12.0 million for the same period in ~~2018.~~2019, reflecting changes in fair value of debt securities available for sale. See “Item 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income and loss for these periods.

~~Results of Operations - Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

Net income was $77.4 million for the six months ended June 30, 2019 compared to $86.1 million for the six months ended June 30, 2018, a decrease of $8.7 million. Diluted EPS for the six months ended June 30, 2019 was $2.22 compared to $2.42 in 2018, a decrease of $0.20 or 8.3%. Weighted average diluted common shares outstanding were lower by 2.1% to 34.9 million shares from 35.6 million shares at June 30, 2018. Benefiting the six months ended June 30, 2019 were increases in net earned premium, net investment income and increases in the net change in unrealized gains of equity securities, offset by realized losses on investments and increased operating costs for losses and LAE and general and administrative costs. Direct and net earned premium were up 11.6% and 12.1%, respectively, due to growth in all states in which we are licensed and writing during the past 12 months. Increases in losses and LAE were the result of premium growth, increased estimated core losses and LAE for the current year compared to prior year and unexpected weather events this year. During 2019, there was a lower level of benefits recognized from claim adjustment fees, including claim fees ceded to reinsurers, as there is a lower level of hurricane claims compared to prior year. As discussed further below, certain non-recurring items from 2018 impacted the period over period comparison such as a $6.5 million benefit associated with a premium tax refund in 2018 and a greater amount of discrete items in 2018 giving rise to a lower effective rate in 2018.

~~Table of Contents~~

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

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

NM – Not Meaningful

~~Policy count, premium in force and total insured value~~ increased at June 30, 2019 when compared to June 30, 2018. Direct premiums written increased by $34.4 million, or 5.6%, for the six months ended June 30, 2019, driven by growth within our Florida business of $9.5 million, or 1.8%, and growth in our other states business of $24.9 million, or 29.9%, as compared to the same period of the prior year. Rate increases in Florida and in other states were also a source of premium growth. We implemented new binding guidelines during the six months ended June 30, 2019 on new business to address emerging loss trends that have impacted the rate of growth in Florida. Premiums in force increased in every state in which we are writing compared to ~~June 30, 2018. In early March 2019, we commenced writing in Illinois, and we are now actively writing policies in 17 states outside our home state of Florida.~~

~~The following table provides direct premiums written for Florida and Other States for the six months ended June 30, 2019 and 2018 (dollars in thousands):~~

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

~~Table of Contents~~

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

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events. Ceded premium represents amounts paid to reinsurers for this protection. Ceded premium earned increased $17.0 million, or 10.5%, for the six months ended June 30, 2019. Reinsurance costs, as a percentage of direct premium earned, decreased from 30.1% in 2018 to 29.8% in 2019. The lower ratio was a result of the higher base of direct premium earned in 2019 compared to 2018. The increase in reinsurance costs was to support the growth in our policies in force and increased costs for reinsurance in our 2019-2020 new reinsurance program effective June 1. Costs associated with the renewal of our reinsurance program will be earned over the June 1, 2019 to May 31, 2020 coverage period. See the discussion above for the new 2019-2020 Reinsurance Program and “Item 1— (Note 4 Reinsurance).”

Premiums earned, net of ceded premium earned, grew by 12.1%, or $45.2 million, to $420.1 million for the six months ended June 30, 2019, reflecting the increase in direct premiums earned offset by increased costs for reinsurance.

Net investment income was $15.6 million for the six months ended June 30, 2019, compared to $10.6 million for the same period in 2018, an increase of $5.0 million, or 47.1%. The increase is the result of several factors including the growth in cash and invested assets compared to the prior year and an increase in yields from a shift in asset mix and rising interest rates. Total invested assets were $942.3 million with an average Standard & Poor’s equivalent fixed income credit rating of A+ during the six months ended June 30, 2019 compared to $747.2 million with an average Standard & Poor’s equivalent fixed income credit rating of AA- for the same period in 2018. Cash and cash equivalents are invested short term until needed to settle loss and LAE payments, reinsurance premium payments and operating cash needs. Yields from the fixed income portfolio are dependent on future market forces, monetary policy and interest rate policy from the Federal Reserve.

We sell investments from our investment portfolio from time to time to meet our investment objectives. We sold securities and investment real estate during the six months ended June 30, 2019, generating net realized loss of $13.1 million compared to net realized loss of $2.5 million for the six months ended June 30, 2018. The realized losses during the six months ended June 30, 2019 resulted primarily from the sale of equity securities, whereas the realized loss for the six months ended June 30, 2018 resulted primarily from the sale of municipal securities, which were liquidated in light of their diminished after-tax returns following the enactment of the Tax Act. See “Item 1—(Note 3 Investments).”

There was a $21.8 million favorable net unrealized gain in equity securities during the six months ended June 30, 2019 compared to a $6.6 million unfavorable net unrealized loss during the six months ended June 30, 2018. Unrealized gains or losses are the result of changes in the fair market value of our equity securities during the period for securities still held and the reversal of unrealized gains or losses for securities sold during the period. See “Item 1—(Note 3 Investments).”

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

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

~~Losses and LAE, net of reinsurance, were $226.4 million for the six months ended June 30, 2019, compared to $165.8 million during the same period in 2018 as follows (dollars in thousands):~~

~~Table of Contents~~

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

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

*Includes only current year weather events beyond those expected.

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

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

*Includes only current year weather events beyond those expected.

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

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

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

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

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

~~Table of Contents~~

The financial benefit from the management of claims ceded, including claim fees ceded to reinsurers, was $2.1 million for the six months ended June 30, 2019 compared to $18.9 million during the six months ended June 30, 2018. The benefit is reflected in our financial statements as a reduction of direct claim costs. This reduction in the six months ended June 30, 2019 reflects a lower volume of hurricane claim costs ceded to reinsurers.

