UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, ~~2020~~2021


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

For the transition period from to

Commission File Number 001-33251

UNIVERSAL INSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


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

1110 W. Commercial Blvd., Fort Lauderdale, Florida 33309

(Address of principal executive offices) (Zip Code)

(954) 958-1200

(Registrant’s telephone number, including area code)

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


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

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

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

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


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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~32,403,137~~31,215,931 shares of common stock, par value $0.01 per share, outstanding on April ~~28, 2020.~~26, 2021.

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UNIVERSAL INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Page No.

Item 1.

Financial Statements:

Condensed Consolidated Balance Sheets as of March 3 1 31 , 20202 201 and December 31, ~~201~~20 920 (unaudited)

Condensed Consolidated Statements of Income for the three -month periods ended March 3 1 , 20202 201 and ~~201~~20 920 (unaudited)

Condensed Consolidated Statements of Comprehensive Income for the three -month periods ended March 3 1 , 20202 201 and ~~201~~20 920 (unaudited)

Condensed Consolidated Statements of Stockholders’ Equity for the ~~three~~thre ~~-month~~e-month periods ended March 3 1 , 20202 201 and ~~201~~20 920 (unaudited)

Condensed Consolidated Statements of Cash Flows for the three -month periods ended March 3 1 , 20202 201 and ~~201~~20 920 (unaudited)

Notes to Condensed Consolidated Financial Statements (unaudited)

Item 2.

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

2931

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

4146

Item 4.

Controls and Procedures

4348

PART II – OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

Fort Lauderdale, Florida

RESULTS OF REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries (the “Company”) as of March 31, ~~2020~~2021 and the related condensed consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the three-month ~~periods~~period ended March 31, ~~2020~~2021 and ~~2019.These interim financial statements are the responsibility of the Company’s management.~~

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

2020. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of Universal Insurance Holdings, Inc. ~~and Subsidiaries~~ as of December 31, ~~2019~~2020 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated ~~March 2, 2020.~~February 26, 2021. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, ~~2019,~~2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

BASIS FOR REVIEW RESULTS

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

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

/s/ Plante & Moran, PLLC

Chicago, Illinois

~~May 1, 2020~~April 30, 2021

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except per share data)


		As of							As of
		March 31,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
ASSETS	ASSETS					ASSETS
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
Available-for-sale debt securities, at fair value, net of allowance for credit loss of $220 and $186 (amortized cost: $931,174 and $815,647)						Available-for-sale debt securities, at fair value, net of allowance for credit loss of $220 and $186 (amortized cost: $931,174 and $815,647)	$	913,131	$	819,861

Equity securities, at fair value (cost: $53,673 and $43,523)		45,838		43,717
Equity securities, at fair value (cost: $91,571 and $84,667)						Equity securities, at fair value (cost: $91,571 and $84,667)	91,291		84,887
Assets held for sale						Assets held for sale	6,855		0
Investment real estate, net	Investment real estate, net	15,481		15,585		Investment real estate, net	6,027		15,176
Total invested assets	Total invested assets	928,568		914,586		Total invested assets	1,017,304		919,924

Cash and cash equivalents	Cash and cash equivalents	180,780		182,109		Cash and cash equivalents	90,829		167,156
Restricted cash and cash equivalents	Restricted cash and cash equivalents	2,635		2,635		Restricted cash and cash equivalents	12,715		12,715
Prepaid reinsurance premiums	Prepaid reinsurance premiums	70,113		175,208		Prepaid reinsurance premiums	100,221		215,723
Reinsurance recoverable	Reinsurance recoverable	108,491		193,236		Reinsurance recoverable	217,625		160,417

Premium receivable, net		66,568		63,883
Premiums receivable, net						Premiums receivable, net	62,488		66,883
Property and equipment, net	Property and equipment, net	44,859		41,351		Property and equipment, net	53,178		53,572
Deferred policy acquisition costs	Deferred policy acquisition costs	94,354		91,882		Deferred policy acquisition costs	111,193		110,614
Income taxes recoverable	Income taxes recoverable	17,115		34,283		Income taxes recoverable	14,741		30,576
Deferred income tax asset, net	Deferred income tax asset, net	15,582		3,351		Deferred income tax asset, net	17,488		6,284
Other assets	Other assets	16,448		17,328		Other assets	19,671		14,877
Total assets	Total assets	$	1,545,513	$	1,719,852	Total assets	$	1,717,453	$	1,758,741
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:	LIABILITIES:					LIABILITIES:
Unpaid losses and loss adjustment expenses	Unpaid losses and loss adjustment expenses	$	195,978	$	267,760	Unpaid losses and loss adjustment expenses	$	315,780	$	322,465
Unearned premiums	Unearned premiums	669,881		661,279		Unearned premiums	772,843		783,135
Advance premium	Advance premium	55,763		30,975		Advance premium	73,738		49,562
Accounts payable		3,134		2,099

Book overdraft	Book overdraft	—		90,401		Book overdraft	0		59,399
Reinsurance payable, net	Reinsurance payable, net	64,460		122,581		Reinsurance payable, net	24,527		10,312

Commission payable						Commission payable	26,693		23,809

Other liabilities and accrued expenses	Other liabilities and accrued expenses	52,450		40,930		Other liabilities and accrued expenses	41,119		52,341
Long-term debt	Long-term debt	9,559		9,926		Long-term debt	8,088		8,456
Total liabilities	Total liabilities	1,051,225		1,225,951		Total liabilities	1,262,788		1,309,479

Commitments and Contingencies (Note 12)	Commitments and Contingencies (Note 12)					Commitments and Contingencies (Note 12)	0		0

STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:					STOCKHOLDERS’ EQUITY:
Cumulative convertible preferred stock, $0.01 par value	Cumulative convertible preferred stock, $0.01 par value	—		—		Cumulative convertible preferred stock, $0.01 par value	0		0
Authorized shares - 1,000	Authorized shares - 1,000					Authorized shares - 1,000
Issued shares - 10 and 10	Issued shares - 10 and 10					Issued shares - 10 and 10
Outstanding 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					Minimum liquidation preference, $9.99 and $9.99 per share
Common stock, $0.01 par value	Common stock, $0.01 par value	468		467		Common stock, $0.01 par value	469		468
Authorized shares - 55,000	Authorized shares - 55,000					Authorized shares - 55,000
Issued shares - 46,766 and 46,707
Outstanding shares - 32,385 and 32,638
Treasury shares, at cost - 14,381 and 14,069		(203,172)		(196,585)
Issued shares - 46,911 and 46,817						Issued shares - 46,911 and 46,817
Outstanding shares - 31,216 and 31,137						Outstanding shares - 31,216 and 31,137
Treasury shares, at cost - 15,695 and 15,680						Treasury shares, at cost - 15,695 and 15,680	(225,751)		(225,506)
Additional paid-in capital	Additional paid-in capital	97,110		96,036		Additional paid-in capital	104,624		103,445
Accumulated other comprehensive income, net of taxes		12,015		20,364
Accumulated other comprehensive income (loss), net of taxes						Accumulated other comprehensive income (loss), net of taxes	(13,567)		3,343
Retained earnings	Retained earnings	587,867		573,619		Retained earnings	588,890		567,512
Total stockholders’ equity	Total stockholders’ equity	494,288		493,901		Total stockholders’ equity	454,665		449,262
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,545,513	$	1,719,852	Total liabilities and stockholders’ equity	$	1,717,453	$	1,758,741

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

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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share data)


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
PREMIUMS EARNED AND OTHER REVENUES	PREMIUMS EARNED AND OTHER REVENUES					PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	Direct premiums written	$	334,553	$	289,234	Direct premiums written	$	365,314	$	334,553
Change in unearned premium	Change in unearned premium	(8,602)		6,143		Change in unearned premium	10,292		(8,602)
Direct premium earned	Direct premium earned	325,951		295,377		Direct premium earned	375,606		325,951
Ceded premium earned	Ceded premium earned	(105,122)		(85,650)		Ceded premium earned	(132,301)		(105,122)
Premiums earned, net	Premiums earned, net	220,829		209,727		Premiums earned, net	243,305		220,829
Net investment income	Net investment income	6,834		8,142		Net investment income	2,986		6,834
Net realized gains (losses) on investments	Net realized gains (losses) on investments	299		(11,525)		Net realized gains (losses) on investments	542		299
Net change in unrealized gains (losses) of equity securities	Net change in unrealized gains (losses) of equity securities	(8,024)		18,032		Net change in unrealized gains (losses) of equity securities	(494)		(8,024)
Commission revenue	Commission revenue	7,015		5,505		Commission revenue	9,126		7,015
Policy fees	Policy fees	5,540		5,021		Policy fees	5,387		5,540
Other revenue	Other revenue	2,782		1,684		Other revenue	1,905		2,782
Total premiums earned and other revenues	Total premiums earned and other revenues	235,275		236,586		Total premiums earned and other revenues	262,757		235,275
OPERATING COSTS AND EXPENSES	OPERATING COSTS AND EXPENSES					OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	Losses and loss adjustment expenses	135,048		113,094		Losses and loss adjustment expenses	143,963		135,048
General and administrative expenses	General and administrative expenses	72,643		69,748		General and administrative expenses	82,443		72,643
Total operating costs and expenses	Total operating costs and expenses	207,691		182,842		Total operating costs and expenses	226,406		207,691
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	27,584		53,744		INCOME BEFORE INCOME TAXES	36,351		27,584
Income tax expense		7,517		13,596
Income tax expense (benefit)						Income tax expense (benefit)	9,943		7,517
NET INCOME	NET INCOME	$	20,067	$	40,148	NET INCOME	$	26,408	$	20,067
Basic earnings per common share	Basic earnings per common share	$	0.62	$	1.16	Basic earnings per common share	$	0.85	$	0.62
Weighted average common shares outstanding - Basic	Weighted average common shares outstanding - Basic	32,591		34,741		Weighted average common shares outstanding - Basic	31,208		32,591
Diluted earnings per common share	Diluted earnings per common share	$	0.61	$	1.14	Diluted earnings per common share	$	0.84	$	0.61
Weighted average common shares outstanding - Diluted	Weighted average common shares outstanding - Diluted	32,731		35,206		Weighted average common shares outstanding - Diluted	31,277		32,731
Cash dividend declared per common share	Cash dividend declared per common share	$	0.16	$	0.16	Cash dividend declared per common share	$	0.16	$	0.16

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Three Months Ended
March 31,
2020 2019
Net income $ 20,067 $ 40,148
Other comprehensive income (loss), net of taxes (8,946) 11,984
Comprehensive income $ 11,121 $ 52,132


	Three Months Ended March 31,
	2021		2020
Net income (loss)	$	26,408	$	20,067
Other comprehensive income (loss), net of taxes	(16,910)		(8,946)
Comprehensive income (loss)	$	9,498	$	11,121

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

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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021 AND ~~2019~~2020 (unaudited)

(in thousands, except per share data)


		Treasury Shares		Common Shares Issued	Preferred Shares Issued	Common Stock Amount		Preferred Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Shares, at Cost		Total Stockholders’ Equity			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, 2019		(14,069)		46,707	10	$	467	$	—	$	96,036	$	573,619	$	20,364	$	(196,585)	$	493,901
Cumulative effect of changes in accounting principle (ASU 2016-13)		—		—	—	—		—		—		(597)		597		—		—
Balance, January 1, 2020		(14,069)		46,707	10	467		—		96,036		573,022		20,961		(196,585)		493,901
Balance, December 31, 2020																				Balance, December 31, 2020	(15,680)		46,817	10	$	468	$	—	$	103,445	$	567,512	$	3,343	$	(225,506)	$	449,262

Vesting of performance share units	Vesting of performance share units	(25)	⁽¹⁾	83	—	1		—		(1)		—		—		(646)		(646)		Vesting of performance share units	(16)	(1)	62	—	—		—		—		—		—		(241)		(241)
Grant and issue of stock award		—	⁽¹⁾	1	—	—		—		30		—		—		—		30
Vesting of restricted stock units																				Vesting of restricted stock units	(17)	(1)	65	—	1		—		(1)		—		—		(254)		(254)

Retirement of treasury shares	Retirement of treasury shares	25		(25)	—	—		—		(646)		—		—		646		—		Retirement of treasury shares	33	(1)	(33)	—	—		—		(495)		—		—		495		0
Purchases of treasury stock	Purchases of treasury stock	(312)		—	—	—		—		—		—		—		(6,587)		(6,587)		Purchases of treasury stock	(15)		—	—	—		—		—		—		—		(245)		(245)
Share-based compensation	Share-based compensation	—		—	—	—		—		1,691		—		—		—		1,691		Share-based compensation	—		—	—	—		—		1,675		—		—		—		1,675
Net income	Net income	—		—	—	—		—		—		20,067		—		—		20,067		Net income	—		—	—	—		—		—		26,408		—		—		26,408
Other comprehensive income, net of taxes		—		—	—	—		—		—		—		(8,946)		—		(8,946)
Other comprehensive loss, net of taxes																				Other comprehensive loss, net of taxes	—		—	—	—		—		—		—		(16,910)		—		(16,910)
Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(5,222)		—		—		(5,222)		Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(5,030)		—		—		(5,030)
Balance, March 31, 2020		(14,381)		46,766	10	$	468	$	—	$	97,110	$	587,867	$	12,015	$	(203,172)	$	494,288
Balance, March 31, 2021																				Balance, March 31, 2021	(15,695)		46,911	10	$	469	$	—	$	104,624	$	588,890	$	(13,567)	$	(225,751)	$	454,665


(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.

