UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________

FORM 10-Q

_______________________

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

For the quarterly period ended ~~September~~June 30, ~~2017~~2018

Commission File Number 001-35761

_____________________

United Insurance Holdings Corp.

(Exact name of Registrant as specified in its charter)

_______________________



	Delaware		75-3241967
	(State of Incorporation)		(IRS Employer Identification Number)

800 2nd Avenue S

St. Petersburg, Florida 33701

(Address, including zip code, of principal executive offices)

727-895-7737

(Registrant's telephone number, including area code)

_______________________

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 R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No £

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



Large accelerated filer	£	Accelerated filer	þ
Non-accelerated filer	£	Smaller reporting company	£
		Emerging growth company	£

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

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

As of ~~November 8, 2017; 42,753,504~~July 31, 2018, 42,822,187 shares of common stock, par value $0.0001 per share, were outstanding.

UNITED INSURANCE HOLDINGS CORP.



PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements	4
	Unaudited Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	3128
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	4441
	Item 4. Controls and Procedures	4541
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings	4643
	Item 1A. Risk Factors	4643
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4643
	Item 3. Defaults Upon Senior Securities	4743
	Item 4. Mine Safety Disclosures	4843
	Item 5. Other Information	4843
	Item 6. Exhibits	4843
Signatures		4944

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

UNITED INSURANCE HOLDINGS CORP.

FORWARD-LOOKING STATEMENTS

Statements in this ~~Quarterly Report on~~ Form 10-Q ~~as of~~ ~~September 30, 2017~~ ~~and for the three and nine months then ended or in documents incorporated by reference,~~ contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about anticipated growth in revenues, gross written premium, earnings per share, estimated unpaid losses on insurance policies, investment returns, and diversification and expectations about our liquidity, ~~and~~ our ability to meet our investment objectives and to manage and mitigate market risk with respect to our investments. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “endeavor,” “project,” “believe,” "plan," “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and ~~management’s~~management's beliefs and assumptions. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “endeavor,” “project,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations there of, or comparable terminology are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:

our exposure to catastrophic events and severe weather conditions;

the regulatory, economic and weather conditions present in Florida, the state in which we are most concentrated;

the effectiveness of our diversification strategy;

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

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

assessments charged by various governmental agencies;

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

our ability to maintain adequate technology, data security, and outsourcing relationships;

our reliance on key vendor relationships, and the ability of our vendors to protect the personal information of our customers;

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

risks and uncertainties relating to our acquisitions, including our ability to successfully integrate the acquired companies:

our ability to increase or maintain our market share;

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

the impact of new federal or state regulations that affect the property and casualty insurance market;

the cost, variability and availability of reinsurance;

~~assessments charged by various governmental agencies;~~

~~pricing competition and other initiatives by competitors;~~

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

~~the outcome of litigation pending against us, including the terms of any settlements;~~collect from our reinsurers on our reinsurance claims;

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

the possibility of the pricing and terms for our ~~exposure~~products to ~~catastrophic events~~decline due to the historically cyclical nature of the property and ~~severe weather conditions;~~casualty insurance and reinsurance industry;

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

downgrades in our financial strength ratings;

~~risks and uncertainties relating~~the impact of future sales of substantial amounts of our common stock by us to our ~~acquisitions including~~ existing stockholders on our stock price;

our ability to ~~successfully integrate~~pay dividends in the ~~acquired companies;~~future;

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

the ability of others to obtain control of us due to provisions in our charter documents; and

other risks and uncertainties described in the section entitled "Risk Factors" in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

We caution you not to place reliance on these forward-looking statements, which are valid only as of the date they were made. Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements to reflect new information, the occurrence of unanticipated events or otherwise. In addition, we prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP), which prescribes when we may reserve for particular risks, including litigation exposures. Accordingly, our results for a given reporting period could be significantly affected if and when we establish a reserve for a major contingency. Therefore, the results we report in certain accounting periods may appear to be volatile, and past results may not be indicative of results in future periods.

These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us described in our filings with the Securities and Exchange Commission (SEC). The forward-looking events that we discuss in this Form 10-Q are valid only as of the date of this Form 10-Q and may not occur, or may have different consequences, in light of the risks, uncertainties and assumptions that we describe from time to time in our filings with the SEC. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from our forward-looking statements is included in the section entitled “RISK FACTORS” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2016. Except as required by applicable law, we undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

UNITED INSURANCE HOLDINGS CORP.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
ASSETS	(Unaudited)
Investments available for sale, at fair value:
Fixed maturities (amortized cost of $715,374 and $497,616, respectively)	$	718,785		$	494,516
Equity securities (adjusted cost of $52,845 and $24,074, respectively)	61,639			28,398
Other investments (amortized cost of $7,835 and $5,493, respectively)	8,157			5,733
Investments, at fair value:
Fixed maturities, available-for-sale (amortized cost of $864,321 and $763,434, respectively)							$	848,882		$	762,855
Equity securities							83,345			63,295
Other investments (amortized cost of $7,884 and $8,057, respectively)							8,242			8,381
Portfolio loans							—			20,000
Total investments	$	788,581		$	528,647		$	940,469		$	854,531
Cash and cash equivalents	280,268			150,688			208,675			229,556
Restricted cash							33,526			46,719
Total cash, cash equivalents and restricted cash							$	242,201		$	276,275
Accrued investment income	5,229			3,735			6,181			5,577
Property and equipment, net	19,344			17,860			17,742			17,291
Premiums receivable, net	70,019			38,883			116,894			75,275
Reinsurance recoverable on paid and unpaid losses	489,348			24,028			369,651			395,774
Prepaid reinsurance premiums	285,121			132,564			395,819			201,904
Goodwill	59,679			14,254			73,045			73,045
Deferred policy acquisition costs	101,314			65,473			109,601			103,882
Intangible assets	55,109			12,371			34,081			45,271
Other assets	29,210			11,183			11,978			11,096
Total Assets	$	2,183,222		$	999,686		$	2,317,662		$	2,059,921
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses	$	682,161		$	140,855		$	432,431		$	482,232
Unearned premiums	577,805			372,223			651,561			555,873
Reinsurance payable	241,768			99,891			374,499			149,117
Payments outstanding							43,443			41,786
Accounts payable and accrued expenses							56,069			46,594
Other liabilities	127,153			91,215			54,207			85,830
Notes payable	53,119			54,175			160,718			161,364
Total Liabilities	$	1,682,006		$	758,359		$	1,772,928		$	1,522,796
Commitments and contingencies (Note 11)
Stockholders' Equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding	—			—			—			—
Common stock, $0.0001 par value; 50,000,000 shares authorized; 42,953,087 and 21,858,697 issued; 42,741,004 and 21,646,614 outstanding for 2017 and 2016, respectively	4			2
Common stock, $0.0001 par value; 50,000,000 shares authorized; 43,034,270 and 42,965,137 issued, respectively; 42,822,187 and 42,753,054 outstanding, respectively							4			4
Additional paid-in capital	375,666			99,353			388,193			387,145
Treasury shares, at cost; 212,083 shares	(431		)	(431		)
Accumulated other comprehensive income	7,678			822
Treasury shares, at cost: 212,083 shares							(431		)	(431		)
Accumulated other comprehensive income (loss)							(11,493		)	9,221
Retained earnings	118,299			141,581			168,461			141,186
Total Stockholders' Equity	$	501,216		$	241,327		$	544,734		$	537,125
Total Liabilities and Stockholders' Equity	$	2,183,222		$	999,686		$	2,317,662		$	2,059,921

See accompanying Notes to Unaudited Consolidated Financial Statements.

UNITED INSURANCE HOLDINGS CORP.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
REVENUE:
Gross premiums written	$	384,662		$	352,347		$	664,279		$	521,189
Change in gross unearned premiums	(95,021		)	(90,763		)	(95,688		)	(77,540		)
Gross premiums earned	289,641			261,584			568,591			443,649
Ceded premiums earned	(118,335		)	(101,966		)	(232,385		)	(176,848		)
Net premiums earned	171,306			159,618			336,206			266,801
Investment income	7,091			4,637			12,777			7,588
Net realized investment losses	(438		)	(132		)	(227		)	(483		)
Net unrealized gains (losses) on equity securities	1,381			—			(1,063		)	—
Other revenue	3,808			13,950			7,508			26,800
Total revenue	183,148			178,073			355,201			300,706
EXPENSES:
Losses and loss adjustment expenses	88,595			86,938			165,841			150,271
Policy acquisition costs	50,454			43,320			99,516			78,756
Operating expenses	9,682			6,257			18,000			12,129
General and administrative expenses	12,643			28,176			35,968			39,509
Interest expense	2,458			752			4,916			1,511
Total expenses	163,832			165,443			324,241			282,176
Income before other income	19,316			12,630			30,960			18,530
Other income	16			20			87			58
Income before income taxes	19,332			12,650			31,047			18,588
Provision for income taxes	4,631			5,393			7,978			7,432
Net income	$	14,701		$	7,257		$	23,069		$	11,156
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gains (losses) on investments	(3,968		)	4,106			(27,352		)	7,837
Reclassification adjustment for net realized investment losses (gains)	438			132			227			483
Income tax benefit (expense) related to items of other comprehensive income	488			(1,615		)	6,411			(3,157		)
Total comprehensive income (loss)	$	11,659		$	9,880		$	2,355		$	16,319

Weighted average shares outstanding
Basic	42,648,660			41,799,041			42,615,484			31,691,267
Diluted	42,790,346			42,028,013			42,769,602			31,914,559

Earnings per share
Basic	$	0.34		$	0.17		$	0.54		$	0.35
Diluted	$	0.34		$	0.17		$	0.54		$	0.35

Dividends declared per share	$	0.06		$	0.06		$	0.12		$	0.12

See accompanying Notes to Unaudited Consolidated Financial Statements.

UNITED INSURANCE HOLDINGS CORP.

~~Consolidated Statements of Comprehensive Income~~

~~(Unaudited)~~

Three Months Ended Nine Months Ended
September 30, September 30,

2017
2016 2017 2016
REVENUE:

Gross premiums written
$ 267,219
$ 194,341
$ 788,408
$ 541,053
Decrease (increase) in gross unearned premiums
782
(20,821 ) (76,758 ) (56,446 )
Gross premiums earned
268,001
173,520
711,650
484,607
Ceded premiums earned
(115,507 ) (53,299 ) (292,355 ) (148,837 )
Net premiums earned
152,494
120,221
419,295
335,770
Investment income
4,901
2,663
12,489
7,786
Net realized gains (losses)
(71 ) 106
(554 ) 478
Other revenue
13,804
4,212
40,604
11,650
Total revenue
171,128
127,202
471,834
355,684
EXPENSES:

Losses and loss adjustment expenses
143,127
72,746
293,398
199,615
Policy acquisition costs
46,546
31,333
125,302
84,086
Operating expenses
6,891
5,558
19,020
15,326
General and administrative expenses
19,316
12,329
58,825
31,759
Interest expense
771
206
2,282
397
Total expenses
216,651
122,172
498,827
331,183
Income (loss) before other income
(45,523 ) 5,030
(26,993 ) 24,501
Other income
36
11
94
80
Income (loss) before income taxes
(45,487 ) 5,041
(26,899 ) 24,581
Provision for income taxes
(17,475 ) 1,618
(10,043 ) 8,366
Net income (loss)
$ (28,012 ) $ 3,423
$ (16,856 ) $ 16,215
OTHER COMPREHENSIVE INCOME:

Change in net unrealized gains (losses) on investments
2,672
(3,495 ) 10,509
10,305
Reclassification adjustment for net realized investment losses (gains)
71
(106 ) 554
(478 )
Income tax benefit (expense) related to items of other comprehensive income
(1,050 ) 1,298
(4,207 ) (3,776 )
Total comprehensive income
$ (26,319 ) $ 1,120
$ (10,000 ) $ 22,266

Weighted average shares outstanding

Basic
42,524,400
21,448,892
35,341,994
21,406,599
Diluted 42,741,004
21,643,401
35,563,032
21,604,135

Earnings per share

Basic
$ (0.66 ) $ 0.16
$ (0.48 ) $ 0.76
Diluted $ (0.66 ) $ 0.16
$ (0.47 ) $ 0.75

Dividends declared per share
$ 0.06
$ 0.06
$ 0.18
$ 0.17

~~See accompanying Notes to Unaudited Consolidated Financial Statements.~~

~~UNITED INSURANCE HOLDINGS CORP.~~

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
OPERATING ACTIVITIES
Net income (loss)	$	(16,856	)	$	16,215
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income							$	23,069		$	11,156
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization	24,206			8,640			12,931			13,613
Bond amortization and accretion	3,663			2,621			2,639			2,320
Net realized gains (losses)	554			(478		)
Provision for uncollectable premiums/over and short	205			57
Net realized losses (gains) on investments							227			483
Net unrealized losses (gains) on equity securities							1,063			—
Provision for uncollectable premiums							(61		)	144
Deferred income taxes, net	380			1,575			1,624			1,323
Stock based compensation	1,931			1,429			1,048			1,294
Changes in operating assets and liabilities:
Accrued investment income	(183		)	155			(604		)	(96		)
Premiums receivable	98			2,260			(41,558		)	(23,224		)
Reinsurance recoverable on paid and unpaid losses	(445,090		)	(11,097		)	26,123			(25,566		)
Prepaid reinsurance premiums	(130,013		)	(55,890		)	(193,915		)	(209,048		)
Deferred policy acquisition costs, net	(35,841		)	(18,164		)	(5,719		)	(29,392		)
Other assets	(12,354		)	(2,301		)	(882		)	4,963
Unpaid losses and loss adjustment expenses	480,777			20,901			(49,801		)	3,310
Unearned premiums	76,758			56,446			95,688			77,540
Reinsurance payable	119,471			59,036			225,382			209,714
Payments outstanding							1,657			(37		)
Accounts payable and accrued expenses							9,475			11,926
Other liabilities	16,631			7,914			(29,799		)	7,963
Net cash provided by operating activities	$	84,337		$	89,319		$	78,587		$	58,386
INVESTING ACTIVITIES
Proceeds from sales and maturities of investments available for sale	106,150			147,266
Purchases of investments available for sale	(136,319		)	(146,535		)
Proceeds from sales, maturities and repayments of investments							116,116			81,998
Purchases of investments							(220,809		)	(108,376		)
Cash from acquisition	95,284			—						95,284
Purchase of subsidiary, net of cash acquired	—			(32,840		)
Cost of property, equipment and capitalized software acquired	(4,243		)	(2,726		)	(2,014		)	(3,797		)
Net cash provided by (used in) investing activities	$	60,872		$	(34,835	)	$	(106,707	)	$	65,109
FINANCING ACTIVITIES
Tax withholding payment related to net settlement of equity awards	—			(270		)
Proceeds from borrowings	—			5,200
Repayments of borrowings	(1,142		)	(969		)	(762		)	(468		)
Payments of debt issuance costs							(62		)	—
Dividends	(6,426		)	(3,675		)	(5,130		)	(3,862		)
Bank overdrafts	(8,061		)	—
Net cash (used in) provided by financing activities	$	(15,629	)	$	286
Increase in cash	129,580			54,770
Cash and cash equivalents at beginning of period	150,688			84,786
Cash and cash equivalents at end of period	$	280,268		$	139,556
Outstanding checks in excess of funds on deposit							—			(15,682		)
Net cash used in financing activities							$	(5,954	)	$	(20,012	)
(Decrease) increase in cash, cash equivalents and restricted cash							(34,074		)	103,483
Cash, cash equivalents and restricted cash at beginning of period							276,275			150,688
Cash, cash equivalents and restricted cash at end of period							$	242,201		$	254,171
Supplemental Cash Flows Information
Interest paid	$	2,001		$	201		$	4,948		$	1,292
Income taxes paid	$	4,206		$	7,199		$	4,565		$	3,917
Non-cash transactions
Issuance of common stock in connection with acquisition	$	274,384		$	—
Issuance of common stock							$	—		$	274,384

See accompanying Notes to Unaudited Consolidated Financial Statements.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

1) ORGANIZATION, CONSOLIDATION AND PRESENTATION

(a)Business

United Insurance Holdings Corp. (referred to in this document as we, our, us, the Company or UPC Insurance) is a property and casualty insurance holding company that sources, writes and services residential and commercial property and casualty insurance policies using a network of agents and four ~~wholly owned~~wholly-owned insurance subsidiaries. Our ~~primary~~largest insurance subsidiary is United Property & Casualty Insurance Company (UPC), which was formed in Florida in 1999 and has operated continuously since that time. Our three other insurance subsidiaries are Family Security Insurance Company, Inc. (FSIC), acquired via merger on February 3, 2015, Interboro Insurance Company (IIC), acquired via merger on April 29, 2016, and American Coastal Insurance Company (ACIC), acquired via merger on April 3, 2017. See Note 4 in these Notes to Unaudited Consolidated Financial Statements for additional information regarding acquisitions.

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

substantially all aspects of ~~UPC's~~UPC, FSIC and IIC's business; Skyway Claims Services, LLC, ~~(our~~which provides claims adjusting ~~affiliate) that provides~~ services to ~~our~~UPC, FSIC and IIC; AmCo Holding Company (AmCo) and Family Security Holdings (FSH), which are holding company subsidiaries that consolidate their respective insurance ~~affiliates;~~companies; BlueLine Cayman Holdings (BlueLine) which reinsures portfolios of excess and surplus policies; UPC Re ~~(our reinsurance affiliate) that provides~~which can provide a portion of the reinsurance protection purchased by our insurance affiliates, Family Security Holdings, LLC (FSH), Family Security Insurance Company, Inc. (FSIC), Interboro Insurance Company (IIC), AmCo Holding Company (AmCo), American Coastal Insurance Company (ACIC)subsidiaries when needed; and ~~BlueLine Cayman Holdings (BLUE).~~

~~On April 29, 2016, we acquired IIC via merger. On April 3, 2017, we merged with AmCo and its two wholly owned subsidiaries, ACIC and BLUE. See~~ ~~Note 4~~ inSkyway Reinsurance Services which provides reinsurance brokerage services for our ~~Notes to Unaudited Consolidated Financial Statements for additional information regarding these acquisitions.~~insurance companies.

Our primary ~~products are~~product is homeowners' ~~and commercial~~ insurance, which we currently offer in ~~Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, and Texas,~~12 states, under authorization from the insurance regulatory authorities in each state. In addition, we write commercial residential insurance in the state of Florida. We are also licensed to write property and casualty insurance in ~~Alabama, Delaware, Maryland, Mississippi, New Hampshire, and Virginia;~~an additional six states; however, we have not commenced writing in these states.

We conduct our operations under one business segment.

(b)Consolidation and Presentation

We prepare our unaudited consolidated interim financial statements in conformity with U.S. generally accepted accounting principles (GAAP). We have condensed or omitted certain information and footnote disclosures normally included in annual consolidated financial statements presented in accordance with GAAP. In management's opinion, the accompanying unaudited consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of interim periods. All intercompany balances and transactions have been eliminated. Our unaudited consolidated interim financial statements and footnotes should be read in conjunction with our consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2017.

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

We ~~include all of our subsidiaries~~reclassified certain amounts in ~~our unaudited consolidated~~the 2017 financial statements ~~eliminating all significant intercompany balances and transactions during consolidation.~~

~~We prepared~~to conform to the ~~accompanying Unaudited Consolidated Balance Sheet~~2018 presentation. These reclassifications had no impact on our results of operations or stockholders' equity, as of ~~September 30, 2017, with the Audited Consolidated Balance Sheet amounts as of~~ ~~December 31, 2016~~, presented for comparative purposes, and the related Unaudited Consolidated Statements of Comprehensive Income and Statements of Cash Flows in accordance with the instructions for Form 10-Q and Article 10-01 of Regulation S-X. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.previously reported.