~~General and administrative expenses were $139.2 million for the six months ended June 30, 2019, compared to $122.6 million during the same period in 2018, as follows (dollars in thousands):~~

Six Months Ended June 30, Change
2019 2018 $ %
$ Ratio $ Ratio
Premiums earned, net $ 420,084
$ 374,849
$ 45,235
12.1%
General and administrative expenses:

Policy acquisition costs 87,732
20.9 % 71,588
19.1 % 16,144
22.6 %
Other operating costs 51,512
12.3 % 50,985
13.6 % 527
1.0 %
Total general and administrative expenses $ 139,244
33.2 % $ 122,573
32.7 % $ 16,671
13.6 %

General and administrative costs increased by $16.7 million, which was primarily the result of increases in policy acquisition costs of $16.1 million due to commissions associated with increased premium volume as well as a non-recurring audit settlement related to premium taxes, and to a lesser extent due to an increase in other operating costs of $0.5 million. As a percentage of earned premiums, general and administrative costs increased from 32.7% of earned premiums for the six months ended June 30, 2018 to 33.2% of earned premiums for the same period in 2019. The increase in policy acquisition costs and ratio for the six months ended June 30, 2019 was due to a non-recurring benefit of $6.5 million recorded in 2018 related to a refund of prior year premium taxes as a result of an audit settlement with the Florida Department of Revenue, which reduced the policy acquisition costs ratio by 1.7 percentage points in 2018. Excluding this benefit in the prior year, the overall total general and administrative expense ratio in 2019 would have improved 1.2 percentage points compared to the same period in 2018 before the impact of the premium tax refund. Other operating costs for the six months ended June 30, 2019 increased $0.5 million, reflecting lower amounts recorded for executive compensation and temporary employee expenses offset by added costs to support the growth in business. Other operating costs as a percentage of earned premium reduced from 13.6% of net earned premium for the six months ended June 30, 2018 compared to 12.3% of net earned premium for the same period in 2019. Overall, the expense ratio for 2019 (general and administrative expenses as a percentage of net premiums earned) benefited from reduced executive compensation and economies of scale as general and administrative expenses did not increase at the same rate as revenues when compared to the same period of 2018 excluding the non-recurring premium tax benefit.

Income tax expense increased by $0.4 million, or 1.6%, for the six months ended June 30, 2019, when compared with the six months ended June 30, 2018. Our ETR increased to 26.0% for the six months ended June 30, 2019, as compared to 23.7% for the six months ended June 30, 2018. The increase in income tax expense of $0.4 million was the result of an increase in the ETR mostly offset by a decrease in taxable income. The ETR increased by 2.3 percentage points from both a change in permanent differences between book and tax income and a lower amount of net discrete items both of which increased the tax rate.

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

~~Table of Contents~~

Analysis of Financial Condition—As of ~~June 30, 2019~~March 31, 2020 Compared to December 31, ~~2018~~2019

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

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


	As of					As of
	June 30,		December 31,			March 31,		December 31,
Type of Investment	2019		2018		Type of Investment	2020		2019
Available-for-sale debt securities	$	884,093	$	820,438	Available-for-sale debt securities	$	867,249	$	855,284

Equity securities	42,368		63,277		Equity securities	45,838		43,717
Investment real estate, net	15,792		24,439		Investment real estate, net	15,481		15,585
Total	$	942,253	$	908,154	Total	$	928,568	$	914,586

See “Item 1—Condensed Consolidated Statements of Cash Flows” for explanations of changes in investments and “Item 1—Note 3 (Investments).” ~~Investment real estate, net reduced $8.6 million during 2019 as a result of the sale of two investment properties. The gain on the sale of the two investment properties was $1.2 million.~~

Prepaid reinsurance premiums represent the portion of unearned ceded written premium that will be earned pro-rata over the coverage period of our reinsurance program, which runs from June 1^st to May 31^stof the following year. The ~~increase~~decrease of ~~$239.2~~$105.1 million to ~~$382.0~~$70.1 million as of ~~June 30, 2019~~March 31, 2020 was ~~due~~ to ~~additional~~recognize the amortization of ceded written premium ~~of $417.6 million recorded this quarter~~ for the reinsurance costs relating to our ~~new~~ 2019-2020 catastrophe reinsurance program ~~beginning June 1, 2019, less amortization of prepaid reinsurance premiums recorded~~earned during ~~2019.~~the period.

Reinsurance recoverable represents the estimated amount of paid and unpaid losses, LAE and other expenses that are expected to be recoverable from reinsurers. The decrease of ~~$87.0~~$84.7 million ~~during the quarter~~ to ~~$331.6~~$108.5 million as of ~~June 30, 2019~~March 31, 2020 was primarily due to the collection of amounts from reinsurers relating to ~~previous~~settled claims from hurricanes and ~~storm~~other events.

Premiums receivable, net, represents amounts receivable from policyholders. The increase in premiums receivable, net, of ~~$6.9~~$2.7 million to ~~$66.8~~$66.6 million as of ~~June 30, 2019~~March 31, 2020 relates to the growth ~~seasonality~~ and consumer payment behavior of our business. The nature of our business tends to be seasonal during the year, reflecting consumer behaviors in connection with the Florida residential real estate market and the hurricane season. The amount of direct premiums written tends to increase just prior to the second quarter and tends to decrease approaching the fourth quarter.

Property and equipment, net, increased ~~$5.5~~by $3.5 million ~~during 2019~~to $44.9 million as of March 31, 2020 primarily as the result of ~~the purchase of~~expenditures to build out and outfit a new office building in Fort Lauderdale, Florida, which will be used to meet the staffing needs of the ~~company~~Company as the business continues to expand.

Deferred policy acquisition costs (“DPAC”) increased by ~~$5.8~~$2.5 million to ~~$90.5~~$94.4 million as of ~~June 30, 2019,~~March 31, 2020, which is consistent with the underlying premium ~~growth and the seasonality of our business.~~growth. See “Item 1—Note 5 (Insurance Operations)” for a roll-forward in the balance of our DPAC.