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

~~Table of Contents~~

~~UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)~~

~~(in thousands, except per share data)~~

Treasury Shares Common
Shares
Issued Preferred
Shares
Issued Common
Stock
Amount Preferred
Stock
Amount Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury
Shares,
at Cost Total
Stockholders’
Equity
Balance, December 31, 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
⁽¹⁾
(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
Other comprehensive income, 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


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

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

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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(in thousands, except per share data)


	Treasury Shares		Common Shares Issued	Preferred Shares Issued	Common Stock Amount		Preferred Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Shares, at Cost		Total Stockholders’ Equity
Balance, December 31, 2019	(14,069)		46,707	10	$	467	$	—	$	96,036	$	573,619	$	20,364	$	(196,585)	$	493,901
Cumulative effect of change in accounting principle (ASU 2016-13)	—		—	—	—		—		—		(597)		597		—		—
Balance, January 1, 2020	(14,069)		46,707	10	$	467	$	—	$	96,036	$	573,022	$	20,961	$	(196,585)	$	493,901
Vesting of performance share units	(25)	(1)	83	—	1		—		(1)		—		—		(646)		(646)
Grants and issue of stock award	—	(1)	1	—	—		—		30		—		—		—		30

Retirement of treasury shares	25	(1)	(25)	—	—		—		(646)		—		—		646		0
Purchases of treasury stock	(312)		—	—	—		—		—		—		—		(6,587)		(6,587)
Share-based compensation	—		—	—	—		—		1,691		—		—		—		1,691
Net income	—		—	—	—		—		—		20,067		—		—		20,067
Other comprehensive income, net of taxes	—		—	—	—		—		—		—		(8,946)		—		(8,946)

Declaration of dividends ($0.16 per common share and $0.25 per preferred share)	—		—	—	—		—		—		(5,222)		—		—		(5,222)
Balance, March 31, 2020	(14,381)		46,766	10	$	468	$	—	$	97,110	$	587,867	$	12,015	$	(203,172)	$	494,288


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

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

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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)


		Three Months Ended							Three Months Ended
		March 31,							March 31,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net cash provided by operating activities	Net cash provided by operating activities	$	45,643	$	31,451	Net cash provided by operating activities	$	61,265	$	45,643
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	11		8		Proceeds from sale of property and equipment	16		11
Purchases of property and equipment	Purchases of property and equipment	(4,705)		(6,368)		Purchases of property and equipment	(1,211)		(4,705)
Purchases of equity securities	Purchases of equity securities	(10,145)		(697)		Purchases of equity securities	(8,175)		(10,145)
Purchases of available-for-sale debt securities	Purchases of available-for-sale debt securities	(61,782)		(55,102)		Purchases of available-for-sale debt securities	(178,828)		(61,782)
Purchases of investment real estate, net		—		(734)

Proceeds from sales of equity securities	Proceeds from sales of equity securities	—		17,161		Proceeds from sales of equity securities	1,576		0
Proceeds from sales of available-for-sale debt securities	Proceeds from sales of available-for-sale debt securities	9,979		14,550		Proceeds from sales of available-for-sale debt securities	27,455		9,979

Proceeds from sales of investment real estate						Proceeds from sales of investment real estate	2,591		0
Maturities of available-for-sale debt securities	Maturities of available-for-sale debt securities	32,534		36,635		Maturities of available-for-sale debt securities	25,178		32,534

Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(34,108)		5,453		Net cash provided by (used in) investing activities	(131,398)		(34,108)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Preferred stock dividend	Preferred stock dividend	(3)		(3)		Preferred stock dividend	(3)		(3)
Common stock dividend	Common stock dividend	(5,261)		(5,620)		Common stock dividend	(5,083)		(5,261)
Issuance of common stock for stock option exercises		—		239

Purchase of treasury stock	Purchase of treasury stock	(6,587)		(10,117)		Purchase of treasury stock	(245)		(6,587)
Payments related to tax withholding for share-based compensation	Payments related to tax withholding for share-based compensation	(646)		(2,402)		Payments related to tax withholding for share-based compensation	(495)		(646)
Repayment of debt	Repayment of debt	(367)		(368)		Repayment of debt	(368)		(367)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(12,864)		(18,271)		Net cash provided by (used in) financing activities	(6,194)		(12,864)
Cash and cash equivalents, and restricted cash and cash equivalents:	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	Net increase (decrease) during the period	(1,329)		18,633		Net increase (decrease) during the period	(76,327)		(1,329)
Balance, beginning of period	Balance, beginning of period	184,744		169,063		Balance, beginning of period	179,871		184,744
Balance, end of period	Balance, end of period	$	183,415	$	187,696	Balance, end of period	$	103,544	$	183,415

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


		March 31,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
Cash and cash equivalents	Cash and cash equivalents	$	180,780	$	182,109	Cash and cash equivalents	$	90,829	$	167,156
Restricted cash and cash equivalents (1)	Restricted cash and cash equivalents (1)	2,635		2,635		Restricted cash and cash equivalents (1)	12,715		12,715
Total cash and cash equivalents and restricted cash and cash equivalents	Total cash and cash equivalents and restricted cash and cash equivalents	$	183,415	$	184,744	Total cash and cash equivalents and restricted cash and cash equivalents	$	103,544	$	179,871

(1)See “—Note 5 (Insurance Operations)” for a discussion of the nature of the restrictions for restricted cash and cash ~~equivalents.~~equivalents and “—Note 14 (Variable Interest Entities)” for a discussion of restricted cash held in a trust account.

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

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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of Operations and Basis of Presentation

Nature of Operations

Universal Insurance Holdings, Inc. (“UVE”, and together with its wholly-owned subsidiaries, “the Company”) is a Delaware corporation incorporated in 1990. The Company is a vertically integrated insurance holding company performing all aspects of insurance underwriting, distribution and claims. Through its wholly-owned insurance company subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”, and together with UPCIC, the “Insurance Entities”), the Company is principally engaged in the property and casualty insurance business offered primarily through its network of independent agents. Risk from catastrophic losses is managed through the use of reinsurance agreements. The Company’s primary product is residential homeowners’ insurance ~~currently~~ offered in 1819 states as of March 31, ~~2020,~~2021, including Florida, which comprises the majority of the Company’s policies in force. See “—“—Note 5 (Insurance Operations)” for more information regarding the Company’s insurance operations.

The Company generates revenues primarily from the collection of premiums and ~~invests~~investment returns on funds invested on cash flows in excess of those retained and used for claims-paying obligations and insurance operations. Other significant sources of revenue include brokerage commissions collected from reinsurers on certain reinsurance programs placed on behalf of the Insurance Entities, policy fees collected from policyholders by ~~our~~the Company’s wholly-owned managing general agent subsidiary and payment plan fees charged to policyholders who choose to pay their premiums in installments. ~~Our~~The Company’s wholly-owned adjusting company receives claims-handling fees from the Insurance Entities. The Insurance Entities are reimbursed for these fees on claims that are subject to recovery under the Insurance Entities’ respective reinsurance programs. These fees, after expenses, are recorded in the Condensed Consolidated Financial Statements as an adjustment to losses and loss adjustment ~~expense.~~expense (“LAE”).

Basis of Presentation

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the Financial Statements do not include all of the information and footnotes required by United States Generally Accepted Accounting Principles (“U.S. GAAP”) for annual financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, filed with the SEC on ~~March 2, 2020.~~February 26, 2021. The ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet at December 31, ~~2019~~2020 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any other interim period or for the full year.

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

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

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

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2. Significant Accounting Policies

The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The following are new or revised disclosures or disclosures required on a quarterly basis.

~~Recently Adopted~~ Accounting ~~Pronouncements~~Policies

~~On January 1, 2020,~~Assets Held for Sale. The Company considers properties, including land, to be assets held for sale when (1) management commits to a plan to sell the property; (2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property is probable and the Company ~~adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic ASC 326),~~expects the completed sale will occur within one year; and (6) the property is actively being marketed for sale at a price that ~~introduces a new process for recognizing credit losses on financial instruments based on an~~is reasonable given our estimate of current ~~expected credit losses.~~ market value. Upon designation of a property as an asset held for sale, we record the property’s value at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and the Company ceases depreciation. Assets held for sale are stated separately in the accompanying Condensed Consolidated Balance Sheets.

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3. Investments

Available-for-Sale Securities

The ~~new ASU will apply to premiums receivable, reinsurance recoverable,~~following table provides the amortized cost and fair value of available-for-sale debt securities and other specified financial assets. The ASU replaces the current practice of recording a permanent write down (other than temporary impairment) for probable credit losses with a new requirement that would estimate credit losses and record those estimated losses through a temporary allowance account that can be re-measured as estimates of credit losses change. The ASU further limited estimated credit losses relating to available-for-sale securities to the amount which fair value is below amortized cost. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. The Company recorded a decrease to retained earnings of $0.6 million as of ~~January 1, 2020 for~~ the ~~cumulative effect of adopting ASC 326.~~dates presented (in thousands):

~~Accounting Policies~~


	March 31, 2021
	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities:
U.S. government obligations and agencies	$	40,284	$	0	$	123	$	(340)	$	40,067
Corporate bonds	536,479		(175)		1,102		(13,077)		524,329
Mortgage-backed and asset-backed securities	330,939		(2)		559		(5,799)		325,697
Municipal bonds	16,400		(1)		0		(574)		15,825
Redeemable preferred stock	7,072		(42)		250		(67)		7,213
Total	$	931,174	$	(220)	$	2,034	$	(19,857)	$	913,131


	December 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	$	59,529	$	0	$	157	$	(55)	$	59,631
Corporate bonds	416,758		(148)		3,571		(337)		419,844
Mortgage-backed and asset-backed securities	319,377		0		1,175		(615)		319,937
Municipal bonds	11,990		0		138		0		12,128
Redeemable preferred stock	7,993		(38)		424		(58)		8,321
Total	$	815,647	$	(186)	$	5,465	$	(1,065)	$	819,861

The following ~~accounting policies have been updated to reflect~~table provides the ~~Company’s adoption~~credit quality of ~~ASC 326~~available-for-sale debt securities with contractual maturities as ~~described above.~~of the dates presented (dollars in thousands):


	March 31, 2021				December 31, 2020
Equivalent S&P Credit Ratings	Fair Value		% of Total Fair Value		Fair Value		% of Total Fair Value
AAA	$	326,429	35.7	%	$	337,462	41.2	%
AA	109,334		12.0	%	89,681		10.9	%
A	287,372		31.5	%	230,290		28.1	%
BBB	188,371		20.6	%	160,662		19.6	%
BB and Below	227		0	%	233		0	%
No Rating Available	1,398		0.2	%	1,533		0.2	%
Total	$	913,131	100.0	%	$	819,861	100.0	%

~~Investment, Securities Available-for-Sale~~
.

The ~~Company’s investments in~~table above includes credit quality ratings by Standard and Poor’s Rating Services, Inc. (“S&P”), Moody’s Investors Service, Inc. and Fitch Ratings, Inc. The Company has presented the highest rating of the three rating agencies for each investment position.

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


	March 31, 2021				December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Mortgage-backed Securities:
Agency	$	159,583	$	156,281	$	153,937	$	153,758
Non-agency	57,231		55,262		54,231		54,666
Asset-backed Securities:
Auto loan receivables	68,860		68,908		68,188		68,440
Credit card receivables	7,850		7,855		7,878		7,891
Other receivables	37,415		37,391		35,143		35,182
Total	$	330,939	$	325,697	$	319,377	$	319,937

The following tables summarize available-for-sale debt securities, aggregated by major security type and ~~short-term investments are classified~~length of time that individual securities have been in a continuous unrealized loss position, for which no allowance for expected credit losses has been recorded as ~~available-for-sale with maturities~~ of ~~greater than three months. Available-for-sale debt securities and short-term investments are recorded at fair value in~~ the ~~condensed consolidated balance sheet.~~ dates presented (in thousands):


	March 31, 2021
	Less Than 12 Months					12 Months or Longer
	Number of Issues	Fair Value		Unrealized Losses		Number of Issues	Fair Value		Unrealized Losses
Debt Securities:
U.S. government obligations and agencies	8	$	37,127	$	(340)	0	$	0	$	0
Corporate bonds	211	311,967		(8,712)		1	1,141		(32)
Mortgage-backed and asset-backed securities	107	249,319		(5,799)		0	0		0
Municipal bonds	7	13,402		(503)		0	0		0
Redeemable preferred stock	0	0		0		0	0		0
Total	333	$	611,815	$	(15,354)	1	$	1,141	$	(32)


	December 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	8	$	31,729	$	(55)	0	$	0	$	0
Corporate bonds	27	28,791		(162)		0	0		0
Mortgage-backed and asset-backed securities	42	112,462		(615)		0	0		0
Municipal bonds	0	0		0		0	0		0
Redeemable preferred stock	2	688		(12)		0	0		0
Total	79	$	173,670	$	(844)	0	$	0	$	0

Unrealized ~~gains and~~ losses on available-for-sale debt securities in the above table as of March 31, 2021 have not been recognized into income as credit losses because the issuers are of high credit quality (investment grade securities), management does not intend to sell and ~~short-term investments are excluded from earnings~~it is likely management will not be required to sell the securities prior to their anticipated recovery, and ~~reported as a component of~~the decline in fair value is largely due to changes in interest rates and other ~~comprehensive income (“OCI”), net of related deferred taxes until reclassified~~market conditions. There were no material factors impacting any one category or specific security requiring an accrual for credit loss. The issuers continue to ~~earnings upon the consummation of sales transaction with an unrelated third party. Gains~~make principal and ~~losses realized~~interest payments on the ~~disposition~~bonds. The fair value is expected to recover as the bonds approach maturity.

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The following table presents a reconciliation of the beginning and ending balances for expected credit losses on available-for-sale debt securities are determined on the first-in, first-out (FIFO) basis and credited or charged to income. Premium and discount on investment securities are amortized and accreted using the interest method and charged or credited to investment income.(in thousands):


	Corporate Bonds		Mortgage-Backed and Asset-Backed Securities		Municipal Bonds		Redeemable Preferred Stock		Total
Balance, December 31, 2019	$	0	$	0	$	0	$	0	$	0
Cumulative effect adjustment as of January 1, 2020	665		0		0		126		791
Increase (decrease)	(517)		0		0		(88)		(605)
Balance, December 31, 2020	148		0		0		38		186
Increase (decrease)	27		2		1		4		34
Balance, March 31, 2021	$	175	$	2	$	1	$	42	$	220

~~Investment, Equity Securities~~. The Company’s investment in equity securities are recorded at fair value in the condensed consolidated balance sheet with changes in the fair value of equity securities reported in current period earnings in the condensed consolidated statements of income within net change in unrealized gains (losses) of equity securities as they occur.

~~Allowance for Credit Losses-Available-For-Sale Securities~~: For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by rating agencies, market sentiment and trends and adverse conditions specifically related to the security, among other quantitative and qualitative factors utilized atfor establishing an estimate for credit losses. If the assessment indicates that a credit loss exists, the present values of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes an available-for-sale debt security is confirmed as uncollected or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale securities totaled $5.1 million at March 31, 2020 and is evaluated in the estimate for credit losses. Accrued interest receivable is included under Other Assets in the Condensed Consolidated Balance Sheet.

~~Premiums Receivable.~~ Generally, premiums are collected prior to or during the policy period as permitted under the Insurance Entities’ payment plans. Credit risk is minimized through the effective administration of policy payment plans whereby the rules governing policy cancellation minimize circumstances in which the Company extends insurance coverage without having received the corresponding premiums. The Company performs a policy level evaluation to determine the extent the premiums receivable balance exceeds the unearned premiums balance. Under ASC 326 and given the short-term nature of these receivables, we employed the aging method to estimate credit losses by pooling receivables based on the levels of delinquency and evaluating current conditions and reasonable and supportable forecasts. As of March 31, 2020 and December 31, 2019, the Company recorded an estimate of credit losses of $0.8 million and an allowance for doubtful accounts of $0.7 million, respectively.

~~Table of Contents~~

~~Reinsurance.~~ Ceded written premium is recorded upon the effective date of the reinsurance contracts and earned over the contract period. Amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the reinsurance agreements and consistent with the establishment of the gross insurance liability to the Company. Under ASC 326 and given the short-term nature of these receivables, we considered the effects of credit enhancements (i.e. funds withheld liability, letters of credit and trust arrangements) and other qualitative factors that allowed us to conclude there was no material risk exposure. There is 0 estimated credit loss allowance as of March 31, 2020 and we did not have an allowance for uncollectible reinsurer accounts as of December 31, 2019.

~~Table of Contents~~

~~3. Investments~~

~~Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP.~~

~~Securities Available for Sale~~

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

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

December 31, 2019
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Debt Securities:
  U.S. government obligations and agencies $ 53,688 $ 864 $ (188) $ 54,364
  Corporate bonds 457,180 19,179 (141) 476,218
  Mortgage-backed and asset-backed securities 304,285 7,400 (606) 311,079
  Municipal bonds 3,397 103 (4) 3,496
  Redeemable preferred stock 9,786 427 (86) 10,127
Total $ 828,336 $ 27,973 $ (1,025) $ 855,284

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

March 31, 2020 December 31, 2019
Equivalent S&P Credit Ratings Fair Value % of Total
Fair Value Fair Value % of Total
Fair Value
AAA $ 388,197 44.8 % $ 372,442 43.6 %
AA 95,823 11.0 % 99,103 11.6 %
A 242,406 28.0 % 238,766 27.9 %
BBB 136,794 15.8 % 143,889 16.8 %
BB and Below 242 — % — —
No Rating Available 3,787 0.4 % 1,084 0.1 %
Total $ 867,249 100.0 % $ 855,284 100.0 %

The table above includes credit quality ratings by Standard and Poor’s Rating Services, Inc. (“S&P”), Moody’s Investors Service, Inc. and Fitch Ratings, Inc. The Company has presented the highest rating of the three rating agencies for each investment position.