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

~~Management believes our unaudited consolidated interim financial statements include all the normal recurring adjustments necessary to fairly present our Unaudited Consolidated Balance Sheet as of~~ ~~September 30, 2017, our Unaudited Consolidated Statements of Comprehensive Income and our Unaudited Consolidated Statements of Cash Flows for all periods presented.~~

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

Our unaudited consolidated interim financial statements and footnotes should be read in conjunction with our consolidated financial statements and footnotes in our Annual Report filed on Form 10-K for the year ended ~~December 31, 2016~~.

2) SIGNIFICANT ACCOUNTING POLICIES

(a) Changes to significant accounting policies

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

We have made no changes to our significant accounting policies as reported in our ~~2016~~Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2017, except as noted below.

(b) Income Taxes

As of June 30, 2018, we had not fully completed our accounting for the tax effects of the enactment of the legislation commonly known as the Tax Cuts and Jobs Act of 2017 with regard to the deductibility of compensation expense for certain covered executives due to uncertainty surrounding the appropriate tax treatment of outstanding performance-based awards and uncertainty surrounding the discount factors to be applied for loss reserve discounting as during this period, the U.S. Treasury Department and the Internal Revenue Service have not issued further clarification or guidance for the items for which our accounting for the Tax Act is incomplete. Interpretive guidance of the Tax Act will be received throughout 2018, and we expect to update our estimates and our disclosure on a quarterly basis as interpretive guidance is received within each quarter that it is received.

The carrying amounts for the following financial instrument categories approximate their fair values at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, other assets, and other liabilities. The carrying amount of the notes payable to the Florida State Board of Administration, the Branch Banking & Trust Corporation (BB&T) and ~~the~~our senior notes ~~payable~~ approximate fair value as the interest rates and terms are variable. ~~The carrying amount of~~

(d) Reinsurance

We record provisional ceding commissions that we receive in connection with our ~~note payable with Interboro, LLC approximates fair value due~~reinsurance contracts for the 2018 underwriting year as an offset to deferred acquisition costs to the ~~short-term nature of~~extent that they relate to compensation for acquisition costs that are incurred that are deferrable. The remaining provisional ceding commissions are recorded as unearned reinsurance commission and are recognized as an offset to other acquisition costs based in proportion to the ~~loan.~~premiums earned or coverage provided by the reinsurance contracts.

~~(c)~~(e) Recently Adopted Accounting Pronouncements

In ~~March 2016, the FASB issued Accounting Standards Update No. 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ (ASU 2016-09). This update was intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 became effective for annual periods beginning after December 15, 2016. The new guidance did not impact the way in which we account for share-based payment transactions and therefore, the adoption as of January 1, 2017 had no impact on our results of operations or financial position.

~~(d) Pending Accounting Pronouncements~~

~~We have evaluated recent accounting pronouncements that have had or may have a significant effect on our financial statements or on our disclosures.~~

In May 2017, the ~~FASB~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-09, Compensation-Stock Compensation (Topic 718)~~-Scope~~: Scope of Modification Accounting (ASU 2017-09). This ~~update~~standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for certain requirements. We dodid not ~~intend to~~ early adopt and the new guidance did not impact the way in which we account for share-based payment transactions. Therefore, the adoption as of January 1, 2018 had no impact on our results of operations.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18). This standard provides guidance on the presentation of restricted cash in the statement of cash flows. We are ~~assessing~~required to explain the ~~impact~~changes during a reporting period in the total of ~~adopting~~cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows. We retrospectively adopted this standard on April 1, 2018. The adoption of this new accounting standard impacted the presentation of our Unaudited Consolidated Statement of Cash Flows but had no effect on our results of operations. The restricted cash on our consolidated balance sheets at June 30, 2018 and December 31, 2017 represents cash that is held in trust for assumed business and cash held in deposit accounts to satisfy state statutory deposit requirements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). This update substantially revises standards for the recognition, measurement and presentation of financial instruments. This standard revised our accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amended certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for certain requirements. We adopted this standard as of January 1, 2018, which resulted in a reclassification of a $9,338,000 gain, net of tax, on equity securities from accumulated other comprehensive income to retained earnings on our

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

consolidated financial statements. Refer to Note 14 in these Notes to Unaudited Consolidated Financial Statements for a reconciliation.

(f) Pending Accounting Pronouncements

We have evaluated recent accounting pronouncements that have had or may have a significant effect on our financial statements ~~and related~~or on our disclosures.

In January 2017, the FASB issued ~~Accounting Standards Update (ASU)~~ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). This update simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-07 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted for certain requirements. We do not intend to early adopt and are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures. Any impact of the standard on our consolidated financial statements and related disclosures will be dependent on market conditions of the reporting units at the time of adoption.

In ~~May 2014,~~February 2016, the FASB issued ~~Accounting Standards Update (ASU)~~ASU No. ~~2014-09,~~2016-02, ~~Revenue from Contracts with Customers~~Leases (Topic 842) (ASU ~~2014-09)~~2016-02). ~~Insurance contracts~~This update is intended to replace existing lease guidance by requiring a lessee to recognize substantially all leases (whether operating or finance leases) on the balance sheet as a right-of-use asset and an associated lease liability. Short-term leases of 12 months or less are excluded from ~~the scope of~~ this guidance. Under the standard, guidance is provided on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The transaction price is attributed to underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligation and transfers control of the good or service to the customer.amendment. ASU ~~2014-09~~2016-02 is effective for fiscal years beginning ~~in the first quarter of~~after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We do not intend to early adopt and ~~note that~~are assessing the impact of adopting this new accounting standard ~~is not applicable~~on our consolidated financial statements and related disclosures using a retrospective approach upon adoption. We are currently quantifying the expected recognition on our balance sheet for a right to ~~our insurance contracts. We do not believe that the adoption~~use asset and a lease liability as required by this standard.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

3) INVESTMENTS

The following table details fixed maturity available-for-sale and equity securities, by major investment category, at June 30, 2018 and December 31, 2017:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2018
U.S. government and agency securities	$	90,391	$	2	$	1,912	$	88,481
Foreign government	3,002		—		24		2,978
States, municipalities and political subdivisions	161,257		555		1,997		159,815
Public utilities	25,892		17		738		25,171
Corporate securities	290,701		224		6,597		284,328
Mortgage-backed securities	212,320		37		4,711		207,646
Asset backed securities	79,993		2		217		79,778
Redeemable preferred stocks	765		7		87		685
Total fixed maturities	$	864,321	$	844	$	16,283	$	848,882

Mutual funds	$	44,385	$	3,219	$	44	$	47,560
Public utilities	1,946		327		30		2,243
Other common stocks	24,059		8,188		446		31,801
Non-redeemable preferred stocks	1,718		39		16		1,741
Total equity securities	$	72,108	$	11,773	$	536	$	83,345

December 31, 2017
U.S. government and agency securities	$	93,827	$	40	$	1,241	$	92,626
Foreign government	2,022		14		—		2,036
States, municipalities and political subdivisions	200,706		1,929		1,123		201,512
Public utilities	20,215		127		85		20,257
Corporate securities	287,025		1,746		1,209		287,562
Mortgage-backed securities	143,982		235		952		143,265
Asset-backed securities	14,902		23		20		14,905
Redeemable preferred stocks	755		11		74		692
Total fixed maturities	$	763,434	$	4,125	$	4,704	$	762,855

Mutual fund	$	29,079	$	2,845	$	—	$	31,924
Public utilities	1,343		359		—		1,702
Other common stocks	18,856		9,093		47		27,902
Non-redeemable preferred stocks	1,718		53		4		1,767
Total equity securities	$	50,996	$	12,350	$	51	$	63,295

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

~~of this new accounting standard will have a material impact on our consolidated financial statements and related disclosures.~~

~~3) INVESTMENTS~~

~~The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~:

Cost or Adjusted/Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
September 30, 2017
U.S. government and agency securities $ 204,132
$ 618
$ 1,294
$ 203,456
Foreign government 2,025
32
—
2,057
States, municipalities and political subdivisions 194,327
2,249
429
196,147
Public utilities 19,601
205
51
19,755
Corporate securities 277,481
2,692
580
279,593
Asset backed securities 16,711
11
8
16,714
Redeemable preferred stocks 1,097
29
63
1,063
Total fixed maturities 715,374
5,836
2,425
718,785
Mutual funds 28,949
858
—
29,807
Public utilities 1,342
300
—
1,642
Other common stocks 19,804
7,790
149
27,445
Non-redeemable preferred stocks 2,750
56
61
2,745
Total equity securities 52,845
9,004
210
61,639
Other long-term investments 7,835
322
—
8,157
Total investments $ 776,054
$ 15,162
$ 2,635
$ 788,581

December 31, 2016
U.S. government and agency securities $ 151,656
$ 189
$ 1,893
$ 149,952
Foreign government 2,031
30
—
2,061
States, municipalities and political subdivisions 170,636
1,027
2,551
169,112
Public utilities 7,687
116
73
7,730
Corporate securities 164,424
1,238
1,126
164,536
Redeemable preferred stocks 1,182
5
62
1,125
Total fixed maturities 497,616
2,605
5,705
494,516
Public utilities 1,343
164
—
1,507
Other common stocks 19,815
4,552
319
24,048
Non-redeemable preferred stocks 2,916
10
83
2,843
Total equity securities 24,074
4,726
402
28,398
Other long-term investments 5,493
267
27
5,733
Total investments $ 527,183
$ 7,598
$ 6,134
$ 528,647

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

2018

When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following table details our realized gains (losses) by major investment category for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017:


	2017					2016					2018					2017
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Three Months Ended September 30,
Three Months Ended June 30,
Fixed maturities	$	123		$	11,368	$	508		$	11,009	$	14		$	4,706	$	41		$	6,310
Equity securities	1			156		—			—		59			207		7			19
Total realized gains	124			11,524		508			11,009		73			4,913		48			6,329
Fixed maturities	(195		)	10,517		(396		)	7,635		(511		)	38,091		(170		)	13,848
Equity securities	—			—		(6		)	17		—			—		(10		)	100
Total realized losses	(195		)	10,517		(402		)	7,652		(511		)	38,091		(180		)	13,948
Net realized investment gains (losses)	$	(71	)	$	22,041	$	106		$	18,661	$	(438	)	$	43,004	$	(132	)	$	20,277

Nine Months Ended September 30,
Six Months Ended June 30,
Fixed maturities	$	263		$	30,264	$	1,806		$	47,391	$	56		$	6,881	$	140		$	18,896
Equity securities	8			175		24			10,769		509			1,182		7			19
Total realized gains	271			30,439		1,830			58,160		565			8,063		147			18,915
Fixed maturities	(815		)	47,913		(1,170		)	20,663		(792		)	70,319		(620		)	37,396
Equity securities	(10		)	100		(182		)	17,025		—			—		(10		)	100
Total realized losses	(825		)	48,013		(1,352		)	37,688		(792		)	70,319		(630		)	37,496
Net realized investment gains (losses)	$	(554	)	$	78,452	$	478		$	95,848	$	(227	)	$	78,382	$	(483	)	$	56,411

The table below summarizes our fixed maturities at ~~September~~June 30, ~~2017~~2018 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations.


	September 30, 2017								June 30, 2018
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total		Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	50,426	7.0	%	$	50,362	7.0	%	$	60,570	7.0	%	$	60,252	7.1	%
Due after one year through five years	332,620		46.5	%	334,135		46.5	%	321,349		37.2	%	316,312		37.3	%
Due after five years through ten years	192,314		26.9	%	194,266		27.0	%	179,582		20.8	%	174,875		20.6	%
Due after ten years	17,043		2.4	%	17,089		2.4	%	10,507		1.2	%	10,020		1.2	%
Asset and mortgage backed securities	122,971		17.2	%	122,933		17.1	%	292,313		33.8	%	287,423		33.8	%
Total	$	715,374	100.0	%	$	718,785	100.0	%	$	864,321	100.0	%	$	848,882	100.0	%

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Fixed maturities	$	4,111		$	2,251		$	10,696		$	6,693		$	5,392		$	4,087		$	10,204		$	6,585
Equity securities	375			259			940			726			467			345			930			565
Cash and cash equivalents	285			38			445			87			617			90			839			160
Other investments	124			110			385			266			607			109			789			261
Other assets	6			5			23			14			8			6			15			17
Investment income	4,901			2,663			12,489			7,786			7,091			4,637			12,777			7,588
Investment expenses	(213		)	(155		)	(482		)	(360		)	(246		)	(19		)	(489		)	(269		)
Net investment income	$	4,688		$	2,508		$	12,007		$	7,426		$	6,845		$	4,618		$	12,288		$	7,319

Portfolio monitoring

We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income ~~and equity~~ security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, we determine if the loss is temporary or other-than-temporary. If our management decides to sell the security or determines that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, then the security's decline in fair value is considered other-than-temporary and is recorded in earnings.

If we have not made the decision to sell the fixed income security and it is more likely than not that we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect the security to receive cash flows sufficient to recover the entire cost or amortized cost basis of the security. We calculate the estimated recovery value by discounting the best estimate of future cash flows at the security's original or current effective rate, as appropriate, and compare this to the cost or amortized cost of the security. If we do not expect to receive cash flows sufficient to recover the entire cost or amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, we consider various factors, including whether we have the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. If we lack the intent or ability to hold to recovery, or if we believe the recovery period is extended, the equity security's decline in fair value is considered other-than-temporary and is recorded in earnings.

Our portfolio monitoring process includes a quarterly review of all fixed-income securities to identify instances where the fair value of a security compared to its cost or amortized cost ~~(for fixed income securities) or cost (for equity securities)~~ is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which we may have a concern, are evaluated for potential other-than-temporary impairment using information relevant to the collectability or recovery of the security that is reasonably available. Inherent in our evaluation of other-than-temporary impairment for these fixed income ~~and equity~~ securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other-than-temporary are: (1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; (2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and (3) the length of time and extent to which the fair value has been less than amortized cost or cost.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

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


	Less Than Twelve Months					Twelve Months or More					Less Than Twelve Months					Twelve Months or More
	Number of Securities⁽¹⁾	Gross Unrealized Losses		Fair Value		Number of Securities⁽¹⁾	Gross Unrealized Losses		Fair Value		Number of Securities⁽¹⁾	Gross Unrealized Losses		Fair Value		Number of Securities⁽¹⁾	Gross Unrealized Losses		Fair Value
September 30, 2017
June 30, 2018
U.S. government and agency securities	147	$	741	$	81,333	57	$	553	$	36,900	41	$	547	$	33,151	57	$	1,364	$	53,423
Foreign governments											5	24		2,979		—	—		—
States, municipalities and political subdivisions	62	274		50,719		23	155		16,625		145	1,634		113,255		23	363		14,571
Public utilities	9	24		3,966		4	27		625		43	668		22,118		5	70		986
Corporate securities	152	515		77,334		21	65		3,531		521	5,860		240,733		44	737		18,231
Mortgage-backed securities											187	3,923		176,704		60	788		15,118
Asset backed securities	16	8		10,367		—	—		—		87	214		70,926		5	3		1,249
Redeemable preferred stocks	—	—		—		3	63		308		1	3		122		3	85		304
Total fixed maturities	386	1,562		223,719		108	863		57,989		1,030	12,873		659,988		197	3,410		103,882
Mutual Fund											1	44		14,937		—	—		—
Public utilities											4	30		629		—	—		—
Other common stocks	9	87		765		4	62		429		54	410		5,342		2	36		205
Non-redeemable preferred stocks	5	6		347		6	55		877		12	16		563		—	—		—
Total equity securities	14	93		1,112		10	117		1,306		71	500		21,471		2	36		205
Total	400	$	1,655	$	224,831	118	$	980	$	59,295	1,101	$	13,373	$	681,459	199	$	3,446	$	104,087

December 31, 2016
December 31, 2017
U.S. government and agency securities	186	$	1,893	$	111,216	—	$	—	$	—	40	$	166	$	26,979	73	$	1,075	$	58,980
States, municipalities and political subdivisions	201	2,551		136,360		—	—		—		106	734		91,245		31	389		19,718
Public utilities	8	73		2,222		—	—		—		16	44		7,052		5	41		1,016
Corporate securities	215	1,100		88,605		1	26		1,021		263	871		134,755		52	338		16,476
Mortgage-backed securities											89	475		76,349		50	477		15,210
Asset-backed securities											18	20		11,682		—	—		—
Redeemable preferred stocks	7	62		764		—	—		—		—	—		—		3	74		303
Total fixed maturities	617	5,679		339,167		1	26		1,021		532	2,310		348,062		214	2,394		111,703
Mutual Funds											1	—		131		—	—		—
Other common stocks	16	140		2,450		17	179		1,732		5	47		748		—	—		—
Non-redeemable preferred stocks	12	52		1,830		7	31		369		4	4		87		—	—		—
Total equity securities	28	192		4,280		24	210		2,101		10	51		966		—	—		—
Other long-term investments	1	27		987		—	—		—
Total	646	$	5,898	$	344,434	25	$	236	$	3,122	542	$	2,361	$	349,028	214	$	2,394	$	111,703

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

During our quarterly evaluations of our securities for impairment, we determined that none of our investments in ~~debt and equity~~fixed-income securities that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of our debt securities continue to make interest payments on a timely basis. We do not intend to sell nor is it likely that we would be required to sell the debt securities before we recover our amortized cost basis. ~~The near-term prospects~~Due to the adoption of ~~all the issuers~~ASU 2016-01 as of ~~the~~January 1, 2018, equity securities ~~we own indicate we could recover our cost basis,~~are reported at fair value with changes in fair value recognized in valuation of equity investments and ~~we also do not intend to sell these securities until their value equals or exceeds their cost.~~are no longer included in impairment write-downs, change in intent write-downs and sales.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017, we recorded no other-than-temporary impairment charges.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

Fair value measurement

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

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

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

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

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

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

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

We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the NYSE, ~~NASDAQ,~~Nasdaq and NYSE MKT. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017. Changes in interest rates subsequent to ~~September~~June 30, ~~2017~~2018 may affect the fair value of our investments.

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

For our Level 3 assets, our internal pricing methods are primarily based on models using discounted cash flow methodologies that determine a single best estimate of fair value for individual financial instruments. In addition, our models use a discount rate and internally assigned credit ratings as inputs (which are generally consistent with any external ratings) and those we use to report our holdings by credit rating. Market related inputs used in these fair values, which we believe are representative of inputs other market participants would use to determine fair value of the same instruments include: interest rate yield curves, quoted market prices of comparable securities, credit spreads and other applicable market data. As a result of the significance of non-market observable inputs, including internally assigned credit ratings as described above, judgment is required in developing these fair values. The fair value of these financial assets may differ from the amount actually received if we were to sell the asset. Moreover, the use of different valuation assumptions may have a material effect on the fair values onof the financial assets.

