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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~34,872,073~~34,938,872 shares of common stock, par value $0.01 per share, outstanding on ~~July 23,~~October 29, 2018.

We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries (the “Company”) as of ~~June~~September 30, 2018 and the related condensed consolidated statements of income and comprehensive income for the three-month and ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017 and the related condensed consolidated statement of cash flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017. These interim financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Universal Insurance Holdings, Inc. and Subsidiaries as of December 31, 2017 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 23, 2018. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

	As of						As of
	June 30,			December 31,			September 30,			December 31,
	2018			2017			2018			2017
	(unaudited)						(unaudited)
ASSETS
Available-for-sale debt securities	$	656,762		$	639,334		$	760,408		$	639,334
Available-for-sale short-term investments		—			10,000			—			10,000
Equity securities		70,866			62,215			69,108			62,215
Investment real estate, net		19,539			18,474			23,720			18,474
Total invested assets		747,167			730,023			853,236			730,023

Cash and cash equivalents		311,088			213,486			252,289			213,486
Restricted cash and cash equivalents		2,635			2,635			2,635			2,635
Prepaid reinsurance premiums		310,618			132,806			228,408			132,806
Reinsurance recoverable		117,851			182,405			158,603			182,405
Reinsurance receivable, net		1,402			—			961			—
Premium receivable, net		67,186			56,500			66,017			56,500
Property and equipment, net		34,792			32,866			35,632			32,866
Deferred policy acquisition costs		88,756			73,059			90,643			73,059
Income taxes recoverable		11,839			9,472			5,174			9,472
Deferred income tax asset, net		177			9,286			7,948			9,286
Other assets		17,766			12,461			21,723			12,461
Total assets	$	1,711,277		$	1,454,999		$	1,723,269		$	1,454,999
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses	$	151,916		$	248,425		$	158,667		$	248,425
Unearned premiums		608,921			532,444			629,693			532,444
Advance premium		38,230			26,216			32,839			26,216
Accounts payable		2,778			2,866			2,809			2,866
Book overdraft		2,982			36,715			30,334			36,715
Reinsurance payable, net		341,912			110,381			261,133			110,381
Dividends payable		5,638			—
Other liabilities and accrued expenses		54,695			45,096			65,005			45,096
Long-term debt		12,132			12,868			11,765			12,868
Total liabilities		1,219,204			1,015,011			1,192,245			1,015,011

Commitments and Contingencies (Note 12)

STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock, $.01 par value		—			—			—			—
Authorized shares - 1,000
Issued shares - 10 and 10
Outstanding shares - 10 and 10
Minimum liquidation preference, $9.99 and $9.99 per share
Common stock, $.01 par value		463			458			463			458
Authorized shares - 55,000
Issued shares - 46,257 and 45,778
Outstanding shares - 34,872 and 34,735
Issued shares - 46,318 and 45,778
Outstanding shares - 34,933 and 34,735
Treasury shares, at cost - 11,385 and 11,043		(116,239	)		(105,123	)		(116,239	)		(105,123	)
Additional paid-in capital		85,925			86,186			88,231			86,186
Accumulated other comprehensive income (loss), net of taxes		(9,161	)		(6,281	)		(9,898	)		(6,281	)
Retained earnings		531,085			464,748			568,467			464,748
Total stockholders' equity		492,073			439,988			531,024			439,988
Total liabilities and stockholders' equity	$	1,711,277		$	1,454,999		$	1,723,269		$	1,454,999

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

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	342,781		$	296,191		$	612,765		$	541,606		$	309,176		$	274,744		$	921,941		$	816,350
Change in unearned premium		(68,754	)		(51,568	)		(76,477	)		(60,608	)		(20,772	)		(19,935	)		(97,249	)		(80,543	)
Direct premium earned		274,027			244,623			536,288			480,998			288,404			254,809			824,692			735,807
Ceded premium earned		(81,755	)		(75,614	)		(161,439	)		(150,430	)		(99,466	)		(80,292	)		(260,905	)		(230,722	)
Premiums earned, net		192,272			169,009			374,849			330,568			188,938			174,517			563,787			505,085
Net investment income (expense)		5,786			3,223			10,571			5,927			6,642			3,085			17,213			9,012
Net realized gains (losses) on sale of securities		145			1,710			(2,496	)		1,647			403			803			(2,093	)		2,450
Net change in unrealized gains (losses) of equity securities		(1,521	)		—			(6,630	)		—			(2,473	)		—			(9,103	)		—
Commission revenue		5,709			4,644			10,980			9,242			5,658			5,304			16,638			14,546
Policy fees		5,764			5,250			10,539			9,733			5,204			4,861			15,743			14,594
Other revenue		1,633			1,651			3,475			3,244			1,783			1,673			5,258			4,917
Total premiums earned and other revenues		209,788			185,487			401,288			360,361			206,155			190,243			607,443			550,604
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		89,842			80,184			165,768			150,754			85,947			116,375			251,715			267,129
General and administrative expenses		58,698			57,380			122,573			114,313			69,041			57,269			191,614			171,582
Total operating costs and expenses		148,540			137,564			288,341			265,067			154,988			173,644			443,329			438,711
INCOME BEFORE INCOME TAXES		61,248			47,923			112,947			95,294			51,167			16,599			164,114			111,893
Income tax expense		15,164			18,547			26,808			34,719			13,787			6,635			40,595			41,354
NET INCOME	$	46,084		$	29,376		$	86,139		$	60,575		$	37,380		$	9,964		$	123,519		$	70,539
Basic earnings per common share	$	1.32		$	0.84		$	2.47		$	1.73		$	1.07		$	0.29		$	3.54		$	2.02
Weighted average common shares outstanding - Basic		34,909			34,959			34,874			35,049			34,861			34,686			34,870			34,927
Diluted earnings per common share	$	1.29		$	0.82		$	2.42		$	1.68		$	1.04		$	0.28		$	3.45		$	1.96
Weighted average common shares outstanding - Diluted		35,589			35,958			35,636			36,061			35,919			35,615			35,754			35,917
Cash dividend declared per common share	$	0.14		$	0.14		$	0.28		$	0.28		$	0.16		$	0.14		$	0.44		$	0.42

	Three Months Ended					Six Months Ended					Three Months Ended					Nine Months Ended
	June 30,					June 30,					September 30,					September 30,
	2018			2017		2018			2017		2018			2017		2018			2017
Net income	$	46,084		$	29,376	$	86,139		$	60,575	$	37,380		$	9,964	$	123,519		$	70,539
Other comprehensive income (loss), net of taxes		(1,849	)		1,486		(5,899	)		3,950		(737	)		251		(6,636	)		4,201
Comprehensive income	$	44,235		$	30,862	$	80,240		$	64,525	$	36,643		$	10,215	$	116,883		$	74,740

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


	Six Months Ended June 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	158,081		$	140,965		$	224,454		$	286,195
Cash flows from investing activities:
Proceeds from sale of property and equipment		17			15			30			17
Purchases of property and equipment		(4,024	)		(2,757	)		(6,141	)		(3,655	)
Purchases of equity securities		(19,106	)		(13,275	)		(23,568	)		(47,070	)
Purchases of available-for-sale debt securities		(205,738	)		(67,517	)		(349,617	)		(114,593	)
Purchases of investment real estate, net		(1,269	)		(3,759	)		(5,553	)		(5,023	)
Proceeds from sales of equity securities		4,127			56,971			8,285			75,027
Proceeds from sales of available-for-sale debt securities		119,222			6,507			132,801			19,643
Maturities of available-for-sale debt securities		64,480			39,144			83,188			75,770
Maturities of available-for-sale short-term investments		10,000			5,000			10,000			5,000
Net cash provided by (used in) investing activities		(32,291	)		20,329			(150,575	)		5,116
Cash flows from financing activities:
Preferred stock dividend		(5	)		(5	)		(8	)		(8	)
Common stock dividend		(9,821	)		(9,803	)		(15,400	)		(9,803	)
Issuance of common stock for stock option exercises		73			—			102			—
Purchase of treasury stock		(11,116	)		(8,919	)		(11,116	)		(17,884	)
Payments related to tax withholding for share-based compensation		(6,583	)		(1,367	)		(7,551	)		(1,367	)
Repayment of debt		(736	)		(1,435	)		(1,103	)		(1,803	)
Net cash provided by (used in) financing activities		(28,188	)		(21,529	)		(35,076	)		(30,865	)
Cash and cash equivalents, and restricted cash and cash equivalents:
Net increase (decrease) during the period		97,602			139,765			38,803			260,446
Balance, beginning of period		216,121			108,365			216,121			108,365
Balance, end of period	$	313,723		$	248,130		$	254,924		$	368,811

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


	June 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Cash and cash equivalents	$	311,088	$	213,486	$	252,289	$	213,486
Restricted cash and cash equivalents (1)		2,635		2,635		2,635		2,635
Total cash and cash equivalents and restricted cash and cash equivalents	$	313,723	$	216,121	$	254,924	$	216,121

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

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

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

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the Financial Statements do not include all of the information and footnotes required by United States Generally Accepted Accounting Principles (“~~U. S.~~U.S. GAAP”) for annual financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 23, 2018. The condensed consolidated balance sheet at December 31, 2017, was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any other interim period or for the full year.

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

The Financial Statements include the accounts of UVE and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

Management must make estimates and assumptions that affect amounts reported in the Company’s Financial Statements and in disclosures of contingent assets and liabilities. Actual results could differ from those estimates.

The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, 2017. The following are new or revised disclosures or disclosures required on a quarterly basis.

In January 2016, the Financial Accounting Standards Board (“FASB”) revised U.S. GAAP with the issuance of Accounting Standards Update (“ASU”) 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities to improve the recognition and measurement of financial instruments. The new ASU requires certain investments in equity securities to be measured at fair value with changes in fair value reported in earnings and requires changes in instrument-specific credit risk for financial liabilities recorded at fair value under the fair value option to be reported in Other Comprehensive Income (“OCI”). The Company adopted this ASU effective January 1, 2018 using the modified retrospective transition method and recorded a cumulative effect adjustment of $3.6 million to the Condensed Consolidated Balance Sheets to reclassify unrealized losses on investments in equity securities to retained earnings from accumulated other comprehensive ~~income.~~income (“AOCI”). The adoption of this ASU also resulted in the recognition of the change in unrealized gains and losses for equity security investments as a separate component in the Condensed Consolidated Statements of Income during the three and ~~six~~nine months ended ~~June~~September 30, 2018.

In August 2016, the FASB revised U.S. GAAP with the issuance of ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new ASU applies to: 1)(1) debt prepayment or debt extinguishment costs, 2)(2) settlement of zero-coupon debt instruments, 3)(3) contingent consideration payments made after business combination, 4)(4) proceeds from the settlement of insurance claims, 5)(5) proceeds from the settlement of corporate-owned life insurance policies, 6)(6) distributions received from equity method investments, 7)(7) beneficial interests in securitization transactions, and 8)(8) separately identifiable cash flows and application of the predominance principle. Historically, the items outlined above have not been applicable to the Company. The Company adopted this ASU effective January 1, 2018 and the adoption did not have an impact on our Condensed Consolidated Statements of Cash Flows.

In November 2016, the FASB revised U.S. GAAP, Statement of Cash Flows (Topic 230): Restricted Cash with the issuance of the ASU 2016-18, to reduce diversity in the classification and presentation of changes in restricted cash in the statement of cash flows. The new ASU requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company is required to reconcile such total to amounts on the Condensed Consolidated Balance Sheets and disclose the nature of the restrictions. The Company adopted this ASU effective January 1, 2018, which only resulted in a change in the presentation of the Condensed Consolidated Statements of Cash Flows.

In February 2018, the FASB revised U.S. GAAP, Comprehensive Income (Topic 220), with the issuance of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in response to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) on December 22, 2017. The new ASU permits a company to reclassify the disproportionate income tax effects of the Tax Act on items within ~~accumulated other comprehensive income (“AOCI”)~~AOCI to retained earnings and requires certain new disclosures. The Company adopted this guidance effective January 1, 2018 and made an election to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. Retained earnings were reduced by approximately $0.6 million due to this reclassification. The reclassification represents the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances at the date of enactment of the Tax Act related to items remaining in ~~accumulated other comprehensive income.~~AOCI. The Company follows an aggregate portfolio approach and considers that it had two portfolios, an available for sale debt equity portfolio and an available for sale equity portfolio, the disproportionate tax effects relating to the available for sale equity portfolio were included in the transition adjustment when adopting ASU 2016-01.

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

	June 30, 2018									September 30, 2018
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized					Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value
Debt Securities:
U.S. government obligations and agencies	$	59,086	$	—	$	(1,374	)	$	57,712	$	67,442	$	15	$	(1,459	)	$	65,998
Corporate bonds		339,730		424		(6,190	)		333,964		415,600		532		(6,165	)		409,967
Mortgage-backed and asset-backed securities		242,492		31		(5,091	)		237,432		275,128		23		(5,923	)		269,228
Municipal bonds		15,798		—		(81	)		15,717		3,401		—		(123	)		3,278
Redeemable preferred stock		11,762		318		(143	)		11,937		11,922		206		(191	)		11,937
Total	$	668,868	$	773	$	(12,879	)	$	656,762	$	773,493	$	776	$	(13,861	)	$	760,408

	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Debt Securities:
U.S. government obligations and agencies	$	60,481	$	—	$	(877	)	$	59,604
Corporate bonds		228,336		476		(1,308	)		227,504
Mortgage-backed and asset-backed securities		221,956		19		(2,523	)		219,452
Municipal bonds		120,883		599		(1,187	)		120,295
Redeemable preferred stock		12,059		485		(65	)		12,479
Short-term investments		10,000		—		—			10,000
Total	$	653,715	$	1,579	$	(5,960	)	$	649,334

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

	June 30, 2018					December 31, 2017 (1)					September 30, 2018					December 31, 2017 (1)
			% of Total					% of Total					% of Total					% of Total
Credit Ratings	Fair Value		Fair Value			Fair Value		Fair Value
Average Credit Ratings											Fair Value		Fair Value			Fair Value		Fair Value
AAA	$	310,359		47.3	%	$	317,313		48.9	%	$	344,801		45.3	%	$	317,313		48.9	%
AA		73,207		11.1	%		129,573		20.0	%		92,411		12.2	%		129,573		20.0	%
A		182,479		27.8	%		146,749		22.6	%		216,074		28.4	%		146,749		22.6	%
BBB		87,007		13.3	%		51,020		7.8	%		103,427		13.6	%		51,020		7.8	%
BB+ and Below		114		0.0	%		1,569		0.2	%		117		0.0	%		1,569		0.2	%
No Rating Available		3,596		0.5	%		3,110		0.5	%		3,578		0.5	%		3,110		0.5	%
Total	$	656,762		100.0	%	$	649,334		100.0	%	$	760,408		100.0	%	$	649,334		100.0	%

The table above includes credit quality ratings by Standard and Poor’s Rating Services, Inc., Moody’s Investors Service,