Table of Contents

Income taxes recoverable represents the difference between estimated tax obligations and tax payments made to taxing authorities. ~~At June 30, 2019,~~As of March 31, 2020, the balance recoverable was ~~$8.9~~$17.1 million, representing amounts due from taxing authorities at that date, compared to a balance recoverable of ~~$11.2~~$34.3 million as of December 31, ~~2018.~~2019. Income taxes recoverable as of March 31, 2020 will be applied to future periods for federal and state income taxes payable.

Deferred income taxes represent the estimated tax asset or tax liability caused by temporary differences between the tax return basis of certain assets and liabilities and amounts recorded in the financial statements. During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, deferred tax assets ~~decreased~~increased by ~~$19.7~~$12.2 million to ~~a deferred tax liability of $5.1 million. The change was~~$15.6 million primarily due to an increase in unrealized ~~gains~~losses on investment ~~prepaid reinsurance premiums~~ and increase in unearned premiums. Deferred income taxes reverse in future years as the temporary differences between book and tax reverse.

See “Item 1—Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for a roll-forward in the balance of our unpaid losses and LAE. Unpaid losses and LAE decreased by ~~$184.5~~$71.8 million to ~~$288.3~~$196.0 million as of ~~June 30, 2019.~~March 31, 2020. The reduction in unpaid losses and LAE was principally due to the settlement of claims from previous hurricane and storm events, as more claims from those events concluded during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. Overall unpaid losses and LAE decreased, as claim settlements exceeded new emerging claims. Unpaid losses and LAE are net of estimated subrogation recoveries.

Unearned premiums represent the portion of direct premiums written that will be earned ~~pro-rata~~pro rata in the future. The increase of ~~$48.7~~$8.6 million from December 31, ~~2018~~2019 to ~~$650.4~~$669.9 million as of ~~June 30, 2019~~March 31, 2020 reflects both organic growth and the seasonality of our business, which is the variability of premiums written by month.

Advance premium represents premium payments made by policyholders ahead of the effective date of the policies. The increase of ~~$13.2~~$24.8 million to ~~$39.5~~$55.8 million as of ~~June 30, 2019~~March 31, 2020 reflects customer payment behavior, ~~and the~~ organic growth and ~~the seasonality of our business.~~rate increases.

~~Table of Contents~~

~~Book overdrafts~~We exclude any net negative cash balances from cash and cash equivalents that we have with any single financial institution. These amounts represent outstanding checks or drafts ~~in excess of cash on deposit with banking institutions~~not yet presented to the financial institution and are ~~examined~~reclassified to ~~determine if a legal right of offset exists for accounts within the same banking institution~~liabilities and presented as book overdraft in our Condensed Consolidated Balance Sheets at each balance sheet date. We maintain a short-term cash investment sweep to maximize investment returns on cash balances. Due to sweep activities, certain outstanding items are recorded as book overdrafts ~~which totaled $25.6 million as of June 30, 2019, compared to $102.8~~totaling $90.4 million as of December 31, ~~2018. The decrease of $77.2 million is the result of fewer outstanding items~~2019. There were no book overdrafts as of ~~June 30, 2019 compared to December~~March 31, ~~2018, as outstanding claims payments for hurricane and storm events are settled and are no longer outstanding.~~2020.

Reinsurance payable, net, represents the unpaid reinsurance premium installments owed to reinsurers, unpaid reinstatement premiums due to reinsurers and cash advances received from ~~reinsurers.~~reinsurers, if any. On June ~~1st~~1^st of each year, we renew our catastrophe reinsurance program and record the estimated annual cost of our reinsurance program. The annual cost initially increases reinsurance payable, which is then reduced as installment payments are made over the policy period of the reinsurance, which runs from June ~~1st~~1^st to May ~~31st.~~31^st. The balance ~~increased~~decreased by ~~$330.9~~$58.1 million to ~~$424.2~~$64.5 million as of ~~June 30, 2019~~March 31, 2020 as a result of the timing of the above items.

~~Dividend payable~~Other liabilities and accrued expenses increased ~~$5.5~~by $11.5 million to $52.5 million as of March 31, 2020, primarily driven by an increase in other liabilities due to timing of payments and ~~primarily represents a 16 cents per share dividend declared on June 5, 2019 and payable~~payables relating to ~~shareholders on July 17, 2019.~~portfolio investment purchases settled after March 31, 2020.

Capital resources, net, ~~increased by $63.7 million during~~held steady for the ~~six~~three months ended ~~June 30, 2019, reflecting increases in stockholders’ equity offset by a reduction in long-term debt.~~March 31, 2020. The ~~increases~~nominal increase in stockholders’ equity was principally the result of our ~~2019~~2020 net income and share-based compensation, offset by declines in after-tax changes in fair value of our debt securities available for sale held in our investment portfolio, ~~unrealized gains in 2019 offset by~~ treasury stock repurchases and dividends to shareholders. See “Item 1—Condensed Consolidated Statements of Stockholders’ Equity” and “Item 1—Note 8 (Stockholders’ Equity).” for explanation of changes in treasury stock.

The reduction in long-term debt of ~~$0.7~~$0.4 million was the result of principal payments on debt during ~~2019.~~2020. See “—Liquidity and Capital ~~Resources.”~~Resources” for more information.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet its ~~short~~short- and long-term obligations. Funds generated from operations have been sufficient to meet our liquidity ~~requirements and we expect that, in the future, funds from operations~~requirements. We will continue to ~~meet such requirements.~~monitor liquidity as the economic consequences of COVID-19 continue to unfold (see “Part II, Item 1A— Risk Factors” and discussion below regarding COVID-19). Also see the discussion above under “Overview—Trends—Impact of COVID-19” regarding our response to COVID-19, the financial impact to us in the first quarter of 2020, our general outlook and plans to monitor the economic consequences of COVID-19.