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

Any change in the estimated fair value of our fixed-income securities would impact the amount of unrealized gain or loss we have recorded, which could change the amount we have recorded for our investments and other comprehensive income on our Unaudited Consolidated Balance Sheet as of ~~September~~June 30, ~~2017.~~2018.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

The following table presents the fair value of our financial instruments measured on a recurring basis by level at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017:


	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
September 30, 2017
June 30, 2018
U.S. government and agency securities	$	203,456	$	—	$	203,456	$	—	$	88,481	$	—	$	88,481	$	—
Foreign government	2,057		—		2,057		—		2,979		—		2,979		—
States, municipalities and political subdivisions	196,147		—		196,147		—		159,815		—		159,815		—
Public utilities	19,755		—		19,755		—		25,172		—		25,172		—
Corporate securities	279,593		—		279,593		—		284,328		—		284,328		—
Asset backed securities	16,714		—		16,714		—
Mortgage-backed securities									207,646		—		207,646		—
Asset-backed securities									79,778		—		79,778		—
Redeemable preferred stocks	1,063		1,063		—		—		685		563		122		—
Total fixed maturities	718,785		1,063		717,722		—		848,884		563		848,321		—
Mutual funds	29,807		29,807		—		—		47,560		47,560		—		—
Public utilities	1,642		1,642		—		—		2,242		2,242		—		—
Other common stocks	27,445		27,445		—		—		31,802		31,802		—		—
Non-redeemable preferred stocks	2,745		2,745		—		—		1,741		1,741		—		—
Total equity securities	61,639		61,639		—		—		83,345		83,345		—		—
Other long-term investments	8,157		300		7,173		684		8,242		300		7,296		646
Total investments	$	788,581	$	63,002	$	724,895	$	684	$	940,471	$	84,208	$	855,617	$	646

December 31, 2016
December 31, 2017
U.S. government and agency securities	$	149,952	$	—	$	149,952	$	—	$	92,626	$	—	$	92,626	$	—
Foreign government	2,061		—		2,061		—		2,036		—		2,036		—
States, municipalities and political subdivisions	169,112		—		169,112		—		201,512		—		201,512		—
Public utilities	7,730		—		7,730		—		20,257		—		20,257		—
Corporate securities	164,536		—		164,536		—		287,562		—		287,562		—
Mortgage-backed securities									143,265		—		143,265		—
Asset-backed securities									14,905		—		14,905		—
Redeemable preferred stocks	1,125		1,125		—		—		692		692		—		—
Total fixed maturities	494,516		1,125		493,391		—		762,855		692		762,163		—
Mutual Funds									31,924		31,924		—		—
Public utilities	1,507		1,507		—		—		1,702		1,702		—		—
Other common stocks	24,048		24,048		—		—		27,902		27,902		—		—
Non-redeemable preferred stocks	2,843		2,843		—		—		1,767		1,767		—		—
Total equity securities	28,398		28,398		—		—		63,295		63,295		—		—
Other long-term investments	5,733		300		3,735		1,698		8,381		300		7,447		634
Total investments	$	528,647	$	29,823	$	497,126	$	1,698	$	834,531	$	64,287	$	769,610	$	634

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

The table below presents the rollforward of our Level 3 investments held at fair value during the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:


	Other Investments			Other Investments
December 31, 2016	$	1,698
December 31, 2017				$	634
Transfers in	—			—
Transfers out	(990		)
Partnership income	35			71
Return of capital	(141		)	(93		)
Unrealized gains in accumulated other comprehensive income	82			34
September 30, 2017	$	684
June 30, 2018				$	646

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

At the end of each quarter, we determine whether we need to transfer the fair values of any securities between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. During the ~~first nine months of~~ ~~2017~~,quarter ended June 30, 2018, we ~~transferred one investment from a Level 3 to a Level 2 investment, due to changes in the availability of market observable inputs.~~did not transfer any investments between levels. We used unobservable inputs to derive our estimated fair value for Level 3 investments, and the unobservable inputs are significant to the overall fair value measurement.

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

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

Other investments

We acquired investments in limited partnerships, recorded in the other investments line of our Unaudited Consolidated Balance Sheets ~~that~~and these investments are currently being accounted for at fair value utilizing a discounted cash flow methodology. The estimated fair value of our investments in the limited partnership interests at June 30, 2018 was ~~$7,857,000.~~$7,942,000. We have fully funded ~~our~~two investments ~~in DCR Mortgage Partners VI, L.P. (DCR VI)~~ and ~~DCR Mortgage Partners VII, L.P. (DCR VII); however, we~~ are still obligated to fund an additional ~~$316,000, $802,000, and $495,000~~$3,170,000 for our investments in Kayne Anderson Senior Credit Fund II, L.P. (Kayne II), Kayne Anderson Senior Credit Fund III, L.P. (Kayne III), and Blackstone Alternative Solutions 2015 Trust (Blackstone), respectively. the remaining four investments.

The information presented in the table below is as of ~~September~~June 30, ~~2017.~~2018:

Initial Investment Book Value Unrealized Gain Unrealized Loss Fair Value
DCR Mortgage Partners VI, L.P. $ 301
$ 362
$ 322
$ —
$ 684
Total Level 3 limited partnership investments 301
362
322
—
684
DCR Mortgage Partners VII, L.P. 4,000
4,056
—
—
4,056
Kayne Senior Credit Fund II, L.P. 1,684
1,444
—
—
1,444
Kayne Senior Credit Fund III, L.P. 1,198
1,198
—
—
1,198
Blackstone Alternative Solutions 2015 Trust 505
475
—
—
475
Total Level 2 limited partnership investments 7,387
7,173
—
—
7,173
Total limited partnership investments $ 7,688
$ 7,535
$ 322
$ —
$ 7,857
Other short-term investments 300
300
—
—
300
Total other investments $ 7,988
$ 7,835
$ 322
$ —
$ 8,157



	Book Value		Unrealized Gain		Unrealized Loss		Fair Value
Limited partnership investments	$	7,584	$	358	$	—	$	7,942
Certificates of deposit	300		—		—		300
Total other investments	$	7,884	$	358	$	—	$	8,242

The following table summarizes the quantitative impact that the significant unobservable inputs used to estimate the fair value of our Level 3 ~~investment~~investments has on the estimated fair value onof our ~~investment~~investments shown in the tables above. ~~Due to Kayne II, Kayne III, DCR VII, and Blackstone~~Those limited partnership investments being carried at cost ~~we have~~are excluded ~~them~~ from the table below. ~~The~~Our investment in DCR Mortgage Partners VI, ~~investment~~L.P. (DCR VI) was valued using a duration of 60 months for both periods presented below.

Fair Value Valuation Rate
Impact Technique Unobservable Input Adjustment
September 30, 2017
DCR VI $ (44 ) Discounted cash flow Discount rate based on D&B paydex scale 2.35%

December 31, 2016
DCR VI $ (56 ) Discounted cash flow Discount rate based on D&B paydex scale 2.35%
RCH $ (341 ) Discounted cash flow Discount rate based on D&B paydex scale 7.35%



	Fair Value			Valuation		Rate
	Impact			Technique	Unobservable Input	Adjustment
June 30, 2018
DCR VI	$	(32	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%

December 31, 2017
DCR VI	$	(37	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%

Portfolio loans

At December 31, 2017, we held commercial portfolio loans of $20,000,000. We believe that making sound loans is a necessary and desirable means of employing funds available for investment. Recognizing our obligation to our stockholders, management is expected to seek to develop and make sound, profitable loans that resources permit and that opportunity affords. These were short-term collateralized loans (less than one year), which were repaid in full in April 2018, primarily from cash flows of the borrowers.


4)	ACQUISITIONS ~~AND MERGERS~~

We account for business acquisitions in accordance with the acquisition method of accounting, which requires, among other things, that most assets acquired, liabilities assumed and earn-out consideration be recognized at their fair values as of the acquisition date. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined as if the accounting had been completed on the acquisition date.

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

~~AmCo Holding Company~~

On April 3, 2017, ~~the Company~~we completed our acquisition of AmCo and its ~~merger with AmCo.~~subsidiaries. The transaction was completed through a series of mergers that ultimately resulted in the Company issuing 20,956,355 shares of its common stock ~~$0.0001 par value per share,~~ as ~~merger~~ consideration to the equity holders of RDX Holding, LLC, the former parent company of AmCo. As a ~~Delaware limited liability company.~~result of the mergers, AmCo merged with and into a wholly-owned subsidiary of the Company. The acquisition of AmCo supported ~~the Company's~~our growth strategy and further strengthened ~~the Company's~~our overall position in the commercial property and casualty insurance market. Goodwill recorded in the transaction, which reflected the synergies expected from the acquisition and enhanced reinsurance opportunities, is not tax deductible.

The operations of AmCo are included in our Unaudited Consolidated Statements of Comprehensive Income effective April 3, 2017. ~~We have one year from the acquisition date to finalize the allocation of the purchase price of AmCo and its subsidiaries.~~ The ~~preliminary~~final purchase price allocation ~~was~~is as follows:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018


Cash and cash equivalents	$	95,284		$	95,284
Investments	222,920			222,920
Premium and agents' receivable	31,439			31,439
Reinsurance recoverable	20,230			20,230
Prepaid reinsurance premiums	22,544			22,544
Intangible assets	30,286			30,286
Insurance contract asset	33,812			33,812
Goodwill	46,109			59,475
Other assets	25,932			4,591
Unpaid losses and loss adjustment expenses	(60,529		)	(60,529		)
Unearned premiums	(128,824		)	(128,824		)
Reinsurance payable	(22,406		)	(22,406		)
Deferred taxes	(15,046		)	(17,093		)
Other liabilities	(27,367		)	(6,261		)
Total purchase price	$	274,384		$	285,468

The unaudited pro forma financial information below has been prepared as if the acquisition of AmCo ~~merger~~ had taken place on January 1, ~~2016.~~2017. The unaudited pro forma financial information is not necessarily indicative of the results that we would have achieved had the transaction taken place on January 1, ~~2016,~~2017, and the unaudited pro forma information does not purport to be indicative of future financial operating results.

Nine Months Ended September 30,
2017 2016
As Pro Forma As Pro Forma
Reported Adjustments Pro Forma Reported Adjustments Pro Forma
Revenues $ 471,834
$ 38,096
$ 509,930
$ 355,684
$ 135,087
$ 490,771

Net income (loss) $ (16,856 ) $ 6,712
$ (10,144 ) $ 16,215
$ 30,187
$ 46,402

Diluted earnings per share $ (0.47 ) $ —
$ (0.24 ) $ 0.75
$ —
$ 1.09

~~Interboro Insurance Company~~

On April 29, 2016, we completed the acquisition of IIC. The purchase price for IIC consisted of $48,450,000 in cash, $8,550,000 in a note payable and an accrued liability for $3,471,000 paid during July 2016. The acquisition of IIC supported

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

~~the Company's growth strategy and further strengthened the Company's overall position in the property and casualty insurance market in the state of New York.~~

~~The operations of IIC are included in our Unaudited Consolidated Statements of Comprehensive Income effective April 29, 2016. The final purchase price allocation is as follows:~~

Cash and cash equivalents $ 15,554
Investments 66,527
Premium and agents' receivable 3,186
Reinsurance receivable 1,042
Intangible assets 5,877
Insurance contract asset 8,334
Goodwill 10,157
Other assets 3,980
Deferred taxes 575
Unpaid losses and loss adjustment expenses (24,967 )
Unearned premiums (26,243 )
Advanced premiums (1,472 )
Other liabilities (2,079 )
Total purchase price $ 60,471



	Six Months Ended June 30,
	2017
	As		Pro Forma
	Reported		Adjustments		Pro Forma
Revenues	$	300,706	$	38,096	$	338,802
Net income (loss)	11,156		6,712		17,868
Diluted earnings per share	0.35		—		0.42

5) EARNINGS PER SHARE

Basic earnings per share (EPS) is based on the weighted average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution resulting from the vesting of restricted stock awards. The following table shows the computation of basic and diluted EPS for the three and ~~nine month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~September 30, 2016~~,2017, respectively:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

Three Months Ended September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Numerator:
Net income (loss) attributable to common stockholders $ (28,012 ) $ 3,423
$ (16,856 ) $ 16,215

Denominator:
Weighted-average shares outstanding 42,524,400
21,448,892
35,341,994
21,406,599
Effect of dilutive securities 216,604
194,509
221,038
197,536
Weighted-average diluted shares 42,741,004
21,643,401
35,563,032
21,604,135

Basic earnings per share $ (0.66 ) $ 0.16
$ (0.48 ) $ 0.76
Diluted earnings per share $ (0.66 ) $ 0.16
$ (0.47 ) $ 0.75



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Numerator:
Net income attributable to common stockholders	$	14,701	$	7,257	$	23,069	$	11,156

Denominator:
Weighted-average shares outstanding	42,648,660		41,799,041		42,615,484		31,691,267
Effect of dilutive securities	141,686		228,972		154,118		223,292
Weighted-average diluted shares	42,790,346		42,028,013		42,769,602		31,914,559

Basic earnings per share	$	0.34	$	0.17	$	0.54	$	0.35
Diluted earnings per share	$	0.34	$	0.17	$	0.54	$	0.35

See Note 16 of these Notes to Unaudited Consolidated Financial Statements for additional information on the stock grants related to dilutive securities.

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

6) PROPERTY AND EQUIPMENT, NET

Property and equipment, net ~~consists~~consisted of the following:


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Land	$	2,114		$	2,114		$	2,114		$	2,114
Building and building improvements	5,502			5,502			6,504			5,695
Computer hardware and software	18,346			14,699			17,640			18,985
Office furniture and equipment	3,248			2,652			2,752			3,413
Leasehold improvements							20			—
Total, at cost	29,210			24,967			29,030			30,207
Less: accumulated depreciation and amortization	(9,866		)	(7,107		)	(11,288		)	(12,916		)
Property and equipment, net	$	19,344		$	17,860		$	17,742		$	17,291

Depreciation and amortization expense under property and equipment was ~~$723,000~~$819,000 and ~~$605,000~~$1,421,000 for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$2,759,000~~$1,563,000 and ~~$1,820,000~~$2,036,000 for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively.

7) GOODWILL AND INTANGIBLE ASSETS

Goodwill

The ~~changes in the~~ carrying amount of goodwill, ~~for~~both at June 30, 2018 and December 31, 2017, was $73,045,000. There was no goodwill acquired or disposed of during the ~~nine~~ ~~months~~three-month or six-month periods ended ~~September~~June 30, ~~2017 and 2016 are as follows:~~

September 30,
2017 2016
Balance at beginning of period $ 14,254
$ 3,413
Acquisitions 46,109
10,841
Adjustments to finalize purchase price allocation (684 ) —
Impairment —
—
Balance at end of period $ 59,679
$ 14,254
2018.

Using a qualitative assessment, we completed our most recent goodwill impairment testing during the fourth quarter of ~~2016~~2017 and determined that there was no impairment in the value of the asset as of December 31, ~~2016.~~

2017. No impairment loss in the value of goodwill ~~or goodwill amortization expense~~ was recognized during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Additionally, there was no accumulated impairment or accumulated amortization related to goodwill at ~~September~~June 30, ~~2017~~2018 or December 31, ~~2016.~~2017.

~~Intangible Assets~~

~~The following is a summary of intangible assets excluding goodwill recorded as other assets~~ ~~at September 30, 2017 and December 31, 2016~~:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

Intangible Assets

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


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Intangible assets subject to amortization	$	51,554	$	9,064	$	30,525	$	41,715
Indefinite-lived intangible assets⁽¹⁾	3,555		3,307		3,556		3,556
Total	$	55,109	$	12,371	$	34,081	$	45,271

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

Intangible assets subject to amortization consisted of the following:


	Weighted-average remaining amortization period (in years)	Gross carrying amount		Accumulated amortization			Net carrying amount		Weighted-average remaining amortization period (in years)	Gross carrying amount		Accumulated amortization			Net carrying amount
September 30, 2017
Value of Business Acquired	0.5	$	42,788	$	(25,882	)	$	16,906
June 30, 2018
Value of business acquired									—	$	42,788	$	(42,788	)	$	—
Agency agreements acquired	8.2	34,661		(5,546		)	29,115		7.6	34,661		(8,917		)	25,744
Trade names acquired	6.2	6,381		(848		)	5,533		5.6	6,381		(1,600		)	4,781
Total		$	83,830	$	(32,276	)	$	51,554		$	83,830	$	(53,305	)	$	30,525

December 31, 2016
Value of Business Acquired	0.3	$	8,975	$	(7,867	)	$	1,108
December 31, 2017
Value of business acquired									0.3	$	42,788	$	(34,335	)	$	8,453
Agency agreements acquired	3.8	10,284		(2,784		)	7,500		8.0	34,661		(6,669		)	27,992
Trade names acquired	2.1	720		(264		)	456		6.0	6,381		(1,111		)	5,270
Total		$	19,979	$	(10,915	)	$	9,064		$	83,830	$	(42,115	)	$	41,715

No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~September 30, 2016.~~2017.

Amortization expense of our intangible assets was ~~$9,839,000~~$1,365,000 and ~~$21,361,000~~$10,167,000 for the three ~~and nine~~months ended ~~September~~June 30, 2018 and 2017,, respectively. Amortization expense of our intangible assets was ~~$3,439,000~~$11,190,000 and ~~$6,791,000~~$11,522,000 for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016~~,2018 and 2017, respectively.

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


Year ending December 31,	Estimated Amortization Expense		Estimated Amortization Expense
Remaining 2017	$	11,818
2018	13,920
Remaining 2018			$	2,730
2019	5,355		5,355
2020	4,267		4,267
2021	3,555		3,555
2022	3,246		3,246
2023			3,246

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

8) REINSURANCE

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

Our program provides reinsurance protection for catastrophes including hurricanes, tropical storms and tornadoes. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our ~~shareholders~~stockholders an acceptable return on the risks assumed in our property business, and to reduce variability of earnings, while providing protection to our policyholders.

Effective June 1, ~~2017,~~2018, UPC Insurance, through our ~~wholly owned~~wholly-owned insurance subsidiaries ACIC, UPC, ~~ACIC,~~ FSIC, IIC and ~~IIC,~~BlueLine, entered into reinsurance agreements with ~~several~~ private reinsurers and with the Florida State Board of Administration, ~~(SBA),~~ which administers the Florida Hurricane Catastrophe Fund (FHCF). These agreements provide coverage for catastrophe losses from named or numbered windstorms and earthquakes in all states in which UPC Insurance operates except for the agreement with FHCF, ~~agreement~~ which only provides coverage in Florida against storms that the National Hurricane Center designates as hurricanes.

Highlights of the coverage ~~embedded~~within these contracts include:

~~More~~Increased frequency and severity protection, ~~than in any prior year,~~ with an overall program exhaustion point excess of ~~$2,747,500,000;~~$3,100,000,000;


◦	Sufficient coverage for approximately a single 1-in-400 year ~~event (AIR Touchstone v3.1 Standard Event Set);~~event;


◦	Sufficient coverage for a 1-in-100 year event followed by a 1-in-50 year event in the same season;

~~Group~~Lower per occurrence retention levels which include all BlueLine business;


◦	First event retention of $60,000,000 in Florida and $25,000,000 outside of Florida which, as a percentage of the group equity, represents approximately 11% and 4.6%, respectively;


◦	$25,000,000 for second event in all states;

Successful completion of ~~$55,000,000 for~~Armor Re II CAT Bond providing $100,000,000 of limit on a first event and $30,000,000 for a second and subsequent events including a $5,000,000 retention related to our captive reinsurer BlueLine Cayman Holding; this represents approximately 11% of group equity for a first event, lower than in any prior year for UPC Insurance;

~~Realized cost synergies by placing a combined program with American Coastal that surpassed our previously stated goal of $20,000,000 annually;~~multi-year basis;

Coverage from 4341 reinsurers with ~~70%~~93% of the open market limit placed on a fully collateralized basis ~~to mitigate credit risk; carriers providing uncollateralized limit have minimum~~or with reinsurers having an A+ or better A.M. Best financial strength ~~ratings of A-;~~rating; and

~~Approximately $87,500,000~~Up to $262,500,000 of multi-year ~~limit; and~~

~~Coverage expanded to include~~limit including the ~~entire life of a hurricane in lieu of an hours clause~~CAT Bond limit.

For the FHCF ~~Reimbursement Contracts~~reimbursement contracts effective June 1, ~~2017,~~2018, UPC Insurance has elected a 45% coverage for all its insurance subsidiaries with Florida exposure. We estimate the total mandatory FHCF layer will provide approximately ~~$789,000,000~~$907,000,000 of aggregate coverage with varying retentions and limits among the three FHCF contracts that all inure to the benefit of the open market coverage secured from private reinsurers.