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

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


	June 30, 2018				December 31, 2017				September 30, 2018				December 31, 2017
	Amortized				Amortized				Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Mortgage-backed Securities:
Agency	$	140,252	$	137,247	$	118,014	$	116,014	$	152,068	$	148,472	$	118,014	$	116,014
Non-agency		29,023		28,608		17,676		17,488		44,509		44,005		17,676		17,488
Asset-backed Securities:
Auto loan receivables		30,187		29,845		35,105		34,962		28,983		28,649		35,105		34,962
Credit card receivables		16,258		16,074		38,844		38,719		23,836		23,665		38,844		38,719
Other receivables		26,772		25,658		12,317		12,269		25,732		24,437		12,317		12,269
Total	$	242,492	$	237,432	$	221,956	$	219,452	$	275,128	$	269,228	$	221,956	$	219,452

The following table summarizes the fair value and gross unrealized losses on available-for-sale debt securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position as of the dates presented (dollars in thousands):

	June 30, 2018														September 30, 2018
	Less Than 12 Months							12 Months or Longer							Less Than 12 Months							12 Months or Longer
	Number of				Unrealized			Number of				Unrealized			Number of				Unrealized			Number of				Unrealized
	Issues		Fair Value		Losses			Issues		Fair Value		Losses			Issues		Fair Value		Losses			Issues		Fair Value		Losses
Debt Securities:
U.S. government obligations and agencies		9	$	35,148	$	(608	)		8	$	22,564	$	(766	)		5	$	15,734	$	(313	)		11	$	40,389	$	(1,146	)
Corporate bonds		346		266,868		(5,103	)		33		31,018		(1,087	)		413		316,750		(4,599	)		66		51,245		(1,566	)
Mortgage-backed and asset-backed securities		100		135,607		(2,172	)		61		84,444		(2,919	)		86		135,530		(1,643	)		98		109,884		(4,280	)
Municipal bonds		7		3,521		(81	)		—		—		—			6		3,278		(123	)		—		—		—
Redeemable preferred stock		66		3,808		(143	)		—		—		—			98		4,739		(154	)		1		408		(37	)
Total		528	$	444,952	$	(8,107	)		102	$	138,026	$	(4,772	)		608	$	476,031	$	(6,832	)		176	$	201,926	$	(7,029	)

	December 31, 2017
	Less Than 12 Months							12 Months or Longer
	Number of				Unrealized			Number of				Unrealized
	Issues		Fair Value		Losses			Issues		Fair Value		Losses
Debt Securities:
U.S. government obligations and agencies		7	$	35,464	$	(301	)		9	$	24,140	$	(576	)
Corporate bonds		159		142,208		(792	)		39		29,796		(516	)
Mortgage-backed and asset-backed securities		83		137,481		(955	)		37		70,218		(1,568	)
Municipal bonds		36		28,265		(246	)		30		48,370		(941	)
Redeemable preferred stock		21		2,464		(65	)		—		—		—
Total		306	$	345,882	$	(2,359	)		115	$	172,524	$	(3,601	)

As of ~~June~~September 30, 2018, the Company held available-for-sale debt securities that were in an unrealized loss position as presented in the table above. For available-for-sale debt securities with significant declines in value, the Company performs quarterly fundamental credit analysis on a security-by-security basis, which includes consideration of credit quality and credit ratings, review of relevant industry analyst reports and other available market data. For available-for-sale debt securities, the Company considers whether it has the intent and ability to hold the available-for-sale debt securities for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the security’s decline in fair value is considered other than temporary and is recorded in earnings. Based on our analysis, our fixed income portfolio is of high quality and we believe that we will recover the amortized cost basis of our available-for-sale debt securities. We continually monitor the credit quality of our investments in available-for-sale debt securities to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest. Additionally, the Company considers management’s intent and ability to

hold the available-for-sale debt securities until recovery and its credit analysis of the individual issuers of the securities. Based on this process and analysis, management has no reason to believe the unrealized losses of the available-for-sale debt securities as of ~~June~~September 30, 2018 are other than temporary.

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

	June 30, 2018				September 30, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	49,496	$	49,286	$	65,340	$	65,054
Due after one year through five years		216,335		211,886		246,639		242,313
Due after five years through ten years		124,206		121,788		158,771		156,385
Due after ten years		24,577		24,433		15,693		15,491
Mortgage-backed and asset-backed securities		242,492		237,432		275,128		269,228
Perpetual maturity securities		11,762		11,937		11,922		11,937
Total	$	668,868	$	656,762	$	773,493	$	760,408

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without penalty.

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

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Proceeds from sales and maturities (fair value):
Available-for-sale debt securities	$	68,875		$	30,822		$	193,702		$	50,651		$	32,287		$	49,762		$	225,989		$	100,413
Equity securities	$	3,082		$	54,471		$	4,127		$	56,971		$	4,158		$	18,056		$	8,285		$	75,027
Gross realized gains on sale of securities:
Available-for-sale debt securities	$	10		$	28		$	317		$	28		$	1		$	302		$	318		$	330
Equity securities	$	177		$	1,785		$	301		$	1,785		$	413		$	547		$	714		$	2,332
Gross realized losses on sale of securities:
Available-for-sale debt securities	$	(42	)	$	(4	)	$	(3,114	)	$	(40	)	$	(11	)	$	(19	)	$	(3,125	)	$	(59	)
Equity securities	$	—		$	(99	)	$	—		$	(126	)	$	—		$	(27	)	$	—		$	(153	)

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

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Available-for-sale debt securities	$	4,095		$	3,206		$	7,795		$	5,916		$	4,595		$	2,977		$	12,390		$	8,893
Equity securities		711			338			1,294			720			722			348			2,016			1,068
Available-for-sale short-term investments		56			7			145			22			—			—			145			22
Other (1)		1,605			188			2,659			332			2,106			319			4,765			651
Total investment income		6,467			3,739			11,893			6,990			7,423			3,644			19,316			10,634
Less: Investment expenses (2)		(681	)		(516	)		(1,322	)		(1,063	)		(781	)		(559	)		(2,103	)		(1,622	)
Net investment (expense) income	$	5,786		$	3,223		$	10,571		$	5,927		$	6,642		$	3,085		$	17,213		$	9,012

The following table ~~presents~~provides details on the ~~portion of~~realized and unrealized gains and losses related to equity securities for the periods presented (in thousands):

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Net gains and (losses) recognized during the period on equity securities	$	(1,344	)	$	1,686		$	(6,329	)	$	1,659		$	(2,060	)	$	520		$	(8,389	)	$	2,179
Less: Net (gains) and losses recognized during the period on equity securities sold during the period		(177	)		(1,686	)		(301	)		(1,659	)		(413	)		(520	)		(714	)		(2,179	)
Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting period	$	(1,521	)	$	—		$	(6,630	)	$	—		$	(2,473	)	$	—		$	(9,103	)	$	—

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

	June 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Income Producing:
Investment real estate (1)	$	14,619		$	6,918		$	14,619		$	6,918
Less: Accumulated depreciation		(664	)		(460	)		(767	)		(460	)
		13,955			6,458			13,852			6,458
Non-Income Producing:
Properties under development (1)		5,584			12,016			9,868			12,016
Investment real estate, net	$	19,539		$	18,474		$	23,720		$	18,474

(1) During the ~~six~~nine months ended ~~June~~September 30, 2018, the Company transferred $7.4 million from properties under development to investment real estate.

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

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

Amounts recoverable from reinsurers are estimated in a manner consistent with the terms of the reinsurance contracts. Reinsurance premiums, losses and loss adjustment expenses (“LAE”) are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.

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

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

Ratings as of June 30, 2018

Due from as of

Ratings as of September 30, 2018

Due from as of

Standard

and Poor's

Moody's

and Poor's

Moody's

AM Best

Rating

Investors

June 30,

December 31,

AM Best

Rating

Investors

December 31,

Reinsurer

Company

Services

Service, Inc.

2018

2017

Company

Services, Inc.

Service, Inc.

2017

Lloyd's of London Syndicate

A+

n/a

33,966

—

Allianz Risk Transfer

A+

AA-

n/a

18,406

105,573

A+

Aa3

105,573

Florida Hurricane Catastrophe Fund (1)

n/a

—

52,054

n/a

52,054

Renaissance Reinsurance Ltd

n/a

—

22,545

A+

22,545

Total (2)

52,372

180,172

There were no amounts due from the reinsurers whose aggregate balance exceeded 3% of the Company’s stockholders’ equity as of September 30, 2018.

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

	Three Months Ended June 30,																			Three Months Ended September 30,
	2018										2017									2018									2017
				��				Losses and Loss									Losses and Loss									Losses and Loss									Losses and Loss
	Premiums				Premiums			Adjustment			Premiums			Premiums			Adjustment			Premiums			Premiums			Adjustment			Premiums			Premiums			Adjustment
	Written				Earned			Expenses			Written			Earned			Expenses			Written			Earned			Expenses			Written			Earned			Expenses
Direct	$	342,781			$	274,027		$	246,622		$	296,191		$	244,623		$	85,656		$	309,176		$	288,404		$	270,158		$	274,744		$	254,809		$	531,268
Ceded		(339,251	)			(81,755	)		(156,780	)		(311,338	)		(75,614	)		(5,472	)		(17,256	)		(99,466	)		(184,211	)		(7,303	)		(80,292	)		(414,893	)
Net	$	3,530			$	192,272		$	89,842		$	(15,147	)	$	169,009		$	80,184		$	291,920		$	188,938		$	85,947		$	267,441		$	174,517		$	116,375

	Six Months Ended June 30,																		Nine Months Ended September 30,
	2018									2017									2018									2017
							Losses and Loss									Losses and Loss									Losses and Loss									Losses and Loss
	Premiums			Premiums			Adjustment			Premiums			Premiums			Adjustment			Premiums			Premiums			Adjustment			Premiums			Premiums			Adjustment
	Written			Earned			Expenses			Written			Earned			Expenses			Written			Earned			Expenses			Written			Earned			Expenses
Direct	$	612,765		$	536,288		$	323,261		$	541,606		$	480,998		$	156,439		$	921,941		$	824,692		$	593,419		$	816,350		$	735,807		$	687,707
Ceded		(339,251	)		(161,439	)		(157,493	)		(311,524	)		(150,430	)		(5,685	)		(356,507	)		(260,905	)		(341,704	)		(318,827	)		(230,722	)		(420,578	)
Net	$	273,514		$	374,849		$	165,768		$	230,082		$	330,568		$	150,754		$	565,434		$	563,787		$	251,715		$	497,523		$	505,085		$	267,129

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

	June 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
Prepaid reinsurance premiums	$	310,618	$	132,806	$	228,408	$	132,806
Reinsurance recoverable on paid losses and LAE	$	21,002	$	—	$	27,037	$	—
Reinsurance recoverable on unpaid losses and LAE		96,849		182,405		131,566		182,405
Reinsurance receivable, net		1,402		—		961		—
Reinsurance recoverable and receivable	$	119,253	$	182,405	$	159,564	$	182,405

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

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

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
DPAC, beginning of period	$	78,007		$	66,524		$	73,059		$	64,912		$	88,756		$	73,591		$	73,059		$	64,912
Capitalized Costs		50,430			39,898			92,369			73,654			44,389			36,999			136,758			110,653
Amortization of DPAC		(39,681	)		(32,831	)		(76,672	)		(64,975	)		(42,502	)		(34,656	)		(119,174	)		(99,631	)
DPAC, end of period	$	88,756		$	73,591		$	88,756		$	73,591		$	90,643		$	75,934		$	90,643		$	75,934

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

In accordance with Florida Insurance Code, and based on the calculations performed by the Company as of December 31, 2017, UPCIC has the capacity to pay ordinary dividends of $36.2 million during 2018. APPCIC does not currently meet the earnings or surplus regulatory requirements to pay ordinary dividends during 2018. For the ~~six~~nine months ended ~~June~~September 30, 2018, no dividends were paid from UPCIC or APPCIC to UVECF.

The Florida Insurance Code requires insurance companies to maintain capitalization equivalent to the greater of ten percent of the insurer’s total liabilities but not less than $10.0 million. The following table presents the amount of capital and surplus calculated in accordance with statutory accounting principles, which differ from U.S. GAAP, and an amount representing ten percent of total liabilities for both UPCIC and APPCIC as of the dates presented (in thousands):

	June 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
Ten percent of total liabilities
UPCIC	$	86,454	$	72,633	$	88,901	$	72,633
APPCIC	$	624	$	572	$	538	$	572
Statutory capital and surplus
UPCIC	$	340,933	$	307,686	$	343,302	$	307,686
APPCIC	$	16,278	$	16,633	$	16,045	$	16,633

As of the dates in the table above, both UPCIC and APPCIC exceeded the minimum statutory capitalization requirement. UPCIC also met the capitalization requirements of the other states in which it is licensed as of ~~June~~September 30, 2018. UPCIC and APPCIC are also required to adhere to prescribed premium-to-capital surplus ratios and have met those requirements at such dates.

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

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

	June 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
Restricted cash and cash equivalents	$	2,635	$	2,635	$	2,635	$	2,635
Investments	$	3,908	$	3,910	$	3,914	$	3,910

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

	Three Months Ended					Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,					June 30,						September 30,						September 30,
	2018			2017		2018			2017			2018			2017			2018			2017
Balance at beginning of period	$	129,637		$	31,463	$	248,425		$	58,494		$	151,916		$	22,645		$	248,425		$	58,494
Less: Reinsurance (recoverable)/payable		(70,351	)		2,353		(182,405	)		(106	)
Less: Reinsurance recoverable (net of payable offsets)													(96,733	)		(1,393	)		(182,405	)		(106	)
Net balance at beginning of period		59,286			33,816		66,020			58,388			55,183			21,252			66,020			58,388
Incurred (recovered) related to:
Current year		87,532			79,075		163,502			149,549			85,986			116,262			249,488			265,811
Prior years		2,310			1,109		2,266			1,205			(39	)		113			2,227			1,318
Total incurred		89,842			80,184		165,768			150,754			85,947			116,375			251,715			267,129
Paid related to:
Current year		50,572			62,141		67,979			85,031			72,034			93,969			140,013			179,000
Prior years		43,373			30,607		108,626			102,859			38,372			15,912			146,998			118,771
Total paid		93,945			92,748		176,605			187,890			110,406			109,881			287,011			297,771
Net balance at end of period		55,183			21,252		55,183			21,252			30,724			27,746			30,724			27,746
Plus: Reinsurance recoverable/(payable)		96,733			1,393		96,733			1,393
Plus: Reinsurance recoverable (net of payable offsets)													127,943			412,697			127,943			412,697
Balance at end of period	$	151,916		$	22,645	$	151,916		$	22,645		$	158,667		$	440,443		$	158,667		$	440,443

~~The Company’s~~During the third quarter of 2018, the Company recorded prior year adverse development to increase its estimate of ultimate losses ~~incurred~~ for the ~~three~~third quarter 2017 storm, Hurricane Irma, to $754.0 million from $446.7 million recorded as of 2017 year-end. The prior year adverse development of $311.7 million in direct losses resulted in net losses of $2.2 million after the benefit of reinsurance recoveries, including those related to Hurricane Irma. The increase in the ultimate loss and ~~six~~LAE from Hurricane Irma was the result of a continuation of new reported claims and litigation costs associated with the aggressive nature of plaintiff attorneys on claims in Florida.