~~Table of Contents~~

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

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

The following tables summarize debt securities available-for-sale for which an allowance for expected credit losses has not been recorded at March 31, 2020, and December 31, 2019 aggregated by major security type and length of time in a continuous unrealized loss position as of the dates presented (in thousands):

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)

December 31, 2019
Less Than 12 Months 12 Months or Longer
Number of
Issues Fair Value Unrealized
Losses Number of
Issues Fair Value Unrealized
Losses
Debt Securities:
U.S. government obligations and agencies 2 $ 3,836 $ (108) 4 $ 23,186 $ (80)
Corporate bonds 18 16,808 (107) 7 5,866 (34)
Mortgage-backed and asset-backed securities 42 58,023 (245) 26 34,985 (361)
Municipal bonds — — — 1 276 (4)
Redeemable preferred stock 6 630 (8) 4 1,489 (78)
Total 68 $ 79,297 $ (468) 42 $ 65,802 $ (557)

Unrealized losses on available-for-sale debt securities in the above chart as of March 31, 2020 have not been recognized into income as credit losses because the issuers are of high credit quality (rated AA or higher), management does not intend to sell and it is likely management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. There were no material factors impacting any one category or specific security requiring an accrual for credit loss. The issuers continue to make principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

Results for reporting periods occurring before January 1, 2020 continue to be reported in accordance with previously applicable U.S. GAAP and not presented under ASC 326, which was adopted by the Company on January 1, 2020.

~~Table of Contents~~

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


		March 31, 2020							March 31, 2021
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	127,107	$	127,033	Due in one year or less	$	19,275	$	19,357
Due after one year through five years	Due after one year through five years	423,886		433,632		Due after one year through five years	516,595		513,373
Due after five years through ten years	Due after five years through ten years	268,618		276,846		Due after five years through ten years	374,044		359,574
Due after ten years	Due after ten years	30,512		28,046		Due after ten years	21,095		20,630
Perpetual maturity securities	Perpetual maturity securities	1,703		1,692		Perpetual maturity securities	165		197
Total	Total	$	851,826	$	867,249	Total	$	931,174	$	913,131

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

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


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
Proceeds from sales and maturities (fair value):	Proceeds from sales and maturities (fair value):					Proceeds from sales and maturities (fair value):
Available-for-sale debt securities	Available-for-sale debt securities	$	42,513	$	51,185	Available-for-sale debt securities	$	52,633	$	42,513
Equity securities	Equity securities	$	—	$	17,161	Equity securities	$	1,576	$	0
Gross realized gains on sale of securities:	Gross realized gains on sale of securities:					Gross realized gains on sale of securities:
Available-for-sale debt securities	Available-for-sale debt securities	$	346	$	187	Available-for-sale debt securities	$	122	$	346
Equity securities	Equity securities	$	—	$	165	Equity securities	$	343	$	0
Gross realized losses on sale of securities:	Gross realized losses on sale of securities:					Gross realized losses on sale of securities:
Available-for-sale debt securities	Available-for-sale debt securities	$	(47)	$	(42)	Available-for-sale debt securities	$	(324)	$	(47)
Equity securities	Equity securities	$	—	$	(11,835)	Equity securities	$	0	$	0

Realized gains on sales of investment real estate						Realized gains on sales of investment real estate	$	401	$	0

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


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
Available-for-sale debt securities	Available-for-sale debt securities	$	6,015	$	6,151	Available-for-sale debt securities	$	2,829	$	6,015
Equity securities	Equity securities	545		1,042		Equity securities	591		545

Cash and cash equivalents (1)	Cash and cash equivalents (1)	791		1,300		Cash and cash equivalents (1)	11		791
Other (2)	Other (2)	254		259		Other (2)	268		254
Total investment income	Total investment income	7,605		8,752		Total investment income	3,699		7,605
Less: Investment expenses (3)	Less: Investment expenses (3)	(771)		(610)		Less: Investment expenses (3)	(713)		(771)
Net investment income	Net investment income	$	6,834	$	8,142	Net investment income	$	2,986	$	6,834


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

~~Table of Contents~~

Equity Securities

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

Three Months Ended
March 31,
2020 2019
Unrealized gains and (losses) recognized during the reported
period on equity securities still held at the end of the reported period
$ (8,024) $ 2,400


	Three Months Ended March 31,
	2021		2020
Unrealized gains (losses) recognized during the reported period on equity securities still held at the end of the reported period	$	(519)	$	(8,024)

Assets Held for Sale

The Company has committed to a plan of sale for a real estate property previously included in Investment Real Estate. The real estate property is located in Tequesta, Florida. Proceeds from the sale are expected to exceed the property’s carrying value of $6.9 million and, accordingly, no impairment loss was recognized on the classification of this real estate property as held for sale.

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Investment Real Estate

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


		March 31,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
Income Producing:	Income Producing:					Income Producing:
Investment real estate	Investment real estate	$	14,679	$	14,679	Investment real estate	$	7,087	$	14,685
Less: Accumulated depreciation	Less: Accumulated depreciation	(1,388)		(1,284)		Less: Accumulated depreciation	(1,060)		(1,699)
		13,291		13,395			6,027		12,986
Non-Income Producing:	Non-Income Producing:					Non-Income Producing:
Investment real estate	Investment real estate	2,190		2,190		Investment real estate	0		2,190
Investment real estate, net	Investment real estate, net	$	15,481	$	15,585	Investment real estate, net	$	6,027	$	15,176

During the three months ended March 31, 2021, the Company completed the sale of an investment real estate property. The Company received net cash proceeds of approximately $2.6 million and recognized a pre-tax gain of approximately $0.4 million that is included in net realized gains (losses) on investments in the Condensed Consolidated Statements of Income for the three months ended March 31, 2021.

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

Three Months Ended
March 31,
2020 2019
Depreciation expense on investment real estate $ 104 $ 103


	Three Months Ended March 31,
	2021		2020
Depreciation expense on investment real estate	$	46	$	104

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4. Reinsurance

The Company seeks to reduce its risk of loss by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers, generally as of the beginning of the hurricane season on June 1^st of each year. The Company’s current reinsurance programs consist principally of catastrophe excess of loss reinsurance, subject to the terms and conditions of the applicable agreements. Notwithstanding the purchase of such reinsurance, the Company is responsible for certain retained loss amounts before reinsurance attaches and for insured losses related to catastrophes and other events that exceed coverage provided by the reinsurance programs. The Company remains responsible for the settlement of insured losses irrespective of whether any of the reinsurers fail to make payments otherwise due.

Amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the reinsurance contracts and consistent with the establishment of the gross liability for losses, LAE and other expenses. Reinsurance premiums, losses and LAE are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.

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

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

Ratings as of March 31, 2020

Due from as of

Ratings as of March 31, 2021

Due from as of

Reinsurer

AM Best
Company

Standard
and Poor’s
Rating
Services, Inc.

Moody’s
Investors Service, Inc.

March 31, 2020

December 31, 2019

Reinsurer

AM Best
Company

Standard
and Poor’s
Rating
Services, Inc.

Moody’s
Investors Service, Inc.

March 31, 2021

December 31, 2020

Florida Hurricane Catastrophe Fund (1)

n/a

97,694

199,647

Florida Hurricane Catastrophe Fund (1)

n/a

66,935

121,298

Allianz Risk Transfer (Bermuda) Ltd.

A+

AA-

Aa3

120,349

96,652

Allianz Risk Transfer

n/a

—

19,269

Allianz Risk Transfer

—

21,087

Renaissance Reinsurance Ltd.

A+

24,014

18,285

Total (2)

97,694

218,916

Total (2)

211,298

257,322

(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.

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


		Three Months Ended March 31,																							Three Months Ended March 31,
		2020										2019											2021				2020
		Premiums Written		Premiums Earned		Losses and Loss Adjustment Expenses		Premiums Written		Premiums Earned		Losses and Loss Adjustment Expenses			Premiums Written		Premiums Earned		Losses and Loss Adjustment Expenses		Premiums Written		Premiums Earned		Losses and Loss Adjustment Expenses
Direct	Direct	$	334,553	$	325,951	$	173,243	$	289,234	$	295,377	$	115,742	Direct	$	365,314	$	375,606	$	237,298	$	334,553	$	325,951	$	173,243
Ceded	Ceded	(27)		(105,122)		(38,195)		—		(85,650)		(2,648)		Ceded	(16,800)		(132,301)		(93,335)		(27)		(105,122)		(38,195)
Net	Net	$	334,526	$	220,829	$	135,048	$	289,234	$	209,727	$	113,094	Net	$	348,514	$	243,305	$	143,963	$	334,526	$	220,829	$	135,048

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


		March 31,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
Prepaid reinsurance premiums	Prepaid reinsurance premiums	$	70,113	$	175,208	Prepaid reinsurance premiums	$	100,221	$	215,723
Reinsurance recoverable on paid losses and LAE	Reinsurance recoverable on paid losses and LAE	$	42,333	$	70,015	Reinsurance recoverable on paid losses and LAE	$	98,954	$	40,895
Reinsurance recoverable on unpaid losses and LAE	Reinsurance recoverable on unpaid losses and LAE	66,158		123,221		Reinsurance recoverable on unpaid losses and LAE	118,671		119,522

Reinsurance recoverable	Reinsurance recoverable	$	108,491	$	193,236	Reinsurance recoverable	$	217,625	$	160,417

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5. Insurance Operations

Deferred Policy Acquisition Costs

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

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


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
DPAC, beginning of period	DPAC, beginning of period	$	91,882	$	84,686	DPAC, beginning of period	$	110,614	$	91,882
Capitalized Costs	Capitalized Costs	48,508		41,520		Capitalized Costs	54,722		48,508
Amortization of DPAC	Amortization of DPAC	(46,036)		(42,922)		Amortization of DPAC	(54,143)		(46,036)
DPAC, end of period	DPAC, end of period	$	94,354	$	83,284	DPAC, end of period	$	111,193	$	94,354

Regulatory Requirements and Restrictions

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

In accordance with Florida Insurance Code, and based on the calculations performed by the Company as of December 31, ~~2019,~~2020, UPCIC has the capacity to pay ordinary dividends of ~~$12.1~~$2.1 million during ~~2020.~~2021. APPCIC, based on its accumulated earnings as of December 31, ~~2019,~~2020, is unable to pay any ordinary dividends during ~~2020.~~2021. For the three months ended March 31, 2021 and 2020, 0 dividends were paid from the Insurance Entities to PSI.

The Florida Insurance Code requires an insurance company to maintain capitalization equivalent to the greater of 10 percent of the insurer’s total liabilities or $10.0 million. The following table presents the amount of capital and surplus calculated in accordance with statutory accounting principles, which differ from U.S. GAAP, and an amount representing ten percent of total liabilities for the Insurance Entities as of the dates presented (in thousands):


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Statutory capital and surplus	Statutory capital and surplus					Statutory capital and surplus
UPCIC(1)	UPCIC(1)	$	296,467	$	301,120	UPCIC(1)	$	353,971	$	360,707
APPCIC	APPCIC	$	16,319	$	16,433	APPCIC	$	12,976	$	12,918
Ten percent of total liabilities	Ten percent of total liabilities					Ten percent of total liabilities
UPCIC	UPCIC	$	101,715	$	99,228	UPCIC	$	109,730	$	98,682
APPCIC	APPCIC	$	735	$	621	APPCIC	$	2,222	$	1,793


(1)			As of the dates in the table above, statutory capital and surplus for UPCIC includes a $77 million capital contribution funded in February 2021 by UVE through PSI, the Insurance Entities’ parent company, which the FLOIR permitted to be included in the statutory capital and surplus at December 31, 2020 under statutory accounting principles. This contribution was not recognized on a U.S. GAAP basis at December 31, 2020.

As of the dates in the table above, the Insurance Entities each exceeded the minimum statutory capitalization requirement.

The Insurance Entities also met the capitalization requirements of the other states in which they ~~are~~were licensed as of March 31, ~~2020.~~2021. The Insurance Entities each are also required to adhere to prescribed premium-to-capital surplus ratios and each have met those requirements at such dates. Statutory capital and surplus for UPCIC at December 31, 2019 includes a $30 million capital contribution funded in February 2020 by UVE through PSI, the Insurance Entities’ parent company, which is permitted to be included in UPCIC’s statutory capital and surplus at December 31, 2019 with the permission of the FLOIR under statutory accounting principles. This contribution was not recognized on a U.S. GAAP basis at December 31, 2019.

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Through PSI, ~~the Insurance Entities’ parent company,~~ UVE recorded contributions for the periods presented (in thousands):

Three Months Ended
March 31,
2020 2019
Capital contributions $ 30,000 $ —


	Three Months Ended March 31,
	2021		2020
Capital contributions	$	77,000	$	30,000

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

Three Months Ended
March 31,
2020 2019
Combined net income (loss) $ (3,234) $ 7,623


	Three Months Ended March 31,
	2021		2020
Combined net income (loss)	$	(7,376)	$	(3,234)

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


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Restricted cash and cash equivalents	Restricted cash and cash equivalents	$	2,635	$	2,635	Restricted cash and cash equivalents	$	2,635	$	2,635
Investments	Investments	$	3,572	$	3,419	Investments	$	3,508	$	3,550

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6. Liability for Unpaid Losses and Loss Adjustment Expenses

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


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
Balance at beginning of period	Balance at beginning of period	$	267,760	$	472,829	Balance at beginning of period	$	322,465	$	267,760
Less: Reinsurance recoverable	Less: Reinsurance recoverable	(123,221)		(393,365)		Less: Reinsurance recoverable	(119,522)		(123,221)
Net balance at beginning of period	Net balance at beginning of period	144,539		79,464		Net balance at beginning of period	202,943		144,539
Incurred (recovered) related to:
Incurred related to:						Incurred related to:
Current year	Current year	130,707		113,279		Current year	145,200		130,707
Prior years	Prior years	4,341		(185)		Prior years	(1,237)		4,341
Total incurred	Total incurred	135,048		113,094		Total incurred	143,963		135,048
Paid related to:	Paid related to:					Paid related to:
Current year	Current year	61,778		34,549		Current year	54,481		61,778
Prior years	Prior years	87,989		60,724		Prior years	95,316		87,989
Total paid	Total paid	149,767		95,273		Total paid	149,797		149,767
Net balance at end of period	Net balance at end of period	129,820		97,285		Net balance at end of period	197,109		129,820
Plus: Reinsurance recoverable	Plus: Reinsurance recoverable	66,158		269,071		Plus: Reinsurance recoverable	118,671		66,158
Balance at end of period	Balance at end of period	$	195,978	$	366,356	Balance at end of period	$	315,780	$	195,978

For the three months ended March 31, 2021, there was prior years’ reserve development of $92.1 million gross, less $93.3 million ceded, resulting in $1.2 million net favorable development. The net favorable prior years’ reserve development for the quarter ended March 31, 2021 was principally due to an increase in ceded reserves for Hurricane Sally as a result of recoveries on losses outside of Florida, which have a lower attachment point offset by a reduction in Hurricane Irma recoveries representing previously ceded losses not subject to recovery. As a result, net prior years’ reserve development was favorable.

During the three months ended March 31, 2020, there was adverse prior ~~year~~years’ reserve development of $42.5 million gross, less $38.2 million ceded, resulting in $4.3 million ~~net.~~net development. The direct and net prior ~~year~~years’ reserve development for the quarter ended March 31, 2020 was principally due to ~~increased~~an increase in ultimate losses and LAE for Hurricane Irma.

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7. Long-Term Debt

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

March 31, December 31,
2020 2019
Surplus note $ 9,559 $ 9,926


	March 31,		December 31,
	2021		2020
Surplus note	$	8,088	$	8,456

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

UPCIC was in compliance with the terms of the surplus note as of March 31, ~~2020.~~2021.