The ~~$1,928,000,000~~$2,185,000,000 of aggregate open market catastrophe reinsurance coverage is structured into multiple layers with a cascading feature that all layers drop down as layers below them are exhausted. Any remaining unused layer protection drops down for subsequent events until exhausted, ensuring there are no potential gaps in coverage up to the ~~$2,747,500,000~~$3,100,000,000 program exhaustion point.

~~The total cost of the 2017-18 catastrophe reinsurance program is estimated to be $314,169,000.~~

Effective ~~December~~January 1, ~~2016,~~2018, UPC Insurance, through ~~our wholly owned~~its wholly-owned insurance ~~subsidiary,~~subsidiaries UPC, ~~entered into a quota share reinsurance agreement (the "quota share agreement") with private reinsurers. Also, effective January 1, 2017, we~~ACIC, IIC and FSIC, renewed our aggregate excess of loss reinsurance agreement (the "aggregate excess of loss agreement," and, together with the quota share agreement, the "agreements") with private reinsurers. These agreements provide coverage for in-force, new and renewal business. The quota share agreement provides coverage only for UPC, while the aggregate excess of loss agreement with a private reinsurer. The treaty provides coverage for ~~UPC, ACIC, FSIC,~~all catastrophe perils other than hurricanes, tropical storms, tropical depressions and ~~IIC. These new reinsurance programs are designed~~earthquakes. Under this agreement, we will retain, in the aggregate, 100% of those losses up to ~~work~~4.75% of the covered companies’ gross earned premium. The reinsurer will then be liable for all losses in ~~conjunction with our catastrophe~~ excess of ~~loss~~4.75% of the covered companies’ gross earned premium in the aggregate not to exceed $20,000,000 over the term of the treaty. Recoveries under this treaty will be calculated quarterly based on the cumulative gross earned premium. We ceded $20,000,000 of catastrophe losses to this treaty for the six months ended June 30, 2018. Reinsurance recoveries under this agreement may change in future periods as the cumulative subject gross earned premiums and eligible gross catastrophe losses incurred are recognized in subsequent calendar quarters during 2018 in accordance with the terms of the agreement. No allowance has been recorded against the $20,000,000 reinsurance ~~program to provide us broad risk transfer protection~~recoverable at June 30, 2018 since future catastrophe losses are inherently unpredictable and ~~to lessen financial volatility.~~cannot be reasonably estimated.

Effective December 31, 2017, UPC Insurance, through our wholly-owned insurance subsidiary UPC, replaced its quota share agreement with private reinsurers. The quota share agreement has a term of 12 months and a cession rate of 20% for all

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

~~The quota share agreement includes a cession rate of 20% (15% on single year and 5% over a two-year period) for all~~ subject business. The quota share agreement provides coverage for all catastrophe perils (e.g. hurricanes, tropical storms, tropical depressions and earthquakes), other-catastrophe perils (e.g. weather-related perils other than hurricanes, tropical storms, tropical depressions and earthquakes), and attritional losses. For ~~other-catastrophe perils, the quota share agreement provides coverage alongside the aggregate excess of loss program described herein, after our retention has been satisfied. For~~all catastrophe perils, the quota share agreement provides ground-up protection ~~that~~ effectively ~~reduces~~reducing our retention for catastrophe losses. Quota share ~~agreement reinsurers'~~reinsurers’ participation in paying attritional losses is subject to an attritional loss ratio cap.

The aggregate excess of loss agreement provides coverage only for other-catastrophe perils. Under this agreement, for other-catastrophe losses in excess of $1,000,000 but less than $15,000,000, UPC will retain, in the aggregate, 100% of those losses up to $30,000,000. The reinsurers will then be liable for all losses excess of $30,000,000 in the aggregate not to exceed an annual aggregate limit of $30,000,000. This program was placed at 85% rather than 100% because of the quota share agreement reinsurers' participation in paying other-catastrophe losses after the $30,000,000 retention. We have now met the $30,000,000 retention under this reinsurance program, which means the next $30,000,000 of catastrophe losses in excess of our $1,000,000 retention, other than from named windstorms or earthquakes, incurred during the remainder of 2017 will be ceded to third party reinsurers up to the $60,000,000 exhaustion point.

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

Three Months Ended September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Excess-of-loss $ (28,306 ) $ (476 ) $ (400,773 ) $ (182,503 )
Equipment & identity theft (2,606 ) (2,359 ) (7,275 ) (6,136 )
Novation of auto policies ⁽¹⁾
—
—
—
(2,396 )
Flood (5,559 ) (5,006 ) (14,319 ) (12,969 )
Ceded premiums written $ (36,471 ) $ (7,841 ) $ (422,367 ) $ (204,004 )
Increase (decrease) in ceded unearned premiums (79,036 ) (45,458 ) 130,012
55,167
Ceded premiums earned $ (115,507 ) $ (53,299 ) $ (292,355 ) $ (148,837 )

⁽¹⁾~~Reflects ceding of auto policy premiums to Maidstone Insurance Company as part of the settlement of the novation agreement entered into at the closing of the Interboro Insurance Company transaction.~~



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Quota share	$	(27,400	)	$	(27,411	)	$	(47,972	)	$	(46,781	)
Excess-of-loss	(350,230		)	(315,457		)	(364,091		)	(325,686		)
Equipment & identity theft	(2,631		)	(2,596		)	(4,751		)	(4,669		)
Flood	(5,568		)	(5,369		)	(9,239		)	(8,760		)
Ceded premiums written	$	(385,829	)	$	(350,833	)	$	(426,053	)	$	(385,896	)
Increase (decrease) in ceded unearned premiums	267,494			248,867			193,668			209,048
Ceded premiums earned	$	(118,335	)	$	(101,966	)	$	(232,385	)	$	(176,848	)

Current year catastrophe losses disaggregated between named and numbered storms and all other catastrophe loss events are shown in the following ~~table for the three and nine months ended September 30, 2017 and 2016.~~

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

table:


	2017						2016					2018					2017
	Number of Events	Incurred Loss and LAE ⁽¹⁾			Combined Ratio Impact		Number of Events	Incurred Loss and LAE ⁽¹⁾		Combined Ratio Impact		Number of Events	Incurred Loss and LAE ⁽¹⁾		Combined Ratio Impact		Number of Events	Incurred Loss and LAE ⁽¹⁾		Combined Ratio Impact
Three Months Ended September 30,
Three Months Ended June 30,
Current period catastrophe losses incurred
Named and numbered storms	4	$	83,460		54.7	%	3	$	2,600	2.2	%	1	$	1,214	0.7	%	1	$	264	0.2	%
All other catastrophe loss events	15	(845		)	(0.6	)%	15	2,509		2.0	%	8	16,126		9.4	%	14	21,534		13.5	%
Total	19	$	82,615		54.1	%	18	$	5,109	4.2	%	9	$	17,340	10.1	%	15	$	21,798	13.7	%

Nine Months Ended September 30,
Six Months Ended June 30,
Current period catastrophe losses incurred
Named and numbered storms	4	$	83,724		20.0	%	3	$	4,069	1.2	%	1	$	1,214	0.3	%	1	$	264	0.1	%
All other catastrophe loss events	15	31,301			7.5	%	15	19,816		5.9	%	16	22,443		6.7	%	14	32,146		12.0	%
Total	19	$	115,025		27.5	%	18	$	23,885	7.1	%	17	$	23,657	7.0	%	15	$	32,410	12.1	%

⁽¹⁾ Incurred loss and LAE (as defined below) is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during ~~both~~ the ~~three and nine months ended September 30, 2017. During the third quarter of 2017 we incurred losses and LAE from four new storms.~~year in which it occurred.

We collected cash recoveries under our reinsurance agreements totaling ~~$20,419,000~~$151,526,000 and ~~$9,747,000~~$18,081,000 for the three month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$40,984,000~~$274,038,000 and ~~$10,604,000~~$20,565,000 for the ~~nine month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

We write flood insurance under an agreement with the National Flood Insurance Program. We cede 100% of the premiums written and the related risk of loss to the federal government. We earn commissions for the issuance of flood policies based upon a fixed percentage of net written premiums and the processing of flood claims based upon a fixed percentage of incurred losses, and we can earn additional commissions by meeting certain growth targets for the number of in-force policies. We recognized commission revenue from our flood program of ~~$308,000~~$399,000 and ~~$270,000~~$303,000 for the ~~three month~~three-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$905,000~~$787,000 and ~~$772,000~~$597,000 for the ~~nine month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~,2017, respectively.

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

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

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

The table below shows the analysis of our reserve for unpaid losses for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~September 30, 2016~~2017 on a GAAP basis:

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~


	September 30,					June 30,
	2017			2016		2018			2017
Balance at January 1	$	140,855		$	76,792	$	482,232		$	140,855
Less: reinsurance recoverable on unpaid losses	18,724			2,114		305,673			18,724
Net balance at January 1	$	122,131		$	74,678	$	176,559		$	122,131

Acquisition of IIC reserves	—			22,576
Acquisition of AMCO reserves (net of reinsurance recoverables of $19,945)	40,583			—
Acquisition of AmCo reserves (net of reinsurance recoverables of $19,945)						—			40,583

Incurred related to:
Current year	296,217			190,031		167,392			152,061
Prior years	(2,819		)	9,585		(1,551		)	(1,790		)
Total incurred	$	293,398		$	199,616	$	165,841		$	150,271
Paid related to:
Current year	160,952			129,927		83,297			91,732
Prior years	84,497			53,437		92,937			69,878
Total paid	$	245,449		$	183,364	$	176,234		$	161,610

Net balance at September 30	$	210,663		$	113,506
Net balance at June 30						$	166,166		$	151,375
Plus: reinsurance recoverable on unpaid losses	471,498			9,154		266,265			53,319
Balance at September 30	$	682,161		$	122,660
Balance at June 30						$	432,431		$	204,694

Composition of reserve for unpaid losses and LAE:
Case reserves	$	289,938		$	75,305	$	230,926		$	94,608
IBNR reserves	392,223			47,355		201,505			110,086
Balance at September 30	$	682,161		$	122,660
Balance at June 30						$	432,431		$	204,694

Based upon our internal analysis and our review of the statement of actuarial opinion provided by our actuarial consultants, we believe that the reserve for unpaid losses reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.

As reflected by our losses incurred related to prior years, the ~~favorable~~favorable development experienced inat June 30 2018 and 2017, respectively, was primarily the result of the incurrence of fewer losses ~~related~~than expected, as compared to those same periods in the 2017 and 2016 ~~and 2015~~ accident years coming in better than expected. During 2016, we had a reserve deficiency. Since we place substantial reliance on loss-development-based actuarial models when determining our estimate of ultimate losses, the deficiencies resulted from additional development on prior accident years which caused our ultimate losses to increase.years.

10) LONG-TERM DEBT

Long-Term Debt

The table below presents all long-term debt outstanding as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016:~~

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

2017:


		Effective Interest Rate		Carrying Value at								Effective Interest Rate		Carrying Value at
	Maturity		September 30, 2017				December 31, 2016			Maturity		Effective Interest Rate	June 30, 2018			December 31, 2017
Senior Notes Payable	December 5, 2026	Effective Interest Rate	7.26%		$	30,000			$	30,000
$150M Senior Notes Payable											December 15, 2027	6.25%		$	150,000		$	150,000
Florida State Board of Administration Note Payable	July 1, 2026	2.27%		10,294				11,176			July 1, 2026	2.77%		9,412			10,000
Interboro, LLC Promissory Note Payable	October 29, 2017	6.00%		8,550				8,550
BB&T Term Note Payable	May 26, 2031	2.94%		4,738				4,998			May 26, 2031	3.63%		4,478			4,651
Total long-term debt				$	53,582			$	54,724					$	163,890		$	164,651

$150M Senior Notes Payable

On December ~~5, 2016,~~13, 2017, we issued ~~$30,000,000~~$150,000,000 of senior notes ~~to private investors pursuant to an Indenture dated as of December 5, 2016, by~~(the $150M senior notes) that will mature in 10 years and ~~between the Company and the trustee. The notes~~ bear interest at a ~~floating~~ rate equal to ~~the three month LIBOR plus 5.75%~~6.25% per annum ~~with interest~~ payable ~~quarterly~~semi-annually on each June 15 and December 15, commencing June 15, 2018. The $150M senior notes are senior unsecured obligations of the Company. We may redeem the $150M senior notes at our option, at any time and from time to time in ~~arrears. The~~whole or in part, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes ~~will mature 10 years after the issue date, have no scheduled amortization, and may~~to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the date of redemption to September 15, 2027. On or after that date, we may redeem the $150M senior notes at ~~par any time without a pre-payment penalty.~~par.

Florida State Board of Administration Note Payable

On September 22, 2006, we issued a $20,000,000, 20-year note payable to the Florida State Board of Administration ~~(SBA~~(the SBA note). For the first three years of the SBA note we were required to pay interest only. On October 1, 2009, we began to repay the principal in addition to interest. The note bears an annual interest rate equivalent to the 10-year U.S. Treasury Bond rate. The rate will be adjusted quarterly for the term of the SBA note based on the 10-year Constant Maturity Treasury rate.

~~Interboro, LLC Promissory Note Payable~~

On April 29, 2016, we issued an $8,550,000 promissory note to Interboro, LLC, the former parent company of IIC, as part of the purchase price paid to acquire our insurance affiliate. The note matured and was paid in October 2017.

BB&T Term Note Payable

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

Financial Covenants

The $150M senior notes, SBA note and BB&T note ~~and senior notes~~ contain representations and warranties, conditions and covenants. If these requirements ~~were~~are not met, all amounts outstanding or otherwise owed could become due and payable immediately and other limitations could be placed on our ability to use any available borrowing capacity. At ~~September~~June 30, ~~2017,~~2018, we were in compliance with all covenants as specified in the ~~notes.~~$150M senior notes, SBA note and BB&T note. Refer to Part I; Item 2 for additional information regarding our financial covenants.

Debt Issuance Costs

The table below presents the rollforward of our debt issuance costs paid, in conjunction with the debt instruments described above, during the ~~year~~six months ended ~~September~~June 30, ~~2017:~~2018:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018


	2017			2018			2017
Balance at January 1,	$	549		$	3,287		$	549
Additions	—			63			—
Amortization	(86		)	(178		)	(57		)
Balance at September 30,	$	463
Balance at June 30,				$	3,172		$	492

11) COMMITMENTS AND CONTINGENCIES

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

At ~~September~~June 30, ~~2017,~~2018, we were not involved in any material non-claims-related legal actions.

See Note 10 of these Notes to Unaudited Consolidated Financial Statements for information regarding commitments related to long-term debt, and Note 12 of these Notes to Unaudited Consolidated Financial Statements for information regarding commitments related to regulatory actions.

12) STATUTORY ACCOUNTING AND REGULATION

The insurance industry is heavily regulated. State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as our insurance ~~affiliates.~~subsidiaries. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict insurers' ability to pay dividends, specify allowable investment types and investment mixes, and subject insurers to assessments. Our insurance ~~affiliates,~~subsidiaries, UPC and ACIC, are domiciled in Florida, while FSIC and IIC are domiciled in Hawaii and New York, respectively. At ~~September~~June 30, ~~2017~~2018, and during the three and ~~nine~~six months then ended, our insurance ~~affiliates~~subsidiaries met all regulatory requirements of the states in which they ~~operate, and they~~operate. In March 2018, we received a recoupable assessment for $570,000 from the Texas Fair Plan Association. We did not ~~incur~~receive any ~~material assessments.~~additional significant assessments from regulatory authorities in the states in which our insurance subsidiaries operate.

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

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

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

We have reported our insurance ~~affiliates'~~subsidiaries' assets, liabilities and results of operations in accordance with GAAP, which varies from statutory accounting principles prescribed or permitted by state laws and regulations, as well as by general industry practices. The following items are principal differences between statutory accounting and GAAP:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

~~September~~June 30, ~~2017~~

2018

Statutory accounting requires that we exclude certain assets, called non-admitted assets, from the balance sheet.

Statutory accounting requires us to expense policy acquisition costs when incurred, while GAAP allows us to defer to the extent realizable, and amortize policy acquisition costs over the estimated life of the policies.

Statutory accounting requires that surplus notes, also known as surplus debentures, be recorded in statutory surplus, while GAAP requires us to record surplus notes as a liability.

Statutory accounting allows certain investments to be carried at amortized cost or fair value based on the rating received from the Securities Valuation Office of the ~~National Association of Insurance Commissioners,~~NAIC, while they are recorded at fair value for GAAP because the investments are held as available for sale.

Statutory accounting allows ceding commission income to be recognized when written if the cost of acquiring and renewing the associated business exceeds the ceding commissions, but under GAAP such income is deferred and recognized over the coverage period.

Statutory accounting requires that unearned premiums and loss reserves are presented net of related reinsurance rather than on a gross basis under GAAP.

Statutory accounting requires that a provision for reinsurance liability be established for reinsurance recoverable on paid losses aged over 90 days and for unsecured amounts recoverable from unauthorized reinsurers. Under GAAP there is no charge for uncollateralized amounts ceded to a company not licensed in the insurance ~~affiliate's~~subsidiary's domiciliary state and a reserve for uncollectable reinsurance is charged through earnings rather than surplus or equity.

Statutory accounting requires an additional admissibility test and the change in deferred income tax is reported directly in capital and surplus, rather than being reported as a component of income tax expense under GAAP.

Our insurance subsidiaries must each file with the various insurance regulatory authorities an “Annual Statement” which reports, among other items, statutory net income (loss) and surplus as regards policyholders, which is called ~~stockholder’s~~stockholders' equity under GAAP. For the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2017 and 2016, UPC, ACIC, FSIC and IIC~~2018, our combined recorded ~~the following amounts of~~ statutory net income ~~(loss).~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
UPC $ (14,852 ) $ (3,916 ) $ (26,831 ) $ (13,240 )
ACIC ⁽¹⁾
$ (2,248 ) N/A
$ 9,566
N/A
FSIC $ (2,700 ) $ (933 ) $ (1,963 ) $ (750 )
IIC $ (5,028 ) 986
$ (1,010 ) 9,173

⁽¹⁾~~There is not a reportable value for ACIC for~~was $16,546,000 and $25,538,000, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 as we did not own the company until April 2017.~~2017, our combined recorded statutory net income (loss) was $(507,000) and $4,590,000, respectively.

Our insurance subsidiaries must maintain capital and surplus ratios or balances as determined by the regulatory authority of the states in which they are domiciled. At June 30, 2018, we have met these requirements. The ~~table below shows the minimum capital and surplus requirements, as well as the~~ amount of surplus as regards policyholders for our regulated entities at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, was $410,307,000 and $389,384,000, respectively.

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

Minimum Requirement September 30, 2017 December 31, 2016
UPC ⁽¹⁾
$ 48,503
$ 139,109
$ 155,587
ACIC ⁽¹⁾⁽²⁾
$ 16,891
$ 154,743
N/A
FSIC $ 3,250
$ 16,624
$ 16,269
IIC $ 4,700
$ 40,750
$ 40,442

⁽¹⁾ ~~UPC and ACIC are required to maintain capital and surplus equal to the greater of 10% of their total liabilities or $5,000,000.~~

⁽²⁾ ~~There is not a reportable value for ACIC as of December 31, 2016 as we did not own the company until April 2017.~~

13) RELATED PARTY TRANSACTIONS

One of our executive officers, Ms. Salmon, is a former partner at the law firm of Groelle & Salmon, PA, where her spouse remains partner and co-owner. Groelle & Salmon, PA provides legal representation to us related to our claims litigation, and also provided representation to us for several years prior to Ms. Salmon joining UPC ~~Insurance.~~Insurance in 2014. During the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, Groelle & Salmon, PA billed us approximately ~~$871,000~~$717,000 and ~~$756,000,~~$775,000, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, Groelle & Salmon, PA billed us approximately ~~$2,513,000~~$1,425,000 and ~~$1,865,000,~~$1,643,000, respectively. Ms. Salmon's spouse has a 50% interest in these billings, or approximately ~~$436,000~~$359,000 and ~~$378,000,~~$388,000, for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and approximately ~~$1,257,000~~$713,000 and ~~$933,000,~~$822,000, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

AmRisc, a ~~Managing General Underwriter,~~managing general agent, handles the underwriting, claims processing, premium collection and reinsurance review for AmCo. R. Daniel Peed, Vice Chairman of our Board of Directors (Board), beneficially owns approximately 7.7% of AmRisc and is also the Chief Executive Officer of AmRisc.