The nine months ended ~~June 20, 2018 include prior year net reserve development of $2.3 million which was principally caused by~~ loss reserve development of $5.3 million on a direct basis ($2.6 million on a net basis) for the fourth quarter 2016 storm, Hurricane Matthew. Reserve strengthening on Hurricane Matthew is based on our revised estimate to settle the remaining 78 open claims. The three and six months ended JuneSeptember 30, 2017 included prior year loss reserve development of ~~$6.6~~$6.9 million on a direct basis ($~~1.1~~1.3 million on a net basis), ~~also~~primarily reflecting strengthening of reserves for the fourth quarter 2016 storm, Hurricane Matthew.

Also, during the second quarter in 2018, the Company increased its estimate of ultimate losses on the third quarter 2017 storm Hurricane Irma to $603.5 million for both Insurance Entities from $447.4 million recorded in the first quarter in 2018. The prior year development of $156.1 million in gross losses resulted in a net retention benefit of $0.3 million after cessions to the Company’s reinsurers. The increase in the ultimate loss and LAE for Hurricane Irma was the result of continuation of new reported claims and the aggressive nature of plaintiff attorneys on claims in Florida.

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

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

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

The following table summarizes the activity relating to shares of the Company’s common stock during the ~~six~~nine months ended ~~June~~September 30, 2018 (in thousands):

	Issued			Treasury			Outstanding			Issued			Treasury			Outstanding
	Shares			Shares			Shares			Shares			Shares			Shares
Balance, as of December 31, 2017		45,778			(11,043	)		34,735			45,778			(11,043	)		34,735
Shares repurchased		—			(342	)		(342	)		—			(342	)		(342	)
Vesting of performance share units		127			—			127			127			—			127
Stock option exercises		1,156			—			1,156			1,325			—			1,325
Restricted stock grants		50			—			50			50			—			50
Shares acquired through cashless exercise (1)		—			(854	)		(854	)		—			(962	)		(962	)
Shares cancelled		(854	)		854			—			(962	)		962			—
Balance, as of June 30, 2018		46,257			(11,385	)		34,872
Balance, as of September 30, 2018											46,318			(11,385	)		34,933

In September 2017, UVE’s Board of Directors authorized a share repurchase program under which UVE may repurchase in the open market in compliance with Exchange Act Rule 10b-18, up to $20 million of the Company’s outstanding shares of common stock through December 31, 2018. During the ~~six~~nine months ended ~~June~~September 30, 2018, UVE repurchased 342,749 shares, at an aggregate price of approximately $11.1 million, pursuant to such repurchase program.

During the three months ended ~~June~~September 30, 2018 and 2017, the Company recorded approximately ~~$15.2~~$13.8 million and ~~$18.5~~$6.6 million of income tax expense, respectively. The effective tax rate (“ETR”) for the three months ended ~~June~~September 30, 2018 was ~~24.8%~~26.9% compared to a ~~38.7%~~40.0% ETR for the same period in 2017.

During the ~~six~~nine months ended ~~June~~September 30, 2018 and 2017, the Company recorded approximately ~~$26.8~~$40.6 million and ~~$34.7~~$41.4 million of income tax expense, respectively. The ETR for the ~~six~~nine months ended ~~June~~September 30, 2018 was ~~23.7%~~24.7% compared to a ~~36.4%~~37.0% ETR for the same period in 2017.

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

Income tax expense for the three months ended ~~June~~September 30, 2018 included a net ~~credit~~debit for discrete items of ~~$0.6~~$0.2 million ~~primarily~~ driven by ~~the~~an income tax accrual adjustment of $0.9 million relating to return to provision true ups for federal and state jurisdictions, offset by excess tax benefits of $0.7 million resulting from stock-based compensation awards that were exercised during the ~~second~~third quarter ofin 2018, ~~benefitting~~which thereby increased the current quarter’s ~~ETR. For~~ETR by 0.4 percent. Income tax expense for the ~~second quarter~~three months ended September 30, 2017 included a net credit for discrete items of ~~2017, there were no discrete items.~~

$0.2 million relating to prior year return to provision true ups for federal and state jurisdictions.

Income tax expense for the ~~six~~nine months ended ~~June~~September 30, 2018 included a net credit of ~~$2.3~~$2.0 million ~~primarily~~ driven by the excess tax benefits of $3.3 million resulting from stock-based compensation awards that ~~had~~ vested and/or were exercised during that ~~period.~~period, offset by an income tax accrual adjustment of $0.9 million relating to return to provision true ups for federal and state jurisdictions and other miscellaneous items of $0.4 million, which thereby decreased the year-to-date ETR by 1.3 percentage points. The prior year’s discrete items for the ~~six~~nine months ended ~~June~~September 30, 2017 were $0.8 million for excess tax benefits resulting from stock-based compensation awards that ~~had~~ vested and/or were exercised during that period, and a credit to income tax expense of $1.2 million resulting from anticipated recoveries of income taxes paid for the 2014-2015 tax years.

The ~~Company's~~Company’s income tax provision ~~for the current reporting period~~ reflects an estimated annual ETR of ~~25.7%,~~26.0% for 2018, calculated before the impact of discrete items. The statutory tax rate consists of a federal income tax rate of 21% and a state income tax rate, net of federal benefit, of 3.7%. The difference in the statutory tax rate, 24.7%, and the annual ETR, 25.7%, is largely attributable to the new tax law’s impact on Internal Revenue Code Section 162(m). The effect of reporting discrete items in the three months and six months ended June 30, 2018 amounts to an additional decrease to the annual ETR rate of 1.0% and 2.0%, respectively, resulting in a total estimated ETR of 24.8% and 23.7%, respectively.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. ~~The~~As of September 30, 2018, the Company’s ~~2014~~2015 through ~~2016~~2017 tax years are still subject to examination by the Internal Revenue Service (“IRS”) and various tax years remain open to examination in certain state jurisdictions. In February 2018, the Company received notification from the ~~Internal Revenue Service~~IRS with respect to an examination of the 2015 tax return. ~~The Company is anticipating no adjustments from the examination which is expected to conclude in~~During the third quarter in 2018, the IRS completed its examination of ~~2018.~~the Company for the 2015 tax year and issued a final Revenue Agent Report with no adjustments.

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

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

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Numerator for EPS:
Net income	$	46,084		$	29,376		$	86,139		$	60,575		$	37,380		$	9,964		$	123,519		$	70,539
Less: Preferred stock dividends		(2	)		(2	)		(5	)		(5	)		(3	)		(3	)		(8	)		(8	)
Income available to common stockholders	$	46,082		$	29,374		$	86,134		$	60,570	��	$	37,377		$	9,961		$	123,511		$	70,531
Denominator for EPS:
Weighted average common shares outstanding		34,909			34,959			34,874			35,049			34,861			34,686			34,870			34,927
Plus: Assumed conversion of share-based compensation (1)		655			974			737			987			1,033			904			859			965
Assumed conversion of preferred stock		25			25			25			25			25			25			25			25
Weighted average diluted common shares outstanding		35,589			35,958			35,636			36,061			35,919			35,615			35,754			35,917
Basic earnings per common share	$	1.32		$	0.84		$	2.47		$	1.73		$	1.07		$	0.29		$	3.54		$	2.02
Diluted earnings per common share	$	1.29		$	0.82		$	2.42		$	1.68		$	1.04		$	0.28		$	3.45		$	1.96

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

	Three Months Ended June 30,																		Three Months Ended September 30,
	2018									2017									2018									2017
	Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax
Net changes related to available-for-sale securities:
Unrealized holding gains (losses) arising during the period	$	(2,488	)	$	(618	)	$	(1,870	)	$	4,116		$	1,574		$	2,542		$	(989	)	$	(244	)	$	(745	)	$	1,207		$	461		$	746
Less: Reclassification adjustment for (gains) losses realized in net income		32			11			21			(1,710	)		(654	)		(1,056	)		10			2			8			(803	)		(308	)		(495	)
Other comprehensive income (loss)		(2,456	)		(607	)		(1,849	)		2,406			920			1,486			(979	)		(242	)		(737	)		404			153			251
Reclassification adjustments to retained earnings (1)		—			—			—			—			—			—			—			—			—			—			—			—
Change in accumulated other comprehensive income (loss)	$	(2,456	)	$	(607	)	$	(1,849	)	$	2,406		$	920		$	1,486		$	(979	)	$	(242	)	$	(737	)	$	404		$	153		$	251

	Six Months Ended June 30,																		Nine Months Ended September 30,
	2018									2017									2018									2017
	Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax			Pre-tax			Tax			After-tax
Net changes related to available-for-sale securities:
Unrealized holding gains (losses) arising during the period	$	(10,522	)	$	(2,507	)	$	(8,015	)	$	8,041		$	3,074		$	4,967		$	(11,511	)	$	(2,751	)	$	(8,760	)	$	9,248		$	3,535		$	5,713
Less: Reclassification adjustment for (gains) losses realized in net income		2,797			681			2,116			(1,647	)		(630	)		(1,017	)		2,807			683			2,124			(2,450	)		(938	)		(1,512	)
Other comprehensive income (loss)		(7,725	)		(1,826	)		(5,899	)		6,394			2,444			3,950			(8,704	)		(2,068	)		(6,636	)		6,798			2,597			4,201
Reclassification adjustments to retained earnings (1)		5,830			2,811			3,019			—			—			—			5,830			2,811			3,019			—			—			—
Change in accumulated other comprehensive income (loss)	$	(1,895	)	$	985		$	(2,880	)	$	6,394		$	2,444		$	3,950		$	(2,874	)	$	743		$	(3,617	)	$	6,798		$	2,597		$	4,201

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


	Amount Reclassified from Accumulated													Amount Reclassified from Accumulated
	Other Comprehensive Income (Loss)													Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive	Three Months Ended June 30,						Six Months Ended June 30,						Affected Line Item in the Statement	Three Months Ended September 30,						Nine Months Ended September 30,						Affected Line Item in the Statement
Income (Loss) Components	2018			2017			2018			2017			Where Net Income is Presented	2018			2017			2018			2017			Where Net Income is Presented
Unrealized gains (losses) on available-for-sale debt securities
	$	(32	)	$	1,710		$	(2,797	)	$	1,647		Net realized gains (losses) sale of securities	$	(10	)	$	803		$	(2,807	)	$	2,450		Net realized gains (losses) sale of securities
		11			(654	)		681			(630	)	Income taxes		2			(308	)		683			(938	)	Income taxes
Total reclassification for the period	$	(21	)	$	1,056		$	(2,116	)	$	1,017		Net of tax	$	(8	)	$	495		$	(2,124	)	$	1,512		Net of tax

We purchase reinsurance coverage to protect our capital and to limit our losses when major events occur. Our reinsurance commitments run from June 1 of the current year to May 31 of the following year. Certain of our reinsurance agreements are for periods longer than one year. Amounts payable for coverage during the current June 1^st to May 31^st contract period are recorded as “Reinsurance Payable” in the financial statements. Multi-year contract commitments for future years will be recorded at the commencement of the coverage period. Amounts payable for future reinsurance contract years that the Company is obligated to pay are: (1) $82.3 million in 2019 and (2) $33.9 million in 2020.

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

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

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

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

Summary of significant valuation techniques for assets measured at fair value on a recurring basis

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

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

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

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

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

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

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

Short-term investments: Comprise investment securities subject to re-measurement with original maturities within one year but more than three months. The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active.

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

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

	Fair Value Measurements								Fair Value Measurements
	June 30, 2018								September 30, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:
Fixed Maturities:
U.S. government obligations and agencies	$	—	$	57,712	$	—	$	57,712	$	—	$	65,998	$	—	$	65,998
Corporate bonds		—		333,964		—		333,964		—		409,967		—		409,967
Mortgage-backed and asset-backed securities		—		237,432		—		237,432		—		269,228		—		269,228
Municipal bonds		—		15,717		—		15,717		—		3,278		—		3,278
Redeemable preferred stock		—		11,937		—		11,937		—		11,937		—		11,937
Equity Securities:
Common stock		22,320		—		—		22,320		20,575		—		—		20,575
Mutual funds		48,546		—		—		48,546		48,533		—		—		48,533
Total assets accounted for at fair value	$	70,866	$	656,762	$	—	$	727,628	$	69,108	$	760,408	$	—	$	829,516

	Fair Value Measurements
	December 31, 2017
	Level 1		Level 2		Level 3		Total
Available-For-Sale Debt Securities:
Fixed Maturities:
U.S. government obligations and agencies	$	—	$	59,604	$	—	$	59,604
Corporate bonds		—		227,504		—		227,504
Mortgage-backed and asset-backed securities		—		219,452		—		219,452
Municipal bonds		—		120,295		—		120,295
Redeemable preferred stock		—		12,479		—		12,479
Equity Securities:
Common stock		18,811		—		—		18,811
Mutual funds		43,404		—		—		43,404
Available-for-sale short-term investments		—		10,000		—		10,000
Total assets accounted for at fair value	$	62,215	$	649,334	$	—	$	711,549

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

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

	June 30, 2018				December 31, 2017				September 30, 2018				December 31, 2017
			(Level 3)				(Level 3)				(Level 3)				(Level 3)
			Estimated Fair				Estimated Fair				Estimated Fair				Estimated Fair
	Carrying Value		Value		Carrying Value		Value		Carrying Value		Value		Carrying Value		Value
Liabilities (debt):
Surplus note	$	12,132	$	10,823	$	12,868	$	11,630	$	11,765	$	10,501	$	12,868	$	11,630

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

The Company performed an evaluation of subsequent events through the date the Financial Statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the Financial Statements as of ~~June~~September 30, 2018.

Hurricane Michael initially made landfall as a strong Category 4 hurricane along the Florida Panhandle on October 10, 2018, primarily impacting Florida, Georgia, and several other Southeastern U.S. states. The storm is expected to produce gross losses and loss adjustment expenses of $300-350 million for the Company, resulting in anticipated total net pre-tax losses and loss adjustment expenses of $35 million. However, to the extent the Company experiences any additional reinsurance recoveries from its supplemental Non-Florida reinsurance program, those recoveries could serve to partially reduce this $35 million retention.

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

Unless the context otherwise requires, all references to “we,” “us,” “our,” and “Company” refer to Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries. You should read the following discussion together with our unaudited condensed consolidated financial statements (“Financial Statements”) and the related notes thereto included in Part I, Item 1 “Financial ~~Statements.”~~Statements”, and our audited condensed consolidated financial statements and the related notes thereto included in Part II, Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for the year.