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8. Stockholders’ Equity

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


																Total Number of Shares				Average
																Repurchased During the		Aggregate		Price Per
					Total Number of Shares Repurchased During the Three Months Ended March 31,											Dollar Amount	Three Months Ended March 31,			Purchase		Share
Date Authorized	Date Authorized	Expiration Date	Dollar Amount Authorized		2020	2019	Aggregate Purchase Price		Average Price Per Share Repurchased		Plan Completed	Date Authorized	Expiration Date	Authorized		2021	2020	Price		Repurchased		Plan Completed
November 3, 2020												November 3, 2020	November 3, 2022	$	20,000	15,444	0	$	245	$	15.87
November 6, 2019	November 6, 2019	December 31, 2021	$	40,000	312,107	—	$	6,587	$	21.11		November 6, 2019	December 31, 2021	$	40,000	0	312,107	$	6,587	$	21.11	November 2020
December 12, 2018		May 31, 2020	$	20,000	—	320,500	$	10,117	$	31.57	May 2019

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

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9. Income Taxes

During the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, the Company recorded approximately ~~$7.5~~$9.9 million and ~~$13.6~~$7.5 million of income tax expense, respectively. The effective tax rate (“ETR”) for the three months ended March 31, ~~2020~~2021 was ~~27.3%~~27.4% compared to a ~~25.3%~~27.3% ETR for the same period in ~~2019.~~2020.

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

The Company’s income tax provision reflects an estimated annual ETR of ~~27.3%~~27.1% for ~~2020,~~2021, calculated before the impact of discrete items. The ~~statutory tax rate consists~~effect of reporting discrete items through March 31, 2021 amounts to an increase to the annual estimated ETR of 30 basis points, resulting in a total annual estimated ETR of 27.4%. The annual estimated ETR includes a federal income tax rate of 21% and a state income tax rate, net of federal benefit, of ~~3.7%~~2.9%.

Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities at the enacted tax rates. ~~We review our~~The Company reviews its deferred tax assets regularly for recoverability. ~~Although realization~~Management has reviewed all available evidence, both positive and negative, in determining the need for a valuation allowance with respect to the gross deferred tax assets. In reviewing the gross deferred tax assets, management has concluded that the likelihood for utilization of these deferred tax assets is certain (greater than 50%) and determined that a valuation allowance on any of the deferred tax assets is not ~~assured, management believes that it~~required. Management will continue to analyze the gross deferred tax assets on a quarterly basis to determine whether there is ~~more likely than not that~~ a ~~portion of the capital loss carryforward will not be realized. In recognition of this risk, the Company provided~~need for a valuation allowance ~~of $0.1 million as of March 31, 2020 on~~in the deferred tax asset relating to capital loss carryforwards associated with 2019 capital losses. If management’s assumptions change and we determine the Company will be able to realize these capital losses, the tax benefits related to any reversal of the valuation allowance on deferred tax assets will be accounted for as a future reduction in income tax expense and a corresponding increase in equity.future.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. As of March 31, ~~2020,~~2021, the Company’s ~~2016~~2017 through ~~2018~~2019 tax years are still subject to examination by the Internal Revenue Service and various tax years remain open to examination in certain state jurisdictions.

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10. Earnings Per Share

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

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


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
Numerator for EPS:	Numerator for EPS:					Numerator for EPS:
Net income	Net income	$	20,067	$	40,148	Net income	$	26,408	$	20,067
Less: Preferred stock dividends	Less: Preferred stock dividends	(3)		(3)		Less: Preferred stock dividends	(3)		(3)
Income available to common stockholders	Income available to common stockholders	$	20,064	$	40,145	Income available to common stockholders	$	26,405	$	20,064
Denominator for EPS:	Denominator for EPS:					Denominator for EPS:
Weighted average common shares outstanding	Weighted average common shares outstanding	32,591		34,741		Weighted average common shares outstanding	31,208		32,591
Plus: Assumed conversion of share-based compensation (1)	Plus: Assumed conversion of share-based compensation (1)	115		440		Plus: Assumed conversion of share-based compensation (1)	44		115
Assumed conversion of preferred stock	Assumed conversion of preferred stock	25		25		Assumed conversion of preferred stock	25		25
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	32,731		35,206		Weighted average diluted common shares outstanding	31,277		32,731
Basic earnings per common share	Basic earnings per common share	$	0.62	$	1.16	Basic earnings per common share	$	0.85	$	0.62
Diluted earnings per common share	Diluted earnings per common share	$	0.61	$	1.14	Diluted earnings per common share	$	0.84	$	0.61


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

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11. Other Comprehensive Income (Loss)

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

Three Months Ended 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.


	Three Months Ended March 31,

	2021						2020
	Pre-tax		Tax		After-tax		Pre-tax		Tax		After-tax
Net changes related to available-for-sale securities:
Unrealized holding gains arising during the period	$	(22,425)	$	(5,361)	$	(17,064)	$	(11,226)	$	(2,505)	$	(8,721)
Less: Reclassification adjustments for (gains) losses realized in net income	202		48		154		(299)		(74)		(225)
Other comprehensive income (loss)	$	(22,223)	$	(5,313)	$	(16,910)	$	(11,525)	$	(2,579)	$	(8,946)
Reclassification adjustment to retained earnings (1)	0		0		0		791		194		597
Change in accumulated other comprehensive (loss)	$	(22,223)	$	(5,313)	$	(16,910)	$	(10,734)	$	(2,385)	$	(8,349)

(1)Effective January 1, 2020, the Company adopted Accounting Standard Update 2016-13. 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.

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	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		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,									Details about Accumulated Other Comprehensive Income (Loss) Components			Three Months Ended March 31,
				2020			2019									2021		2020
Unrealized gains (losses) on available-for-sale debt securities	Unrealized gains (losses) on available-for-sale debt securities								Unrealized gains (losses) on available-for-sale debt securities
		$	299		$	145		Net realized gains (losses) on sale of securities			$	(202)				$	299			Net realized gains (losses) on sale of securities
		(74)			(37)			Income taxes			48			(74)					Income taxes
Total reclassification for the period	Total reclassification for the period	$	225		$	108		Net of tax	Total reclassification for the period		$	(154)		$	225				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. ~~Our~~The majority of the Company’s reinsurance commitments run from June 1st of the current year to May 31st of the following year. Certain of ~~our~~the Company’s 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”~~Payable, net” in the ~~financial statements.~~Condensed Consolidated Balance Sheet. Effective March 26, 2021, UPCIC entered into a three-year reinsurance agreement with Cosaint Re Pte. Ltd., a special purpose reinsurance vehicle incorporated in Singapore that correspondingly issued notes in a Rule 144A offering to raise proceeds to collateralize its obligations under this agreement. Amounts payable for coverage for the first year of the reinsurance agreement with Cosaint Re Pte. Ltd. are also recorded as “Reinsurance Payable, net”. 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) ~~$118.9~~$128.3 million in ~~2020 and~~2021; (2) ~~$84.3~~$14.1 million in ~~2021.~~2022 and (3) $85.4 million in 2023.

Litigation

Lawsuits are filed against the Company from time to time. Many of these lawsuits involve claims under policies that ~~we underwrite~~the Company underwrites and ~~reserve~~reserves for as an insurer. ~~We are~~The Company is also involved in various other legal proceedings and litigation unrelated to claims under ~~our~~the Company’s policies that arise in the ordinary course of business operations. Management believes that any liabilities that may arise as a result of these legal matters will not have a material adverse effect on ~~our~~the Company’s 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 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:~~funds and other: 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~~debt securities. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.

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

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

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

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															Fair Value Measurements
		March 31, 2020															March 31, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:	Available-For-Sale Debt Securities:									Available-For-Sale Debt Securities:
U.S. government obligations and agencies	U.S. government obligations and agencies	$	—	$	62,084	$	—	$	62,084	U.S. government obligations and agencies	$	0	$	40,067	$	0	$	40,067
Corporate bonds	Corporate bonds	—		468,725		—		468,725		Corporate bonds	0		524,329		0		524,329
Mortgage-backed and asset-backed securities	Mortgage-backed and asset-backed securities	—		323,382		—		323,382		Mortgage-backed and asset-backed securities	0		325,697		0		325,697
Municipal bonds	Municipal bonds	—		3,586		—		3,586		Municipal bonds	0		15,825		0		15,825
Redeemable preferred stock	Redeemable preferred stock	—		9,472		—		9,472		Redeemable preferred stock	0		7,213		0		7,213
Equity Securities:	Equity Securities:									Equity Securities:
Common stock	Common stock	1,904		—		—		1,904		Common stock	6,225		0		0		6,225
Mutual funds		43,934		—		—		43,934
Mutual funds and other										Mutual funds and other	85,066		0		0		85,066
Total assets accounted for at fair value	Total assets accounted for at fair value	$	45,838	$	867,249	$	—	$	913,087	Total assets accounted for at fair value	$	91,291	$	913,131	$	0	$	1,004,422


		Fair Value Measurements															Fair Value Measurements
		December 31, 2019															December 31, 2020
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:	Available-For-Sale Debt Securities:									Available-For-Sale Debt Securities:
U.S. government obligations and agencies	U.S. government obligations and agencies	$	—	$	54,364	$	—	$	54,364	U.S. government obligations and agencies	$	0	$	59,631	$	0	$	59,631
Corporate bonds	Corporate bonds	—		476,218		—		476,218		Corporate bonds	0		419,844		0		419,844
Mortgage-backed and asset-backed securities	Mortgage-backed and asset-backed securities	—		311,079		—		311,079		Mortgage-backed and asset-backed securities	0		319,937		0		319,937
Municipal bonds	Municipal bonds	—		3,496		—		3,496		Municipal bonds	0		12,128		0		12,128
Redeemable preferred stock	Redeemable preferred stock	—		10,127		—		10,127		Redeemable preferred stock	0		8,321		0		8,321
Equity Securities:	Equity Securities:									Equity Securities:
Common stock	Common stock	2,377		—		—		2,377		Common stock	2,435		0		0		2,435
Mutual funds	Mutual funds	41,340		—		—		41,340		Mutual funds	82,452		0		0		82,452

Total assets accounted for at fair value	Total assets accounted for at fair value	$	43,717	$	855,284	$	—	$	899,001	Total assets accounted for at fair value	$	84,887	$	819,861	$	0	$	904,748

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 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):


		March 31, 2020						December 31, 2019							March 31, 2021				December 31, 2020
		Carrying Value		(Level 3) Estimated Fair Value		Carrying Value		(Level 3) Estimated Fair Value			Carrying Value		(Level 3) Estimated Fair Value		Carrying Value		(Level 3) Estimated Fair Value
Liabilities (debt):	Liabilities (debt):									Liabilities (debt):
Surplus note	Surplus note	$	9,559	$	8,975	$	9,926	$	9,365	Surplus note	$	8,088	$	7,876	$	8,456	$	8,291

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~~Variable Interest Entities

The Company entered into a reinsurance captive arrangement with a VIE in the normal course of business and consolidated the VIE since the Company is the primary beneficiary. The primary beneficiary analysis includes a review of the VIE’s capital structure, related contractual relationships and terms, nature of the VIE’s operations and purpose, nature of the VIE’s interests issued and the Company’s involvement with the entity. When assessing the need to consolidate a VIE, the Company evaluates the design of the VIE as well as the related risks to which the entity was designed to expose the variable interest holders. The primary beneficiary is the entity that has both (i) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation conclusion depends on the Company’s decision-making ability and its ability to influence activities that significantly affect the economic performance of the VIE.

On ~~April 16, 2020,~~a consolidated basis, the ~~Company declared~~balance sheet classification and exposure is comprised of $10.1 million of restricted cash held in a ~~dividend~~reinsurance trust account, which can be used only to settle specific reinsurance obligations of ~~$0.16 per share on its outstanding common stock payable on May 21, 2020, to shareholders~~that VIE.

Table of ~~record on May 14, 2020.~~Contents

15. Subsequent Events

The Company performed an evaluation of subsequent events through the date the financial statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the condensed consolidated financial statements as of March 31, ~~2020.~~2021.

On April 22, 2021, the Company declared a quarterly cash dividend of $0.16 per share of common stock payable May 21, 2021, to shareholders of record on May 14, 2021.

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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”,~~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, ~~2019.~~2020. 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”~~“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, ~~2019.~~2020. 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, or have affected, 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 reserves established for claims;

•Failure of our risk mitigation strategies, including failure to accurately and adequately price the risks we underwrite and to ~~write~~include 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 due 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;

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

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OVERVIEW

We are a vertically integrated holding company offering property and casualty 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 1819 states (primarily in Florida), with licenses to write insurance ~~in two additional states and applications submitted and pending~~ in two additional states. The Insurance Entities seek to produce an underwriting profit (defined as earned premium ~~less~~minus losses, loss adjustment expense (“LAE”), policy acquisition costs and other operating costs) over the long term; maintain a 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.

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, ~~2019.~~2020. 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.”

Trends - Impact of the COVID-19

Pandemic

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 as COVID-19 unfolded. As a result of our disaster preparedness, most employees were immediately prepared to work from home while the 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~~Subsequent to March 2020, we have not seen a material impact from COVID-19 pandemic on our business, our financial position, our liquidity, or our ability to service our policyholders and maintain critical ~~operations, with the exception of a decrease in fair value of our investment securities.~~operations. 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 continue to 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. We continue to monitor local, state and federal guidance and will adjust workforce activities as appropriate. Although we have not ~~yet~~ experienced aan adverse material impact from the COVID-19 pandemic, the ultimate impact of the pandemic on our business and on the economy in general cannot be predicted. ~~Please refer~~

Court systems in key markets in which we operate, including Florida, have been impacted by the COVID-19 pandemic. This has led to ~~“Part II, Item 1A—Risk Factors” for more information.~~changes in certain court procedures and, in many cases, to delays in our ability to resolve contested claims. In our experience, delays in court proceedings can increase the amounts of judgements, settlements and related costs. In addition, delays in the judicial system could affect our ability to pursue subrogation actions in a timely and cost-effective manner. As a result, as the effects of the COVID-19 pandemic evolve, continuing periods of judicial delays and revised procedures could have an adverse effect on our litigation outcomes.

Our level of direct premiums written during the three months ended March ~~and the first quarter of 2020~~31, 2021 was strong and outperformed the same ~~periods~~period in the prior year. We are cautiously optimistic in our belief that our customers and agent force will continue to renew and place business with us, especially as our customers in hurricane-exposed ~~states prepare for the upcoming 2020 hurricane season.~~states. In the event there is a slow-down in the production and/or collection of premiums, we intend to take measures to maintain liquidity while continuing to protect our capital and policyholders. See “—Liquidity and Capital ~~Resources” and “Part II, Item 1A—Risk Factors.~~Resources.”

~~Reinsurance~~KEY PERFORMANCE INDICATORS

The Company considers the measures and ratios in the following discussion to be key performance indicators for its businesses. Management believes that these indicators are helpful in understanding the underlying trends in the Company’s businesses. Some of these indicators are reported on a quarterly basis and others on an annual basis.

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

Definitions of Key Performance Indicators

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

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

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Core Loss Ratio― 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 premiums in force. Core losses consists of all other losses and LAE, excluding weather events beyond those expected and prior years’ reserve development. The financial benefit from the management of claims, including claim fees ceded to reinsurers, is recorded in the condensed consolidated financial statements as a reduction to core losses.