In accordance with the managing general agent underwriting contract with AmRisc, we recorded ~~$41,311,000~~$127,757,000 and ~~$151,621,000~~$221,763,000 of gross written premiums for the three and ~~nine~~six month periods ended ~~September~~June 30, 2018, respectively, and $110,310,000 for the three month period ended June 30, 2017, resulting in fees and commission (including a profit commission) of ~~$12,011,000~~$34,737,000 and ~~$28,834,000,~~$59,166,000, for the three and six month periods ended June 30, 2018, respectively, and $16,823,000 for

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

the three month period ended June 30, 2017, due to AmRisc. Receivables are stated net of the fees and commission due under the contract.

In addition to the direct premiums written, we recorded ~~$640,000~~$1,805,000 and ~~$2,412,000~~$3,366,000 in ceded premiums to AmRisc as a reinsurance intermediary for the three and ~~nine~~six month periods ended ~~September~~June 30, 2018, respectively, and $1,772,000 for the three month period ended June 30, 2017. We also incurred ~~$4,000~~$5,000 and ~~$20,000,~~$9,000, respectively, during ~~those~~the three and six month periods ended June 30, 2018, respectively, and $16,000 for the three month period ended June 30, 2017, for rent under a sublease agreement with AmRisc.

Net premiums receivable (net of commissions) of ~~$17,510,000~~$67,842,000 were due from AmRisc as of ~~September~~June 30, ~~2017.~~2018. These premiums ~~are~~were paid by AmRisc to our premium trust account by wire transfer within 15 days of collection pursuant to the underwriting contract with AmRisc.

14) ACCUMULATED OTHER COMPREHENSIVE INCOME

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

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

Pre-Tax Amount Tax (Expense)Benefit Net-of-Tax Amount
December 31, 2016 $ 1,464
$ (642 ) $ 822
Changes in net unrealized gains on investments 10,509
(3,993 ) 6,516
Reclassification adjustment for realized losses 554
(214 ) 340
September 30, 2017 $ 12,527
$ (4,849 ) $ 7,678



	Pre-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount
December 31, 2017	$	12,044		$	(2,823	)	$	9,221
Reclassification adjustment for adoption of ASU 2016-01⁽¹⁾	(12,300		)	2,962			(9,338		)
Adjusted balance at January 1, 2018	(256		)	139			(117		)

Changes in net unrealized gains on investments	(15,052		)	3,506			(11,546		)
Reclassification adjustment for realized gains	227			(57		)	170
June 30, 2018	$	(15,081	)	$	3,588		$	(11,493	)

⁽¹⁾Reflects the fair value changes on equity securities as of December 31, 2017, which are reclassified under the new accounting guidance. Refer to Note 2 in these Notes to Unaudited Consolidated Financial Statements for further information.

15) STOCKHOLDERS' EQUITY

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

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


	Nine Months Ended September 30,								Six Months Ended June 30,
	2017				2016				2018				2017
	Per Share Amount		Aggregate Amount		Per Share Amount		Aggregate Amount		Per Share Amount		Aggregate Amount		Per Share Amount		Aggregate Amount
First Quarter	$	0.06	$	1,301	$	0.05	$	1,076	$	0.06	$	2,565	$	0.06	$	1,301
Second Quarter	$	0.06	$	2,561	$	0.06	$	1,300	$	0.06	$	2,565	$	0.06	$	2,561
Third Quarter	$	0.06	$	2,564	$	0.06	$	1,299

~~On April 3, 2017, we completed the acquisition of AmCo Holding Company by issuing 20,956,355 shares of our~~

~~common stock as payment of the initial purchase price.~~ See Note 416 in these Notes to Unaudited Consolidated Financial Statements for ~~additional~~ information ~~on this acquisition.~~regarding stock-based compensation activity.

We are authorized to issue 875,000 shares of "blank check" preferred stock, which may be issued from time to time in one or more series upon authorization by our Board of Directors. Our Board, without further approval of the stockholders, is authorized to fix the designations, powers, including voting powers, preferences and the relative, participating optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof. As of September 30, 2017, we had not issued any shares of preferred stock.

16) STOCK-BASED COMPENSATION

We account for stock-based compensation under the fair value recognition provisions of ASC Topic 718 - Compensation - Stock Compensation.

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~September 30, 2017~~

Stock-based compensation cost for restricted stock grants is measured based on the closing fair market value of our common stock on the date of grant. We recognize stock-based compensation cost over the award’s requisite service period on a ~~straight line~~straight-line basis for time-based restricted stock grants.

We granted ~~zero~~76,250 and 86,210 shares of restricted common stock during the three and six month ~~period~~periods ended ~~September~~June 30, ~~2017. We granted 155,122 shares of restricted common stock during the nine month period ended September 30, 2017,~~2018, respectively, which had a weighted-average grant date fair value of ~~$15.57~~$19.72 and $19.70 per ~~share.~~share, respectively. We granted ~~1,200~~65,000 and ~~112,405~~155,122 shares of restricted common stock during the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2016,~~2017, respectively, which had weighted-average grant date fair values of ~~$16.11~~$14.91 and ~~$17.02~~$15.57 per share, respectively.

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

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

Number of Restricted Shares Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2016 169,642
$ 16.87
Granted 155,122
15.57
Less: Forfeited 17,087
14.08
Less: Vested 105,083
16.34
Outstanding as of June 30, 2017 202,594
$ 16.39



	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2017	212,094	$	16.44
Granted	86,210	19.70
Less: Forfeited	17,077	18.07
Less: Vested	136,183	16.38
Outstanding as of June 30, 2018	145,044	$	18.24

We had approximately ~~$1,374,000~~$841,000 of unrecognized stock compensation expense ~~on September~~at June 30, ~~2017~~2018 related to non-vested stock-based compensation granted, ~~that~~which we expect to recognize over the next three years. We recognized ~~$393,000~~$240,000 and ~~$1,179,000~~$488,000 of stock-based compensation expense during the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017,~~2018, respectively. We recognized ~~$226,000~~$410,000 and ~~$631,000~~$786,000 of stock-based compensation expense during the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2016,~~2017, respectively.

We had approximately ~~$587,000~~$1,285,000 of unrecognized director stock-based compensation expense at ~~September~~June 30, ~~2017~~2018 related to non-vested director stock-based compensation granted, ~~that~~which we expect to recognize ratably until vesting one year after the ~~2018 Annual Meeting~~date of ~~Stockholders.~~grant. We recognized ~~$244,000~~$322,000 and ~~$752,000~~$561,000 of director stock-based compensation expense during the three and ~~nine months~~six month periods ended ~~September~~June 30, ~~2017,~~2018, respectively. We recognized ~~$272,000~~$242,000 and ~~$798,000~~$508,000 of ~~director~~ stock-based compensation expense during the three and ~~nine months~~six month periods ended ~~September~~June 30, ~~2016,~~2017, respectively.

17) SUBSEQUENT EVENTS

On ~~October 27, 2017,~~July 30, 2018, our ~~$8,550,000 promissory note payable to Interboro LLC matured and was paid, along with $767,000 in accrued interest.~~

~~On November 8, 2017, our~~ Board ~~of Directors~~ declared a $0.06 per share quarterly cash dividend payable on ~~November 29, 2017,~~August 20, 2018, to stockholders of record on ~~November 22, 2017.~~August 13, 2018.

UNITED INSURANCE HOLDINGS CORP.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-Q, as well as with the Consolidated Financial Statements and related footnotes under Part II. Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these forward-looking statements as a result of certain known and unknown risks and uncertainties. See "Forward-Looking Statements."

EXECUTIVE SUMMARY

Overview

United Insurance ~~Holdings~~Holding Corp. ~~serves~~(referred to in this document as we, our, us, the Company or UPC Insurance) is a holding company ~~for UPC~~primarily engaged in residential and ~~its affiliated companies.~~commercial property and casualty insurance in the United States. We conduct our business principally through ~~ten wholly owned operating~~four wholly-owned insurance subsidiaries: ~~UPC, ACIC, FSIC, IIC,~~ United Property & Casualty Insurance ~~Management, L.C., AmCo, BlueLine Cayman Holdings, LLC, Skyway Claims Services, LLC (our claims adjusting affiliate),~~Company (UPC); American Coastal Insurance Company (ACIC); Family Security Insurance Company (FSIC); and ~~UPC Re (our reinsurance affiliate)~~Interboro Insurance Company (IIC). Collectively, ~~including United Insurance Holdings Corp.,~~ we refer to ~~these entities~~the holding company and all our subsidiaries, including non-insurance subsidiaries, as “UPC Insurance,” which is the preferred brand identification ~~we are establishing~~ for our Company.

~~UPC Insurance~~Our Company’s primary source of revenue is ~~primarily engaged in the homeowners' and commercial property and casualty~~generated from writing insurance ~~business in the United States. We currently write~~ in Connecticut, Florida, Georgia, Hawaii,

Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina and ~~Texas, and we~~Texas. We are also licensed to write property and casualty insurance in ~~Alabama, Delaware, Maryland, Mississippi, New Hampshire, and Virginia.~~an additional six states; however, we have not commenced writing in these states. Our target market ~~currently~~in such areas consists of ~~areas~~states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies. ~~In such areas we~~We believe an opportunity exists for UPC Insurance to write profitable ~~business.~~business in such areas.

We ~~manage~~have historically grown our ~~risk~~business through strong organic growth complemented by strategic acquisitions, including

our acquisition of ~~catastrophic~~AmCo Holding Company (AmCo) and its subsidiaries, including ACIC, in April 2017, IIC in April 2016, and Family Security Holdings, LLC (FSH), including its subsidiary FSIC in February 2015. As a result of these acquisitions, along with the organic growth of premium in states in which we currently write premium, we have grown our policies in-force by 14.1% from 488,574 policies in-force at June 30, 2017 to 557,523 policies in-force at June 30, 2018.

Our business is subject to the impact of weather-related catastrophes on our loss ~~primarily through sophisticated pricing algorithms, avoidance~~and loss adjustment expense (LAE). During the third quarter of ~~policy concentration,~~2017, Hurricane Harvey made landfall in Texas and Hurricane Irma made landfall in Florida. In 2017, we retained $83,000,000 of pre-tax catastrophe losses, net of reinsurance recoverable as a result of hurricanes. During the ~~use~~six months ended June 30, 2018, we increased our loss and LAE reserve as a result of development trends from Hurricane Irma that indicated our ultimate gross loss estimate should be increased. There was no net change or impact to our second quarter 2018 results as a ~~comprehensive~~result of this reserve re-estimation as it was 100% ceded under our catastrophe reinsurance program. UPC Insurance has been operating continuously since 1999, and has successfully managed its business through various hurricanes, tropical storms, and other weather related events. We believe our record of successful risk management and experience in writing business in catastrophe-exposed areas provides us with a competitive advantage as we grow our business in other states facing similar perceived threats.

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

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

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

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

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

duration. To evaluate our financial condition, we consider ~~the following factors:~~our liquidity, financial strength, ratings, book value per share and

return on equity.

UNITED INSURANCE HOLDINGS CORP.

~~2017~~2018 Highlights


($ in thousands, except per share, ratios and policies in-force)	Three Months Ended September 30,					Nine Months Ended September 30,
($ in thousands, except per share)											Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016		2017			2016		2018			2017			2018			2017

Gross premiums written	$	267,219		$	194,341	$	788,408		$	541,053	$	384,662		$	352,347		$	664,279		$	521,189
Gross premiums earned	268,001			173,520		711,650			484,607		289,641			261,584			568,591			443,649
Net premiums earned	152,494			120,221		419,295			335,770		171,306			159,618			336,206			266,801
Total revenues	171,128			127,202		471,834			355,684		183,148			178,073			355,201			300,706
Earnings before income tax	(45,487		)	5,041		(26,899		)	24,581		19,332			12,650			31,047			18,588
Consolidated net income	(28,012		)	3,423		(16,856		)	16,215		14,701			7,257			23,069			11,156
Net income per diluted share	$	(0.66	)	$	0.16	(0.47		)	0.75		$	0.34		0.17			$	0.54		0.35

Reconciliation of net income to operating income:
Plus: Merger expenses, net of tax	8			300		4,489			747
Plus: Non-cash amortization of intangible assets, net of tax	6,736			2,510		15,309			5,220
Less: Realized gains (losses), net of tax	(46		)	69		(360		)	311
Operating income ⁽¹⁾	(21,222		)	6,164		3,302			21,871
Operating income per diluted share	(0.50		)	0.28		0.09			1.01
Reconciliation of net income to core income:
Plus: Merger expenses											$	—		$	6,743		$	—		$	6,894
Plus: Non-cash amortization of intangible assets											1,972			11,395			12,386			13,189
Less: Realized losses on investment portfolio											(438		)	(132		)	(227		)	(483		)
Less: Unrealized gains (losses) on equity securities											1,381			—			(1,063		)	—
Less: Net tax impact ⁽¹⁾											257			6,395			3,419			7,198
Core income⁽²⁾											15,473			19,133			33,326			24,524
Core income per diluted share⁽²⁾											$	0.36		$	0.46		$	0.78		$	0.77

Book value per share						11.73			11.99								$	12.72		12.39
Policies in-force						511,471			431,731

⁽¹⁾ ~~Operating~~In order to reconcile the net income to the core income measure, we included the tax impact of all adjustments using the effective rate at the end of each period.

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

UNITED INSURANCE HOLDINGS CORP.

Consolidated Net Income


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
REVENUE:
Gross premiums written	$	267,219		$	194,341		$	788,408		$	541,053		$	384,662		$	352,347		$	664,279		$	521,189
Decrease in gross unearned premiums	782			(20,821		)	(76,758		)	(56,446		)
Change in gross unearned premiums													(95,021		)	(90,763		)	(95,688		)	(77,540		)
Gross premiums earned	268,001			173,520			711,650			484,607			289,641			261,584			568,591			443,649
Ceded premiums earned	(115,507		)	(53,299		)	(292,355		)	(148,837		)	(118,335		)	(101,966		)	(232,385		)	(176,848		)
Net premiums earned	152,494			120,221			419,295			335,770			171,306			159,618			336,206			266,801
Investment income	4,901			2,663			12,489			7,786			7,091			4,637			12,777			7,588
Net realized gains (losses)	(71		)	106			(554		)	478
Net realized investment gains (losses)													(438		)	(132		)	(227		)	(483		)
Net unrealized loss on equity securities													1,381			—			(1,063		)	—
Other revenue	13,804			4,212			40,604			11,650			3,808			13,950			7,508			26,800
Total revenue	171,128			127,202			471,834			355,684			183,148			178,073			355,201			300,706
EXPENSES:
Losses and loss adjustment expenses	143,127			72,746			293,398			199,615			88,595			86,938			165,841			150,271
Policy acquisition costs	46,546			31,333			125,302			84,086			50,454			43,320			99,516			78,756
Operating expenses	6,891			5,558			19,020			15,326			9,682			6,257			18,000			12,129
General and administrative expenses	19,316			12,329			58,825			31,759			12,643			28,176			35,968			39,509
Interest expense	771			206			2,282			397			2,458			752			4,916			1,511
Total expenses	216,651			122,172			498,827			331,183			163,832			165,443			324,241			282,176
Income before other income	(45,523		)	5,030			(26,993		)	24,501			19,316			12,630			30,960			18,530
Other income	36			11			94			80			16			20			87			58
Income before income taxes	(45,487		)	5,041			(26,899		)	24,581			19,332			12,650			31,047			18,588
Provision for income taxes	(17,475		)	1,618			(10,043		)	8,366			4,631			5,393			7,978			7,432
Net income	$	(28,012	)	$	3,423		$	(16,856	)	$	16,215		$	14,701		$	7,257		$	23,069		$	11,156
Net income per diluted share	$	(0.66	)	$	0.16		$	(0.47	)	$	0.75		$	0.34		$	0.17		$	0.54		$	0.35
Book value per share							$	11.73		$	11.99								$	12.72		$	12.39
Return on equity based on GAAP net income							3.5		%	5.3		%
Return on equity based on trailing twelve months GAAP net income																			4.2		%	3.5		%
Loss ratio, net ⁽¹⁾	93.9		%	60.5		%	70.0		%	59.4		%	51.7		%	54.5		%	49.3		%	56.3		%
Expense ratio ⁽²⁾	47.7		%	40.9		%	48.4		%	39.1		%	42.5		%	48.7		%	45.7		%	48.9		%
Combined ratio (CR)⁽³⁾	141.6		%	101.4		%	118.4		%	98.5		%	94.2		%	103.2		%	95.0		%	105.2		%
Effect of current year catastrophe losses on CR	54.2		%	4.2		%	27.4		%	7.1		%	10.1		%	13.7		%	7.0		%	12.1		%
Effect of prior year development on CR	(0.7		)%	4.9		%	(0.7		)%	2.9		%	(0.5		)%	(0.8		)%	(0.5		)%	(0.7		)%
Effect of ceding commission income on CR	6.6		%	0.9		%	7.2		%	0.8		%
Underlying combined ratio ⁽⁴⁾	81.5		%	91.4		%	84.5		%	87.7		%
Effect of ceding commission income on CR ⁽⁴⁾													—		%	6.6		%	—		%	7.5		%
Underlying combined ratio ⁽⁵⁾													84.6		%	83.7		%	88.5		%	86.3		%

⁽¹⁾ Loss ratio, net is calculated as losses and ~~loss adjustment expenses~~LAE, net of losses ceded to reinsurers, relative to net premiums earned.

⁽²⁾ Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned.

⁽³⁾ Combined ratio is the sum of the loss ratio, net and the expense ratio, net.

⁽⁴⁾ For the six months ended June 30, 2018, we presented $20,674,000 of ceding commissions earned as a $4,498,000 decrease to ceded earned premium and a $16,175,000 decrease in policy acquisition costs, which reduced other revenue and removed the distortive impact to our underlying combined ratio. For the three months ended June 30, 2018, we presented $10,375,000 of ceding commissions earned as a $2,273,000 decrease to ceded earned premium and an $8,102,000 decrease in policy acquisition costs.

⁽⁵⁾Underlying combined ratio, a measure that is not based on ~~U.S. generally accepted accounting principles (GAAP),~~GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this ~~document~~Form 10-Q is in "Definitions of Non-GAAP Measures" below.

UNITED INSURANCE HOLDINGS CORP.

Definitions of Non-GAAP Measures

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

Combined ratio excluding the effects of current year catastrophe losses, prior year reserve development and ceding commission income earned (underlying combined ratio) is a non-GAAP ratio, which is computed by subtracting the effect of current year catastrophe losses, prior year development, and ceding commission income earned related to our quota share reinsurance agreement from the combined ratio. We believe that this ratio is useful to investors and it is used by management

~~UNITED INSURANCE HOLDINGS CORP.~~

to reveal the trends in our business that may be obscured by current year catastrophe losses, losses from lines in run-off, prior year development, and ceding commission income earned. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. Ceding commission income compensates the Company for expenses it incurs in generating the premium ceded under our quota share reinsurance agreement. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most direct comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.