In addition to historical information, the following discussion may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act. Forward-looking statements are based on various factors and assumptions that include known and unknown risks and uncertainties, some of which are beyond our control and cannot be predicted or quantified. Certain statements made in this report reflect management’s expectations regarding future events, and the words “expect,” “estimate,” “anticipate,” “believe,” “intend,” “project,” “plan” and similar expressions and variations thereof, speak only as of the date the statement was made and are intended to identify forward-looking statements. Such statements may include, but not be limited to, projections of revenues, income or loss, expenses, plans, as well as assumptions relating to the foregoing. Future results could differ materially from those in the following discussion and those described in forward-looking statements as a result of the risks set forth below which are a summary of those set forth in our Annual Report on Form 10-K for the year ended December 31, 2017.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Universal Insurance Holdings, Inc. and its wholly-owned consolidated subsidiaries. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and accompanying notes in Item 1 above.

Universal Insurance Holdings, Inc. (“UVE,” and together with its wholly-owned subsidiaries, “we,” “our,” “us,” or “the Company”) is the largest ~~private~~ personal residential insurance company in Florida as measured by direct premiums written ~~premium~~ in-force, with approximately ~~10.3%~~10.5% market share as of ~~March 31,~~June 30, 2018, according to the most recent data reported by the Florida Office of Insurance Regulation (“FLOIR”). We perform substantially all aspects of insurance underwriting, policy issuance, general administration and claims processing and settlement internally through our vertically integrated operations. Our wholly-owned licensed insurance subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC” and together with UPCIC, the “Insurance Entities”), currently write personal residential insurance policies, predominantly in Florida with ~~$529.5~~$789.5 million in direct premiums written ~~premium~~ for the ~~six~~nine months ended ~~June~~September 30, 2018. UPCIC also writes residential homeowners insurance policies in Alabama, Delaware, Georgia, Hawaii, Indiana, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, and Virginia with ~~$83.3~~$132.4 million in direct premiums written ~~premium~~ for the ~~six~~nine months ended ~~June~~September 30, 2018. UPCIC is also licensed to issue policies in Illinois, Iowa, and West Virginia. APPCIC also is currently writing Fire, Commercial Multi-Peril, and Other Liability ~~lines of business~~policies in Florida. We believe that our longevity in the Florida market and our resulting depth of experience will enable us to continue to successfully grow our business in both hard and soft markets.

We generate revenues primarily from the collection of premiums. The nature of our business tends to be seasonal, reflecting consumer behaviors in connection with the Florida residential real estate market and the hurricane season. The amount of direct premiums written ~~premium~~ tends to increase just prior to the second quarter of our fiscal year and tends to decrease approaching the fourth quarter. Other sources of revenue include: commissions paid by our reinsurers to our reinsurance intermediary subsidiary, Blue Atlantic Reinsurance Corporation (“BARC”), on reinsurance it places for the Insurance Entities; policy fees collected from policyholders by our managing general agent subsidiary, Universal Risk ~~Advisors; earnings from claims handling on ceded claims by our subsidiary, Universal Adjusting Corporation (“UAC”);~~Advisors and financing fees charged to policyholders who choose to defer premium payments. In addition, our subsidiary, Universal Adjusting Corporation (“UAC”) receives fees from the Insurance Entities for claims-handling services. The Insurance Entities are reimbursed for these fees on claims that are subject to recovery under the Insurance Entities’ respective reinsurance programs. These fees, after expenses, are recorded in the condensed consolidated financial statements as an adjustment to losses and loss adjustment expenses (“LAE”). We also generate income by investing our assets.

Over the past several years, we have grown our business both within Florida and elsewhere in the United States through our distribution network of approximately ~~9,200~~9,300 licensed independent agents. Our goals are to profitably grow our business, invest in our vertically integrated structure, expand our independent agent network, and return value to shareholders. Some of our key strategies include increasing our policies in force in Florida through continued profitable and organic growth; expanding into other states to diversify our revenue and risk; optimizing our reinsurance program; and continuing to provide high quality service to our policyholders and reinsurers through our vertically integrated structure. We believe each of these strategies has contributed to an increase in earnings and earnings per share as well as an improvement in our overall financial condition. See “—Results of Operations” below for a discussion of our results for the three and ~~six~~nine months ended ~~June~~September 30, 2018 compared to the same periods in 2017.

Our overall organic growth strategy emphasizes taking prudent measures to increase our footprint, grow our policy count and improve the quality of our business rather than merely increasing our market share. Our focus on long-term capital strength and organic growth allows us to be selective in the risks we accept. Our goal is to write risks that are priced adequately and meet our underwriting standards. We believe that our strategy of organically expanding our premium growth through our independent agent distribution network and through our unique direct-to-consumer online platform called Universal Direct^SM (which enables homeowners to directly purchase, pay for and bind homeowners policies online without the need to directly interface with any intermediaries), streamlining claims management and balancing appropriate pricing with disciplined underwriting standards will maximize our profitable growth. We also intend to continue our expansion outside of Florida in markets that allow us to write profitable business and to diversify our revenue and risk. Upon entering new markets, we leverage our existing independent agent network to generate new local relationships and business, and we take the time to learn about each new market and any of its unique risks in order to carefully develop our own policy forms, rates and informed underwriting standards. Our expansion efforts differ from many of our competitors that have grown in recent years primarily through assumption of policies from Citizens Property Insurance Corporation, Florida’s statutory residual property insurance market, and through mergers and acquisitions.

As a result of our organic growth strategy and initiatives, we have seen increases in policy count and insured value in all states for over three years. The percentage of our total insured value for states outside of Florida increased from ~~23.7%~~24.9% as of ~~June~~September 30, 2017 to ~~28.9%~~30.4% as of ~~June~~September 30, 2018. The following table provides direct premiums written ~~premium~~ for Florida and other states for the three and ~~six~~nine months ended ~~June~~September 30, 2018 and 2017 (dollars in thousands):

	For the Three Months Ended															For the Three Months Ended
	June 30, 2018					June 30, 2017					Growth year over year					September 30, 2018					September 30, 2017					Growth year over year
State	Direct Written Premium		%			Direct Written Premium		%			$		%			Direct Premiums Written		%			Direct Premiums Written		%			$		%
Florida	$	295,337		86.2	%	$	261,430		88.3	%	$	33,907		13.0	%	$	260,024		84.1	%	$	238,309		86.7	%	$	21,715		9.1	%
Other states		47,444		13.8	%		34,761		11.7	%		12,683		36.5	%		49,152		15.9	%		36,435		13.3	%		12,717		34.9	%
Total	$	342,781		100.0	%	$	296,191		100.0	%	$	46,590		15.7	%	$	309,176		100.0	%	$	274,744		100.0	%	$	34,432		12.5	%

	For the Six Months Ended															For the Nine Months Ended
	June 30, 2018					June 30, 2017					Growth year over year					September 30, 2018					September 30, 2017					Growth year over year
State	Direct Written Premium		%			Direct Written Premium		%			$		%			Direct Premiums Written		%			Direct Premiums Written		%			$		%
Florida	$	529,515		86.4	%	$	479,868		88.6	%	$	49,647		10.3	%	$	789,539		85.6	%	$	718,177		88.0	%	$	71,362		9.9	%
Other states		83,250		13.6	%		61,738		11.4	%		21,512		34.8	%		132,402		14.4	%		98,173		12.0	%		34,229		34.9	%
Total	$	612,765		100.0	%	$	541,606		100.0	%	$	71,159		13.1	%	$	921,941		100.0	%	$	816,350		100.0	%	$	105,591		12.9	%

~~Second-Quarter~~Third-Quarter 2018 Highlights (comparisons are to the third quarter 2017 unless otherwise specified)

Our annual reinsurance program, which is segmented into layers of coverage, as is industry practice, protects us against excess property catastrophe losses. Our 2018-2019 reinsurance program includes the mandatory coverage required by law to be placed with the Florida Hurricane Catastrophe Fund (“FHCF”), in which we have elected to participate at 90%, the highest level, and also includes private reinsurance below, alongside and above the FHCF layer. In placing our 2018-2019 reinsurance program, we obtained multiple years of coverage for an additional portion of the program. We believe this multi-year arrangement will allow us to capitalize on favorable pricing and contract terms and conditions and allow us to mitigate uncertainty with respect to the price of future reinsurance coverage, one of our largest costs.

The total cost of UPCIC’s private catastrophe reinsurance program for all states as described below, effective June 1, 2018 through May 31, 2019, is $175.30 million. In addition, UPCIC has purchased reinstatement premium protection as described below, the cost of which is $14.97 million. The largest private participants in UPCIC’s reinsurance program include leading reinsurance companies and providers such as Nephila Capital, Everest Re, RenaissanceRe, Chubb Tempest Re and Lloyd’s of London syndicates.

UPCIC has a net retention of $35 million per catastrophe event for losses incurred, in all states, up to a first event loss of ~~$3.00~~$3.13 billion. UPCIC also purchases a separate underlying catastrophe program to further reduce its retention for all losses occurring in any state other than Florida (the “Other States Reinsurance Program”). UPCIC retains only $5 million under its Other States Reinsurance Program in the first event, $3 million in the second event and only $1 million under its Other States Reinsurance Program for the third through fifth events. These retention amounts are gross of any potential tax benefit we would receive in paying such losses.

Immediately above UPCIC’s net retention, we have reinsurance coverage from third-party reinsurers for up to four separate catastrophic events, for all states. Specifically, we have purchased reinsurance coverage for the first and third catastrophic events, and each such coverage allows for one reinstatement upon the payment of reinstatement premiums, which would cover the second and fourth catastrophic events. This coverage has been obtained from four contracts as follows:

For the first three contracts above, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. All of these contracts extend coverage to all states.

Above the first layers, for losses exceeding $90 million and $111 million, we have purchased a second layer of coverage for losses up to $445 million – in other words, for the next $355 or $334 million of losses. This coverage has been obtained from three contracts as follows:

In these layers, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. All of these contracts extend coverage to all states.

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

In these layers, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. Both of these contracts extend coverage to all states.

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

In these layers, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. Both of these contracts extend coverage to all states.

Above the first, second, third and fourth layers, we have purchased a fifth layer of coverage for losses up to $680 million – in other words, for the next $45 million of losses. This coverage was obtained from two contracts as follows:

In these layers, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. Both of these contracts extend coverage to all states.

In the sixth and seventh layers, we have purchased reinsurance for $218 million of coverage in excess of $680 million in losses incurred by us (net of the FHCF layer), and $140 million of coverage in excess of $898 million (net of the FHCF layer), respectively, for a total of $1.0 billion of coverage (net of the FHCF layer) by third-party reinsurers. In these layers, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of these coverages. Both of these contracts extend coverage to all states.

UPCIC structures its reinsurance coverage into layers and utilizes a cascading feature such that the second, third, fourth, fifth, sixth and seventh reinsurance layers all attach at $111 million. Any layers above the $111 million attachment point are excess of loss over the immediately preceding layer. If the aggregate limit of the preceding layer is exhausted, the next layer cascades down in its place for future events. This means that, unless losses exhaust the top layer of our coverage, we are exposed to only $35 million in losses, pre-tax, per catastrophe for each of the first four events. In addition to tax benefits that could reduce our ultimate loss, we anticipate that ~~certain~~certain fees paid to our subsidiary service providers by our Insurance Entities and, indirectly, our reinsurers, would also increase during an active hurricane season.

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

Effective June 1, 2018 through June 1, 2019, under an excess catastrophe contract specifically covering risks located outside the state of Florida and intended to further reduce UPCIC’s $35 million net retention, as noted above, UPCIC has obtained catastrophe coverage of $30 million in excess of $5 million covering certain loss occurrences, including hurricanes, in states outside of Florida. This catastrophe coverage has a second full limit available with additional premium calculated pro rata as to amount and 100% as to time, as applicable. For this catastrophe coverage, which is placed in three layers, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased reinstatement premium protection to pay the required premium necessary for the reinstatement of this coverage. All catastrophe layers are placed with a cascading feature so that all capacity could be made available in excess of $5 million under certain loss scenarios. Further, UPCIC purchased subsequent catastrophe event excess of loss reinsurance specifically covering risks outside of Florida to cover certain levels of loss through five catastrophe events including hurricanes. Specifically, UPCIC obtained catastrophe coverage that covers 100% of $4,000,000 excess of $1,000,000 in excess of $6,000,000 otherwise recoverable. This coverage has two and a half free reinstatements and a total of $14,000,000 of coverage available to UPCIC.

In certain circumstances involving a first catastrophic event impacting both Florida and other states, UPCIC’s retention could result in pre-tax net liability as low as $5,000,000 – the $35 million net retention under the all states reinsurance program could be offset by as much as $30 million in coverage under the Other States Reinsurance Program – or 1.5% of UPCIC’s statutory policyholders’ surplus as of ~~June~~September 30, 2018.

UPCIC’s third-party reinsurance program supplements the FHCF coverage we are required to purchase every year. The limit and retention of the FHCF coverage we receive each year is subject to upward or downward adjustment based on, among other things, submitted exposures to the FHCF by all participants. As of ~~June 1,~~September 30, 2018, we estimate our FHCF coverage includes a maximum provisional limit of 90% of ~~$2.18~~$2.33 billion, or ~~$1.96~~$2.1 billion, in excess of ~~$680~~$727 million. The estimated premium that UPCIC plans to cede to the FHCF for the 2018 hurricane season is ~~$128.3~~$136.8 million.

Coverage purchased from third-party reinsurers, as described above, adjusts to provide coverage for certain losses not otherwise covered by the FHCF. The FHCF coverage cannot be reinstated once exhausted, but it does provide coverage for multiple events. The FHCF coverage extends only to losses to our Florida portfolio due to a land falling hurricane.

The third-party reinsurance we purchase for UPCIC is therefore net of FHCF recovery. When our FHCF and third-party reinsurance coverages are taken together, UPCIC has reinsurance coverage of up to ~~$3.00~~$3.13 billion for the first event, as illustrated by the graphic below. Should a catastrophic event occur, we would retain up to $35 million pre-tax for each catastrophic event, and would also be responsible for any additional losses that exceed our top layer of coverage.

The total cost of APPCIC’s private catastrophe and multiple line excess reinsurance program, effective June 1, 2018 through May 31, 2019, is $2.27 million. In addition, APPCIC has purchased reinstatement premium protection as described below, the cost of which is $103,950. The largest private participants in APPCIC’s reinsurance program include leading reinsurance companies such as Everest Re, Chubb Tempest Re, Hiscox, Hannover Ruck, and Lloyd’s of London syndicates.

APPCIC has a net retention of $2 million for all losses per catastrophe event for losses incurred up to a first event loss of ~~$36.2~~$36.65 million. This retention amount is gross of any potential tax benefit we would receive in paying such losses.

Immediately above APPCIC’s net retention we have $4.2 million of reinsurance coverage from third-party reinsurers. Specifically, we have purchased reinsurance coverage for the first event, and such coverage allows for one reinstatement upon the payment of reinstatement premiums, which would cover the second and potentially more catastrophic events. We have purchased reinstatement premium protection to pay the required premium necessary for the initial reinstatement of this coverage for a second catastrophic event.