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

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

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

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

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

Losses and Loss Adjustment Expense Ratio or Loss and LAE Ratio ― a measure of the cost of claims and claim settlement expenses incurred in a reporting period as a percentage of premiums earned in that same reporting period. Losses and LAE incurred in a reporting period includes both amounts related to the current accident year and prior accident years, if any, referred to as development. Ultimate losses and LAE are based on actuarial estimates with changes in those estimates recognized in the period the estimates are revised. Losses and LAE consist of claim costs arising from claims occurring and settling in the current period, an estimate of claim costs for reported but unpaid claims, an estimate of unpaid claim costs for incurred-but-not-reported claims and an estimate of claim settlement expenses associated with reported and unreported claims which occurred during the reporting period. The loss and LAE ratio can be measured on a direct basis, which includes losses and LAE divided by direct earned premiums, or on a net basis, which includes losses and LAE after amounts have been ceded to reinsurers divided by net earned premiums (i.e., direct premium earned less ceded premium earned). The net loss and LAE ratio is a measure of underwriting profitability after giving consideration to the effect of reinsurance. Trends in the net loss and LAE ratio are an indication to management of current and future profitability.

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

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

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

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

Return on Average Equity (“ROAE”) ― calculated by dividing earnings (loss) per common share by average book value per common share. Average book value per common share is computed as the sum of book value per common share at the beginning and the end of a period, divided by two. ROAE is a capital profitability measure of how effectively management creates profits per common share.

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

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

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

REINSURANCE

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

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~~2020-2021 reinsurance programs meet the FLOIR’s requirements, which are based on, among other things, successfully demonstrating cohesive and comprehensive reinsurance programs that protect the policyholders of our Insurance Entities as well as satisfying a series of stress test catastrophe loss scenarios based on past historical events.

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 v18.1 (Build 1945). This model combines simulations of the natural occurrence patterns and characteristics of hurricanes, tornadoes, earthquakes and other catastrophes with information on 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,~~2020, the Insurance Entities entered into multiple reinsurance agreements comprising our ~~2019-2020~~2020-2021 reinsurance program. See “Item 1—Note 4 (Reinsurance).”

UPCIC’s ~~2019-2020~~2020-2021 Reinsurance Program

•First event All States retention of $43 million; ~~First~~first event Non-Florida retention of ~~$10~~$15 million.

•All States first event tower ~~expanded~~extends to ~~$3.34~~$3.36 billion ~~an increase~~with no co-participation in any of ~~$170 million over~~ the ~~final 2018-2019 program.~~layers, no limitations on loss adjustment expenses and no accelerated deposit premiums.

•Assuming a first event completely exhausts the ~~$3.34~~$3.36 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.~~$1.343 billion.

•Full reinstatement available for all private market first event catastrophe layers for guaranteed second event coverage. For all layers purchased ~~below~~between $90 million and the projected FHCF retention, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, UPCIC has purchased enough reinstatement premium protection (“RPP”) limit to pay the premium necessary for the reinstatement of these coverages.

•~~Private market reinsurance coverage continues~~Effective September 1, 2020, UPCIC purchased RPP limit for the layer attaching at $45 million. Combined with the RPP limit purchased at June 1, 2020, UPCIC has purchased enough RPP limit to ~~be structured into layers. This structure utilizes a cascading feature such that any~~pay for the premium necessary for the reinstatement of all catastrophe layers ~~above a $111~~between $45 million ~~attachment point are excess of loss over~~and 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.~~projected FHCF retention.

•Specific 3^rd and 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,~~2020, UPCIC has continued the election of the 90% coverage level. ~~The~~We estimate the total mandatory FHCF layer ~~is estimated to~~will provide approximately ~~$2.038~~$2.008 billion of coverage for UPCIC, which inures to the benefit of the open market coverage secured from private reinsurers.

•Secured $197 million of new catastrophe capacity with contractually agreed limits that extend coverage to include the 2021 and 2022 wind seasons. In total, UPCIC has $420 million of multi-year capacity with coverage extending to include the 2021 wind season or beyond.

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In March 2021, UPCIC completed its first catastrophe bond transaction. Effective March 26, 2021, UPCIC entered into a three-year reinsurance agreement with Cosaint Re Pte. Ltd., a special purpose reinsurance vehicle incorporated in Singapore that correspondingly issued notes in a Rule 144A offering to raise proceeds to collateralize its obligations under this agreement. The reinsurance agreement provides UPCIC with a single limit of $150M of collateralized protection for named windstorm events.

Reinsurers

The table below provides the A.M. Best and S&P financial strength ratings for each of the largest third-party reinsurers in UPCIC’s 2020-2021 reinsurance program:

Reinsurer

A.M. Best

S&P

Allianz Risk Transfer

A+

AA-

Arch Reinsurance Limited

A+

Chubb Tempest Reinsurance Ltd.

A++

Munich Re

A+

AA-

Renaissance Re

A+

Various Lloyd’s of London Syndicates

A+

Florida Hurricane Catastrophe Fund (1)

N/A

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

APPCIC’s ~~2019-2020~~2020-2021 Reinsurance Program

•First event All States retention of $2$3 million.

•All States first event tower of ~~$30.7 million.~~$43.6 million with no co-participation in any of the layers, no limitation on loss adjustment expenses and no accelerated deposit premiums.

•Full reinstatement available for all private market first event catastrophe layers for guaranteed second event coverage. For the layer purchased ~~below~~between $3 million and the projected FHCF retention, to the extent that all coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, APPCIC ~~has~~ purchased enough RPP limit 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~~$0.5 million 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~~$2 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,~~2020, APPCIC has continued the election of the 90% coverage level. The total mandatory FHCF layer is estimated to provide approximately ~~$14.8~~$22.5 million of coverage for APPCIC, which inures to the benefit of the open market coverage secured from private reinsurers.

Reinsurers

The table below provides the A.M. Best and S&P financial strength ratings for each of the largest third-party reinsurers in APPCIC’s 2020-2021 reinsurance program:

Reinsurer

A.M. Best

S&P

Chubb Tempest Reinsurance Ltd.

A++

Lancashire Insurance Company Limited

A-

Various Lloyd’s of London Syndicates

A+

Florida Hurricane Catastrophe Fund (1)

N/A

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

The total cost of the ~~2019-2020~~2020-2021 reinsurance programs for UPCIC and APPCIC is projected to be ~~$420~~$499.8 million, representing approximately ~~33.5%~~34.0% of estimated direct premium earned for the 12-month treaty period.

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RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION

Financial and Business Highlights

~~Results~~First quarter of fiscal 2021 results of operations ~~for the~~comparisons are to 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~~$30.8 million, or ~~15.7%~~9.2%, to ~~$334.6~~$365.3 million.

•~~Reduction~~Policies 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 millionforce at March 31, ~~2020~~2021 were 976,250 compared to ~~$27.1 million~~984,830 at December 31, ~~2019.~~2020, a decline of 0.9% from year end.

•In Florida, direct premiums written grew by ~~$36.4~~$28.5 million, or ~~15.0%~~10.2%, and in our other states, direct premiums written grew by ~~$9.0~~$2.3 million, or ~~19.0%~~4.0%.

•Premiums earned, net, grew by ~~$11.1~~$22.5 million, or ~~5.3%~~10.2%, to ~~$220.8~~$243.3 million.

•FLOIR approved an overall 7.0% rate increase in December 2020 for UPCIC ~~filed~~on Florida personal residential homeowners line of business, effective December 2020 for ~~a 12.4% rate hike~~new business and March 2021 for renewals.

•Net investment income was $3.0 million compared to $6.8 million in ~~Florida on February 7, 2020, which is anticipated to be effective May 25, 2020, pending regulatory review.~~the first quarter of 2020.

•Total revenues ~~decreased~~increased by ~~$1.3~~$27.5 million, or ~~0.6%~~11.7%, to ~~$235.3~~$262.8 million.

•Net loss and LAE ratio was ~~61.2%~~59.2% as compared to ~~53.9%, driven by the factors outlined below.~~61.2%.

•Diluted earnings per common share (“EPS”) ~~of $0.61~~increased by $0.23, or 37.7%, to $0.84 compared to ~~$1.14.~~$0.61.

•Weighted average diluted common shares outstanding were lower by ~~7.0%~~4.4% to ~~32.7~~31.3 million shares compared to ~~35.2~~32.7 million shares.

•Book value per share increased by $0.13, or 0.9%, to ~~$15.26~~$14.56 at March 31, ~~2020~~2021 from ~~$15.13~~$14.43 at December 31, ~~2019.~~2020.

•~~Paid~~Declared and paid dividends of ~~$5.2~~$5.0 million, or $0.16 per common share, in the first quarter of ~~2020.~~2021.

•~~Repurchased 312,107 shares at an average price~~Contributed $77 million of ~~$21.11 for an aggregate purchase price of $6.6 million~~capital to UPCIC during the ~~quarter.~~first quarter of 2021 to support insurance operations.

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Results of Operations— Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Net income was $26.4 million for the three months ended March 31, 2021, compared to net income of $20.1 million for the same period in 2020. Weighted average diluted common shares outstanding for the three months ended March 31, 2021 were lower by 4.4% to 31.3 million shares from 32.7 million shares for the same period of the prior year. Benefiting the quarter were increases in premiums earned, net, improvements in both realized and unrealized gains and losses and an increase in commission revenue, offset by a decrease in net investment income, policy fees and other revenue and an increase in operating costs and expenses. Direct premium earned and premiums earned, net were up 15.2% and 10.2%, respectively, due to growth in all states in which we are licensed and writing during the past 12 months and rate increases implemented during 2020 and 2021, offset by higher costs for reinsurance flowing through to premiums earned, net. The net losses and LAE ratio was 59.2% for the three months ended March 31, 2021, compared to 61.2% for the same period in 2020 reflecting benefits from prior years’ development and a decrease in weather events partially offset by higher core net losses when compared to the prior year quarter.

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


		Three Months Ended March 31,						Change							Three Months Ended March 31,				Change
		2020		2019		$		%			2021		2020		$		%
PREMIUMS EARNED AND OTHER REVENUES	PREMIUMS EARNED AND OTHER REVENUES									PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	Direct premiums written	$	334,553	$	289,234	$	45,319	15.7	%	Direct premiums written	$	365,314	$	334,553	$	30,761	9.2	%
Change in unearned premium	Change in unearned premium	(8,602)		6,143		(14,745)		(240.0)	%	Change in unearned premium	10,292		(8,602)		18,894		NM
Direct premium earned	Direct premium earned	325,951		295,377		30,574		10.4	%	Direct premium earned	375,606		325,951		49,655		15.2	%
Ceded premium earned	Ceded premium earned	(105,122)		(85,650)		(19,472)		22.7	%	Ceded premium earned	(132,301)		(105,122)		(27,179)		25.9	%
Premiums earned, net	Premiums earned, net	220,829		209,727		11,102		5.3	%	Premiums earned, net	243,305		220,829		22,476		10.2	%
Net investment income	Net investment income	6,834		8,142		(1,308)		(16.1)	%	Net investment income	2,986		6,834		(3,848)		(56.3)	%
Net realized gains (losses) on investments	Net realized gains (losses) on investments	299		(11,525)		11,824		NM		Net realized gains (losses) on investments	542		299		243		81.3	%
Net change in unrealized gains (losses) of equity securities	Net change in unrealized gains (losses) of equity securities	(8,024)		18,032		(26,056)		NM		Net change in unrealized gains (losses) of equity securities	(494)		(8,024)		7,530		(93.8)	%
Commission revenue	Commission revenue	7,015		5,505		1,510		27.4	%	Commission revenue	9,126		7,015		2,111		30.1	%
Policy fees	Policy fees	5,540		5,021		519		10.3	%	Policy fees	5,387		5,540		(153)		(2.8)	%
Other revenue	Other revenue	2,782		1,684		1,098		65.2	%	Other revenue	1,905		2,782		(877)		(31.5)	%
Total premiums earned and other revenues	Total premiums earned and other revenues	235,275		236,586		(1,311)		(0.6)	%	Total premiums earned and other revenues	262,757		235,275		27,482		11.7	%
OPERATING COSTS AND EXPENSES	OPERATING COSTS AND EXPENSES									OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	Losses and loss adjustment expenses	135,048		113,094		21,954		19.4	%	Losses and loss adjustment expenses	143,963		135,048		8,915		6.6	%
General and administrative expenses	General and administrative expenses	72,643		69,748		2,895		4.2	%	General and administrative expenses	82,443		72,643		9,800		13.5	%
Total operating costs and expenses	Total operating costs and expenses	207,691		182,842		24,849		13.6	%	Total operating costs and expenses	226,406		207,691		18,715		9.0	%
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	27,584		53,744		(26,160)		(48.7)	%	INCOME BEFORE INCOME TAXES	36,351		27,584		8,767		31.8	%
Income tax expense		7,517		13,596		(6,079)		(44.7)	%
Income tax (benefit) expense										Income tax (benefit) expense	9,943		7,517		2,426		32.3	%
NET INCOME	NET INCOME	$	20,067	$	40,148	$	(20,081)	(50.0)	%	NET INCOME	$	26,408	$	20,067	$	6,341	31.6	%
Other comprehensive income (loss), net of taxes	Other comprehensive income (loss), net of taxes	(8,946)		11,984		(20,930)		NM		Other comprehensive income (loss), net of taxes	(16,910)		(8,946)		(7,964)		89.0	%
COMPREHENSIVE INCOME	COMPREHENSIVE INCOME	$	11,121	$	52,132	$	(41,011)	(78.7)	%	COMPREHENSIVE INCOME	$	9,498	$	11,121	$	(1,623)	(14.6)	%
DILUTED EARNINGS PER SHARE DATA:	DILUTED EARNINGS PER SHARE DATA:									DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share	Diluted earnings per common share	$	0.61	$	1.14	$	(0.53)	(46.5)	%	Diluted earnings per common share	$	0.84	$	0.61	$	0.23	37.7	%
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	32,731		35,206		(2,475)		(7.0)	%	Weighted average diluted common shares outstanding	31,277		32,731		(1,454)		(4.4)	%

NM – Not Meaningful	NM – Not Meaningful									NM – Not Meaningful

Benefiting the quarter were increases in premiums earned, net, net realized gains on investments, commission revenue, policy fees and other revenues, offset by a decrease in net investment income, net change in unrealized losses

Table of equity securities and increased operating costs for losses and LAE. Direct premium earned and premiums earned, net were up 10.4% and 5.3%, respectively, due to growth in 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 and (3) adverse development on prior years’ loss and LAE reserves.Contents

Direct premiums written increased by ~~$45.3~~$30.8 million, or ~~15.7%~~9.2%, for the quarter ended March 31, ~~2020,~~2021, driven by growth within our Florida business of ~~$36.4~~$28.5 million, or ~~15.0%~~10.2%, and growth in our other states business of ~~$9.0~~$2.3 million, or ~~19.0%~~4.0%, as compared to the same period of the prior year. Rate increases approved in 2020 in Florida and in certain other states ~~along with~~were the principal driver of higher written premiums despite a lower level of new writings and slightly ~~improved~~lower renewal retention also contributed to the premium growth. As discussed below in losses and LAE, we intend to update our underwriting guidelines on new business to address emerging loss trends that have impacted the rate of growth in Florida. Direct premiums written in every state in which we are writing increased compared to the same period of the prior year. During the first quarter of 2021, management implemented efforts to prudently manage its exposures while rate increases take effect, which has slowed the growth of written premiums when compared to prior years. Policies in force declined from 984,830 at December 31, 2020 to 976,250 at March 31, 2021 as a result of management’s effort to reduce new business exposures. Policies in force declined in 11 out of the 19 states that the Insurance Entities write in as a result of management’s actions. We actively wrote policies in 19 states during 2021 compared to 18 states ~~during 2019 and~~at March 31, 2020. In addition, we are authorized to do business in ~~Iowa~~Tennessee and Wisconsin and are proceeding with product filings in those states. ~~We also have applications submitted and pending to write policies~~Policies in ~~Connecticut and Tennessee. Policy count,~~force, premium in force and total insured value increased atas of March 31, ~~2020~~2021 when compared to March 31, 2019. Policies in force are a count of 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.