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

Operating ~~Expense~~expenses excluding the effects of ceding commission income earned, merger expenses, and amortization of intangible assets (underlying expense) is a non-GAAP measure which is computed by subtracting ceding income earned related to our quota share reinsurance agreement, merger expenses and amortization ~~from operating expenses.~~of intangibles. Ceding commission income compensates the Company for expenses it incurs in generating the premium ceded under our quota share reinsurance agreement. Merger expenses are directly related to past mergers and are not reflective of current period operating performance. Similarly, amortization expense is related to the amortization of intangible assets acquired through ~~merger~~mergers and therefore the expense does not arise through normal operations. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most direct comparable GAAP measure is ~~the expense ratio.~~operating expenses. The underlying expense measure should not be considered a substitute for the expense ratio and does not reflect the overall profitability of our business.

Net ~~Income~~income excluding the effects of ~~merger expenses,~~ non-cash amortization of intangible assets, ~~and~~ realized gains (losses), and unrealized gains (losses) on equity securities, net of tax ~~(operating~~(core income) is a non-GAAP measure which is computed by adding ~~merger expenses, net of tax, and~~ amortization, net of tax, to net income and subtracting realized gains (losses) on our investment portfolio, net of tax, and unrealized gains (losses) on our equity securities, net of tax, from net income. ~~Merger expenses are directly related to past mergers and are not reflective of current period operating performance. Similarly, amortization~~Amortization expense is related to the amortization of intangible assets acquired through ~~merger~~mergers and therefore the expense does not arise through normal operations. Investment portfolio gains (losses) and unrealized equity security gains (losses) vary independent of our operations. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most direct comparable GAAP measure is net income. The ~~operating~~core income measure should not be considered a substitute for net income and does not reflect the overall profitability of our business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

When we prepare our consolidated financial statements and accompanying notes in conformity with ~~U.S.~~ GAAP, we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the three and ~~nine~~six months

UNITED INSURANCE HOLDINGS CORP.

ended ~~September~~June 30, ~~2017,~~2018, we reassessed our critical accounting policies and estimates as disclosed in Note 1 to the Notes to Unaudited Consolidated Financial Statements and our ~~2016~~Annual Report on Form ~~10-K;~~10-K for the year ended December 31, 2017; however, we have made no material changes or additions with regard to those policies and ~~estimates.~~estimates, except for those standards adopted in 2018 as described in

Note 2 in the Notes to Unaudited Consolidated Financial Statements.

RECENT ACCOUNTING STANDARDS

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

UNITED INSURANCE HOLDINGS CORP.

ANALYSIS OF FINANCIAL CONDITION - ~~SEPTEMBER~~JUNE 30, ~~2017~~2018 COMPARED TO DECEMBER 31, ~~2016~~2017

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying unaudited consolidated interim financial statements and related notes, and in conjunction with the section entitled ~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~"Management's Discussion and Analysis of Financial Condition and Results of Operations" in our ~~2016~~Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2017.

Investments

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

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

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

Our cash, cash equivalents and investment portfolio totaled ~~$1,068,849,000~~$1,182,670,000 at ~~September~~June 30, ~~2017~~2018, compared to ~~$679,335,000~~$1,130,806,000 at December 31, ~~2016.~~2017.

The following table summarizes our investments, by type:


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	Estimated Fair Value		Percent of Total		Estimated Fair Value		Percent of Total		Estimated Fair Value		Percent of Total		Estimated Fair Value		Percent of Total
U.S. government and agency securities	$	203,456	18.9	%	$	149,952	22.1	%	$	88,481	7.5	%	$	92,626	8.2	%
Foreign government	2,057		0.2	%	2,061		0.3	%	2,978		0.3	%	2,036		0.2	%
States, municipalities and political subdivisions	196,147		18.4	%	169,112		24.9	%	159,815		13.5	%	201,512		17.8	%
Public utilities	19,755		1.8	%	7,730		1.1	%	25,171		2.1	%	20,257		1.8	%
Corporate securities	279,593		26.1	%	164,536		24.2	%	284,328		24.0	%	287,562		25.4	%
Asset backed securities	16,714		1.6	%	—		—	%
Mortgage-backed securities									207,646		17.6	%	143,265		12.7	%
Asset-backed securities									79,778		6.7	%	14,905		1.3	%
Redeemable preferred stocks	1,063		0.1	%	1,125		0.2	%	685		0.1	%	692		0.1	%
Total fixed maturities	718,785		67.1	%	494,516		72.8	%	848,882		71.8	%	762,855		67.5	%
Mutual funds	29,807		2.8	%	—		—	%	47,560		4.0	%	31,924		2.8	%
Public utilities	1,642		0.2	%	1,507		0.2	%	2,243		0.2	%	1,702		0.2	%
Other common stocks	27,445		2.6	%	24,048		3.6	%	31,801		2.7	%	27,902		2.5	%
Non-redeemable preferred stocks	2,745		0.3	%	2,843		0.4	%	1,741		0.1	%	1,767		0.2	%
Total equity securities	61,639		5.9	%	28,398		4.2	%	83,345		7.0	%	63,295		5.7	%
Other long-term investments	8,157		0.8	%	5,733		0.8	%	8,242		0.7	%	8,381		0.7	%
Portfolio loans									—		—	%	20,000		1.8	%
Total investments	788,581		73.8	%	528,647		77.8	%	940,469		79.5	%	854,531		75.7	%
Cash and cash equivalents	280,268		26.2	%	150,688		22.2	%	208,675		17.7	%	229,556		20.2	%
Total cash, cash equivalents and investments	$	1,068,849	100.0	%	$	679,335	100.0	%
Restricted cash									33,526		2.8	%	46,719		4.1	%
Total cash, cash equivalents, restricted cash and investments									$	1,182,670	100.0	%	$	1,130,806	100.0	%

We classify all of our fixed maturity investments as available-for-sale. Our investments at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions and securities

UNITED INSURANCE HOLDINGS CORP.

of investment-grade corporate issuers. Our equity holdings consisted mainly of securities issued by companies in the energy, consumer products, financial, technology and industrial sectors. Most of the corporate bonds we hold reflected a similar

~~UNITED INSURANCE HOLDINGS CORP.~~

~~investment profile.~~ diversification. At ~~September~~June 30, ~~2017,~~2018, approximately ~~86%~~87.5% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and ~~14%~~12.5% were corporate bonds rated “BBB” or "BB".

At ~~September 30, 2017~~, securities in an unrealized loss position for a period of 12 months or longer reflected unrealized losses of $980,000; approximately $863,000 of the total related to 108 fixed maturities, while ten equity securities reflected an unrealized loss of $117,000. We currently have no plans to sell these 118 securities, and we expect to fully recover our cost basis. We reviewed all of our securities and determined that we did not need to record any impairment charges at ~~September 30, 2017. Similarly, we did not record impairment charges at December 31, 2016.~~

Reinsurance ~~Payable~~

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

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

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

During the second quarter of ~~2017,~~2018, we placed our reinsurance program for the ~~2017~~2018 hurricane season. We purchased catastrophe excess of loss reinsurance protection of ~~$2,747,500,000.~~$3,100,000,000. The contracts reinsure for personal and commercial lines property excess catastrophe losses caused by ~~various~~multiple perils including hurricanes, tropical storms and tornadoes. The agreements ~~were~~are effective as of June 1, ~~2017,~~2018, for a one-year term, and incorporate the mandatory coverage required by and placed with the ~~FHCF. The private agreements provide coverage against severe weather events such as hurricanes, tropical storms~~Florida Hurricane Catastrophe Fund.

Effective December 31, 2017, we replaced our 15% quota share agreement that expired on November 30, 2017 and ~~tornadoes.~~ our 5% quota share agreement that was set to renew on December 1, 2017 with a new quota share reinsurance agreement with a term of 12 months and a cession rate of 20% for all subject business.

Effective January 1, ~~2017,~~2018, we placed a ~~reinsurance agreement~~new aggregate excess of loss treaty to provide $20,000,000 of coverage against accumulated losses from specified catastrophe events ~~that will expire on December 31, 2017.~~in excess of 4.75% of cumulative subject gross premiums earned during each calendar quarter, for a term of 12 months.

Excluding our business for which we cede 100% of the risk of loss, reinsurance costs in the second quarter of 2018 were 38.8% of our gross premiums earned, compared to 37.1% of gross premiums earned for the second quarter of 2017. The increase in this ratio was driven primarily by the increased coverage purchased for our 2018-19 combined catastrophe reinsurance program.

See Note 8 in our Notes to Unaudited Consolidated Financial Statements for additional information regarding our reinsurance program.

Unpaid Losses and Loss Adjustments

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

Unpaid losses and ~~loss adjustment expenses~~LAE totaled ~~$682,161,000~~$432,431,000 and ~~$140,855,000~~$482,232,000 as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. The balance has decreased from year end as a result of reduced losses incurred from both weather-related and non weather-related activity and from the payment of claims during the first six months of 2018 compared to the same period in 2017.

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

See Note 9 in our Notes to Unaudited Consolidated Financial Statements for additional information regarding our losses and loss adjustments.

UNITED INSURANCE HOLDINGS CORP.

RESULTS OF OPERATIONS - COMPARISON OF THE ~~THREE MONTH~~THREE-MONTH PERIODS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2018 AND ~~2016~~2017

~~Revenue~~

Net ~~earnings~~income for the three months ended ~~September~~June 30, ~~2017 decreased $31,435,000,~~2018 increased $7,444,000, or ~~918.4%~~102.7%, to ~~a net loss of $28,012,000~~$14,701,000 for the ~~third~~second quarter of ~~2017~~2018 from ~~net income of $3,423,000~~$7,257,000 for the same period in ~~2016.~~2017. The ~~decrease~~increase in net ~~earnings~~income was primarily due to ~~increases~~the increase in ~~catastrophe losses associated with hurricanes Harvey~~gross premiums earned and ~~Irma for~~ the ~~third~~decrease in amortization and merger expenses during the second quarter of ~~2017~~2018 compared to the ~~third~~second quarter of ~~2016.~~2017.

Revenue

Our gross written premiums increased ~~$72,878,000,~~$32,315,000, or ~~37.5%~~9.2%, to ~~$267,219,000~~$384,662,000 for the ~~third~~second quarter ended ~~September~~June 30, ~~2017~~2018 from ~~$194,341,000~~$352,347,000 for the same period in ~~2016,~~2017, primarily reflecting ~~our merger with AmCo, as well as~~ organic growth in new and renewal business generated in ~~our Gulf and Northeast~~all regions. The breakdown of the quarter-over-quarter changes in both direct written and assumed ~~written~~ premiums by region and gross written premium by line of business are shown in the table below.


($ in thousands)	Three Months Ended September 30,							Three Months Ended June 30,
	2017		2016			Change		2018		2017		Change
Direct Written and Assumed Premium by Region ⁽¹⁾
Florida	$	130,309	$	83,816		$	46,493	$	204,885	$	199,736	$	5,149
Gulf	58,240		47,279			10,961		59,022		56,622		2,400
Northeast	43,652		39,265			4,387		47,346		40,842		6,504
Southeast	25,431		24,070			1,361		28,433		25,088		3,345
Total direct written premium by region	257,632		194,430			63,202		339,686		322,288		17,398
Assumed premium ⁽²⁾	9,587		(89		)	9,676		44,976		30,059		14,917
Total gross written premium by region	$	267,219	$	194,341		$	72,878	$	384,662	$	352,347	$	32,315

Gross Written Premium by Line of Business
Personal property	$	217,970	$	189,278		$	28,692	$	256,910	$	235,132	$	21,778
Commercial property	49,249		5,063			44,186		127,752		117,215		10,537
Total gross written premium by line of business	$	267,219	$	194,341		$	72,878	$	384,662	$	352,347	$	32,315

⁽¹⁾ ~~Each region~~"Gulf" is comprised of ~~the following states: Gulf includes~~ Hawaii, Louisiana and Texas; ~~Northeast includes~~"Northeast" is comprised of Connecticut, Massachusetts, New Jersey, New York and Rhode Island; and ~~Southeast includes~~"Southeast" is comprised of Georgia, North Carolina and South Carolina.

⁽²⁾Assumed premium written for 2018 and 2017 ~~includes~~is primarily commercial property business assumed from an unaffiliated ~~insurer and assumed premium for 2016 includes homeowners business from Citizens Property Insurance Corporation and Texas Windstorm Insurance Association.~~insurers.


	Three Months Ended September 30,			Three Months Ended June 30,
New and Renewal Policies By Region ⁽¹⁾	2017	2016	Change
New and Renewal Policies by Region ⁽¹⁾				2018	2017	Change
Florida	59,298	48,388	10,910	74,646	70,098	4,548
Gulf	37,600	31,294	6,306	36,816	35,326	1,490
Northeast	32,202	27,499	4,703	36,155	30,924	5,231
Southeast	21,686	19,413	2,273	24,920	21,233	3,687
Total	150,786	126,594	24,192	172,537	157,581	14,956

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

We expect our gross written premium growth to continue as we increase our policies in-force in the states in which we currently write policies and as we expand into other states in which we are currently licensed to write property and casualty insurance.

UNITED INSURANCE HOLDINGS CORP.

Expenses

Expenses for the three months ended ~~September~~June 30, ~~2017 increased $94,479,000,~~2018 decreased $1,611,000, or ~~77.3%~~1.0%, to ~~$216,651,000~~$163,832,000 for the ~~third~~second quarter of ~~2017~~2018 from ~~$122,172,000~~$165,443,000 for the same period in ~~2016.~~2017. The ~~increase~~decrease in expenses was primarily due to ~~increased~~decreased general and administrative expenses resulting from amortization costs related to the merger with AmCo that applied during the second quarter of 2017 but were fully amortized at the end of the first quarter of 2018. This decrease was offset by an increase in losses, ~~and loss adjustment expense from hurricanes Harvey and Irma,~~ policy acquisition costs and ~~general and administrative expenses.~~operating costs as explained below, as well as interest expenses due to the senior notes issued in December 2017. The calculations of our loss ratios and underlying loss ratios are shown below.


	Three Months Ended September 30,									Three Months Ended June 30,
	2017			2016			Change			2018			2017			Change
Net Loss and LAE	$	143,127		$	72,746		$	70,381
Net loss and LAE										$	88,595		$	86,938		$	1,657
% of Gross earned premiums	53.4		%	41.9		%	11.5 pts			30.6		%	33.2		%	(2.6) pts
% of Net earned premiums	93.9		%	60.5		%	33.4 pts			51.7		%	54.5		%	(2.8) pts
Less:
Current year catastrophe losses	$	82,615		$	5,109		$	77,506		$	17,340		$	21,798		$	(4,458	)
Prior year reserve (favorable) development	(1,029		)	5,909			(6,938		)	(870		)	(1,264		)	394
Underlying loss and LAE ⁽¹⁾	$	61,541		$	61,728		$	(187	)	$	72,125		$	66,404		$	5,721
% of Gross earned premiums	23.0		%	35.6		%	(12.6) pts			24.9		%	25.4		%	(0.5) pts
% of Net earned premiums	40.4		%	51.4		%	(11.0) pts			42.1		%	41.6		%	0.5 pts

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

The calculations of our expense ratio and underlying expense ratios are shown below.


	Three Months Ended June 30,								Three Months Ended June 30,
	2017			2016			Change		2018			2017			Change
Policy acquisition costs	$	46,546		$	31,333		$	15,213	$	50,454		$	43,320		$	7,134
Operating and underwriting	6,891			5,558			1,333		9,682			6,257			3,425
General and administrative	19,316			12,329			6,987		12,643			28,176			(15,533		)
Total Operating Expenses	$	72,753		$	49,220		$	23,533	$	72,779		$	77,753		$	(4,974	)
% of Gross earned premiums	27.1		%	28.4		%	(1.3) pts		25.1		%	29.7		%	(4.6) pts
% of Net earned premiums	47.7		%	40.9		%	6.8 pts		42.5		%	48.7		%	(6.2) pts
Less:
Ceding commission income(1)	$	10,091		$	1,031		9,060		$	—		$	10,562		(10,562		)
Merger expenses and amortization	10,374			4,324			6,050
Underlying expense ⁽¹⁾	$	52,288		$	43,865		$	8,423
Underlying expense ⁽²⁾									$	72,779		$	67,191		$	5,588
% of Gross earned premiums	19.5		%	25.3		%	(5.8) pts		25.1		%	25.7		%	(0.6) pts
% of Net earned premiums	34.3		%	36.5		%	(2.2) pts		42.5		%	42.1		%	0.4 pts

⁽¹⁾For the three months ended June 30, 2018, we presented $10,675,000 of ceding commissions earned as a $2,273,000 decrease to ceded earned premium and a $8,102,000 decrease in policy acquisition costs, which reduced other revenue and removed the distortive impact to our underlying expense ratio.

⁽²⁾Underlying ~~Expense~~expense is a non-GAAP measure and is reconciled above to total operating expenses, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this ~~document.~~Form 10-Q.

Loss and LAE increased ~~$70,381,000,~~$1,657,000, or ~~96.7%~~1.9%, to ~~$143,127,000~~$88,595,000 for the ~~third~~second quarter of ~~2017~~2018 from ~~$72,746,000~~$86,938,000 for the ~~third~~second quarter of ~~2016.~~2017. Loss and LAE expense as a percentage of net earned premiums ~~increased 33.4~~decreased 2.8 points to ~~93.9%~~51.7% for the second quarter of 2018, compared to ~~60.5%~~54.5% for the same period last year. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the second quarter of 2018 was ~~23.0%~~24.9%, a decrease of ~~12.6~~0.5 points from ~~35.6%~~25.4% during the ~~third~~second quarter of ~~2016.~~

During the third quarter of 2017, catastrophe losses included claims from Hurricane Harvey, which made landfall as a category 4 storm in Texas, and Hurricane Irma, which was also a category 4 storm making landfall in Florida. Our catastrophe excess of loss reinsurance limits retained losses to $91,0000,000 in total for these two events, which was further reduced to $83,000,000 by our quota share reinsurance.

~~UNITED INSURANCE HOLDINGS CORP.~~

2017.

Policy acquisition costs increased ~~$15,213,000,~~$7,134,000, or ~~48.6%~~16.5%, to ~~$46,546,000~~$50,454,000 for the ~~third~~second quarter of ~~2017~~2018 from ~~$31,333,000~~$43,320,000 for the ~~third~~second quarter of ~~2016.~~2017. The primary driver of the increase in costs was the ~~result of the~~ managing general agent fees ~~paid~~related to ~~AmRisc in relation to~~ AmCo

UNITED INSURANCE HOLDINGS CORP.

commercial ~~premium. The remaining change was the result of policy acquisition costs varing directly~~premiums along with ~~changes in gross premiums earned and~~agent commissions which were generally consistent with our growth in premium production and higher average market commission rates outside of Florida.

Operating and underwriting expenses increased ~~$1,333,000,~~$3,425,000, or ~~24.0%~~54.7%, to ~~$6,891,000~~$9,682,000 for the ~~third~~second quarter of ~~2016~~2018 from ~~$5,558,000~~$6,257,000 for the ~~third~~second quarter of ~~2016,~~2017, primarily due to increased costs related to ~~our ongoing growth,~~ incurred expenses ~~related to~~for software tools and ~~costs related to the increase in underwriting reports.~~agent incentive costs.

General and administrative expenses ~~increased $6,987,000,~~decreased $15,533,000, or ~~56.7%~~55.1%, to ~~$19,316,000~~$12,643,000 for the ~~third~~second quarter of ~~2016~~2018 from ~~$12,329,000~~$28,176,000 for the ~~third~~second quarter of ~~2016,~~2017, primarily due to amortization costs related to the merger with AmCo ~~which occurred~~during the second quarter of 2017 that were fully expensed at the end of the first quarter of 2018 as well as merger expenses that were incurred during the second quarter of 2017.