The balance of cash and cash equivalents as of ~~June 30, 2019~~March 31, 2020 was ~~$181.6~~$180.8 million compared to ~~$166.4~~$182.1 million at December 31, ~~2018.~~2019. See “Item 1—Condensed Consolidated Statements of Cash Flows” for a reconciliation of the balance of cash and cash equivalents between ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. The ~~increase~~decrease in cash and cash equivalents was driven by cash flows ~~generated from operating~~used in investing and financing activities in excess of ~~those used for investing and financing~~net cash provided by operating activities. We maintain a short-term investment cash sweep to maximize investment returns on cash balances. Due to these sweep activities, certain outstanding items are routinely recorded as ~~“Book overdraft”~~book overdraft in the Condensed Consolidated Financial Statements. Cash and cash equivalents balances

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

The balance of restricted cash and cash equivalents as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 represents cash equivalents on deposit with certain regulatory agencies in the various states in which our Insurance Entities do business.

Liquidity is required at the holding company for us to cover the payment of general operating expenses and contingencies, dividends to shareholders (if and when authorized and declared by our Board of Directors), payment for the possible repurchase of our common stock (if and when authorized by our Board of Directors), payment of income taxes, net of amounts received from affiliates, capital contributions to subsidiaries, if needed, and interest and principal payments on outstanding debt obligations, if any. The declaration and payment of future dividends to our shareholders, and any future repurchases of our common stock, will be at the discretion of our Board of Directors and will depend upon many factors, including our operating results, financial condition, debt covenants and any regulatory constraints. Principal sources of liquidity for usthe holding company include ~~revenues~~dividends paid by our service entities generated from income earned on fees paid by the Insurance Entities to affiliated companies for general agency, inspections and claims adjusting services. ~~Additional sources of liquidity include~~Dividends are also paid from income earned from brokerage commissions earned on reinsurance contracts placed by our wholly-owned subsidiary, Blue Atlantic Reinsurance Company, and policy ~~fees and remittances from the Insurance Entities for their respective share of income taxes.~~fees. We also maintain high quality investments ~~which are~~in our portfolio as a source of liquidity along with ongoing interest and dividend income ~~and would generate funds upon sale.~~

~~There~~from those investments. As discussed in “Item 1—Note 5 (Insurance Operations),” there are limitations on the dividends the Insurance Entities may pay to their immediate parent company, Protection Solutions, Inc. (“PSI”, formerly known as Universal Insurance Holding Company of Florida).

The maximum amount of dividends that can be paid by Florida insurance companies without prior approval of the FLOIR is subject to restrictions as referenced below and in “Item 1—Note 5 (Insurance Operations).” The maximum dividend that may be paid by the Insurance Entities to PSI without prior approval is limited to the lesser of statutory net income from operations of the preceding calendar year or statutory unassigned surplus as of the preceding year end. During the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and the year ended December 31, ~~2018,~~2019, the Insurance Entities did not pay dividends to PSI.

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

Our insurance operations provide liquidity as premiums are generally received months or even years before losses are paid under the policies written. In the event of catastrophic events, many of our reinsurance agreements provide for “cash advance” whereby reinsurers advance or prepay amounts to us, thereby providing liquidity, which we utilize in the claim settlement process. In addition, the Insurance Entities maintain substantial investments in highly liquid, marketable securities, which would generate funds upon sale.

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

Capital Resources

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


	As of
	March 31,			December 31,
	2020			2019
Stockholders’ equity	$	494,288		$	493,901
Total long-term debt	9,559			9,926
Total capital resources	$	503,847		$	503,827

Debt-to-total capital ratio	1.9		%	2.0		%
Debt-to-equity ratio	1.9		%	2.0		%

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

Debt-to-total capital ratio 1.8 % 2.2 %
Debt-to-equity ratio 1.9 % 2.3 %
The debt-to-total capital ratio is total long-term debt divided by total capital resources, whereas debt-to-equity ratio is total long-term debt divided by stockholders’ equity. These ratios help management measure the amount of financing leverage in place in relation to equity and future leverage capacity.

As described in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, UPCIC entered into a surplus note with the State Board of Administration of Florida under Florida’s Insurance Capital Build-Up Incentive Program on November 9, 2006. The surplus note has a twenty-year term, with quarterly payments of principal and interest that accrue per the terms of the note agreement. At ~~June 30, 2019,~~March 31, 2020, UPCIC was in compliance with the terms of the surplus note. Total adjusted capital surplus, which includes the surplus note, was in excess of regulatory requirements for both UPCIC and APPCIC.

In addition to the liquidity generally provided from operations, we maintain a conservative, well-diversified investment portfolio, predominantly comprised of fixed-income securities with an average credit rating of A+, that focuses on capital preservation and providing an adequate source of liquidity for potential claim payments and other cash needs. The portfolio’s secondary investment objective is to provide a total rate of return with emphasis on investment income. Historically, we have consistently generated funds from operations, allowing our cash and invested assets to grow. We have not had to liquidate investment holdings to fund either operations or financing activities. During March, we saw extreme instability and dysfunction in the fixed income market, which settled down as the Federal Reserve provided liquidity to that marketplace in the latter part of March. Despite the turbulent and declining market values during the first quarter of 2020, the overall performance of our portfolio was in accordance with our primary objectives of capital preservation and liquidity. Although we had a decline in our unrealized gains in the fixed income portfolio during the three months ended March 31, 2020, we maintained an overall net unrealized gain in our fixed income portfolio, which totaled $16.2 million, before credit losses of $0.8 million, at March 31, 2020, compared to a net unrealized gain of $26.9 million at December 31, 2019. Our equity securities were also negatively impacted by the severe decline in valuations in the equity market with $8.0 million of net change in unrealized losses being recorded in the income statement during the quarter and a resulting balance of net unrealized loss of $7.8 million as of March 31, 2020 compared to $0.2 million net unrealized gain as of December 31, 2019.