2020.

The following table provides direct premiums written for Florida and Other States for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 (dollars in thousands):


		For the Three Months Ended																			For the Three Months Ended
		March 31, 2020						March 31, 2019								Growth year over year					March 31, 2021				March 31, 2020		Growth year over year
State	State	Direct Premiums Written		%		Direct Premiums Written		%		$		%		State	Direct Premiums Written		%		Direct Premiums Written		%		$		%
Florida	Florida	$	278,511	83.2	%	$	242,148	83.7	%	$	36,363	15.0	%	Florida	$	307,011	84.0	%	$	278,511	83.2	%	$	28,500	10.2	%
Other states	Other states	56,042		16.8	%	47,086		16.3	%	8,956		19.0	%	Other states	58,303		16.0	%	56,042		16.8	%	2,261		4.0	%
Total	Total	$	334,553	100.0	%	$	289,234	100.0	%	$	45,319	15.7	%	Total	$	365,314	100.0	%	$	334,553	100.0	%	$	30,761	9.2	%

We seek to grow and generate long-term rate adequate premium in each state where we offer policies, including Florida. 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 ~~$30.6~~$49.7 million, or ~~10.4%~~15.2%, for the quarter ended March 31, ~~2020,~~2021, reflecting the earning of premiums written over the past 12 months ~~and~~including positive changes in rates and ~~policy count~~policies in force 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 ~~was $105.1~~increased $27.2 million, or 25.9%, for the quarter ended March 31, ~~2020,~~2021, as compared to ~~$85.7 million during~~ the same period of the prior year. The increase in ~~2019.~~reinsurance costs reflects an increase in costs associated with the increase in exposures we insure, increased pricing when compared to the expired reinsurance program and differences in the structure and design of the respective programs. Reinsurance costs, as a percentage of direct premium earned, increased from ~~29.0% for the 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 higher costs~~2020 to 35.2% for the ~~Company’s 2019-2020 reinsurance program compared to the expired program. Costs~~three months ended March 31, 2021. Reinsurance costs associated with each year’s reinsurance program are earned over the annual policy period which typically runs from June 1^st to May 31^st ~~coverage period.~~st.. See the discussion above for the Insurance Entities’ ~~2019-2020~~2020-2021 reinsurance programs and “Item 1—Note 4 (Reinsurance).”

Premiums earned, net of ceded premium earned, grew by ~~5.3%~~10.2%, or ~~$11.1~~$22.5 million, to ~~$220.8~~$243.3 million for the three months ended March 31, ~~2020,~~2021, reflecting an increase in direct premium earned offset by increased ~~cost~~costs for reinsurance.

Net investment income was ~~$6.8~~$3.0 million for the three months ended March 31, ~~2020,~~2021, compared to ~~$8.1~~$6.8 million for the same period in ~~2019,~~2020, a decrease of ~~$1.3~~$3.8 million, or ~~16.1%~~56.3%. ~~The~~This decrease is ~~driven by~~largely attributable to significantly lower yields on the reinvested portfolio following the sale of a majority of securities in the portfolio that were in an unrealized gain position in the third and fourth quarters of 2020. Market rates in the second half of 2020 were considerably lower than the book yields of the portfolio prior to the sale. Additionally, income from cash investing was down $0.8 million in the first quarter of 2021 as compared to the same period of the prior year due to significantly lower yields on cash sweep and ~~short term investments during 2020 when compared to 2019. The prior year also included one-time income benefits from a special dividend received and a one-time reduction in investment expenses.~~short-term cash investing. Total invested assets were ~~$928.6~~$1,017.3 million as of March 31, ~~2020~~2021 compared to ~~$914.6~~$919.9 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 our fixed income securities was 3.6 years at March 31, 2020 compared to 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.2020. Cash and cash equivalents were ~~$180.8~~$90.8 million at March 31, ~~2020~~2021 compared to ~~$182.1~~$167.2 million at December 31, ~~2019,~~2020, a decrease of ~~0.7%~~45.7%. Cash and cash equivalents are invested short term until needed to settle loss and LAE payments, reinsurance premium payments and operating cash needs or until they are deployed toby our investment advisors.

Yields from cash and cash equivalents, short-term investments and the ~~fixed income~~available-for-sale 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 the effective yields on new ~~fixed income~~available-for-sale portfolio 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.purchases and short-term investments. The overall trend has been lower interest rates on new purchases of securities over the past ~~year.~~year and lower returns on cash and cash equivalents and short-term investments. As discussed below, due to the significant sale of securities during the third and fourth quarters of 2020, it is expected that future portfolio returns will reflect lower book yields based on current market conditions.

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We sell investments, including securities, from our investment portfolio from time to time to meet our investment ~~objectives.~~objectives or take advantage of market opportunities. During the three months ended March 31, 2021, sales of equity securities resulted in net realized gain of $0.3 million, sales of available-for-sale debt securities resulted in net realized losses of $0.2 million and the sale of an investment real estate property resulted in a realized gain of $0.4 million, in total generating net realized gain of $0.5 million. During the three months ended March 31, 2020, sales resulted in a net realized gain of $0.3 million. We sold securities during the three months ended March 31, 2019, generating net realized loss of $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 available-for-sale debt securities ~~whereas the~~resulted in net realized ~~loss for the quarter ended March 31, 2019 resulted primarily from the sale~~gains of ~~equity securities.~~$0.3 million See “Item 1—Note 3 (Investments).”

There was ~~an $8.0~~a $0.5 million ~~unfavorable~~ net unrealized loss in equity securities during the three months ended March 31, ~~2020~~2021 compared to an ~~$18.0~~$8.0 million ~~favorable~~ net unrealized ~~gain~~loss during the three months ended March 31, ~~2019.~~2020 following the onset of the COVID-19 pandemic. Unrealized gains or losses reflected on the income statement 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)~~(Investments).”

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~~The~~During 2020, the COVID-19 pandemic ~~has negatively impacted~~disrupted the financial ~~markets and most~~markets. In the first quarter of 2020, our investment ~~assets.~~portfolio was adversely impacted, but has since substantially recovered. We took advantage of the recovery with the realization of gains on our available-for-sale debt securities discussed above. We believe the adverse impact to our investment portfolio ~~has been~~was minimized in part during this ~~COVID-19-induced~~COVID-19 pandemic-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 high credit rating and shorter 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. Recent market yields have been lower when compared to prior years and we expect the trend in lower interest income to continue as long as we compare current yields to yields on the portfolio before it was sold in 2020. We will continue to monitor the impact of the COVID-19 pandemic on our ~~portfolio.~~portfolio and the impact of the expected economic recovery. Significant uncertainties and emerging risks still exist regarding the potential long-term impact of the COVID-19 pandemic on the credit markets and our investment ~~portfolio, as well as new emerging risks. See “Part II, Item1A—Risk Factors.”~~portfolio.

Commission revenue is comprised principally of brokerage commissions we earn from ~~third party~~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 March 31, ~~2020,~~2021, commission revenue was ~~$7.0~~$9.1 million, compared to ~~$5.5~~$7.0 million for the three months ended March 31, ~~2019.~~2020. The increase in commission revenue of ~~$1.5~~$2.1 million, or ~~27.4%~~30.1%, for the three months ended March 31, ~~2020~~2021 was primarily due to increased commissions from third-party reinsurers earned on increased reinsurance premiums due to growth in our exposures, as well as the difference in pricing and structure associated with our reinsurance program when compared to the prior year.

Policy fees for the three months ended March 31, ~~2020~~2021 were ~~$5.5~~$5.4 million compared to ~~$5.0~~$5.5 million for the same period in ~~2019.~~2020. The ~~increase~~decrease of ~~$0.5~~$0.2 million, or ~~10.3%~~2.8%, was the result of ~~an increase~~a decrease in the total number of new and renewal policies written during the three months ended March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020.

~~Losses~~The following table presents losses and LAE incurred on a direct, ceded and net basis expressed in dollars and as a percent of ~~reinsurance, were $135.0 million~~the respective amounts of premiums earned. These amounts are further categorized as 1) core losses, 2) weather events for the ~~three months ended March 31, 2020, compared to $113.1 million during the same period in 2019 as follows~~current accident year and 3) prior years’ reserve development (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 March 31, 2021
	Direct		Loss Ratio		Ceded		Loss Ratio		Net		Loss Ratio
Premiums earned	$	375,606			$	132,301			$	243,305

Loss and loss adjustment expenses:
Core losses	$	145,228	38.7	%	$	28	—	%	$	145,200	59.7	%
Weather events*	—		—	%	—		—	%	—		—	%
Prior years’ reserve development	92,070		24.5	%	93,307		70.5	%	(1,237)		(0.5)	%
Total losses and loss adjustment expenses	$	237,298	63.2	%	$	93,335	70.5	%	$	143,963	59.2	%

*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.

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	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:
Core losses	$	129,728	39.8	%	$	21	—	%	$	129,707	58.7	%
Weather events*	1,000		0.3	%	—		—	%	1,000		0.5	%
Prior years’ reserve development	42,515		13.0	%	38,174		36.3	%	4,341		2.0	%
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.

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

~~Table~~Management looks at losses and LAE in three areas, as described below and represented in the tables above, each of ~~Contents~~

~~The increases in~~which have different drivers which impact reported results. As a result, these components of losses and LAE are described separately. Overall losses and LAE, net of reinsurance recoveries, were $144.0 million resulting in a 59.2% net loss and LAE ratio for the ~~result~~quarter ended March 31, 2021. This compares to $135.0 million resulting in a 61.2% net loss and LAE ratio for the quarter ended March 31, 2020.

The factors impacting losses and LAE are as follows:

•Core losses

◦Our core losses consist of ~~a higher~~all other losses and LAE, current year strengthening and excludes weather events beyond those expected and prior years’ reserve development. Core losses were 38.7% of direct premium earned for the quarter ended March 31, 2021 compared to 39.8% for the same period in 2020. These losses and loss ratios benefit from the profitable impact of ceded claim fees, which are described below, reducing core losses. The core loss ratio for 2020 ~~compared~~and 2021 reflects trends we have seen in higher expected costs to ~~2019~~settle claims in the Florida market, specifically in response to increased trends in litigated and ~~increased~~represented claims. Core losses also increase as premium volume increases year over year. Although the Insurance Entities received rate increases in Florida and certain other states, management has elected to keep the core loss ratio in line with the prior year ~~adverse development, offset~~until management sees loss costs stabilize in Florida and certain other states. The core loss ratio, net is also negatively impacted in 2021 by a ~~lower level of~~proportionally greater spend on reinsurance which increases the net loss ratio. See the discussion above for the Insurance Entities’ 2020-2021 reinsurance programs and “Item 1—Note 4 (Reinsurance).”

•Weather events beyond those expected

◦There were no weather events ~~in 2020. All other losses and LAE increased~~above plan during the ~~first~~quarter ended March 31, 2021.

◦During the quarter ended March 31, 2020, weather events totaled $1.0 million direct and net, principally ~~due~~for weather events beyond those expected.

•Prior years’ reserve development

◦Management identifies two drivers which influence amounts recorded as prior years’ reserve development, namely: (i) changes to ~~two key factors: (1) increased~~prior estimates of direct and net ultimate losses on prior accident years excluding major hurricanes and (ii) changes in ~~connection with~~prior estimates of direct and net ultimate losses on hurricanes. During the ~~growth in our underlying business;~~quarter ended March 31, 2021, prior years’ reserve development totaled $92.1 million of direct losses and ~~(2) increased core~~$1.2 million of net favorable loss ~~ratio (as defined below) from 37% in 2019 to 40% in 2020. The~~development after the benefit of reinsurance.

▪Prior years’ reserve development for the quarter ended March 31, 2021 was the result of a gross increase in the ~~core~~ultimate losses ~~primarily reflects increased~~for Hurricane Sally of $92 million. Changes to ceded reserves on prior years’ hurricanes exceeded gross development by $1.2 million, resulting in net favorable development on prior years’ reserve development. There was an increase in ceded reserves on Hurricane Sally as a result of recoveries on losses ~~and LAE primarily associated with litigated and represented claims~~outside of Florida, which have a lower attachment point, offset by a reduction in ~~the Florida market. In the first quarter of 2020,~~Hurricane Irma recoveries representing previously ceded losses not subject to recovery. As a result, net prior years’ reserve development was favorable.

▪Excluding hurricanes, there was ~~adverse~~no prior ~~year~~years’ reserve development for the quarter ended March 31, 2021.

▪For the quarter ended March 31, 2020, direct prior years’ reserve development of $42.5 million gross, less $38.2 million ceded, resulting in $4.3 million net. 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.net development. The direct and net prior ~~year~~years’ reserve development was principally due to increased ultimate direct losses and LAE for Hurricane Irma.

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The net loss and LAE ratio for the quarter ended March 31, ~~2020~~2021 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.

~~The net loss ratio for the first quarter ended March 31, 2020 was 61.2%~~59.2% compared to ~~53.9%~~61.2% in the first quarter of the prior year. The ~~increase~~decrease of ~~7.3%~~2.0 loss ratio points was a result of: (1) favorable prior years’ reserve development on prior years’ losses and LAE reserves (2.5 loss ratio points); (2) decreased weather (0.5 loss ratio points); and (3) increased estimated core losses and LAE ratio and strengthening for the current year ~~(6.9%~~(4.1 loss ratio points, which ~~includes 2.4%~~include 4.1 loss ratio points 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~~. The increase was partially offset by higher financial benefit from the management of claims, including claims fees ceded to reinsurers ~~(0.2%~~(3.1 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~~inflated costs for losses and LAE in the Florida market where an industry has developed around the solicitation, filing and litigation of personal residential claims, ~~process,~~ resulting in ~~historically high~~a pattern of continued increased year over year levels of represented claims, inflation of purported claim amounts, and ~~inflated claims.~~increased demands for attorneys’ fee. Active solicitation of personal residential claims in Florida by policyholder representatives, remediation companies and repair companies has led to aan increase in the frequency and severity of personal residential claims in ~~the state~~Florida exceeding historical levels ~~in Florida~~ and levels seen in other jurisdictions.

We A Florida statute providing a one-way right of attorneys’ fees against insurers, coupled with other adverse statutes and judicial rulings, have ~~taken steps~~further produced a legal environment in Florida that encourages litigation, in many cases without regard 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 policyholders. Claims paid under an AOB often involve unnecessary litigation, with the Company required to pay both its own defense costs and thoseunderlying circumstances of the 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 the concerns affecting the Florida market, the overall impact of the deterioration in claims-related tactics and behaviors thus far has continued to outpace any benefits arising in the early months of the new legislation.claims.

The market trends in losses and LAE led us to file in February 2020 for an overall 12.4% rate increase in Florida, ~~(effective~~which was approved effective May 18, 2020 for new business and July 7, 2020 for ~~renewals), make~~renewals. In addition we filed and received approval on December 31, 2020 to further increase our rates in Florida by an additional 7.0% in response to higher reinsurance costs associated with the reinsurance program we put into effect June 1, 2020. This rate change was effective December 31, 2020 for new business and March 1, 2021 for renewal business. In addition, we implemented changes to certain new business underwriting guidelines, reduced new business writings in certain Florida counties and ~~develop~~developed and implemented specialized claims and litigation management efforts to address market trends which we believe are driving up claim costs. ~~Delayed approval of our rate filing for any reason, potentially including regulatory considerations arising~~

The financial benefit from the ~~COVID-19 pandemic, may materially impact prospective expected loss ratios. See “Part II, Item 1A—Risk Factors.”~~

~~General and administrative expenses were $72.6~~management of claims, including claim fees ceded to reinsurers, was $8.1 million for the three months ended March 31, ~~2020,~~2021, compared to ~~$69.7~~$0.3 million during the three months ended March 31, 2020, driven primarily by the recoveries from reinsurers in excess of costs and the financial impact of internal claim services on the expected core loss ratio. The benefit was recorded in the condensed consolidated financial statements as a reduction to losses and LAE.