In the second, third and fourth layers, we have purchased reinsurance for $2.0 million of coverage in excess of $6.2 million in losses incurred by us (net of the FHCF layer), $5 million of coverage in excess of $8.2 million in losses incurred by us (net of the FHCF layer), and $5 million of coverage in excess of $13.2 million in losses incurred by us (net of the FHCF layer), respectively.

APPCIC structures its reinsurance coverage into layers and utilizes a cascading feature such that the second, third and fourth reinsurance layers all attach at $2 million. Any layers above the $2 million attachment point are excess of loss over the immediately preceding layer. If the aggregate limit of the preceding layer is exhausted, the next layer cascades down in its place for future events. This means that, unless losses exhaust the top layer of our coverage, we are only exposed to $2 million in losses, pre-tax, per catastrophe for each of the first two events. In addition to tax benefits that could reduce our ultimate loss, we anticipate that certain fees paid to our subsidiary service providers by our Insurance Entities and, indirectly, our reinsurers would also increase during an active hurricane season.

APPCIC’s third-party reinsurance program is used to supplement the FHCF reinsurance we are required to purchase every year. The limit and retention of the FHCF coverage we receive each year is subject to upward or downward adjustment based on, among other things, submitted exposures to the FHCF by all participants. As of ~~June 1,~~September 30, 2018, we estimate our FHCF coverage includes a maximum provisional limit of 90% of ~~$20~~$20.5 million, or ~~$18~~$18.5 million, in excess of ~~$6.2~~$6.4 million. The estimated premium that APPCIC plans to cede to the FHCF for the 2018 hurricane season is ~~$1.2~~$1.25 million. Factoring in our estimated coverage under the FHCF, we purchase coverage alongside our FHCF coverage from third-party reinsurers as described above, which adjusts to provide coverage for certain losses not otherwise covered by the FHCF. The FHCF coverage cannot be reinstated once exhausted, but it does provide coverage for multiple events. The FHCF coverage extends only to losses to our portfolio impacted by a land falling hurricane.

The third-party reinsurance we purchase for APPCIC is therefore net of FHCF recovery. When our FHCF and third-party reinsurance coverages are taken together, APPCIC has reinsurance coverage of up to ~~$36.2~~$36.65 million, as illustrated by the graphic below. Should a catastrophic event occur, we would retain $2 million pre-tax for each catastrophic event, and would also be responsible for any additional losses that exceed our top layer of coverage.

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

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

Net income was ~~$46.1 million, an increase of $16.7 million, or 56.9%, for the three months ended June 30, 2018, compared to $29.4~~$37.4 million for the three months ended ~~June~~September 30, 2018, an increase of $27.4 million, or 275.2%, compared to $10.0 million for the three months ended September 30, 2017. ~~The increase~~This quarter is ~~the result of double digit revenue~~comparatively better due to continued growth ~~continued~~and underwriting ~~profitability,~~profits, a lesser impact from catastrophic storms, and a reduced effective tax rate. Our results for the three months ended September 30, 2017 include the impact of Hurricane Irma. Diluted earnings per common share increased by ~~$0.47~~$0.76 to ~~$1.29~~$1.04 for the three months ended ~~June~~September 30, 2018, compared to ~~$0.82~~$0.28 per share for the three months ended September 30, 2017, reflecting the increase in net income offset by a slight increase in our weighted average diluted common shares outstanding.

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

	Three Months Ended
	September 30,						Change
	2018			2017			$			%
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	309,176		$	274,744		$	34,432			12.5	%
Change in unearned premium		(20,772	)		(19,935	)		(837	)		4.2	%
Direct premium earned		288,404			254,809			33,595			13.2	%
Ceded premium earned		(99,466	)		(80,292	)		(19,174	)		23.9	%
Premiums earned, net		188,938			174,517			14,421			8.3	%
Net investment income (expense)		6,642			3,085			3,557			115.3	%
Net realized gains (losses) on sale of securities		403			803			(400	)	NM
Net change in unrealized gains (losses) of equity securities		(2,473	)		—			(2,473	)	NM
Commission revenue		5,658			5,304			354			6.7	%
Policy fees		5,204			4,861			343			7.1	%
Other revenue		1,783			1,673			110			6.6	%
Total premiums earned and other revenues		206,155			190,243			15,912			8.4	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		85,947			116,375			(30,428	)		-26.1	%
General and administrative expenses		69,041			57,269			11,772			20.6	%
Total operating costs and expenses		154,988			173,644			(18,656	)		-10.7	%
INCOME BEFORE INCOME TAXES		51,167			16,599			34,568			208.3	%
Income tax expense		13,787			6,635			7,152			107.8	%
NET INCOME	$	37,380		$	9,964		$	27,416			275.2	%
Other comprehensive income (loss), net of taxes		(737	)		251			(988	)	NM
COMPREHENSIVE INCOME	$	36,643		$	10,215		$	26,428			258.7	%
DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share	$	1.04		$	0.28		$	0.76			271.4	%
Weighted average diluted common shares outstanding		35,919			35,615			304			0.9	%

Direct premiums written increased by $34.4 million, or 12.5%, for the quarter ended September 30, 2018, driven by growth within our Florida business of $21.7 million, or 9.1%, as compared to the same period of the prior year, and growth in our Other States business of $12.7 million, or 34.9%, as compared to the same period of the prior year. Florida growth was driven by growth in policy count as well as the impact of an average statewide rate increase of 3.4%, which was approved in early December and effective for new business beginning on December 7, 2017 and for renewal business beginning on January 26, 2018. Geographic expansion efforts in our Other States business continued to add to overall premium levels, and we are now actively writing policies in 16 states other than our home state of Florida.

Direct premium earned increased by $33.6 million, or 13.2%, for the quarter ended September 30, 2018, reflecting the earning of premiums written over the past 12 months and changes in rates and policy count during that time.

Ceded premium earned increased by $19.2 million, or 23.9%, for the quarter ended September 30, 2018. The increase was the result of: (1) a general increase in costs for the Company’s 2018/2019 reinsurance program fueled by growth, compared to the expiring program; (2) additional ceded premium earned of $1.3 million was recorded during the period for the FHCF coverage; and (3) $13.5 million of fully earned reinstatement premiums relating to increases in the Company’s estimated losses associated with Hurricane Irma. Ceded premium earned as a percent of direct premiums earned was 34.5% for the three months ended September 30, 2018 compared to 31.5% for the three months ended September 30, 2017.

Premiums earned, net of ceded premium earned, grew by 8.3%, or $14.4 million, to $188.9 million for the three months ended September 30, 2018, reflecting the increase in direct premium and ceded premium earned discussed above.

Net investment income was $6.6 million for the three months ended September 30, 2018, compared to $3.1 million for the same period in 2017, an increase of $3.5 million, or 115.3%. The increase is the result of several factors including the growth in cash and invested assets compared to the prior year and an increase in yields from a shift in asset mix and rising interest rates. Total invested assets were $853.2 million, with an average fixed income credit rating of A+ during the three months ended September 30, 2018

compared to $651.6 million with an average fixed income credit rating of AA- for the same period in 2017. Cash and cash equivalents were $252.3 million at September 30, 2018 compared to $213.5 million at year end, an increase of 18.2%. Cash and cash equivalents are invested short term until needed to settle payments to reinsurers, loss and LAE payments and operating cash needs.

We sell securities from our investment portfolio from time to time when opportunities arise or when circumstances could result in greater losses or lower yields if held. We sold debt securities available for sale and equity securities during the three months ended September 30, 2018, generating net realized gain of $0.4 million compared to net realized gain of $0.8 million for the three months ended September 30, 2017.

The third quarter of 2018 included an unrealized loss of $2.5 million, resulting from a decline in value of our equity securities portfolio during the period. We highlight that this line item was added during the quarter ended March 31, 2018 as a result of the adoption of new accounting guidance for equity securities. See “Item 1—Note 2 (Significant Accounting Policies—Recently Adopted Accounting Pronouncements)” for more information. The comparable change in unrealized gains (losses) within our equity portfolio for the prior period in 2017 was $0.1 million of pretax losses, which was not included in net income in the prior period in 2017 but was included in other comprehensive income (loss), which is presented net of taxes.

Commission revenue is comprised principally of brokerage commissions we earn from reinsurers on reinsurance placed for the Insurance Entities. For the three months ended September 30, 2018, commission revenue was $5.7 million, compared to $5.3 million for the three months ended September 30, 2017. The increase in commission revenue of $0.4 million, or 6.7%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 was from commissions earned on increased ceded premiums in connection with the Company’s June 1, 2018 renewal of its 2018/2019 Reinsurance Program.

Policy fees for the three months ended September 30, 2018, were $5.2 million compared to $4.9 million for the same period in 2017. The increase of $0.3 million, or 7.1%, was the result of an increase in the number of new and renewal policies written during the three months ended September 30, 2018 compared to the same period in 2017.

Other revenue represents revenue from policy installment fees, premium financing and other miscellaneous income, was $1.8 million for the three months ended September 30, 2018 compared to $1.7 million for the same period in 2017.

Losses and LAE, net of reinsurance, was $85.9 million for the three months ended September 30, 2018, compared to $116.4 million during the same period in 2017 as follows (dollars in thousands):

	Three Months Ended September 30, 2018
	Direct		Loss Ratio			Ceded		Loss Ratio			Net			Loss Ratio
Premiums earned	$	288,404				$	99,466				$	188,938

Loss and loss adjustment expenses:
Weather events*	$	41,858		14.5	%	$	34,358		34.5	%	$	7,500			4.0	%
Prior year adverse/(favorable) reserve development		149,633		51.9	%		149,672		150.5	%		(39	)		0.0	%
All other losses and loss adjustment expenses		78,667		27.3	%		181		0.2	%		78,486			41.5	%
Total losses and loss adjustment expenses	$	270,158		93.7	%	$	184,211		185.2	%	$	85,947			45.5	%

	Three Months Ended September 30, 2017
	Direct			Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio
Premiums earned	$	254,809					$	80,292					$	174,517

Loss and loss adjustment expenses:
Weather events*	$	452,000			177.4	%	$	415,000			516.8	%	$	37,000		21.2	%
Prior year adverse/(favorable) reserve development		(67	)		0.0	%		(180	)		-0.2	%		113		0.1	%
All other losses and loss adjustment expenses		79,335			31.1	%		73			0.1	%		79,262		45.4	%
Total losses and loss adjustment expenses	$	531,268			208.5	%	$	414,893			516.7	%	$	116,375		66.7	%

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

For the quarter ended September 30, 2018, we experienced $41.9 million of significant weather events, including Hurricane Florence, a $35.0 million direct loss event that was a Category 1 storm making landfall near Wrightsville Beach, North Carolina on September 12, 2018, and to a lesser extent, Tropical Storm Gordon and other weather events occurring in the quarter. The Company’s reinsurance program limited losses from Hurricane Florence to $5.0 million net. This compares to weather losses in 2017 of $452.0 million direct and $37.0 million net related to Hurricane Irma.

During the third quarter of 2018, the Company recorded prior year adverse development to increase its estimate of ultimate losses on Hurricane Irma to $754.0 million, from $603.5 million recorded as of the second quarter in 2018. The prior year adverse development of $149.6 million in direct losses recorded this quarter was principally from Hurricane Irma and resulted in a net retention benefit of $39 thousand after cessions and adjustments to the Company’s reinsurers. The increase in the ultimate loss and LAE related to Hurricane Irma was the result of a continuation of new reported claims and litigation costs associated with the aggressive nature of plaintiff attorneys on claims in Florida.

All other net losses and LAE were $78.5 million for the three months ended September 30, 2018, compared to $79.3 million during the same period in 2017. The Company’s service subsidiaries generated fees during the quarter for settling claims ceded to reinsurers, principally related to Hurricane Irma. During the third quarter ended September 30, 2018, the Company generated a $16.7 million net benefit from claim settlement fees, which was recorded in the condensed consolidated financial statements as a reduction to losses and LAE. This had a favorable effect on our underlying loss and LAE ratio of approximately 5.8 percentage points on a direct basis (or 8.8 percentage points on a net basis). The Company’s underlying loss and LAE ratio reflects an increased level of severe weather activity in recent years, continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida, as well as claims trends in Florida, including the growth in claim costs and challenges faced when policyholders assign their policy benefits to third parties, including the increased litigation costs arising from these claims.

General and administrative expenses were $69.0 million for the three months ended September 30, 2018, compared to $57.3 million during the same period in 2017 as follows (dollars in thousands):

	Three Months Ended
	September 30,										Change
	2018					2017					$		%
	$		Ratio			$		Ratio
Premiums earned, net	$	188,938				$	174,517				$	14,421		8.3	%
General and administrative expenses:
Policy acquisition costs		42,745		22.6	%		35,304		20.2	%		7,441		21.1	%
Other operating costs		26,207		13.9	%		21,885		12.5	%		4,322		19.7	%
Interest expense		89		—			80		—			9		11.3	%
Total general and administrative expenses (1)	$	69,041		36.5	%	$	57,269		32.8	%	$	11,772		20.6	%

The increase in general and administrative expenses of $11.8 million was primarily the result of modest increases in both policy acquisition costs and other operating costs, which increased by $7.4 million and $4.3 million, respectively, as compared to the same period of the prior year. Our underlying policy acquisition costs continued to be driven by increased premium volume and continued geographic expansion into states that typically have higher commission rates as compared to Florida. Our other operating costs increased by $4.3 million compared to the same period of the prior year, which was primarily driven by an increase of $4.1 million in performance bonuses and stock option grants. The comparative increase in performance bonuses was due to lower pretax income in the third quarter of 2017 due to Hurricane Irma.

The expense ratio was impacted by the costs noted above and the ratio was further increased due to an increase in fully earned reinstatement premiums that reduced premiums earned, net (the denominator in the ratio) this quarter. As a result of the above items, the expense ratio increased to 36.5% for the three months ended September 30, 2018 compared to 32.8% for the same period in 2017.

Income tax expense increased by $7.2 million, or 107.8%, for the three months ended September 30, 2018, when compared with the three months ended September 30, 2017. Our effective tax rate decreased to 26.9% for the three months ended September 30, 2018, as compared to 40.0% for the three months ended September 30, 2017. The increase in income tax expense of $7.2 million is primarily the result of an increase in net income of $27.4 million offset by a reduction in the federal tax rate due to the enactment of the Tax Act. See “Item 1—Note 9 (Income Taxes)” for an explanation of the change in our effective tax rates.

Other comprehensive loss, net of taxes for the three months ended September 30, 2018 was $0.7 million compared to other comprehensive income of $0.3 million for the same period in 2017. See “Item 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income and loss for these periods.