Impact of COVID-19 Pandemic

Although volatility in the markets remains a key risk as the world continues to navigate the consequences of the COVID-19 pandemic, there has been significant recovery in values since the low point on or about March 23, 2020 and again since March 31, 2020. As a precautionary measure, we have instructed our investment advisors to accumulate cash upon maturity or paydowns of fixed income securities rather than reinvest into the market and have ceased any purchases of equity securities. We remain in regular contact with our advisors to monitor credit actions taken to issuers of our securities and discuss appropriate responses to those actions. We believe these measures, when combined with the inherent liquidity generated by our business model and in our investment portfolio, will allow us to continue to meet our short and long-term obligations.

We have implemented certain premium payment grace periods in Florida and other states to assist policyholders affected by COVID-19. In addition, we have waived late payment fees that otherwise would apply to those policyholders. To date we have not seen significant use of these grace periods. However, the effects of stay-at-home orders are still unfolding and some affected policyholders might not have yet had their next premium payments come due. We are not able at this time to estimate the number of policyholders who might avail themselves of an extended grace period. Generally, a significant number of our policies are subject to payment by mortgage companies, which are likely to continue remitting payments as scheduled. Our collection experience in March 2020 was consistent with our average experience. As a further indicator of our positive cash flow, at March 31, 2020, we had $1.3 billion of in-force premiums and only $66.6 million, or 5%, was uncollected. This reflects on the nature of homeowners’ insurance and the priority that mortgage companies and policyholders place on maintaining coverage for insured properties. We will monitor this as the impact of COVID-19 and its economic consequences are felt by our policyholders.

Looking Forward

We continue to monitor a range of financial metrics related to our business. Although we have not yet experienced material adverse impacts on our business, conditions are subject to change depending on the duration of governmental stay-at-home directives, the extent of the economic downturn, and the pace and extent of an economic recovery. Significant uncertainties exist with the potential long-term impact of COVID-19, including unforeseen newly emerging risks that could affect us. We will continue to monitor the broader economic impacts of COVID-19 and its impact on our operations and financial condition including liquidity and capital resources.

Common Stock Repurchases

On November 6, 2019, we announced that our Board of Directors authorized a share repurchase program under which we may repurchase shares in the open market up to $40 million of our outstanding shares of our common stock through December 31, 2021. We may repurchase shares from time to time at our discretion, based on ongoing assessments of our capital needs, the market price of our common stock and general market conditions. We will fund the share repurchase program with cash from operations. ~~During the six months ended June 30, 2019, there were two authorized repurchase plans in effect:~~

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

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

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we repurchased an aggregate of ~~806,382~~312,107 shares of our common stock in the open market at an aggregate purchase price of ~~$24.2~~$6.6 million. Also, see “Part II, Item 2—Unregistered Sales of Equity Securities and Use of Proceeds” for share repurchase activity during the three months ended ~~June 30, 2019.~~March 31, 2020.

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Cash Dividends

The following table summarizes the dividends declared by us:

2020

Dividend
Declared Date

Shareholders
Record Date

Dividend
Payable Date

Cash Dividend
Per Share Amount

First Quarter

February 11, 2020

March 12, 2020

March 19, 2020

0.16

Second Quarter

April 16, 2020

May 14, 2020

May 21, 2020

0.16

2019
Dividend
Declared Date

Shareholders
Record Date

Dividend
Payable Date

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

CONTRACTUAL OBLIGATIONS

The following table represents our contractual obligations for which cash flows are fixed or determinable as of ~~June 30, 2019~~March 31, 2020 (in thousands):


	Total		Less than 1 year		1-3 years		3-5 years		Over 5 years
Reinsurance payable and multi-year commitments (1)	$	267,622	$	64,460	$	203,162	$	—	$	—
Unpaid losses and LAE, direct (2)	195,978		119,743		57,030		14,110		5,095
Long-term debt	10,172		1,234		4,778		3,046		1,114
Total contractual obligations	$	473,772	$	185,437	$	264,970	$	17,156	$	6,209

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


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

~~(2)~~

There are generally no notional or stated amounts related to unpaid losses and LAE. Both the amounts and timing of future loss and LAE payments are estimates and subject to the inherent variability of legal and market conditions affecting the obligations and make the timing of cash outflows uncertain. The ultimate amount and timing of unpaid losses and LAE could differ materially from the amounts in the table above. Further, the unpaid losses and LAE do not represent all the obligations that will arise under the contracts, but rather only the estimated liability incurred through June 30, 2019. Unpaid losses and LAE are net of estimated subrogation recoveries. In addition, these balances exclude amounts recoverable from the Company’s reinsurance program. See “Item 1—Note 4 (Reinsurance).”

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

(2)There are generally no notional or stated amounts related to unpaid losses and LAE. Both the amounts and timing of future loss and LAE payments are estimates and subject to the inherent variability of legal and market conditions affecting the obligations and make the timing of cash outflows uncertain. The ultimate amount and timing of unpaid losses and LAE could differ materially from the amounts in the table above. Further, the unpaid losses and LAE do not represent all the obligations that will arise under the contracts, but rather only the estimated liability incurred through March 31, 2020. Unpaid losses and LAE are net of estimated subrogation recoveries. In addition, these balances exclude amounts recoverable from the Company’s reinsurance program. See “Item 1—Note 4 (Reinsurance).”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to Critical Accounting Policies and Estimates previously disclosed in “Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Recent Accounting Pronouncements Not Yet Adopted

In ~~June 2016,~~December 2019, the Financial Accounting Standards Board (“FASB”) revised U.S. GAAP with the issuance of Accounting Standards Update (“ASU”) ~~2016-13,~~2019-12, ~~Financial Instruments-Credit Losses~~Income Taxes (Topic ~~326)~~740)~~, that introduces a new process~~. The amendments in this ASU simplify the accounting for ~~recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new ASU will apply to: (1) loans, accounts receivable, trade receivables,~~income taxes by removing certain exceptions and ~~other financial assets measured at amortized cost, (2) loan commitments~~clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax expenses and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income and (4) beneficial interests in securitized financial assets. The ASU changes the current practice of recording a permanent write down (other than temporary impairment) for probable credit losses, which is more restrictive than the new ASU requirement that would estimate credit losses, then recorded through a temporary allowance account that can be re-measured as estimated credit losses change. The ASU further limited estimated credit losses relating to available-for-sale securities to the amount which fair value is below amortized cost.annual effective tax rate calculations. The ASU is effective for ~~fiscal years~~interim and annual periods beginning after December 15, ~~2019, including interim periods within those fiscal years. We are~~2020, with early adoption permitted. The Company is currently ~~evaluating~~assessing the impact ~~that~~of this standard ~~will have~~ on our consolidated financial statements.