RESULTS OF OPERATIONS - COMPARISON OF THE ~~NINE~~SIX MONTH PERIODS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2018 AND ~~2016~~2017

~~Revenue~~

Net ~~earnings~~income for the ~~nine~~six months ended ~~September~~June 30, ~~2017 decreased $33,071,000,~~2018 increased $11,916,000, or ~~204.0%~~106.8%, to ~~a net loss of $16,856,000 for the nine months ended September 30, 2017~~$23,069,000 from ~~net income of $16,215,000~~$11,156,000 for the same period in ~~2016.~~2017. The ~~decrease~~increase in net ~~earnings~~income was primarily due to increases in ~~catastrophe losses~~gross premiums earned for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017 with the inclusion of six months of premium for AmCo in 2018 compared to three months of premium in 2017. In addition, we incurred approximately $7,000,000 in merger expenses in 2017 that were non-recurring in 2018.

Revenue

Our gross written premiums increased ~~$247,355,000,~~$143,090,000, or ~~45.7%~~27.5%, to ~~$788,408,000~~$664,279,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$541,053,000~~$521,189,000 for the same period in ~~2016,~~2017, primarily reflecting ~~our merger with AmCo, as well as~~ organic growth in new and renewal business generated in ~~our Gulf and Northeast~~all regions. The breakdown of the year-over-year changes in both direct and assumed written premiums by region and gross written premium by line of business are shown in the table below.


($ in thousands)	Nine Months Ended September 30,							Six Months Ended June 30,
	2017		2016			Change		2018		2017		Change
Direct Written and Assumed Premium by Region ⁽¹⁾
Florida	$	405,409	$	267,895		$	137,514	$	362,837	$	275,100	$	87,737
Gulf	155,640		119,939			35,701		103,819		97,400		6,419
Northeast	115,631		88,613			27,018		82,238		71,979		10,259
Southeast	70,711		66,945			3,766		51,320		45,280		6,040
Total direct written premium by region	747,391		543,392			203,999		600,214		489,759		110,455
Assumed premium ⁽²⁾	41,017		(2,339		)	43,356		64,065		31,430		32,635
Total gross written premium by region	$	788,408	$	541,053		$	247,355	$	664,279	$	521,189	$	143,090

Gross Written Premium by Line of Business
Personal property	$	617,974	$	525,003		$	92,971	$	442,535	$	400,005	$	42,530
Commercial property	170,434		16,050			154,384		221,744		121,184		100,560
Total gross written premium by line of business	$	788,408	$	541,053		$	247,355	$	664,279	$	521,189	$	143,090

⁽¹⁾ Each region is comprised of the following states: Gulf includes Hawaii, Louisiana and Texas; Northeast includes Connecticut, Massachusetts, New Jersey, New York and Rhode Island' and Southeast includes Georgia, North Carolina and South Carolina.

⁽²⁾ Assumed premium for 2018 and 2017 ~~includes~~is primarily commercial property business assumed from an unaffiliated ~~insurer and assumed premium for 2016 includes homeowners business from Citizens Property Insurance Corporation and Texas Windstorm Insurance Association.~~insurers.



	Six Months Ended June 30,
New and Renewal Policies By Region ⁽¹⁾	2018	2017	Change
Florida	128,052	115,452	12,600
Gulf	66,880	62,631	4,249
Northeast	63,335	54,219	9,116
Southeast	44,830	38,189	6,641
Total	303,097	270,491	32,606

UNITED INSURANCE HOLDINGS CORP.

Nine Months Ended September 30,
New and Renewal Policies By Region ⁽¹⁾
2017 2016 Change
Florida 174,750
151,826
22,924
Gulf 100,231
78,976
21,255
Northeast 86,421
63,825
22,596
Southeast 59,875
51,954
7,921
Total 421,277
346,581
74,696

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

Expenses

Expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 increased ~~$167,644,000,~~$42,065,000, or ~~50.6%~~14.9%, to ~~$498,827,000 for the nine months ended September 30, 2017~~$324,241,000 from ~~$331,183,000~~$282,176,000 for the same period in ~~2016.~~2017. The increase in expenses was primarily due to ~~increased losses and loss adjustment expense,~~the change in presentation of ceding commission income in 2018 from other revenue to policy acquisition ~~costs, operating costs and general and administrative expenses.~~costs. The calculations of our loss ratios and underlying loss ratios are shown below.


	Nine Months Ended September 30,									Six Months Ended June 30,
	2017			2016			Change			2018			2017			Change
Net Loss and LAE	$	293,398		$	199,615		$	93,783		$	165,841		$	150,271		$	15,570
% of Gross earned premiums	41.2		%	41.2		%	0.0 pts			29.2		%	33.9		%	(4.7) pts
% of Net earned premiums	70.0		%	59.4		%	10.6 pts			49.3		%	56.3		%	(7.0) pts
Less:
Current year catastrophe losses	$	115,025		$	23,885		$	91,140		$	23,657		$	32,410		$	(8,753	)
Prior year reserve (favorable) development	(2,819		)	9,585			(12,404		)	(1,551		)	(1,790		)	239
Underlying loss and LAE ⁽¹⁾	$	181,192		$	166,145		$	15,047		$	143,735		$	119,651		$	24,084
% of Gross earned premiums	25.5		%	34.3		%	(8.8) pts			25.3		%	27.0		%	(1.7) pts
% of Net earned premiums	43.2		%	49.6		%	(6.4) pts			42.8		%	44.8		%	(2.0) pts

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

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

~~UNITED INSURANCE HOLDINGS CORP.~~


	Nine Months Ended September 30,								Six Months Ended June 30,
	2017			2016			Change		2017			2016			Change
Policy acquisition costs	$	125,302		$	84,086		$	41,216	$	99,516		$	78,756		$	20,760
Operating and underwriting	19,020			15,326			3,694		18,000			12,129			5,871
General and administrative	58,825			31,759			27,066		35,968			39,509			(3,541		)
Total Operating Expenses	$	203,147		$	131,171		$	71,976	$	153,484		$	130,394		$	23,090
% of Gross earned premiums	28.5		%	27.1		%	1.4 pts		27.0		%	29.4		%	(2.4) pts
% of Net earned premiums	48.4		%	39.1		%	9.3 pts		45.7		%	48.9		%	(3.2) pts
Less:
Ceding commission income(1)	$	30,185		$	2,796		$	27,389	$	—		$	20,094		$	(20,094	)
Merger expenses and amortization	30,457			9,181			21,276
Underlying expense ⁽¹⁾	$	142,505		$	119,194		$	23,311
Underlying expense ⁽²⁾									$	153,484		$	110,300		$	43,184
% of Gross earned premiums	20.0		%	24.6		%	(4.6) pts		27.0		%	24.9		%	2.1 pts
% of Net earned premiums	34.0		%	35.5		%	(1.5) pts		45.7		%	41.5		%	4.2 pts

⁽¹⁾For the six months ended June 30, 2018, we presented $20,674,000 of ceding commissions earned as a $4,498,000 decrease to ceded earned premium and a $16,175,000 decrease in policy acquisition costs, which reduced other revenue and removed the distortive impact to our underlying expense ratio

⁽²⁾Underlying Expense is a non-GAAP measure and is reconciled above to total operating expenses, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this ~~document.~~Form 10-Q.

Loss and LAE increased ~~$93,783,000,~~$15,570,000, or ~~47.0%~~10.4%, to ~~$293,398,000~~$165,841,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$199,615,000~~$150,271,000 for the same period in ~~2016.~~2017. Loss and LAE expense as a percentage of net earned premiums ~~increased 10.6~~decreased 7.0 points to ~~70.0%~~49.3% for the year, compared to ~~59.4%~~56.3% for the same period last year. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the ~~quarter~~six months ended June 30, 2018, was ~~25.5%~~25.3%, a decrease of ~~8.8~~1.7 points from ~~34.3%~~27.0% during the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.

UNITED INSURANCE HOLDINGS CORP.

Policy acquisition costs increased ~~$41,216,000,~~$20,760,000, or ~~49.0%~~26.4%, to ~~$125,302,000~~$99,516,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$84,086,000~~$78,756,000 for the same period in ~~2016.~~2017. The primary driver of the increase ~~in costs~~ was the result of the ~~managing general agent fees paid~~reclassification of ceding commission income from other revenue to ~~AmRisc in relation to AmCo commercial premium. The remaining change was the result of~~ policy acquisition costs ~~varying directly with changes~~ in ~~gross premiums earned and were generally consistent with our growth in premium production and higher average market commission rates outside of Florida.~~2018.

Operating expenses increased ~~$3,694,000,~~$5,871,000, or ~~24.1%~~48.4%, to ~~$19,020,000~~$18,000,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$15,326,000~~$12,129,000 for the same period in ~~2016,~~2017, primarily due to increased costs related to the Company's ongoing growth, incurred expenses related to software and costs related ~~to the increase in underwriting reports.~~assessments.

General and administrative expenses ~~increased $27,066,000,~~decreased $3,541,000, or ~~85.2%~~9.0%, to ~~$58,825,000~~$35,968,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 from ~~$31,759,000~~$39,509,000 for the same period in ~~2016,~~2017, primarily due to non-recurring merger expenses and amortization costs related to the merger with AmCo which occurred during the ~~nine~~six months ended ~~September~~June 30, 2017.

LIQUIDITY AND CAPITAL RESOURCES

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

As a holding company, we do not conduct any business operations of our own and, as a result, we rely on cash dividends or intercompany loans from our management ~~affiliates~~subsidiaries to pay our general and administrative expenses. Insurance regulatory authorities heavily regulate our insurance ~~affiliates,~~subsidiaries, including restricting any dividends paid by our insurance ~~affiliates~~subsidiaries and requiring approval of any management fees our insurance ~~affiliates~~subsidiaries pay to our management ~~affiliates~~subsidiaries for services rendered; however, nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency. Our management ~~affiliates~~subsidiaries pay us dividends primarily using cash from the collection of management fees from our insurance ~~affiliates,~~subsidiaries, pursuant to the management agreements in effect between those entities. In accordance with state laws, our insurance ~~affiliates~~subsidiaries may pay dividends or make distributions out of that part of their statutory surplus derived from their net operating profit and their net realized capital gains. The ~~RBC~~Risk-Based Capital (RBC) guidelines published by the ~~NAIC~~National Association of Insurance Commissioners (NAIC) may further restrict

~~UNITED INSURANCE HOLDINGS CORP.~~

our insurance ~~affiliates'~~subsidiaries’ ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause their respective surplus as it regards policyholders to fall below minimum RBC guidelines. See Note 12 in our Notes to Unaudited Consolidated Financial Statements for additional information.

During the ~~nine~~six month periods ended ~~September~~June 30, 2018 and 2017, ~~and September 30, 2016~~ we ~~contributed $450,000 and $11,000,000 of~~did not make any capital contributions to our insurance ~~affiliates.~~subsidiaries. We may make future contributions of capital to our insurance ~~affiliates~~subsidiaries as circumstances require.

On December 13, 2017, we issued $150,000,000 of senior notes (the $150M senior notes) that will mature on December 15, 2027 and bear interest at a rate equal to 6.250% per annum payable semi-annually on each June 15 and December 15, commencing June 15, 2018. The $150M senior notes are senior unsecured obligations of the Company. We may redeem the $150M senior notes at our option, at any time and from time to time in whole or in part, at a redemption price equal to the greater of (i) 100% of the principal amount of the $150M senior notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the date of redemption to the date that is three months prior to maturity. On and after that date, we may redeem the $150M senior notes at par.

On April 3, 2017, ~~the Company~~we successfully completed ~~its merger with~~our acquisition of AmCo. The acquisition was completed through a series of mergers that ultimately resulted in the Company issuing 20,956,355 shares of its common stock ~~$0.0001 par value per share,~~ as merger consideration to the equity holders of RDX Holding, LLC, the former parent company of AmCo. As a ~~Delaware limited liability company.~~result of the mergers, AmCo merged with and into a wholly-owned subsidiary of the Company. We incurred $7,000,000 of merger-related expenses. Please refer to Note 4 in the Notes to Unaudited Consolidated Financial Statements for additional information on the merger transaction.

On April 29, 2016, we acquired all of the outstanding common stock of IIC for $60,471,000. We paid $48,450,000 in cash at closing and issued an $8,550,000 promissory note to the Seller, which matured and was paid in October 2017. The purchase price also included the assumption of an accrued liability of $3,471,000 which was paid during July 2016.Financial Covenants

~~On May 26, 2016, we issued a $5,200,000, 15-year term note payable to BB&T with~~$150M Senior Notes - Our $150M senior notes provide that the ~~intent to use~~Company and its subsidiaries shall not incur any indebtedness unless no default exists and the ~~funds to purchase, renovate, furnish and equip our home office. The note bears interest at 1.65% in excess~~Company’s leverage ratio as of the ~~one-month LIBOR.~~last day of any annual or quarterly period (the balance sheet date) immediately preceding the date on which such additional indebtedness is incurred would have been no greater than 0.3:1, determined on a pro forma basis as if the additional indebtedness and all other indebtedness incurred since the immediately preceding balance sheet date had been incurred and the proceeds therefrom applied as of such day. The ~~interest rate resets monthly~~Company and ~~was 2.94% at September 30, 2017. Please refer~~its subsidiaries also may not create, assume, incur or permit to ~~Note 10~~ ~~in the Notes to Unaudited Consolidated Financial Statements~~exist any indebtedness for borrowed money that is

UNITED INSURANCE HOLDINGS CORP.

secured by a ~~discussion~~lien on the ~~additional terms associated with this note.~~

~~On December 5, 2016, we issued $30,000,000~~voting stock of any significant subsidiary without selling the $150M senior notes ~~to private investors.~~equally. The ~~notes bear interest at 5.75% in excess~~Company may not issue, sell, assign, transfer or otherwise dispose of, directly or indirectly, any of the ~~three month LIBOR. The notes will mature ten years after~~capital stock of the Company’s significant subsidiaries as of the issue date ~~have no scheduled amortization, and~~of the notes (except to the Company or to one or more of the Company’s other subsidiaries, or for the purpose of qualifying directors or as may be ~~redeemed at par value any time without a pre-payment penalty. Please refer~~required by law or regulation), subject to ~~Note 10~~certain exceptions. At June 30, 2018, we were in compliance with the covenants in the ~~Notes to Consolidated Financial Statements for a discussion on the additional terms associated with these~~$150M senior notes.

~~Financial Covenants~~

Florida State Board of Administration Note Payable - Our $20,000,000, 20-year note payable to the Florida State Board of Administration (the SBA note) requires that UPC maintain either a 2:1 ratio of net written premium to surplus, or net writing ratio, or a 6:1 ratio of gross written premium to surplus, or gross writing ratio, to avoid additional interest penalties. The SBA note agreement defines surplus for the purpose of calculating the required ratios as the $20,000,000 of capital contributed to UPC under the agreement plus the outstanding balance of the note. Should UPC fail to exceed either a net writing ratio of 1.5:1 or a gross writing ratio of 4.5:1, UPC's interest rate will increase by 450 basis points above the 10-year Constant Maturity Treasury rate (as defined in the SBA note agreement) which was ~~2.33%~~2.85% at the end of ~~September 2017.~~June 2018. Any other writing ratio deficiencies result in an interest rate penalty of 25 basis points above the stated rate of the note, which was ~~2.27%~~2.77% at the end of ~~September 2017.~~June 2018. Our SBA note further provides that the ~~SBA~~Florida State Board of Administration may, among other things, declare its loan immediately due and payable ~~for all defaults~~upon any default existing under the SBA note; however, any payment is subject to approval by the insurance regulatory authority. At ~~September~~June 30, ~~2017,~~2018, we were in compliance with the covenants ~~as specified~~ in the SBA note.

BB&T Term Note Payable - ~~The~~Our $5,200,000, 15-year term note payable to the Branch Banking & Trust Company (the BB&T ~~note~~note) requires that, at all times while there has been no ~~"Non-Recurring Losses"~~losses from our insurance subsidiaries' operations (non-recurring losses), ~~UPC Insurance~~we will maintain a minimum Cash Flow Coverage ratio of 1.2:1. The Cash Flow Coverage ratio is defined as ~~UPC Insurance's~~our cash flow to ~~borrower's~~ debt services. ~~Cash flow is defined as earnings before taxes, plus depreciation and amortization and interest. Debt service is defined as prior year's current maturities of long term debt plus interest expense.~~ This ratio will be tested annually, based on UPC Insurance's audited financial statements. For the ~~annual~~one-year period ~~only~~ following a ~~"Non-Recurring Loss",~~non-recurring loss, UPC Insurance ~~will~~is required to maintain a minimum Cash Flow Coverage ratio of 1.0:1. ~~For purposes of both of the foregoing, "Non-Recurring Losses" is defined as losses from our insurance subsidiaries' operations, as determined from time to time in the bank's sole discretion.~~ This covenant will only be effective if the ~~Pre Non-Recurring Losses~~pre non-recurring losses test is failed, and is only available and effective for one ~~(1)~~ annual test period. Thereafter, the ~~Non-Recurring Loss~~non-recurring loss Cash Flow Coverage Ratio of 1.2:1 will immediately apply. At the time of the most recent annual test period, December 31, ~~2016,~~2017, we were in compliance with the covenants ~~as specified~~ in the BB&T note.

In addition, the BB&T note requires that we establish and maintain with BB&T at all times during the term of the loan a ~~noninterest~~non-interest bearing ~~DDA~~demand deposit account with a minimum balance of $500,000, and an ~~interest bearing~~interest-bearing account with a minimum balance of ~~$1,500,000, at all times during the term of the loan.~~$1,500,000. In the event of default, BB&T may, among other things, declare its loan immediately due and payable, require us to pledge additional collateral to the bank, and take possession of and foreclose upon our ~~home office~~corporate headquarters, which has been pledged to the bank as security for the loan. At ~~September~~June 30, ~~2017,~~2018, we were in compliance with the covenants ~~as specified~~ in the BB&T note.

~~UNITED INSURANCE HOLDINGS CORP.~~

~~Senior Notes Payable -~~ The Indenture contains customary event of default provisions. It also contains covenants that, among other things, restrict the Company's ability to incur indebtedness without first providing written notification and receiving approval from the majority of the holders of the notes, limit the Company's ability to create, incur or assume liens other than permitted liens that secure any indebtedness on any asset or property of the Company, require the Company to maintain reinsurance coverage during the life of the notes, and maintain a maximum debt to capital ratio of 20% beginning from December 31, 2017. At September 30, 2017, we were in compliance with the covenants as specified in the senior notes.

Cash Flows for the ~~Nine Months Ended September~~six months ended June 30, 2018 and 2017 (in millions)

Operating Activities

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

UNITED INSURANCE HOLDINGS CORP.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, some changes in~~2018, operating assets and liabilities were ~~significantly~~ impacted by the continued settlement of catastrophe losses associated with ~~hurricanes~~Hurricanes Harvey and ~~Irma. Unpaid losses and loss adjustment expense increased significantly~~Irma, each of which occurred during the ~~period and as a result we expect a considerable increase in cash outflows related to the payment~~second half of ~~catastrophe claims in the near future. However, reinsurance recoverable~~2017. Reinsurance recoverables on paid and unpaid losses ~~also~~ increased ~~significantly~~ during the ~~period.~~six months ended June 30, 2018. We expect that a ~~considerable~~comparable increase in cash inflows related to reinsurance recoveries in the near future will largely offset ~~the~~any cash outflows from the payment of losses. The reinsurance payable also increased as we entered into our contract for the 2018-2019 catastrophe reinsurance program.

Investing Activities

The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to purchases of investments and cost of property, equipment and capitalized software acquired. ~~Additional cash outflows relate to purchases of subsidiaries.~~ The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the six months ended June 30, 2017, we had an increase of $95,284,000 in cash provided by investing activities as the result of the merger with AmCo that did not occur during the six months ended June 30, 2018.

Financing Activities

The principal cash ~~inflows~~outflows from our financing activities ~~come from issuances of debt and other securities. The principal cash outflows~~ come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market ~~disruption.~~disruption in the cost and availability of credit. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements.