Results of Operations — Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

Net income was $123.5 million for the nine months ended September 30, 2018, an increase of $53.0 million, or 75.1%, compared to $70.5 million for the nine months ended September 30, 2017. The nine months ended September 30, 2018 is comparatively better due to continued growth and underwriting profits, a lesser impact from catastrophic storms, and a reduced effective tax rate. Our results for the nine months ended September 30, 2017 include the impact of Hurricane Irma. Diluted earnings per common share increased by $1.49 to $3.45 for the nine months ended September 30, 2018, compared to $1.96 per share for the nine months ended September 30, 2017, reflecting the increase in net income and a slight reduction in our weighted average diluted common shares outstanding. A detailed discussion of our results of operations follows the table ~~below.~~below (in thousands, except per share data).

	(in thousands)
	Three Months Ended												Nine Months Ended
	June 30,						Change						September 30,						Change
	2018			2017			$			%			2018			2017			$			%
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	342,781		$	296,191		$	46,590			15.7	%	$	921,941		$	816,350		$	105,591			12.9	%
Change in unearned premium		(68,754	)		(51,568	)		(17,186	)		33.3	%		(97,249	)		(80,543	)		(16,706	)		20.7	%
Direct premium earned		274,027			244,623			29,404			12.0	%		824,692			735,807			88,885			12.1	%
Ceded premium earned		(81,755	)		(75,614	)		(6,141	)		8.1	%		(260,905	)		(230,722	)		(30,183	)		13.1	%
Premiums earned, net		192,272			169,009			23,263			13.8	%		563,787			505,085			58,702			11.6	%
Net investment income (expense)		5,786			3,223			2,563			79.5	%		17,213			9,012			8,201			91.0	%
Net realized gains (losses) on sale of securities		145			1,710			(1,565	)	NM				(2,093	)		2,450			(4,543	)	NM
Net change in unrealized gains (losses) of equity securities		(1,521	)		—			(1,521	)	NM				(9,103	)		—			(9,103	)	NM
Commission revenue		5,709			4,644			1,065			22.9	%		16,638			14,546			2,092			14.4	%
Policy fees		5,764			5,250			514			9.8	%		15,743			14,594			1,149			7.9	%
Other revenue		1,633			1,651			(18	)		-1.1	%		5,258			4,917			341			6.9	%
Total premiums earned and other revenues		209,788			185,487			24,301			13.1	%		607,443			550,604			56,839			10.3	%
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		89,842			80,184			9,658			12.0	%		251,715			267,129			(15,414	)		-5.8	%
General and administrative expenses		58,698			57,380			1,318			2.3	%		191,614			171,582			20,032			11.7	%
Total operating costs and expenses		148,540			137,564			10,976			8.0	%		443,329			438,711			4,618			1.1	%
INCOME BEFORE INCOME TAXES		61,248			47,923			13,325			27.8	%		164,114			111,893			52,221			46.7	%
Income tax expense		15,164			18,547			(3,383	)		-18.2	%		40,595			41,354			(759	)		-1.8	%
NET INCOME	$	46,084		$	29,376		$	16,708			56.9	%	$	123,519		$	70,539		$	52,980			75.1	%
Other comprehensive income (loss), net of taxes		(1,849	)		1,486			(3,335	)	NM				(6,636	)		4,201			(10,837	)	NM
COMPREHENSIVE INCOME	$	44,235		$	30,862		$	13,373			43.3	%	$	116,883		$	74,740		$	42,143			56.4	%
DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share	$	1.29		$	0.82		$	0.47			57.3	%	$	3.45		$	1.96		$	1.49			76.0	%
Weighted average diluted common shares outstanding		35,589			35,958			(369	)		-1.0	%		35,754			35,917			(163	)		-0.5	%

Direct premiums written increased by ~~$46.6~~$105.6 million, or ~~15.7%~~12.9%, for the ~~quarter~~nine months ended ~~June~~September 30, 2018, driven by growth within our Florida business of ~~$33.9~~$71.4 million, or ~~13.0%~~9.9%, as compared to the same period of the prior ~~period,~~year, and growth in our Other States business of ~~$12.7~~$34.2 million, or ~~36.5%~~34.9%, as compared to the same period of the prior ~~period.~~year. Florida growth was driven by growth in policy count as well as the impact of an average statewide rate increase of 3.4%, which was approved in early December and effective for new business beginning on December 7, 2017 and for renewal business beginning on January 26, 2018. Geographic expansion efforts in our Other States business continued to add to overall premium levels, and we are now actively writing policies in 16 states other than our home state of Florida. We commenced operations and wrote our first policy in New Hampshire in early April 2018.

Direct premium earned increased by ~~$29.4~~$88.9 million, or ~~12.0%~~12.1%, for the ~~quarter~~nine months ended ~~June~~September 30, 2018, reflecting the earning of premiums written over the past 12 months and ~~any~~ changes in rates orand policy count during that time.

Ceded premium earned increased by ~~$6.1~~$30.2 million, or ~~8.1%~~13.1%, for the ~~quarter~~nine months ended ~~June~~September 30, ~~2018, reflecting an~~2018. The increase was the result of: (1) a general increase in ~~total insured value covered by our~~costs for the Company’s 2018/2019 reinsurance program ~~and~~fueled by growth, compared to the ~~coverage terms~~expiring program; (2) additional ceded premium earned of ~~the reinsurance agreements in effect~~$1.3 million recorded during the ~~treaty periods which begin on June 1~~period for the FHCF coverage; and (3) $13.5 million of ~~each year and extend through May 31 of~~fully earned reinstatement premiums relating to increases in the ~~following year.~~Company’s estimated losses associated with third quarter 2017 storm, Hurricane Irma. Ceded premium earned as a percent of direct premiums earned was ~~29.8%~~31.6% for the ~~three~~nine months ended ~~June~~September 30, 2018 compared to ~~30.9%~~31.4% for the ~~three~~nine months ended ~~June~~September 30, 2017.

Premiums earned, net of ceded premium earned, grew by ~~13.8%~~11.6%, or ~~$23.3~~$58.7 million, to ~~$192.3~~$563.8 million for the ~~three~~nine months ended ~~June~~September 30, 2018, reflecting the increase in direct premium and ceded premium earned discussed above.

Net investment income was ~~$5.8~~$17.2 million for the ~~three~~nine months ended ~~June~~September 30, 2018, compared to ~~$3.2~~$9.0 million for the same ~~period~~nine months ended in ~~2017.~~2017, an increase of $8.2 million, or 91.0%. The increase ~~in net investment income of $2.6 million~~ is ~~primarily~~ the result of several factors including the growth in cash and invested assets compared to the prior year and an increase in ~~investment income~~yields from ~~our available-for-sale debt securities, which grew as~~ a ~~result of growth~~shift in ~~total invested assets, favorable market trends~~asset mix and actions taken to increase yield while maintaining high credit quality. Also contributing to the increase in investment income is a higher level of return from our cash and cash equivalents due to actions taken to optimize treasury management coupled with an increase inrising interest ~~rates on short-term investments.~~rates. Total invested assets were ~~$747.2~~$853.2 million, with an average fixed income credit rating of ~~AA-~~A+ during the ~~three~~nine months ended ~~June~~September 30, 2018 compared to ~~$634.9~~$651.6 million with an average fixed credit rating of AA- for the same period in 2017. Cash and cash equivalents were $252.3 million at September 30, 2018 compared to $213.5 million at year end, an increase of 18.2%. Cash and cash equivalents are invested short term until needed to settle payments to reinsurers, loss and LAE payments and operating cash needs.

We sell ~~investment~~ securities from our investment portfolio ~~of securities, including equity securities and available for sale debt securities,~~ from time to time when opportunities arise or when circumstances could result in greater losses or lower yields if held. We sold ~~investment~~debt securities available for sale and equity securities during the ~~three~~nine months ended ~~June~~September 30, 2018, generating net realized ~~gain~~losses of ~~$0.1~~$2.1 million compared to net realized ~~gain~~gains of ~~$1.7~~$2.5 million for the ~~three~~nine months ended ~~June~~September 30, 2017. The investment securities sold during the nine months ended September 30, 2018 were comprised primarily of municipal securities, which were liquidated in light of their diminished after-tax returns following the enactment of the Tax Act.

~~In the second quarter~~The first nine months of 2018 ~~the net change in~~included an unrealized ~~gains (losses) of equity securities was a~~ loss of ~~$1.5~~$9.1 million, ~~driven by~~resulting from a decline in value of our equity securities ~~portfolio.~~portfolio during that period. We highlight that this line item was added during the ~~quarter~~nine months ended ~~March 31,~~September 30, 2018, ~~because~~as a result of the adoption of new accounting guidance for equity securities. See ~~“Note~~“Item 1—Note 2 ~~- Significant~~(Significant Accounting ~~Policies –~~ Policies—Recently Adopted Accounting ~~Pronouncements”~~Pronouncements)” for more information. The comparable change in unrealized gains (losses) within our equity portfolio for the prior period in 2017 was ~~$0.6~~$1.1 million of pretax ~~losses,~~gains, which was not included in net income in the prior period in 2017 but was included in other comprehensive income (loss), which is presented net of taxes.

Commission revenue is comprised principally of brokerage commissions we earn from reinsurers on reinsurance placed for the Insurance Entities. For the ~~three~~nine months ended ~~June~~September 30, 2018, commission revenue was ~~$5.7~~$16.6 million, compared to ~~$4.6~~$14.5 million for the ~~three~~nine months ended ~~June~~September 30, 2017. The increase in commission revenue of ~~$1.1~~$2.1 million, or ~~22.9%~~14.4%, for the ~~three~~nine months ended ~~June~~September 30, 2018 compared to the ~~three~~nine months ended ~~June~~September 30, 2017, was primarily the result of ~~$873 thousand~~an increase of ~~reinstatement~~$1.4 million of commissions received by ~~Blue Atlantic~~BARC relating to increased reinstatement premiums. Commission revenue also increased due to increased ceded premiums in connection with the Company’s June 1, 2018 renewal of its 2018/2019 Reinsurance ~~Corporation during the second quarter of 2018.~~Program.

Policy fees for the ~~three~~nine months ended ~~June~~September 30, 2018, were ~~$5.8~~$15.7 million compared to ~~$5.3~~$14.6 million for the same period in 2017. The increase of ~~$514 thousand,~~$1.1 million, or ~~9.8%~~7.9%, was the result of an increase in the number of new and renewal policies written during the ~~three~~nine months ended ~~June~~September 30, 2018 compared to the same period in 2017.

Other revenue ~~which~~ represents revenue from policy installment fees, premium financing and other miscellaneous income, was ~~$1.6~~$5.3 million for the ~~three~~nine months ended ~~June~~September 30, 2018 compared to ~~$1.7~~$4.9 million for the same period in 2017.

Losses and LAE, net of reinsurance were ~~$89.8~~$251.7 million for the ~~three~~nine months ended ~~June~~September 30, 2018, compared to ~~$80.2~~$267.2 million during the same period in 2017 as follows (dollars in thousands):

	Three Months Ended June 30, 2018																Nine Months Ended September 30, 2018
	Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio			Direct		Loss Ratio			Ceded			Loss Ratio			Net		Loss Ratio
Premiums earned	$	274,027				$	81,755					$	192,272				$	824,692				$	260,905					$	563,787

Loss and loss adjustment expenses:
Weather events*	$	5,000		1.8	%	$	—			—		$	5,000		2.6	%	$	46,858		5.7	%	$	34,358			13.2	%	$	12,500		2.2	%
Prior year adverse/(favorable) reserve development		161,400		58.9	%		159,090			194.6	%		2,310		1.2	%		311,683		37.8	%		309,456			118.6	%		2,227		0.4	%
All other losses and loss adjustment expenses		80,222		29.3	%		(2,310	)		(2.8	%)		82,532		42.9	%		234,878		28.5	%		(2,110	)		(0.8	%)		236,988		42.0	%
Total losses and loss adjustment expenses	$	246,622		90.0	%	$	156,780			191.8	%	$	89,842		46.7	%	$	593,419		72.0	%	$	341,704			131.0	%	$	251,715		44.6	%

	Three Months Ended June 30, 2017															Nine Months Ended September 30, 2017
	Direct		Loss Ratio			Ceded		Loss Ratio			Net		Loss Ratio			Direct		Loss Ratio			Ceded		Loss Ratio			Net		Loss Ratio
Premiums earned	$	244,623				$	75,614				$	169,009				$	735,807				$	230,722				$	505,085

Loss and loss adjustment expenses:
Weather events*	$	6,000		2.5	%	$	—		—		$	6,000		3.6	%	$	461,000		62.7	%	$	415,000		179.9	%	$	46,000		9.1	%
Prior year adverse/(favorable) reserve development		6,581		2.7	%		5,472		7.2	%		1,109		0.7	%		6,896		0.9	%		5,578		2.4	%		1,318		0.3	%
All other losses and loss adjustment expenses		73,075		29.9	%		—		—			73,075		43.2	%		219,811		29.9	%		—		—			219,811		43.5	%
Total losses and loss adjustment expenses	$	85,656		35.1	%	$	5,472		7.2	%	$	80,184		47.4	%	$	687,707		93.5	%	$	420,578		182.3	%	$	267,129		52.9	%

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

For the ~~quarter~~nine months ended ~~June~~September 30, 2018, we experienced ~~$5.0~~$46.9 million of significant weather events, ~~beyond expectations (on both~~including Hurricane Florence, a $35.0 million direct loss event, and ~~net basis), related~~ to a lesser extent, Tropical Storm Gordon, the eruption of the Kilauea volcano in Hawaii, and several other meaningful ~~weather-related~~weather related events that occurred in

2018. The Company’s reinsurance program limited 2018 weather event net losses to $12.5 million for the nine months ended September 30, 2018. This compares to ~~losses~~$461.0 million direct loss and ~~LAE (on both a direct and~~$46.0 million net ~~basis) of $6.0 million from~~loss related to weather events ~~beyond those expected for~~in the ~~quarter~~nine months ended ~~June~~September 30, 2017, which ~~was the result of an increase to our underlying core loss ratio in 2017 to reflect an increase of unexpected weather-related losses.~~include Hurricane Irma.

During the ~~second quarter in~~nine months ended September 30, 2018, the Company ~~increased~~recorded prior year adverse development to increase its estimate of ultimate losses on Hurricane Irma to ~~$603.5~~$754.0 million ~~for both the Insurance Entities~~ from ~~$447.4~~$446.7 million recorded ~~in the first quarter in 2018.~~as of 2017 year-end. The prior year adverse development of ~~$156.1~~$311.7 million in ~~gross~~direct losses ~~resulted~~results in a net ~~retention~~losses of $2.2 million after the benefit of ~~$0.3 million after cessions to the Company’s reinsurers.~~reinsurance recoveries. The increase in the ultimate loss and LAE ~~for~~related to Hurricane Irma was the result of a continuation of new reported claims and litigation costs associated with the aggressive nature of plaintiff attorneys on claims in Florida.

~~Also, the Company recorded prior year loss reserve development of $5.3 million on a direct basis ($2.6 million on a net basis) for the quarter~~The nine months ended June 30, 2018, reflecting strengthening of reserves for the fourth quarter 2016 storm, Hurricane Matthew. Reserve strengthening on Hurricane Matthew is based on our revised estimate to settle the remaining 78 open claims. The three months ending JuneSeptember 30, 2017 included prior period loss reserve development of ~~$6.6~~$6.9 million on a direct basis ($~~1.1~~1.3 million on a net basis), also primarily reflecting strengthening of reserves for the fourth quarter 2016 storm, Hurricane Matthew.