General and administrative expenses were $82.4 million for the three months ended March 31, 2021, compared to $72.6 million during the same period in ~~2019,~~2020, as follows (dollars in thousands):


		Three Months Ended																				Three Months Ended
		March 31,																Change						March 31,						Change
		2020						2019								$		%		2021				2020				$	%
		$		Ratio		$		Ratio							$		Ratio			$		Ratio
Premiums earned, net	Premiums earned, net	$	220,829			$	209,727			$	11,102	5.3	%	Premiums earned, net	$	243,305				$	220,829			$	22,476	10.2	%
General and administrative expenses:	General and administrative expenses:													General and administrative expenses:
Policy acquisition costs	Policy acquisition costs	46,864		21.2	%	43,511		20.7	%	3,353		7.7	%	Policy acquisition costs	56,458		23.2		%	46,864		21.2	%	9,594		20.5	%
Other operating costs(1)	Other operating costs(1)	25,779		11.7	%	26,237		12.5	%	(458)		(1.7)	%	Other operating costs(1)	25,985		10.7		%	25,779		11.7	%	206		0.8	%

Total general and administrative expenses	Total general and administrative expenses	$	72,643	32.9	%	$	69,748	33.3	%	$	2,895	4.2	%	Total general and administrative expenses	$	82,443	33.9		%	$	72,643	32.9	%	$	9,800	13.5	%
(1)Other operating costs includes $20 and $52 of interest expense for the three months ended March 31, 2021 and 2020, respectively.														(1)Other operating costs includes $20 and $52 of interest expense for the three months ended March 31, 2021 and 2020, respectively.

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General and administrative expenses increased by ~~$2.9~~$9.8 million, which was the result of increases in policy acquisition costs of ~~$3.4~~$9.6 million, ~~offset by a decrease~~primarily due to commissions associated with increased premium volume and an increase in other operating costs of ~~$0.5~~$0.2 million. The expense ratio ~~(general and administrative expenses~~ as a percentage of premiums earned, ~~net) decreased~~net increased from ~~33.3% of premiums earned, net for the three months ended March 31, 2019 to~~ 32.9% of premiums earned, net for the same period in 2020. Our underlying policy acquisition costs continued to be driven by increased premium volume and continued geographic expansion into states that typically have higher commission rates as compared to Florida. Other operating costs for the three months ended March 31, 2020 ~~decreased $0.5 million, reflecting lower amounts recorded~~to 33.9% for ~~executive compensation~~the same period in 2021. The increase in policy acquisition costs as a percentage of premiums earned, net increased during the quarter as a result of bonus payouts to agents exceeding previous estimates, higher premium tax rate and ~~temporary employee expenses, partially offset by added~~the ratio impact of higher reinsurance costs than previous years reducing premiums earned, net. The commission rate paid to ~~support~~agents on the ~~growth in business.~~renewal of Florida policies was reduced 2 percentage points effective April 1, 2021. Other operating ~~costs~~cost ratio for the three months ended March 31, ~~2020~~2021 was ~~11.7%~~10.7% compared to ~~12.5%~~11.7% in the first quarter of ~~2019,~~2020, reflecting lower ~~amounts recorded for executive compensation. The total general~~advertising costs and ~~administrative expense ratio is comprised of the policy acquisition cost ratio~~performance bonuses in 2021 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 benefited from the items mentioned above and~~continued economies of scale as ~~general and administrative expenses~~other operating costs did not increase at the same rate as premiums earned, net.

Income tax expense ~~decreased by $6.1~~was $9.9 million ~~or 44.7%,~~for the quarter ended March 31, 2021 compared to income tax expense of $7.5 million for the quarter ending March 31, 2020. Our effective tax rate (“ETR”) increased to 27.4% for the three months ended March 31, ~~2020, primarily~~2021, as ~~a result of a 48.7% reduction in income before income taxes, when~~ compared ~~with the three months ended March 31, 2019. Our effective tax rate (“ETR”) increased~~ to 27.3% for the three months ended March 31, ~~2020, as compared to 25.3% for the three months ended March 31, 2019.~~2020. 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~~lower level of discrete tax benefits.

Other comprehensive loss, net of taxes for the three months ended March 31, ~~2020,~~2021, was ~~$8.9~~$16.9 million compared to other comprehensive ~~income~~loss of ~~$12.0~~$8.9 million for the same period in ~~2019,~~2020, reflecting reclassifications out of cumulative other comprehensive income for available-for-sale debt securities sold and after-tax changes in fair value of available-for-sale debt securities ~~available for sale.~~held in our investment portfolio. See “Item 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income ~~and loss~~ for these periods.

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Analysis of Financial Condition—As of March 31, ~~2020~~2021 Compared to December 31, ~~2019~~2020

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
		March 31,		December 31,			March 31,		December 31,
Type of Investment	Type of Investment	2020		2019		Type of Investment	2021		2020
Available-for-sale debt securities	Available-for-sale debt securities	$	867,249	$	855,284	Available-for-sale debt securities	$	913,131	$	819,861

Equity securities	Equity securities	45,838		43,717		Equity securities	91,291		84,887
Assets held for sale						Assets held for sale	6,855		—
Investment real estate, net	Investment real estate, net	15,481		15,585		Investment real estate, net	6,027		15,176
Total	Total	$	928,568	$	914,586	Total	$	1,017,304	$	919,924

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

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 decrease of ~~$105.1~~$115.5 million to ~~$70.1~~$100.2 million as of March 31, ~~2020~~2021 was due to ~~recognize~~ the amortization of ceded written premium for the reinsurance costs relating to our ~~2019-2020~~2020-2021 catastrophe reinsurance program earned during the period.

Reinsurance recoverable represents the estimated amount of paid and unpaid losses, LAE and other expenses that are expected to be ~~recoverable~~recovered from reinsurers. The ~~decrease~~increase of ~~$84.7~~$57.2 million to ~~$108.5~~$217.6 million as of March 31, ~~2020~~2021 was primarily due to ~~the collection~~increased estimates of amounts recoverable from reinsurers relating to settled claims from hurricanes and other ~~events.~~events covered by our reinsurance contracts.

Premiums receivable, net, represents amounts receivable from policyholders. The ~~increase~~decrease in premiums receivable, net, of ~~$2.7~~$4.4 million to ~~$66.6~~$62.5 million as of March 31, ~~2020~~2021 relates to a slight decrease in direct premium written during the ~~growth~~quarter ended March 31, 2021 compared to the quarter ended December 31, 2020 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 during a calendar year tends to increase just prior to the second quarter and tends to decrease approaching the fourth quarter.

Property and equipment, net, increased by $3.5 million to $44.9 million as of March 31, 2020 primarily as the result 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 as the business continues to expand.

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

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Income taxes recoverable represents the difference between estimated tax obligations and tax payments made to taxing authorities. As of March 31, ~~2020,~~2021, the balance recoverable was ~~$17.1~~$14.7 million, representing amounts due from taxing authorities at that date, compared to a balance recoverable of ~~$34.3~~$30.6 million as of December 31, ~~2019.~~2020. Income taxes recoverable as of March 31, ~~2020~~2021 will either be refunded or applied to future periods ~~for~~to offset future federal and state income ~~taxes payable.~~tax obligations.

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 three months ended March 31, ~~2020,~~2021, deferred income tax ~~assets~~asset, net increased by ~~$12.2~~$11.2 million to ~~$15.6 million primarily due to an increase in unrealized losses on investment and increase in unearned premiums.~~$17.5 million. 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 ~~$71.8~~$6.7 million to ~~$196.0~~$315.8 million as of March 31, ~~2020.~~2021. 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 three months ended March 31, ~~2020.~~2021. 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~~decrease of ~~$8.6~~$10.3 million from December 31, ~~2019~~2020 to ~~$669.9~~$772.8 million as of March 31, ~~2020~~2021 reflects ~~both organic growth and~~ the seasonality of our business, which ~~is the variability of premiums written by~~varies from month to month.

Advance premium represents premium payments made by policyholders ahead of the effective date of the policies. The increase of ~~$24.8~~$24.2 million to ~~$55.8~~$73.7 million as of March 31, ~~2020~~2021 reflects customer payment behavior ~~organic growth~~ and ~~rate increases.~~the seasonality of our business.

We exclude ~~any~~ net negative cash balances, if any, from cash and cash equivalents that we have with any single financial ~~institution.~~institution based on aggregating the book balance of all accounts at the institution which have the right of offset. If the aggregation results in a net negative book balance, that balance is reclassified from cash and cash equivalents in our Condensed Consolidated Balance Sheet to book overdraft. These amounts represent outstanding checks or drafts not yet presented to the financial institution ~~and are reclassified to liabilities and presented as book overdraft~~ in ~~our Condensed Consolidated Balance Sheets~~excess of amounts on deposit at ~~each balance sheet date.~~the financial institutions. We maintain a short-term cash investment strategy sweep to maximize investment returns on cash balances. ~~Due to sweep activities, certain outstanding items are recorded as book overdrafts totaling $90.4 million as of December 31, 2019.~~ There were no book overdrafts as of March 31, 2021 compared to book overdrafts totaling $59.4 million as of December 31, 2020.

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Reinsurance payable, net, represents the unpaid reinsurance premium installments owed to reinsurers, unpaid reinstatement premiums due to reinsurers and cash advances received from reinsurers, if any. On June 1^st of each year, we renew our core catastrophe reinsurance program and record the estimated annual cost of our reinsurance program. These estimated annual costs are increased or decreased during the year based on premium adjustments or as a result of new placements during the year. The annual cost initially increases reinsurance payable, which is then reduced as installment payments are made over the policy period of the reinsurance, which typically runs from June 1^st to May 31^st. The balance ~~decreased~~increased by ~~$58.1~~$14.2 million to ~~$64.5~~$24.5 million as of March 31, ~~2020~~2021 as a result of a new reinsurance placement during the quarter ended March 31, 2021 and the timing of the above items.

Other liabilities and accrued expenses ~~increased~~decreased by ~~$11.5~~$11.2 million to ~~$52.5~~$41.1 million as of March 31, ~~2020,~~2021, primarily driven ~~by an increase in other liabilities due to~~from the timing of payments and payables relating to purchases of securities for our investment portfolio ~~investment purchases~~that settled after ~~March~~December 31, 2020.

Capital resources, net, ~~held steady~~increased by $5.0 million for the three months ended March 31, ~~2020.~~2021. The ~~nominal~~ increase in stockholders’ equity was principally the result of our ~~2020~~2021 net income and share-based compensation, offset by declines in the after-tax changes in the fair value of our available-for-sale debt securities, ~~available for sale held in our investment portfolio,~~ treasury ~~stock repurchases~~share purchases 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 $0.4 million was the result of principal payments on debt during ~~2020.~~2021. See “—Liquidity and Capital 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 and we expect them to be sufficient to meet our current and long term liquidity requirements. WeWhile we have not experienced an adverse impact on our liquidity as a result of the COVID-19 pandemic, we will continue to monitor liquidity as the economic consequences of the COVID-19 pandemic continue to ~~unfold (see “Part II, Item 1A— Risk Factors” and~~unfold. See discussion below regarding ~~COVID-19).~~the COVID-19 pandemic’s impact. Also see the discussion above under “Overview—Trends—Impact of ~~COVID-19”~~the COVID-19 Pandemic” regarding our response to the COVID-19 pandemic, 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 COVID-19 pandemic.

The balance of cash and cash equivalents, excluding restricted cash, as of March 31, ~~2020~~2021 was ~~$180.8~~$90.8 million, compared to ~~$182.1~~$167.2 million at December 31, ~~2019.~~2020. See “Item 1—Condensed Consolidated Statements of Cash Flows” for a reconciliation of the balance of cash and cash equivalents between March 31, ~~2020~~2021 and December 31, ~~2019.~~2020. The decrease in cash and cash equivalents was driven by cash flows used in investing and financing activities in excess of ~~net~~ cash ~~provided by~~flows generated from operating activities. We ~~maintain~~have not experienced an adverse impact on our liquidity as a ~~short-term~~result of the COVID-19 pandemic. Our cash investment strategy at times includes cash ~~sweep to maximize investment returns on cash balances. Due to these sweep activities, certain outstanding items are routinely recorded as~~investments where the right of offset against other bank accounts does not exist.A book overdraft occurs when aggregating the book balance of all accounts at a financial institution, for accounts which have the right of offset, and if the aggregation results in ~~the~~a net negative book balance, that balance is reclassified from cash and cash equivalents in our Condensed Consolidated ~~Financial Statements.~~Balance Sheet to book overdraft. 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 FHCF reimbursement premiums are paid in three installments on August 1^st, October 1^st, and December 1^st, and third-party reinsurance ispremiums are generally 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 March 31, ~~2020~~2021 and December 31, ~~2019~~2020 represents cash equivalents on deposit with certain regulatory agencies in the various states in which our Insurance Entities do ~~business.~~business and, in 2021, restricted cash and cash equivalents also includes collateral held by a reinsurance captive arrangement with one of the Insurance Entities reported as a variable interest entity (“VIE”) in the condensed consolidated financial statements. The amount of collateral held was $10.1 million as of March 31, 2021. See “Item 1—Note 14 (Variable Interest Entities)” for more information.

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 of the holding company, if any. See “Item 1—Note 5 (Insurance Operations).” 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 the holding company include 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. Dividends are also paid from income earned from brokerage commissions earned on reinsurance contracts placed by our wholly-owned subsidiary, Blue Atlantic Reinsurance ~~Company,~~Corporation, and policy fees. We also maintain high quality investments in our portfolio as a source of liquidity along with ongoing interest and dividend income 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).

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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 three months ended March 31, ~~2020~~2021 and the year ended December 31, ~~2019,~~2020, the Insurance Entities did not pay dividends to PSI.

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, 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 potential 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 average credit rating on our available-for-sale securities was A+ as of March 31, 2021 and December 31, 2020. 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 rating for all investments. The duration of our available-for-sale securities was 4.5 years at March 31, 2021 compared to 4.0 years at December 31, 2020. 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.

The Insurance Entities are responsible for losses related to catastrophic events in excess of coverage provided by the Insurance Entities’ reinsurance programs orand 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, on 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
	March 31,			December 31,
	2021			2020
Stockholders’ equity	$	454,665		$	449,262
Total long-term debt	8,088			8,456
Total capital resources	$	462,753		$	457,718

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

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, ~~2019,~~2020, 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 March 31, ~~2020,~~2021, UPCIC was in compliance with the terms of the surplus note. Total adjusted capital and 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~~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~~

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Impact of the COVID-19 Pandemic

There has been significant recovery in the ~~fixed income market, which settled down as~~fair value of invested assets since the ~~Federal Reserve provided liquidity to that marketplace~~low point on or about March 23, 2020 and in the ~~latter part of March. Despite the turbulent~~third and ~~declining market values during the first quarter~~fourth quarters of 2020 the ~~overall performance~~Company sold many of ~~our portfolio was~~its securities in ~~accordance with our primary objectives~~an unrealized gain position to take advantage of ~~capital preservation and liquidity. Although we had a decline~~the recovery in ~~our unrealized gains~~asset values. The proceeds from the sales of available-for-sale debt securities in the ~~fixed~~third and fourth quarters of 2020 have been fully reinvested. The sales took advantage of increased market prices occurring on our available-for-sale debt investment portfolio. As a result of the sales and reinvestment of available-for-sale debt securities, it is expected that future portfolio investment income ~~portfolio during~~will be lower, as reinvestment rates reflected market rates which were below 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~~book yields of the securities sold.