~~In August 2018, the FASB revised U.S. GAAP with the issuance of ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~. The ASU removes, modifies and adds certain disclosure requirements associated with fair value measurements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. We are currently evaluating our timeline for the adoption of this ASU, which only affects the presentation of certain disclosures and is not expected to impact our results of operations, financial position or liquidity.

See “Item 1—Note 2 (Significant Accounting Policies)” for more information about recently adopted accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential for economic losses due to adverse changes in fair market value of available-for-sale debt securities, equity securities (“Financial Instruments”) and investment real estate. We carry all of our Financial Instruments at fair market value and investment real estate at net book value in our statement of financial condition. Our investment portfolio as of ~~June 30, 2019~~March 31, 2020 is

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

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

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

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Interest Rate Risk

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

The following tables provide information about our fixed income Financial Instruments as of ~~June 30, 2019~~March 31, 2020 compared to December 31, ~~2018,~~2019, which are sensitive to changes in interest rates. The tables present the expected cash flows of Financial Instruments based on years to effective maturity using amortized cost compared to fair market value and the related book yield compared to coupon yield (dollars in thousands):


	March 31, 2020
	2020			2021			2022			2023			2024			Thereafter			Other			Total
Amortized cost	$	127,107		$	66,102		$	91,631		$	144,876		$	121,277		$	299,130		$	1,703		$	851,826
Fair market value	$	127,033		$	66,340		$	93,090		$	149,553		$	124,649		$	304,892		$	1,692		$	867,249
Coupon rate	2.28		%	2.80		%	3.12		%	3.55		%	3.52		%	3.52		%	5.66		%	3.25		%
Book yield	2.29		%	2.63		%	2.81		%	3.26		%	3.48		%	3.48		%	5.77		%	3.06		%
* Years to effective maturity - 4.9 years

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


	December 31, 2019
	2019			2020			2021			2022			2023			Thereafter			Other			Total
Amortized cost	$	106,961		$	107,705		$	59,350		$	124,596		$	98,477		$	331,082		$	165		$	828,336
Fair market value	$	107,259		$	108,516		$	60,105		$	128,599		$	101,345		$	349,259		$	201		$	855,284
Coupon rate	2.46		%	2.58		%	3.06		%	3.52		%	3.50		%	3.64		%	7.50		%	3.28		%
Book yield	2.46		%	2.44		%	2.77		%	3.27		%	3.03		%	3.47		%	6.31		%	3.08		%
* Years to effective maturity - 4.7 years

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

All securities, except those with perpetual maturities, were categorized in the tables above utilizing years to effective maturity. Effective maturity takes into consideration all forms of potential prepayment, such as call features or prepayment schedules, that shorten the lifespan of contractual maturity dates.

Equity Price Risk

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

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


	June 30, 2019				December 31, 2018					March 31, 2020						December 31, 2019
	Fair Value		Percent		Fair Value		Percent			Fair Value		Percent		Fair Value		Percent
Equity Securities:									Equity Securities:
Common stock	$	2,724	6.4	%	$	15,564	24.6	%	Common stock	$	1,904	4.2	%	$	2,377	5.4	%
Mutual funds	39,644		93.6	%	47,713		75.4	%	Mutual funds	43,934		95.8	%	41,340		94.6	%
Total equity securities	$	42,368	100.0	%	$	63,277	100.0	%	Total equity securities	$	45,838	100.0	%	$	43,717	100.0	%



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



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



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


								As of
	As of							March 31,		December 31,
	June 30, 2019			December 31, 2018				2020		2019
ASSETS							ASSETS
Available-for-sale debt securities, at fair value (amortized cost: $863,021 and $831,127)	$	884,093		$	820,438
Equity securities, at fair value (amortized cost: $43,571 and $86,271)	42,368			63,277
Available-for-sale debt securities, at fair value, net of allowance for credit loss of $791, (amortized cost: $851,826 and $828,336)							Available-for-sale debt securities, at fair value, net of allowance for credit loss of $791, (amortized cost: $851,826 and $828,336)	$	867,249	$	855,284

Equity securities, at fair value (cost: $53,673 and $43,523)							Equity securities, at fair value (cost: $53,673 and $43,523)	45,838		43,717
Investment real estate, net	15,792			24,439			Investment real estate, net	15,481		15,585
Total invested assets	942,253			908,154			Total invested assets	928,568		914,586

Cash and cash equivalents	181,614			166,428			Cash and cash equivalents	180,780		182,109
Restricted cash and cash equivalents	2,635			2,635			Restricted cash and cash equivalents	2,635		2,635
Prepaid reinsurance premiums	381,982			142,750			Prepaid reinsurance premiums	70,113		175,208
Reinsurance recoverable	331,567			418,603			Reinsurance recoverable	108,491		193,236