All other net losses and LAE were ~~$82.5~~$237.0 million for the ~~three~~nine months ended ~~June~~September 30, 2018, compared to ~~$73.1~~$219.8 million during the same period in 2017. ~~Our~~The Company’s service ~~company~~ subsidiaries ~~particularly UAC,~~ generated additional ~~revenues servicing Hurricane Irma claims and~~fees during the ~~second quarter~~nine months ended ~~June~~September 30, 2018 for claims ceded to reinsurers principally related to Hurricane Irma. During the nine months ended September 30, 2018, the Company generated ~~$8.4~~a $35.5 million ~~of earnings~~net benefit from claim settlement fees which ~~reduced amounts~~was recorded in the condensed consolidated financial statements as a reduction to losses and LAE ~~this quarter.~~in 2018. This had a favorable effect on our underlying loss and LAE ratio of approximately ~~3.4~~4.3 percentage points on a direct basis (or ~~5.0~~6.3 percentage points on a net basis). The Company’s underlying loss and LAE ratio reflects an increased level of severe weather activity in recent years, continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida, as well as ~~claims trends~~the marketplace dynamics inside of Florida including ~~the growth in claim costs and~~ challenges faced when policyholders assign their policy benefits to third parties ~~and~~ including the increased litigation costs arising from these claims.

General and administrative expenses were ~~$58.7~~$191.6 million for the ~~three~~nine months ended ~~June~~September 30, 2018, compared to ~~$57.4~~$171.6 million during the same period in 2017 as follows (dollars in thousands):

	Three Months Ended															Nine Months Ended
	June 30,										Change					September 30,										Change
	2018					2017					$		%			2018					2017					$			%
	$		Ratio			$		Ratio								$		Ratio			$		Ratio
Premiums earned, net	$	192,272				$	169,009				$	23,263		13.8	%	$	563,787				$	505,085				$	58,702			11.6	%
General and administrative expenses:
Policy acquisition costs		33,545		17.4	%		33,022		19.5	%		523		1.6	%		114,333		20.3	%		100,754		19.9	%		13,579			13.5	%
Other operating costs		25,063		13.0	%		24,272		14.4	%		791		3.3	%		77,023		13.7	%		70,559		14.0	%		6,464			9.2	%
Interest expense		90		—			86		—			4		4.7	%		258		—			269		—			(11	)		(4.1	%)
Total general and administrative expenses (1)	$	58,698		30.4	%	$	57,380		33.9	%	$	1,318		2.3	%	$	191,614		33.9	%	$	171,582		33.9	%	$	20,032			11.7	%

The increase in general and administrative expenses of ~~$1.3~~$20.0 million was primarily the result of ~~modest~~ increases in ~~both~~ policy acquisition costs of $13.6 million, which were driven by increased premium volume and continued geographic expansion into states that have higher typical commission rates compared to our home state of Florida, and to a lesser extent due to an increase in other operating costs ~~which increased by $0.5 million and $0.8 million, respectively, as compared to the prior year’s quarter.~~of $6.4 million. General and administrative expenses for the ~~quarter~~nine months ended ~~June~~September 30, 2018 included a $6.5 million benefit (included within policy acquisition costs) related to a settlement of prior year premium tax audits with the Florida Department of Revenue, which reduced the expense ratio by ~~3.4~~1.2 percentage points. Our ~~underlying policy acquisition~~other operating costs ~~continued~~increased by $6.4 million compared to bethe same period of the prior year, which was primarily driven by an increase of $5.7 million in performance bonuses and stock option grants. The comparative increase in performance bonuses was due to lower pretax income in the third quarter of 2017 due to Hurricane Irma.

The expense ratio was impacted by the costs noted above and the ratio was further increased ~~premium volume and continued geographic expansion into states that typically have higher commission rates as compared~~due to ~~Florida.~~ an increase in fully earned reinstatement premiums reducing premiums earned, net (the denominator in the ratio) during the nine months ended September 30, 2018. Overall, the expense ratio (general and administrative expenses as a percentage of net earned premiums) benefited from economies of scale as general and administrative expenses did not increase at the same rate as revenues. As a result of the above items, the expense ratio ~~decreased to 30.4%~~ for each of the ~~three~~nine months ended ~~June~~September 30, 2018 ~~compared to 33.9%~~and for the same period in ~~2017.~~2017 was 33.9%.

Income tax expense decreased by ~~$3.4~~$0.8 million, or ~~18.2%~~1.8%, for the ~~three~~nine months ended ~~June~~September 30, 2018, when compared with the ~~three~~nine months ended ~~June~~September 30, 2017. Our effective tax rate decreased to ~~24.8%~~24.7% for the ~~three~~nine months ended ~~June~~September 30, 2018, as compared to ~~38.7%~~37.0% for the ~~three~~nine months ended ~~June~~September 30, 2017. The decrease in both income tax expense and our effective tax rate is primarily the result of the enactment of the Tax Act. The second quarter of 2018 included a net credit to income tax expense of $0.6 million primarily driven by the excess tax benefits resulting from stock-based awards that vested and/or were exercised during the second quarter, thereby benefitting the quarter’s effective tax rate by 1.0 percentage points. See “Item ~~1 – Note 9 (Income Taxes)” for an explanation of the change in our effective tax rates.~~

Other comprehensive loss, net of taxes for the three months ended June 30, 2018 was $1.8 million compared to other comprehensive income of $1.5 million for the same period in 2017. See “Item 1 — Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income and loss for these periods.

~~Results of Operations — Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017~~

Net income was $86.1 million, an increase of $25.6 million, or 42.2%, for the six months ended June 30, 2018, compared to $60.6 million for the six months ended June 30, 2017. The increase is the result of double digit ~~revenue growth, continued underwriting profitability, and a reduced effective tax rate.~~ ~~Diluted earnings per common share increased by $0.74 to $2.42 for the six months ended June 30, 2018, compared to $1.68 per share for the six months ended June 30, 2017,~~ ~~reflecting the increase in net income and a slight reduction in our weighted average diluted common shares outstanding. A detailed discussion of our results of operations follows the table below.~~

(in thousands)

Six Months Ended

June 30,

Change

2018

2017

$

%

PREMIUMS EARNED AND OTHER REVENUES

Direct premiums written
$
612,765

$
541,606

$
71,159

13.1
%
Change in unearned premium

(76,477
)

(60,608
)

(15,869
)

26.2
%
Direct premium earned

536,288

480,998

55,290

11.5
%
Ceded premium earned

(161,439
)

(150,430
)

(11,009
)

7.3
%
Premiums earned, net

374,849

330,568

44,281

13.4
%
Net investment income (expense)

10,571

5,927

4,644

78.4
%
Net realized gains (losses) on sale of securities

(2,496
)

1,647

(4,143
)

NM

Net change in unrealized gains (losses) of equity securities

(6,630
)

—

(6,630
)

NM

Commission revenue

10,980

9,242

1,738

18.8
%
Policy fees

10,539

9,733

806

8.3
%
Other revenue

3,475

3,244

231

7.1
%
Total premiums earned and other revenues

401,288

360,361

40,927

11.4
%
OPERATING COSTS AND EXPENSES

Losses and loss adjustment expenses

165,768

150,754

15,014

10.0
%
General and administrative expenses

122,573

114,313

8,260

7.2
%
Total operating costs and expenses

288,341

265,067

23,274

8.8
%
INCOME BEFORE INCOME TAXES

112,947

95,294

17,653

18.5
%
Income tax expense

26,808

34,719

(7,911
)

-22.8
%
NET INCOME
$
86,139

$
60,575

$
25,564

42.2
%
Other comprehensive income (loss), net of taxes

(5,899
)

3,950

(9,849
)

NM

COMPREHENSIVE INCOME
$
80,240

$
64,525

$
15,715

24.4
%
DILUTED EARNINGS PER SHARE DATA:

Diluted earnings per common share
$
2.42

$
1.68

$
0.74

44.0
%
Weighted average diluted common shares outstanding

35,636

36,061

(425
)

-1.2
%

Direct premiums written increased by $71.2 million, or 13.1%, for the six months ended June 30, 2018, driven by growth within our Florida business of $49.6 million, or 10.3%, as compared to the prior period, and growth in our Other States business of $21.5 million, or 34.8%, as compared to the prior period. Florida growth was driven by growth in policy count as well as the impact of an average statewide rate increase of 3.4%, which was approved in early December and effective for new business beginning on December 7, 2017 and for renewal business beginning on January 26, 2018. Geographic expansion efforts in our Other States business continued to add to overall premium levels, and we are now actively writing policies in 16 states other than our home state of Florida. We commenced operations and wrote our first policy in New Hampshire in early April 2018.

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

Ceded premium earned increased by $11.0 million, or 7.3%, for the six months ended June 30, 2018, reflecting an increase in total insured value covered by our reinsurance program and the coverage terms of the reinsurance agreements in effect during the treaty

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

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

Net investment income was $10.6 million for the six months ended June 30, 2018, compared to $5.9 million for the same six-month period in 2017. The increase in net investment income of $4.6 million is primarily the result of an increase in investment income from our available-for-sale debt securities, which grew as a result of growth in total invested assets, favorable market trends and actions taken to increase yield while maintaining high credit quality. Also contributing to the increase in investment income is a higher level of return from our cash and cash equivalents due to actions taken to optimize treasury management coupled with an increase in interest rates on short-term investments. Total invested assets were $747.2 million with an average credit rating of AA- during the six months ended June 30, 2018 compared to $634.9 million with an average credit rating of AA- for the same period in 2017.

We sell investment securities from our investment portfolio including, equity securities and available for sale debt securities, from time to time when opportunities arise or circumstances could result in greater losses or lower yields if held. We sold investment securities available for sale and equity securities during the six months ended June 30, 2018, generating net realized losses of $2.5 million compared to net realized gains of $1.6 million for the six months ended June 30, 2017. The investment securities sold during the six months ended June 30, 2018 were comprised primarily of municipal securities, which were liquidated in light of their diminished after-tax returns following the enactment of the Tax Act.

During the first six months in 2018, the net change in unrealized gains (losses) of equity securities, was a loss of $6.6 million, driven by a decline in value of our equity securities portfolio. We highlight that this line item was added during the six months ended June 30, 2018, because of the adoption of new accounting guidance for equity securities. See “Note 2 - Significant Accounting Policies – Recently Adopted Accounting Pronouncements” for more information. The comparable change in unrealized gains (losses) within our equity portfolio for the prior period in 2017 was $1.1 million of pretax gains, which was not included in net income in the prior period, but was included in other comprehensive income (loss), which is presented net of taxes.

Commission revenue is comprised principally of brokerage commissions we earn from reinsurers on reinsurance placed for the Insurance Entities. For the six months ended June 30, 2018, commission revenue was $11.0 million, compared to $9.2 million for the six months ended June 30, 2017. The increase in commission revenue of $1.7 million, or 18.8%, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was primarily the result of $1.4 million of reinstatement commissions received by Blue Atlantic Reinsurance Corporation during the first six months ended of 2018.

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

Other revenue, which represents revenue from premium financing and other miscellaneous income, was $3.5 million for the six months ended June 30, 2018 compared to $3.2 million for the same period in 2017.

~~Losses and LAE, net of reinsurance were $165.8 million for the six months ended June 30, 2018, compared to $150.8 million during the same period in 2017 as follows (dollars in thousands):~~

Six Months Ended June 30, 2018

Direct

Loss Ratio

Ceded

Loss Ratio

Net

Loss Ratio

Premiums earned
$
536,288

$
161,439

$
374,849

Loss and loss adjustment expenses:

Weather events*
$
5,000

0.9
%

$
—

—

$
5,000

1.3
%
Prior year adverse/(favorable) reserve
development

162,050

30.2
%

159,784

99.0
%

2,266

0.6
%
All other losses and loss
adjustment expenses

156,211

29.1
%

(2,291
)

(1.4
%)

158,502

42.3
%
Total losses and loss adjustment expenses
$
323,261

60.2
%

$
157,493

97.6
%

$
165,768

44.2
%

Six Months Ended June 30, 2017

Direct

Loss Ratio

Ceded

Loss Ratio

Net

Loss Ratio

Premiums earned
$
480,998

$
150,430

$
330,568

Loss and loss adjustment expenses:

Weather events*
$
9,000

1.9
%

$
—

—

$
9,000

2.7
%
Prior year adverse/(favorable) reserve
development

6,890

1.4
%

5,685

3.8
%

1,205

0.4
%
All other losses and loss
adjustment expenses

140,549

29.2
%

—

—

140,549

42.5
%
Total losses and loss adjustment expenses
$
156,439

32.5
%

$
5,685

3.8
%

$
150,754

45.6
%

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

For the six months ended June 30, 2018, we experienced $5.0 million of weather events beyond expectations (on both a direct and net basis), related to the eruption of the Kilauea volcano in Hawaii and several other meaningful weather-related events that occurred in 2018. This compares to losses and LAE (on both a direct and net basis) of $9.0 million from weather events beyond those expected for the six months ended June 30, 2017, including an increase to our underlying core loss ratio in 2017 to reflect an increase of unexpected weather-related losses.

During the second quarter in 2018, the Company increased its estimate of ultimate losses on Hurricane Irma to $603.5 million for both Insurance Entities from $446.7 million recorded in 2017. The prior year development of $156.8 million in gross losses resulted in a net retention benefit of $0.3 million after cessions to the Company’s reinsurers. The increase in the ultimate loss and LAE for Hurricane Irma was the result of a continuation of new reported claims and the aggressive nature of plaintiff attorneys on claims in Florida.

Also, the Company recorded prior year loss reserve development of $5.3 million on a direct basis, $2.6 million on a net basis, for the six months ended June 30, 2018, reflecting strengthening of reserves for the fourth quarter 2016 storm, Hurricane Matthew. Reserve strengthening on Hurricane Matthew is based on our revised estimate to settle the remaining 78 open claims. The six months ended June 30, 2017 included prior period loss reserve development of $6.9 million on a direct basis ($1.2 million on a net basis), also primarily reflecting strengthening of reserves for the fourth quarter 2016 storm, Hurricane Matthew.

All other net losses and LAE were $158.5 million for the six months ended June 30, 2018, compared to $140.5 million during the same period in 2017. Our service company subsidiaries, particularly UAC, generated additional revenues servicing Hurricane Irma claims and during the six months ended June 30, 2018 generated $18.9 million of earnings which reduced amounts recorded as losses and LAE in 2018. This had a favorable effect on our underlying loss and LAE ratio of approximately 3.5 percentage points on a direct basis (or 5.0 percentage points on a net basis). The Company’s underlying loss and LAE ratio reflects continued geographic expansion into states outside of Florida where non-catastrophe loss ratios are generally higher than in Florida, as well as the marketplace dynamics inside of Florida including challenges faced when policyholders assign their policy benefits to third parties including the increased litigation from these claims.