During the six months ended June 30, 2017, we had an increase of $15,682,000 in cash used in financing activities as the result of bank overdrafts that did not occur in the six months ended June 30, 2018.

OFF-BALANCE SHEET ARRANGEMENTS

At ~~September~~June 30, ~~2017~~2018, we did not have any off-balance-sheet ~~arrangements.~~arrangements or material changes to our contractual obligations during the quarter.

~~CONTRACTUAL OBLIGATIONS~~

~~The following table summarizes our expected payments for contractual obligations at September 30, 2017:~~

~~UNITED INSURANCE HOLDINGS CORP.~~

Payment Due by Period
Total Less than 1 Year 1-3 Years 4-5 Years More than 5 Years
Leases ⁽¹⁾
$ 987
$ 61
$ 487
$ 390
$ 49
Service agreements ⁽²⁾
20,748
3,168
10,639
4,798
2,143
Long-term debt ⁽³⁾
53,119
8,913
2,945
2,947
38,314
Employment agreements ⁽⁴⁾
4,583
250
2,000
2,000
333
Unpaid loss and loss adjustment expenses⁽⁵⁾
682,161
313,856
256,087
62,743
49,475
Total $ 761,598
$ 326,248
$ 272,158
$ 72,878
$ 90,314


⁽¹⁾	~~Represents operating and capital leases for our insurance subsidiaries.~~

⁽²⁾ ~~Represents agreements entered into to purchase goods and services in the normal course of business.~~


⁽³⁾	Represents principal payments over the life of the SBA Note debt. Also includes a note payable for $8,550,000 which we are obligated to pay as consideration for the IIC transaction, a $5,200,000 term note payable to BB&T, and $30,000,000 senior notes payable. See ~~Note 11~~ ~~in our Notes to Consolidated Financial Statements for additional information regarding our long-term debt.~~


⁽⁴⁾	~~Represents base salary for the unfulfilled portion of the original employment agreements with certain executive officers.~~

⁽⁵⁾

As of September 30, 2017, UPC, ACIC, FSIC, and IIC had unpaid loss and loss adjustment expenses (LAE) of $682,161,000. The specific amounts and timing of obligations related to known and unknown reserves and related LAE reserves are not set contractually, and the amounts and timing of these obligations are unknown. Nonetheless, based upon our cumulative claims paid over the last 17 years, we estimate that the loss and LAE reserves will be paid in the periods shown above. While we believe that historical performance of loss payment patterns is a reasonable source for projecting future claims payments, there is inherent uncertainty in this estimated projected settlement of loss and LAE reserves, and as a result these estimates will differ, perhaps significantly, from actual future payments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks, including ~~risks~~interest rate risk related to changes in interest rates in our fixed-maturity securities, credit risk related to changes in the financial condition of the issuers of our fixed-maturities and equity ~~security prices. These risks were disclosed in Part 1, Item 1A of our~~ ~~2016~~ ~~Form 10-K; we have material additions~~price risk related to ~~that disclosure with the acquisition of AmCo Holding Company.~~

~~INTEREST RATE RISK~~

Our fixed-maturities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movements in interest rates and considering our future capital and liquidity requirements.

~~The following table illustrates the impact of hypothetical changes in interest rates on the fair value of our fixed-maturities at September 30, 2017:~~

Percentage
Increase
Change in (Decrease) in
Estimated Estimated Estimated
Hypothetical Change in Interest Rates Fair Value Fair Value Fair Value
300 basis point increase $ 636,614
$ (82,171 ) (11.4 )%
200 basis point increase $ 664,003
$ (54,782 ) (7.6 )%
100 basis point increase $ 691,393
$ (27,392 ) (3.8 )%
Fair value $ 718,785
$ —
— %
100 basis point decrease $ 746,175
$ 27,390
3.8 %
200 basis point decrease $ 770,826
$ 52,041
7.2 %
300 basis point decrease $ 783,329
$ 64,544
9.0 %

Our calculations of the potential effects of hypothetical interest rate changes are based on several assumptions, including maintenance of the existing composition of fixed-maturity investments, and should not be indicative of future results. Based on our analysis, a 300 basis point decrease or increase in interest rates from the September 30, 2017 period end rates would not have a material impact on our results of operations or cash flows.

~~UNITED INSURANCE HOLDINGS CORP.~~

~~CREDIT RISK~~

Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuer of our fixed-maturities. We mitigate this risk by investing in fixed-maturities that are generally investment grade and by diversifying our investment portfolio to avoid concentrations in any single issuer or market sector.

~~The following table presents the composition of our fixed-maturity portfolio by rating at September 30, 2017:~~

% of Total
Amortized Amortized % of Total
Comparable Rating Cost Cost Fair Value Fair Value
AAA $ 131,352
18.4 % $ 132,311
18.4 %
AA+, AA, AA- 325,255
45.5
325,863
45.3
A+, A, A- 160,445
22.3
161,386
22.5
BBB+, BBB, BBB- 97,029
13.6
97,930
13.6
BB+, BB, BB- 1,293
0.2
1,295
0.2
Total $ 715,374
100.0 % $ 718,785
100.0 %

~~EQUITY PRICE RISK~~

~~Our equity investment portfolio at September 30, 2017 consists of common stocks, mutual funds and non-redeemable preferred stocks. We may incur potential losses due to adverse~~ changes in equity security prices. ~~We manage this risk primarily through industry and issuer diversification and asset allocation techniques.~~

~~The following table illustrates the composition~~These risks are disclosed in Part II, Item 7A of our ~~equity portfolio at September~~Annual Report on Form 10-K for the year ended December 31, 2017. We had no material changes in our market risk during the six months ended June 30, ~~2017:~~

% of Total
Stocks by Sector Fair Value Fair Value
Funds $ 29,807
48.4 %
Consumer, Non-cyclical 8,798
14.3
Industrial 6,526
10.6
Financial 4,332
7.0
Technology 3,525
5.7
Consumer, Cyclical 3,230
5.2
Utilities 2,838
4.6
Basic Materials 958
1.6
Communications 887
1.4
Energy 738
1.2
Total $ 61,639
100.0 %

2018.

Item 4. Controls and Procedures

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

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this ~~report.~~report, due to previously disclosed material weaknesses in internal control over financial reporting as discussed below. These material weakness were identified and discussed in Part II, Item 9A of our Form 10-K for the year ended December 31, 2017.

~~During~~Notwithstanding these material weaknesses, management has concluded that the ~~fiscal quarter~~consolidated financial statements included in this Form 10-Q fairly present, in all material respects, the financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles.

Material Weakness in Internal Control Over Financial Reporting

We identified the following material weaknesses in the operation of our internal control over financial reporting as previously disclosed in our 2017 Form 10-K:

UNITED INSURANCE HOLDINGS CORP.

A failure of the operating effectiveness of a monitoring control designed to ensure that the Company obtains evidence of the design and operating effectiveness of the general information technology controls intended to prevent unauthorized system access and inappropriate change management to two third-party service organization's professional services systems and information contained within.

We did not maintain effective accounting policies and procedural controls over the financial reporting for income taxes, acquisition purchase accounting and investments to ensure accurate and consistent financial reporting in accordance with GAAP.

Remediation Plans

Our management, with oversight from our Audit Committee, has initiated a plan to remediate the material weakness previously identified in the Form 10-K for the period ended ~~September 30, 2017~~,December 31, 2017. These plans include implementing effective controls over third-party systems and working with the providers to receive timely Service Organization Control reports in the future, as well as focusing on the accounting and disclosure for unusual and complex transactions, while augmenting existing staff with additional skilled accounting resources and strengthening the review process to improve the operation of financial reporting and corresponding internal controls. These new controls and procedures are in the process of being implemented and will be tested in connection with audit procedures for the year ending December 31, 2018. Until management has tested the remediation and concluded that the controls are operating effectively as designed, the material weaknesses will continue to exist.

Changes in Internal Control over Financial Reporting

Except for the material weakness remediation efforts identified above, we did not make any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting.~~

reporting during the quarter ended June 30, 2018.

UNITED INSURANCE HOLDINGS CORP.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are ~~party to lawsuits~~involved in claims-related legal actions arising ~~out of~~in the ~~normal~~ordinary course of business. We accrue amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that we determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes revisions to our ~~business. In management's opinion,~~estimates based on its analysis of subsequent information that we ~~are not party to any litigation or similar proceedings that would, individually or~~receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the ~~aggregate, be reasonably expected to have a~~awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation.

At June 30, 2018, we were not involved in any material ~~adverse effect on our consolidated results of operations, financial position, or cash flows.~~non-claims-related legal actions.

Item 1A. Risk Factors

~~In addition~~There have been no material changes to the ~~other information set forth in this Quarterly Report on Form 10-Q, you should consider the~~risk factors ~~discussed~~previously disclosed in Part 1,I, Item 1A "Risk Factors" in our ~~2016~~ Annual Report on Form 10-K ~~as updated in our subsequent quarterly reports. The risks described in our 2016 Annual Report on Form 10-K are not~~for the only risks we face. Additional risks and uncertainties not currently known to use or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, or results of operations.year ended December 31, 2017.

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

~~Unregistered Sales of Equity Securities.~~ During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, we did not sell any unregistered equity ~~securities.~~

~~Working Capital Restrictions and Other Limitations on Payment of Dividends.~~ ~~Under Florida law, a Florida-domiciled insurer like UPC~~securities or ACIC may not pay any dividend or distribute cash or other property to its shareholders except out of its available and accumulated surplus funds which are derived from realized net operating profits on its business and net realized capital gains. Additionally, Florida-domiciled insurers may not make dividend payments or distributions to shareholders without the prior approval of the insurance regulatory authority if the dividend or distribution would exceed the larger of:


1.	~~the lesser of:~~


a.	~~ten percent of capital surplus, or~~


b.	~~net gain from operations, or~~


c.	~~net income, not including realized capital gains, plus a two-year carryforward,~~


2.	~~ten percent of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains, or~~


3.	~~the lesser of:~~


a.	~~ten percent of capital surplus, or~~


b.	~~net investment income plus a three-year carryforward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.~~

~~Alternatively, UPC may pay a dividend or distribution without the prior written approval of the insurance regulatory authority when:~~


1.	~~the dividend is equal to or less than the greater of:~~


a.	~~ten percent of the insurer’s surplus as to policyholders derived from realized net operating profits on its business and net realized capital gains, or~~


b.	~~the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, and:~~

~~UNITED INSURANCE HOLDINGS CORP.~~


i.	~~the insurer will have surplus as to policyholders equal to or exceeding 115% of the minimum required statutory surplus as to policyholders after the dividend or distribution is made, and~~


~~ii.~~	~~the insurer files a notice of the dividend or distribution with the insurance regulatory authority at least ten business days prior to the dividend payment or distribution, and~~


~~iii.~~	the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory surplus as to policyholders.

Except as provided above, a Florida-domiciled insurer may only pay a dividend or make a distribution (i) subject to prior approval by the insurance regulatory authority, or (ii) 30 days after the insurance regulatory authority has received notice of intent to pay such dividend or distribution and has not disapproved it within such time. At ~~September 30, 2017, we were in compliance with these requirements.~~

~~Under the insurance regulations of Hawaii, the maximum amount of dividends that FSIC may pay to its parent company without prior approval from the Insurance Commissioner is:~~


1.	~~the lesser of:~~


a.	~~ten percent (10%) of FSIC's surplus as of December 31 of the preceding year, or~~


b.	~~ten percent (10%) of the net income, not including realized capital gains, for the twelve-month period ending December 31 of the preceding year.~~

In performing the net income test, property and casualty insurers may carry-forward income from the previous two calendar years that has not already been paid out as dividends. This carry-forward is computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and third immediately preceding calendar years.

Under the insurance regulations of New York, no company may declare or distribute any dividend to shareholders which, together with all dividends declared or distributed by it during the next preceding twelve months, exceeds:

1.~~the lesser of:~~

a.~~ten percent (10%) of IIC's surplus to policyholders as shown on its~~

~~latest statement on file with the Superintendent, or~~

b.~~100% of "adjusted net investment income" during that period.~~

~~N.Y. Ins. Law 4105(a)(2) (McKinney 2000) defines "adjusted net investment income" to mean:~~

~~Net investment income for the twelve months immediately preceding~~

~~the declaration or distribution of the current dividend increased by the~~

~~excess, if~~repurchase any of ~~net investment income over dividends declared or~~

~~distributed during the period commencing thirty-six months prior to~~

~~the declaration or distribution of the current dividend and ending twelve~~

~~months prior thereto.~~

~~Under an agreement with the New York Department of Financial Services, we will not issue dividends on behalf of IIC within two years of the acquisition date.~~

~~Repurchases.~~ ~~During the three and nine months ended~~ ~~September 30, 2017, we did not repurchase any~~our equity securities.

Item 3. Defaults Upon Senior Securities

None.

~~UNITED INSURANCE HOLDINGS CORP.~~

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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



Exhibit		Description

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

UNITED INSURANCE HOLDINGS CORP.

SIGNATURES

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



		UNITED INSURANCE HOLDINGS CORP.

~~November 8, 2017~~August 3, 2018	By:	/s/ John Forney
		John Forney, Chief Executive Officer (principal executive officer and duly authorized officer)



~~November 8, 2017~~August 3, 2018	By:	/s/ B. Bradford Martz
		B. Bradford Martz, Chief Financial Officer (principal financial officer and principal accounting officer)

4944



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
REVENUE:
Gross premiums written	$	267,219		$	194,341		$	788,408		$	541,053
Decrease (increase) in gross unearned premiums	782			(20,821		)	(76,758		)	(56,446		)
Gross premiums earned	268,001			173,520			711,650			484,607
Ceded premiums earned	(115,507		)	(53,299		)	(292,355		)	(148,837		)
Net premiums earned	152,494			120,221			419,295			335,770
Investment income	4,901			2,663			12,489			7,786
Net realized gains (losses)	(71		)	106			(554		)	478
Other revenue	13,804			4,212			40,604			11,650
Total revenue	171,128			127,202			471,834			355,684
EXPENSES:
Losses and loss adjustment expenses	143,127			72,746			293,398			199,615
Policy acquisition costs	46,546			31,333			125,302			84,086
Operating expenses	6,891			5,558			19,020			15,326
General and administrative expenses	19,316			12,329			58,825			31,759
Interest expense	771			206			2,282			397
Total expenses	216,651			122,172			498,827			331,183
Income (loss) before other income	(45,523		)	5,030			(26,993		)	24,501
Other income	36			11			94			80
Income (loss) before income taxes	(45,487		)	5,041			(26,899		)	24,581
Provision for income taxes	(17,475		)	1,618			(10,043		)	8,366
Net income (loss)	$	(28,012	)	$	3,423		$	(16,856	)	$	16,215
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gains (losses) on investments	2,672			(3,495		)	10,509			10,305
Reclassification adjustment for net realized investment losses (gains)	71			(106		)	554			(478		)
Income tax benefit (expense) related to items of other comprehensive income	(1,050		)	1,298			(4,207		)	(3,776		)
Total comprehensive income	$	(26,319	)	$	1,120		$	(10,000	)	$	22,266

Weighted average shares outstanding
Basic	42,524,400			21,448,892			35,341,994			21,406,599
Diluted	42,741,004			21,643,401			35,563,032			21,604,135

Earnings per share
Basic	$	(0.66	)	$	0.16		$	(0.48	)	$	0.76
Diluted	$	(0.66	)	$	0.16		$	(0.47	)	$	0.75

Dividends declared per share	$	0.06		$	0.06		$	0.18		$	0.17



	Initial Investment		Book Value		Unrealized Gain		Unrealized Loss		Fair Value
DCR Mortgage Partners VI, L.P.	$	301	$	362	$	322	$	—	$	684
Total Level 3 limited partnership investments	301		362		322		—		684
DCR Mortgage Partners VII, L.P.	4,000		4,056		—		—		4,056
Kayne Senior Credit Fund II, L.P.	1,684		1,444		—		—		1,444
Kayne Senior Credit Fund III, L.P.	1,198		1,198		—		—		1,198
Blackstone Alternative Solutions 2015 Trust	505		475		—		—		475
Total Level 2 limited partnership investments	7,387		7,173		—		—		7,173
Total limited partnership investments	$	7,688	$	7,535	$	322	$	—	$	7,857
Other short-term investments	300		300		—		—		300
Total other investments	$	7,988	$	7,835	$	322	$	—	$	8,157



Cash and cash equivalents	$	15,554
Investments	66,527
Premium and agents' receivable	3,186
Reinsurance receivable	1,042
Intangible assets	5,877
Insurance contract asset	8,334
Goodwill	10,157
Other assets	3,980
Deferred taxes	575
Unpaid losses and loss adjustment expenses	(24,967		)
Unearned premiums	(26,243		)
Advanced premiums	(1,472		)
Other liabilities	(2,079		)
Total purchase price	$	60,471



	Minimum Requirement		September 30, 2017		December 31, 2016
UPC ⁽¹⁾	$	48,503	$	139,109	$	155,587
ACIC ⁽¹⁾⁽²⁾	$	16,891	$	154,743	N/A
FSIC	$	3,250	$	16,624	$	16,269
IIC	$	4,700	$	40,750	$	40,442



	Pre-Tax Amount		Tax (Expense)Benefit			Net-of-Tax Amount
December 31, 2016	$	1,464	$	(642	)	$	822
Changes in net unrealized gains on investments	10,509		(3,993		)	6,516
Reclassification adjustment for realized losses	554		(214		)	340
September 30, 2017	$	12,527	$	(4,849	)	$	7,678



	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2016	169,642	$	16.87
Granted	155,122	15.57
Less: Forfeited	17,087	14.08
Less: Vested	105,083	16.34
Outstanding as of June 30, 2017	202,594	$	16.39



	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Leases ⁽¹⁾	$	987	$	61	$	487	$	390	$	49
Service agreements ⁽²⁾	20,748		3,168		10,639		4,798		2,143
Long-term debt ⁽³⁾	53,119		8,913		2,945		2,947		38,314
Employment agreements ⁽⁴⁾	4,583		250		2,000		2,000		333
Unpaid loss and loss adjustment expenses⁽⁵⁾	682,161		313,856		256,087		62,743		49,475
Total	$	761,598	$	326,248	$	272,158	$	72,878	$	90,314



						Percentage
						Increase
			Change in			(Decrease) in
	Estimated		Estimated			Estimated
Hypothetical Change in Interest Rates	Fair Value		Fair Value			Fair Value
300 basis point increase	$	636,614	$	(82,171	)	(11.4	)%
200 basis point increase	$	664,003	$	(54,782	)	(7.6	)%
100 basis point increase	$	691,393	$	(27,392	)	(3.8	)%
Fair value	$	718,785	$	—		—	%
100 basis point decrease	$	746,175	$	27,390		3.8	%
200 basis point decrease	$	770,826	$	52,041		7.2	%
300 basis point decrease	$	783,329	$	64,544		9.0	%



			% of Total
	Amortized		Amortized				% of Total
Comparable Rating	Cost		Cost		Fair Value		Fair Value
AAA	$	131,352	18.4	%	$	132,311	18.4	%
AA+, AA, AA-	325,255		45.5		325,863		45.3
A+, A, A-	160,445		22.3		161,386		22.5
BBB+, BBB, BBB-	97,029		13.6		97,930		13.6
BB+, BB, BB-	1,293		0.2		1,295		0.2
Total	$	715,374	100.0	%	$	718,785	100.0	%



			% of Total
Stocks by Sector	Fair Value		Fair Value
Funds	$	29,807	48.4	%
Consumer, Non-cyclical	8,798		14.3
Industrial	6,526		10.6
Financial	4,332		7.0
Technology	3,525		5.7
Consumer, Cyclical	3,230		5.2
Utilities	2,838		4.6
Basic Materials	958		1.6
Communications	887		1.4
Energy	738		1.2
Total	$	61,639	100.0	%