Premium receivable, net	66,756			59,858			Premium receivable, net	66,568		63,883
Property and equipment, net	40,498			34,991			Property and equipment, net	44,859		41,351
Deferred policy acquisition costs	90,530			84,686			Deferred policy acquisition costs	94,354		91,882
Income taxes recoverable	8,897			11,159			Income taxes recoverable	17,115		34,283
Deferred income tax asset, net	—			14,586			Deferred income tax asset, net	15,582		3,351
Other assets	17,391			14,540			Other assets	16,448		17,328
Total assets	$	2,064,123		$	1,858,390		Total assets	$	1,545,513	$	1,719,852
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:							LIABILITIES:
Unpaid losses and loss adjustment expenses	$	288,296		$	472,829		Unpaid losses and loss adjustment expenses	$	195,978	$	267,760
Unearned premiums	650,388			601,679			Unearned premiums	669,881		661,279
Advance premium	39,471			26,222			Advance premium	55,763		30,975
Accounts payable	3,024			3,059			Accounts payable	3,134		2,099
Book overdraft	25,649			102,843			Book overdraft	—		90,401
Reinsurance payable, net	424,187			93,306			Reinsurance payable, net	64,460		122,581
Dividends payable	5,517			—
Deferred income tax liability, net	5,079			—

Other liabilities and accrued expenses	45,784			45,422			Other liabilities and accrued expenses	52,450		40,930
Long-term debt	10,662			11,397			Long-term debt	9,559		9,926
Total liabilities	1,498,057			1,356,757			Total liabilities	1,051,225		1,225,951

Commitments and Contingencies (Note 12)							Commitments and Contingencies (Note 12)

STOCKHOLDERS’ EQUITY:							STOCKHOLDERS’ EQUITY:
Cumulative convertible preferred stock, $.01 par value	—			—
Cumulative convertible preferred stock, $0.01 par value							Cumulative convertible preferred stock, $0.01 par value	—		—
Authorized shares - 1,000							Authorized shares - 1,000
Issued shares - 10 and 10							Issued shares - 10 and 10
Outstanding shares - 10 and 10							Outstanding shares - 10 and 10
Minimum liquidation preference, $9.99 and $9.99 per share							Minimum liquidation preference, $9.99 and $9.99 per share
Common stock, $.01 par value	467			465
Common stock, $0.01 par value							Common stock, $0.01 par value	468		467
Authorized shares - 55,000							Authorized shares - 55,000
Issued shares - 46,698 and 46,514
Outstanding shares - 34,160 and 34,783
Treasury shares, at cost - 12,538 and 11,731	(154,623		)	(130,399		)
Issued shares - 46,766 and 46,707							Issued shares - 46,766 and 46,707
Outstanding shares - 32,385 and 32,638							Outstanding shares - 32,385 and 32,638
Treasury shares, at cost - 14,381 and 14,069							Treasury shares, at cost - 14,381 and 14,069	(203,172)		(196,585)
Additional paid-in capital	90,226			86,353			Additional paid-in capital	97,110		96,036
Accumulated other comprehensive income (loss), net of taxes	15,929			(8,010		)
Accumulated other comprehensive income, net of taxes							Accumulated other comprehensive income, net of taxes	12,015		20,364
Retained earnings	614,067			553,224			Retained earnings	587,867		573,619
Total stockholders’ equity	566,066			501,633			Total stockholders’ equity	494,288		493,901
Total liabilities and stockholders’ equity	$	2,064,123		$	1,858,390		Total liabilities and stockholders’ equity	$	1,545,513	$	1,719,852


	Six Months Ended							Three Months Ended
	June 30,							March 31,
	2019			2018				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	55,988		$	158,081
Net cash provided by operating activities							Net cash provided by operating activities	$	45,643	$	31,451
Cash flows from investing activities:							Cash flows from investing activities:
Proceeds from sale of property and equipment	18			17			Proceeds from sale of property and equipment	11		8
Purchases of property and equipment	(8,030		)	(4,024		)	Purchases of property and equipment	(4,705)		(6,368)
Purchases of equity securities	(890		)	(19,106		)	Purchases of equity securities	(10,145)		(697)
Purchases of available-for-sale debt securities	(143,728		)	(205,738		)	Purchases of available-for-sale debt securities	(61,782)		(55,102)
Purchases of investment real estate, net	(883		)	(1,269		)	Purchases of investment real estate, net	—		(734)
Proceeds from sales of equity securities	29,137			4,127			Proceeds from sales of equity securities	—		17,161
Proceeds from sales of available-for-sale debt securities	43,205			119,222			Proceeds from sales of available-for-sale debt securities	9,979		14,550
Proceeds from sales of investment real estate	10,537			—

Maturities of available-for-sale debt securities	68,525			64,480			Maturities of available-for-sale debt securities	32,534		36,635
Maturities of available-for-sale short-term investments	—			10,000

Net cash provided by (used in) investing activities	(2,109		)	(32,291		)	Net cash provided by (used in) investing activities	(34,108)		5,453
Cash flows from financing activities:							Cash flows from financing activities:
Preferred stock dividend	(5		)	(5		)	Preferred stock dividend	(3)		(3)
Common stock dividend	(11,153		)	(9,821		)	Common stock dividend	(5,261)		(5,620)
Issuance of common stock for stock option exercises	239			73			Issuance of common stock for stock option exercises	—		239
Purchase of treasury stock	(24,224		)	(11,116		)	Purchase of treasury stock	(6,587)		(10,117)
Payments related to tax withholding for share-based compensation	(2,815		)	(6,583		)	Payments related to tax withholding for share-based compensation	(646)		(2,402)
Repayment of debt	(735		)	(736		)	Repayment of debt	(367)		(368)
Net cash provided by (used in) financing activities	(38,693		)	(28,188		)	Net cash provided by (used in) financing activities	(12,864)		(18,271)
Cash and cash equivalents, and restricted cash and cash equivalents:							Cash and cash equivalents, and restricted cash and cash equivalents:
Net increase (decrease) during the period	15,186			97,602			Net increase (decrease) during the period	(1,329)		18,633
Balance, beginning of period	169,063			216,121			Balance, beginning of period	184,744		169,063
Balance, end of period	$	184,249		$	313,723		Balance, end of period	$	183,415	$	187,696