The impact of the COVID-19 pandemic on the 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~~and efforts taken by governments to accelerate and stimulate a financial recovery. Our concern is that individual companies within our portfolio experience business declines as a result of the ~~low point~~COVID-19 pandemic’s adverse impact 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 intotheir business which impacts their credit rating, reducing the market ~~and have ceased any purchases~~value of ~~equity~~their securities. We remain in regular contact with our advisors to monitor credit ~~actions taken to~~of the issuers of our securities and discuss appropriate responses to ~~those actions.~~credit downgrades or changes in companies credit outlook. 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~~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.~~the COVID-19 pandemic. 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 insince 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 the COVID-19 pandemic 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 or liquidity, 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 the COVID-19 pandemic, including unforeseen newly emerging risks that could affect us. We will continue to monitor the broader economic impacts of the COVID-19 pandemic and its impact on our operations and financial condition including liquidity and capital resources.

Common Stock Repurchases

On November ~~6, 2019,~~3, 2020, 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~~$20 million of ~~our~~ outstanding shares of our common stock through ~~December 31, 2021.~~November 3, 2022. 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 three months ended March 31, ~~2020,~~2021, we repurchased an aggregate of ~~312,107~~15,444 shares of our common stock in the open market at an aggregate purchase price of ~~$6.6~~$0.2 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 March 31, ~~2020.~~2021.

Off-Balance Sheet Arrangements

40The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial condition, results of operations, liquidity, or capital resources of the Company, except for multi-year reinsurance contract commitments for future years that will be recorded at the commencement of the coverage period. See “Item 1—Note 12 (Commitments and Contingencies)” for more information.

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Cash Dividends

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

~~2020~~2021

Dividend
Declared Date

Shareholders
Record Date

Dividend
Payable Date

Cash Dividend
Per Common Share Amount

First Quarter

~~February 11, 2020~~March 1, 2021

March ~~12, 2020~~11, 2021

March ~~19, 2020~~18, 2021

0.16

Second Quarter

April ~~16, 2020~~22, 2021

May 14, ~~2020~~2021

May 21, ~~2020~~2021

0.16

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CONTRACTUAL OBLIGATIONS

The following table represents our contractual obligations for which cash flows are fixed or determinable as of March 31, ~~2020~~2021 (in thousands):


		Total		Less than 1 year		1-3 years		3-5 years		Over 5 years			Total		Less than 1 year		1-3 years		3-5 years		Over 5 years
Reinsurance payable and multi-year commitments (1)	Reinsurance payable and multi-year commitments (1)	$	267,622	$	64,460	$	203,162	$	—	$	—	Reinsurance payable and multi-year commitments (1)	$	252,342	$	152,817	$	99,525	$	—	$	—
Unpaid losses and LAE, direct (2)	Unpaid losses and LAE, direct (2)	195,978		119,743		57,030		14,110		5,095		Unpaid losses and LAE, direct (2)	315,780		191,363		91,576		24,947		7,894
Long-term debt	Long-term debt	10,172		1,234		4,778		3,046		1,114		Long-term debt	8,304		1,157		4,550		2,597		—
Total contractual obligations	Total contractual obligations	$	473,772	$	185,437	$	264,970	$	17,156	$	6,209	Total contractual obligations	$	576,426	$	345,337	$	195,651	$	27,544	$	7,894

(1)The amount in less than 1 year includes reinsurance payable reflected in the Condensed Consolidated Balance Sheet and reinsurance premiums payable under multi-year commitments. The 1-3 years ~~amount~~solely 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.~~2021. 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).”

Arrangements with Variable Interest Entities

We entered into a reinsurance captive arrangement with a VIE in the normal course of business, and consolidated the VIE since we are the primary beneficiary.

For a further discussion of our involvement with the VIE, see “Item 1—Note 14 (Variable Interest Entities).”

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, ~~2019.~~

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In December 2019, the Financial Accounting Standards Board (“FASB”) revised U.S. GAAP with the issuance of Accounting Standards Update (“ASU”) 2019-12,~~ ~~Income Taxes (Topic 740)~~. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions and clarifying certain requirements regarding franchise taxes, goodwill, consolidated tax expenses and annual effective tax rate calculations. The ASU is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact of this standard on our consolidated financial statements.

~~See “Item 1—Note 2 (Significant Accounting Policies)” for more information about recently adopted accounting pronouncements.~~2020.

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 March 31, ~~2020~~2021 is 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~~claim 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~~fixed rate Financial Instrument to changes in interest rates. Generally, when interest rates rise, the fair value of our ~~fixed-rate~~fixed rate Financial Instruments ~~declines over the remaining term of the agreement.~~declines.

The following tables provide information about our fixed income Financial Instruments as of March 31, ~~2020~~2021 compared to December 31, ~~2019,~~2020, 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																																														March 31, 2021
		2020			2021			2022			2023			2024			Thereafter			Other			Total				2021			2022			2023			2024			2025			Thereafter			Other			Total
Amortized cost	Amortized cost	$	127,107		$	66,102		$	91,631		$	144,876		$	121,277		$	299,130		$	1,703		$	851,826		Amortized cost	$	19,275		$	59,504		$	132,369		$	100,014		$	224,708		$	395,139		$	165		$	931,174
Fair market value	Fair market value	$	127,033		$	66,340		$	93,090		$	149,553		$	124,649		$	304,892		$	1,692		$	867,249		Fair market value	$	19,357		$	59,620		$	132,676		$	99,622		$	221,455		$	380,204		$	197		$	913,131
Coupon rate	Coupon rate	2.28		%	2.80		%	3.12		%	3.55		%	3.52		%	3.52		%	5.66		%	3.25		%	Coupon rate	3.31		%	1.61		%	1.97		%	3.09		%	2.62		%	2.29		%	7.50		%	2.39		%
Book yield	Book yield	2.29		%	2.63		%	2.81		%	3.26		%	3.48		%	3.48		%	5.77		%	3.06		%	Book yield	2.26		%	0.69		%	0.91		%	1.01		%	1.07		%	1.68		%	6.31		%	1.31		%
* Years to effective maturity - 4.9 years
* Years to effective maturity - 6.3 years																										* Years to effective maturity - 6.3 years


		December 31, 2019																																														December 31, 2020
		2019			2020			2021			2022			2023			Thereafter			Other			Total				2021			2022			2023			2024			2025			Thereafter			Other			Total
Amortized cost	Amortized cost	$	106,961		$	107,705		$	59,350		$	124,596		$	98,477		$	331,082		$	165		$	828,336		Amortized cost	$	31,333		$	58,790		$	107,735		$	179,872		$	133,872		$	303,880		$	165		$	815,647
Fair market value	Fair market value	$	107,259		$	108,516		$	60,105		$	128,599		$	101,345		$	349,259		$	201		$	855,284		Fair market value	$	31,578		$	58,868		$	108,412		$	180,111		$	134,740		$	306,041		$	211		$	819,961
Coupon rate	Coupon rate	2.46		%	2.58		%	3.06		%	3.52		%	3.50		%	3.64		%	7.50		%	3.28		%	Coupon rate	2.75		%	1.88		%	2.15		%	3.12		%	2.51		%	2.41		%	7.50		%	2.52		%
Book yield	Book yield	2.46		%	2.44		%	2.77		%	3.27		%	3.03		%	3.47		%	6.31		%	3.08		%	Book yield	2.12		%	0.59		%	0.84		%	0.71		%	1.07		%	1.59		%	6.31		%	1.16		%
* Years to effective maturity - 4.7 years
* Years to effective maturity - 5.4 years																										* Years to effective maturity - 5.4 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 and other 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):


		March 31, 2020						December 31, 2019							March 31, 2021				December 31, 2020
		Fair Value		Percent		Fair Value		Percent			Fair Value		Percent		Fair Value		Percent
Equity Securities:	Equity Securities:									Equity Securities:
Common stock	Common stock	$	1,904	4.2	%	$	2,377	5.4	%	Common stock	$	6,225	6.8	%	$	2,435	2.9	%
Mutual funds		43,934		95.8	%	41,340		94.6	%
Mutual funds and other										Mutual funds and other	85,066		93.2	%	82,452		97.1	%
Total equity securities	Total equity securities	$	45,838	100.0	%	$	43,717	100.0	%	Total equity securities	$	91,291	100.0	%	$	84,887	100.0	%

A hypothetical decrease of 20% in the market prices of each of the equity securities held at March 31, ~~2020~~2021 and December 31, ~~2019~~2020 would have resulted in a decrease of ~~$9.2~~$18.3 million and ~~$8.7~~$17.0 million, respectively, in the fair value of those securities.

The COVID-19 pandemic presents ~~new and emerging~~ uncertainty to the financial markets. See further discussion in “Item 2— Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations” and “Part II, Item 1A—Risk Factors.~~Operations.”

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that disclosure controls and procedures were effective as of March 31, ~~2020,~~2021, to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the ~~SEC’s~~United States Securities and Exchange Commission’s (“SEC”) rules and forms and that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

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

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

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

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

Item 1A. Risk Factors

~~Other than as described in the additional risk factor below, there have been no material changes during the period covered by this Quarterly Report on Form 10-Q~~Please refer to the risk factors previously disclosed in “Part I, Item 1A—Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

~~The COVID-19 pandemic could have material and long-term adverse consequences on our financial condition, results of operations and liquidity and capital resources~~

~~The public health crisis created by the COVID-19 pandemic and the resulting and continuing impact on the global, national and local economies,~~2020, as ~~well as on the American workforce, could significantly disrupt and materially impact our business, including:~~

•our ability to successfully maintain operations and meet the costs associated with those operations while maintaining the safety and wellness of our employees, independent agents, policyholders and vendors;

•~~the impact on demand for our products by agents and policyholders during the current protracted economic downturn;~~

•~~the ability or willingness of policyholders to pay premiums;~~

•~~prompt payment of receivables by reinsurers and policyholders;~~

•~~a decline in the value of our investment securities, which make up a significant portion of our financial resources;~~

•~~a decline in the credit ratings of our debt securities;~~

•~~our ability to meet regulatory requirements;~~

•~~our ability to attract and retain, and to effectively train and supervise, employees;~~

•our ability to anticipate, understand and respond to potential changes in consumer or employee behaviors and preferences arising from past and future directives and guidance related to social distancing, teleworking and similar considerations; or

•~~our ability to maintain relationships with key vendors, and those vendors’ willingness or ability to perform services for us as expected.~~

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~~As a provider of services typically categorized as essential, we are required to maintain operations and continue to pay claims to policyholders.Uncertainty around claims patterns including impediments to adjusting claims in the field could negatively impact our ability to timely and properly pay claims and establish reserves.Access to capital, if needed, could be hampered, and the cost of external capital could be elevated.~~

Broader adverse economic consequences and losses incurred by reinsurers as a result of COVID-19 could erode capital and contribute to an increase in the cost of reinsurance as well as an increase in counterparty credit risk. Possible legislative, regulatory or judicial actions that encourage or mandate premium payment grace periods, prevent cancellations for non-payment of premium, require us to cover losses when our policies did not provide coverage or excluded coverage, or order us to provide premium refunds or make other accommodations, could reduce our liquidity and increase both our losses and operating costs. Forced liquidation of stressed investment securities could result in realized losses during periods of dysfunction and volatility in capital markets. An increase in the demand and frequency of reporting by regulators could place stress on our ability to accurately and timely meet those and existing demands, and a delay or denial in regulatory rate approvals could contribute to financial stress. While most of our workforce is continuing to work remotely, we could become more vulnerable to cyberthreats.

The extent to which COVID-19 impacts our business will depend on future developments, and while we are not able to estimate the impact that COVID-19 will have on our financial results and financial condition, it could be material. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks describedsupplemented in “Part I,II, Item 1A—Risk Factors” of the Company’s ~~Annual~~Quarterly Report on Form ~~10-K~~10-Q for the ~~year~~quarter ended ~~December~~March 31, ~~2019.~~2021.

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

The table below presents purchases of our common stock during the three months ended March 31, ~~2020.~~2021.

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)
1/1/2020 - 1/31/2020 — $ — — —
2/1/2020 - 2/29/2020 — $ — — —
3/1/2020 - 3/31/2020 312,107 $ 21.08 312,107 1,213,164
Total 312,107 $ 21.08 312,107 1,213,164


				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)
1/1/2021 - 1/31/2021	—	$	—	—	—
2/1/2021 - 2/28/2021	—	$	—	—	—
3/1/2021 - 3/31/2021	15,444	$	15.84	15,444	1,336,355
Total	15,444	$	15.84	15,444	1,336,355

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

(2)Number of shares was calculated based on a closing price at March 31, ~~2020~~2021 of ~~$17.92~~$14.34 per share.

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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.

On November ~~6, 2019,~~3, 2020, we announced that our Board of Directors authorized the repurchase of up to ~~$40~~$20 million of outstanding shares of our common stock through ~~December 31, 2021~~November 3, 2022 (the ~~“December 2021~~“November 2022 Share Repurchase Program”). Under the ~~December 2021~~November 2022 Share Repurchase Program, we repurchased ~~715,249~~61,149 shares of our common stock from November ~~2019~~2020 through March 31, ~~2020~~2021 at an aggregate cost of approximately ~~$18.3~~$0.8 million.

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Item 6. Exhibits

Exhibit No.

Exhibit

~~10.1~~3.1

~~Employment Agreement, dated February~~ 1 ~~2, 20~~20 ~~, between Stephen J. Donaghy~~Amended and ~~the Company~~Restated Certificate of Incorporation, as amended (filed as Exhibit ~~10.1~~3.1 to the Company’s Annual Report on Form 10‑K filed on February 24, 2017 and incorporated herein by reference)

3.2

Amended and Restated Bylaws of Universal Insurance Holdings, Inc. (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on ~~February~~ 18 ~~, 20~~20 June 19, 2017 and incorporated herein by reference)†

~~10.2~~

~~Employment Agreement, dated~~ ~~March~~18 ~~, 20~~20 ~~, between~~ ~~Kimberly Cooper Campos~~ ~~and the Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on~~ ~~March 18, 20~~20 ~~and incorporated herein by reference) †~~

~~10.3~~

Stock Award Agreement, dated March 18, 2020, between Kimberly Cooper Campos and the Company (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 18, 2020 and incorporated herein by reference) †

~~10.4~~

Amendment No. 1 to Employment Agreement, dated April 20, 2020, between Stephen J. Donaghy and the Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 24, 2020 and incorporated herein by reference) †

~~10.5~~

Executive Chairman Agreement, dated April 20, 2020, between Sean P. Downes and the Company (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 24, 2020 and incorporated herein by reference) †

~~10.6~~

Employment Agreement, dated April 20, 2020, between Frank C. Wilcox and the Company (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 24, 2020 and incorporated herein by reference) †

~~15.1~~

15.1

Accountants’ Acknowledgment

31.1

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

31.2

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

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

101.1

The following materials from Universal Insurance Holdings, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, ~~2020,~~2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Statement of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020,~~2021, formatted in Inline XBRL (included in Exhibit ~~101.1)~~101)

~~† Indicates management contract or compensatory plan or arrangement.~~

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SIGNATURES

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


						UNIVERSAL INSURANCE HOLDINGS, INC.

Date: ~~May 1, 2020~~April 30, 2021						/s/ Stephen J. Donaghy
						Stephen J. Donaghy, Chief Executive Officer and Principal Executive Officer

Date: ~~May 1, 2020~~April 30, 2021						/s/ Frank C. Wilcox
						Frank C. Wilcox, Chief Financial Officer and Principal Accounting Officer

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	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.