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



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



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



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


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


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



	June 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt Securities:
U.S. government obligations and agencies	$	73,073	$	817	$	(314	)	$	73,576
Corporate bonds	444,052		14,726		(335		)	458,443
Mortgage-backed and asset-backed securities	329,492		7,056		(1,125		)	335,423
Municipal bonds	3,401		112		(6		)	3,507
Redeemable preferred stock	13,003		295		(154		)	13,144
Total	$	863,021	$	23,006	$	(1,934	)	$	884,093


	March 31, 2020
	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities:
U.S. government obligations and agencies	$	59,090	$	—	$	2,997	$	(3)	$	62,084
Corporate bonds	464,387		(665)		11,412		(6,409)		468,725
Mortgage-backed and asset-backed securities	314,936		—		9,839		(1,393)		323,382
Municipal bonds	3,395		—		194		(3)		3,586
Redeemable preferred stock	10,018		(126)		90		(510)		9,472
Total	$	851,826	$	(791)	$	24,532	$	(8,318)	$	867,249


	March 31, 2020
	Less Than 12 Months								12 Months or Longer
	Number of Issues	Fair Value		Unrealized Losses		Number of Issues	Fair Value		Unrealized Losses
Debt Securities:
U.S. government obligations and agencies	—	$	—	$	—	1	$	129	$	(3)
Corporate bonds	75	63,401		(2,868)		1	215		(38)
Mortgage-backed and asset-backed securities	58	66,017		(1,354)		5	3,534		(39)
Municipal bonds	—	—		—		1	277		(3)
Redeemable preferred stock	16	1,149		(75)		—	—		—
Total	149	$	130,567	$	(4,297)	8	$	4,155	$	(83)



(1(1)	)	Includes interest earned on restricted cash and cash equivalents.
(2(2)	)	Includes investment income earned on real estate investments.
(3(3)	)	Includes custodial fees, investment accounting and advisory fees, and expenses associated with real estate investments.



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


	March 31, 2020						December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Mortgage-backed Securities:
Agency	$	154,253	$	159,262	$	143,723	$	144,729
Non-agency	69,919		74,088		71,140		75,896
Asset-backed Securities:
Auto loan receivables	42,796		42,658		42,767		43,127
Credit card receivables	20,677		20,594		21,145		21,487
Other receivables	27,291		26,780		25,510		25,840
Total	$	314,936	$	323,382	$	304,285	$	311,079



	June 30, 2019			December 31, 2018
Income Producing:
Investment real estate	$	14,679		$	14,619
Less: Accumulated depreciation	(1,077		)	(870		)
	13,602			13,749
Non-Income Producing:
Investment real estate	2,190			10,690
Investment real estate, net	$	15,792		$	24,439


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


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



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



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


	March 31, 2020		December 31, 2019
Statutory capital and surplus
UPCIC	$	296,467	$	301,120
APPCIC	$	16,319	$	16,433
Ten percent of total liabilities
UPCIC	$	101,715	$	99,228
APPCIC	$	735	$	621


				Total Number of Shares Repurchased During the Three Months Ended March 31,
Date Authorized	Expiration Date	Dollar Amount Authorized		2020	2019	Aggregate Purchase Price		Average Price Per Share Repurchased		Plan Completed
November 6, 2019	December 31, 2021	$	40,000	312,107	—	$	6,587	$	21.11
December 12, 2018	May 31, 2020	$	20,000	—	320,500	$	10,117	$	31.57	May 2019



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



	Three Months Ended June 30, 2019
	Direct		Loss Ratio		Ceded		Loss Ratio		Net		Loss Ratio
Premiums earned	$	303,108			$	92,751			$	210,357

Loss and loss adjustment expenses:
Weather events*	$	4,917	1.6	%	$	2,917	3.1	%	$	2,000	1.0	%
Prior year adverse/(favorable) reserve development	98,043		32.4	%	97,373		105.0	%	670		0.3	%
All other losses and loss adjustment expenses	110,626		36.5	%	—		—		110,626		52.6	%
Total losses and loss adjustment expenses	$	213,586	70.5	%	$	100,290	108.1	%	$	113,296	53.9	%

*Includes only current year weather events beyond those expected.



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

Loss and loss adjustment expenses:
Weather events*	$	5,000	1.8	%	$	—		—		$	5,000	2.6	%
Prior year adverse/(favorable) reserve development	161,400		58.9	%	159,090			194.6	%	2,310		1.2	%
All other losses and loss adjustment expenses	80,222		29.3	%	(2,310		)	(2.8	)%	82,532		42.9	%
Total losses and loss adjustment expenses	$	246,622	90.0	%	$	156,780		191.8	%	$	89,842	46.7	%

*Includes only current year weather events beyond those expected.



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



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

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

*Includes only current year weather events beyond those expected.



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

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

*Includes only current year weather events beyond those expected.



				Total Number of	Maximum Number
				Shares Purchased	of Shares That
				As Part of	May Yet be
				Publicly	Purchased Under
	Total Number of	Average Price		Announced	the Plans or
	Shares Purchased	Paid per Share (1)		Plans or Programs	Programs (2)
4/1/2019 - 4/30/2019	50,000	$	29.81	50,000	—
5/1/2019 - 5/31/2019	392,500	$	28.90	392,500	—
6/1/2019 - 6/30/2019	43,382	$	28.99	43,382	1,085,990
Total	485,882	$	29.00	485,882	1,085,990



						UNIVERSAL INSURANCE HOLDINGS, INC.

Date: ~~August 2, 2019~~May 1, 2020						/s/ Stephen J. Donaghy
						Stephen J. Donaghy, Chief Executive Officer and Principal Executive Officer

Date: ~~August 2, 2019~~May 1, 2020						/s/ Frank C. Wilcox
						Frank C. Wilcox, Chief Financial Officer and Principal Accounting Officer