~~General and administrative expenses were $122.6 million for the six months ended June 30, 2018, compared to $114.3 million during the same period in 2017 as follows (dollars in thousands):~~

Six Months Ended

June 30,

Change

2018

2017

$

%

$

Ratio

$

Ratio

Premiums earned, net
$
374,849

$
330,568

$
44,281

13.4
%
General and administrative expenses:

Policy acquisition costs

71,588

19.1
%

65,450

19.8
%

6,138

9.4
%
Other operating costs

50,816

13.6
%

48,674

14.7
%

2,142

4.4
%
Interest expense

169

—

189

—

(20
)

(10.6
%)
Total general and administrative expenses (1)
$
122,573

32.7
%

$
114,313

34.5
%

$
8,260

7.2
%

The increase in general and administrative expenses of $8.3 million was primarily the result of increases in policy acquisition costs of $6.1 million, which were driven by increased premium volume and continued geographic expansion into states that have higher typical commission rates compared to our home state of Florida, and to a lesser extent due to an increase in other operating costs of $2.1 million. General and administrative expenses for the six months ended June 30, 2018 included a $6.5 million benefit (included within policy acquisition costs) related to a settlement of prior year premium tax audits with the Florida Department of Revenue, which reduced the expense ratio by 1.7 percentage points. Our underlying policy acquisition costs continued to be driven by increased premium volume and continued geographic expansion into states where the comparable commission rates are higher than Florida. Overall, the expense ratio (general and administrative expenses as a percentage of net earned premiums) benefited from economies of scale as general and administrative expenses did not increase at the same rate as revenues. As a result of the above items, the expense ratio decreased to 32.7% for the six months ended June 30, 2018 compared to 34.5% for the same period in 2017.

Income tax expense decreased by $7.9 million, or 22.8%, for the six months ended June 30, 2018, when compared with the six months ended June 30, 2017. Our effective tax rate decreased to 23.7% for the six months ended June 30, 2018, as compared to 36.4% for the six months ended June 30, 2017. The decrease in both income tax expense and our effective tax rate is primarily the result of the enactment of the Tax Act. The six months ended June 30, 2018 included a net credit to income tax expense of $2.3 million primarily driven by excess tax benefits resulting from stock-based awards that vested and/or were exercised during the six months ended June 30, 2018, thereby benefitting the six month ended June 30, 2018 effective tax rate by 2.0 percentage points. Discrete items for the six months ended June 30, 2017 included $0.8 million of excess tax benefit benefits resulting from stock-based awards that had vested and/or were exercised during that period and a credit to income tax expense of $1.2 million resulting from anticipated recoveries of income taxes paid from 2014 and 2015, thereby benefitting the six months ended June 30, 2017 effective tax rate by 1.9 percentage points. See “Item 1 – 1—Note 9 (Income Taxes)” for an explanation of the change in our effective tax rates.

Other comprehensive loss, net of taxes for the ~~six~~nine months ended ~~June~~September 30, 2018 was ~~$5.9~~$6.6 million compared to other comprehensive income of ~~$4.0~~$4.2 million for the same period in 2017. See “Item ~~1 —~~ 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income and loss for these periods.

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

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

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

	As of				As of
	June 30,		December 31,		September 30,		December 31,
Type of Investment	2018		2017		2018		2017
Available-for-sale debt securities	$	656,762	$	639,334	$	760,408	$	639,334
Available-for-sale short-term investments		—		10,000		—		10,000
Equity securities		70,866		62,215		69,108		62,215
Investment real estate, net		19,539		18,474		23,720		18,474
Total	$	747,167	$	730,023	$	853,236	$	730,023

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

Prepaid reinsurance premiums represent the portion of unearned ceded written premiums that will be earned pro-rata over the coverage period of our reinsurance program, which runs from June 1 to May 31 of the following year. The increase of ~~$177.8~~$95.6 million to ~~$310.6~~$228.4 million as of ~~June~~September 30, 2018 was due primarily to ~~additional~~ ceded written premium ~~of $338.9 million recorded this quarter~~ for the reinsurance costs relating to our ~~new~~ 2018-2019 catastrophe reinsurance program beginning June 1, 2018, less amortization of those costs recorded during the period.

Reinsurance recoverable represents the estimated ~~amount~~amounts of paid and unpaid losses, ~~and~~ loss adjustment expenses and expenses that are recoverable from reinsurers. The decrease of ~~$64.6~~$23.8 million to ~~$117.9~~$158.6 million as of ~~June~~September 30, 2018 was ~~primarily~~ due to the settlement of amounts due from ~~reinsurers for~~reinsurers. The largest settled balances during the year related to claims ceded to reinsurers relating to Hurricane Irma and to a lesser extent Hurricane Matthew.

Premiums receivable, net represents amounts receivable from policyholders. The increase in premiums receivable, net of ~~$10.7~~$9.5 million to ~~$67.2~~$66.0 million as of ~~June~~September 30, 2018 relates to both the growth in and seasonality of the Company’s business.

Deferred income ~~tax assets and liabilities~~taxes represent temporary differences between ~~U.S. GAAP and~~ the tax basis of ~~the Company's~~ assets and ~~liabilities.~~liabilities and their amount recorded in the financial statements, which will result in taxable or deductible amounts in the future. During the ~~six~~nine months ended ~~June~~September 30, 2018, deferred income tax ~~assets~~asset, net decreased by ~~$9.1~~$1.3 million to ~~$0.2~~$7.9 million, primarily due to an increase in deferred policy acquisition costs ~~and an increase in ceded unearned premiums.~~offset by the recording of a deferred tax asset for unrealized losses on investments.

Deferred policy acquisition costs increased by ~~$15.7~~$17.6 million to ~~$88.8~~$90.6 million as of ~~June~~September 30, 2018, which is in line with the underlying premium ~~growth.~~growth and the seasonality of the Company’s business. See “Item ~~1 —~~ 1—Note 5 (Insurance Operations)” for a roll-forward in the balance of our deferred policy acquisition costs.

Income taxes recoverable, ~~increased by $2.4 million~~which represents estimated tax payments less estimated tax obligations to ~~$11.8~~taxing authorities, was $5.2 million as of ~~June~~September 30, 2018 ~~from~~compared to $9.5 million as of December 31, 2017. The ~~increase~~decrease of $4.3 million represents ~~amounts due from taxing jurisdictions within one year and when income~~the net effect of payments versus estimated liabilities as the Company settles its tax ~~payments exceed income tax liabilities. Income taxes recoverable~~obligations during the year.

Other assets increased by $9.3 million to $21.7 million as of ~~June~~September 30, 2018, ~~were $11.8 million,~~ which ~~represents amounts recoverable or~~was primarily attributable to ~~be applied~~receivables relating to ~~future periods for federal and state income taxes.~~sales of our securities from our investment portfolio that settled after September 30, 2018.

See “Item ~~1 —~~ 1—Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for a roll-forward in the balance of our unpaid losses and loss adjustment expenses. Unpaid losses and loss adjustment expenses decreased by ~~$96.5~~$89.8 million to ~~$151.9~~$158.7 million as of ~~June~~September 30, 2018. The reduction in unpaid losses and loss adjustment expenses was principally due to the settlement of Hurricane Irma claims and other claims that were unpaid as of December 31, ~~2017, offset from losses incurred from weather related activity~~2017. Also, during the third quarter of 2018, the Company increased its estimate for Hurricane Irma claims by $150.5 million, recorded $35 million for Hurricane Florence and ~~other claims in 2018.~~$2.5 million for Tropical Storm Gordon, which increased reserves. Overall reserves decreased by $89.8 million as claim settlements exceeded new emerging claims. Unpaid losses and loss adjustment expenses are net of estimated subrogation recoveries. The Company is continuing its initiatives to expedite claims payments, including the ability of our mobile claims teams to rapidly settle certain claims, which we refer to as “Fast Track,” and pursuing the anticipated benefits from subrogation collections.

Unearned premiums represent the portion of direct premiums written ~~premium~~ that will be earned pro rata in the future. The increase of ~~$76.5~~$97.2 million to ~~$608.9~~$629.7 million as of ~~June~~September 30, 2018 reflects both organic growth and the seasonality of our business as described under “– “—Overview”.

Advance premium represents premium payments made by policyholders ahead of the effective date of the policies. The increase of ~~$12.0~~$6.6 million to ~~$38.2~~$32.8 million as of ~~June~~September 30, 2018 reflects both organic growth and the seasonality of our business as described under “– “—Overview”.

Book overdrafts represent outstanding checks or drafts in excess of cash on deposit with banking institutions and are examined to determine if a legal right of offset exists for accounts within the same banking institution at each balance sheet date. The Company maintains a short-term cash investment sweep to maximize investment returns on cash balances. Due to sweep activities, certain outstanding items are recorded as book overdrafts, which totaled ~~$3.0~~$30.3 million as of ~~June~~September 30, 2018 compared to $36.7 million as of December 31, 2017. The decrease of ~~$33.7~~$6.4 million is the result of higher cash balances available for offset as of ~~June~~September 30, 2018 and to a lesser amount ~~less~~fewer outstanding items as of ~~June~~September 30, 2018 compared to December 31, 2017 ~~due to lower~~as Hurricane Irma ~~drafts outstanding.~~claims are settled.

Reinsurance payable, net, principally represents the unpaid ceded written premiums owed to reinsurers in connection with the renewal of the Company’s 2018-2019 catastrophe reinsurance program on June 1, 2018, and to a lesser extent unpaid reinstatement premiums and cash advances received from ~~reinsurers in connection with Hurricane Irma’s anticipated recoveries.~~reinsurers. The balance increased by ~~$231.5~~$150.8 million to ~~$341.9~~$261.1 million as of ~~June~~September 30, 2018 as a result of the above items. Ceded premiums for the 2018-2019 catastrophe reinsurance program are paid in installments over the June 1 to May 31 policy term.

Other liabilities and accrued expenses increased by $19.9 million to $65.0 million as of September 30, 2018, primarily driven by an increase in other liabilities due to timing of payments and payables relating to purchases of securities for our investment portfolio that settled after September 30, 2018.

Capital resources, net increased by ~~$51.3~~$89.9 million and includes increases in stockholders’ equity of ~~$52.0~~$91.0 million, offset by reduction in long-term debt of ~~$0.7~~$1.1 million. The increases in stockholders’ equity was principally the result of ~~$86.1~~$123.5 million of 2018 net income and ~~$4.7~~$2.0 million of stock-based compensation transactions, offset by $11.1 million in treasury stock purchases, ~~and~~ $15.4 million in dividends to ~~shareholders.~~ shareholders and an $8.0 million increase of unrealized losses on our available-for-sale debt securities, net of tax.

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

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet its short and long-term obligations. Funds generated from operations have been sufficient to meet our liquidity requirements and we expect that, in the future, funds from operations will continue to meet such requirements.

The balance of cash and cash equivalents as of ~~June~~September 30, 2018 was ~~$311.1~~$252.3 million compared to $213.5 million at December 31, 2017. See “Item ~~1 —~~ 1—Condensed Consolidated Statements of Cash Flows” for a reconciliation of the balance of cash and cash equivalents between ~~June~~September 30, 2018 and December 31, 2017. The increase in cash and cash equivalents was driven by cash flows generated from operating activities in excess of those used for investing and financing activities. The Company maintains a short-term investment cash sweep to maximize investment returns on cash balances. Due to the sweep activities, certain outstanding items were recorded as “Book Overdraft” in the ~~Consolidated Financial Statements.~~condensed consolidated financial statements. Cash and cash equivalents balances are available to settle book overdrafts, pay reinsurance premiums, pay expenses and pay claims. Reinsurance premiums are paid in installments during the reinsurance policy period, which runs from June 1^st to May 31^st of the following year. The FHCF is paid in three installments on August 1^st, October 1^st, and December 1^st, and Third-Party Reinsurance is paid in four installments on July 1^st, October 1^st, January 1^st and April 1^st, resulting in significant payments at those times. See “Item 1—–Note 12 (Commitments and Contingencies)” and “Contractual Obligations” for more information.

The balance of restricted cash and cash equivalents as of ~~June~~September 30, 2018 and December 31, 2017 includes cash equivalents on deposit with regulatory agencies in the various states in which our Insurance Entities do business.

Liquidity for UVE and its non-insurance subsidiaries is required to cover the payment of general operating expenses, dividends to shareholders (if and when authorized and declared by our Board of Directors), payment for the possible repurchase of our common stock (if and when authorized by our Board of Directors), payment of income taxes, and interest and principal payments on outstanding debt obligations, if any. The declaration and payment of future dividends by UVE to its shareholders, and any future repurchases of UVE common stock, will be at the discretion of our Board of Directors and will depend upon many factors, including our operating results, financial condition, debt covenants and any regulatory constraints. Principal sources of liquidity for UVE and its non-insurance subsidiaries include revenues generated from fees paid by the Insurance Entities to affiliated companies for policy administration, inspections and claims adjusting services. Additional sources of liquidity include brokerage commissions earned on reinsurance contracts and policy fees. UVE also maintains certain other investments, which are a source of ongoing interest and dividend income and would generate funds upon sale. As discussed in “Item 1 – —Note 5 (Insurance Operations),” there are limitations on the dividends the Insurance Entities may pay to their immediate parent company, Universal Insurance Holding Company of Florida (“UVECF”).

The maximum amount of dividends that can be paid by Florida insurance companies without prior approval of the Commissioner of the FLOIR is subject to restrictions as referenced in “Item I 1—–Note 5 ~~– Insurance Operations.~~(Insurance Operations).” During the ~~six~~nine months ended ~~June~~September 30, 2018, the Insurance Entities did not pay dividends to UVECF. During 2017 UPCIC paid a $30 million dividend to UVECF.

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

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

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

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

	As of						As of
	June 30,			December 31,			September 30,			December 31,
	2018			2017			2018			2017
Stockholders' equity	$	492,073		$	439,988		$	531,024		$	439,988
Total long-term debt		12,132			12,868			11,765			12,868
Total capital	$	504,205		$	452,856
Total capital resources							$	542,789		$	452,856

Debt-to-total capital ratio		2.4	%		2.8	%		2.2	%		2.8	%
Debt-to-equity ratio		2.5	%		2.9	%		2.2	%		2.9	%

As described in our Annual Report on Form 10-K for the year ended December 31, 2017, UPCIC entered into a surplus note with the State Board of Administration of Florida under Florida’s Insurance Capital Build-Up Incentive Program on November 9, 2006. The surplus note has a twenty-year term, with quarterly payments of principal and interest that accrue per the terms of the note agreement. At ~~June~~September 30, 2018, UPCIC was in compliance with the terms of the surplus note. Total adjusted capital surplus, which includes the surplus note, was in excess of regulatory requirements for both UPCIC and APPCIC.

On September 5, 2017, our Board of Directors authorized the repurchase of up to $20 million of the Company’s outstanding common stock through December 31, 2018. The Company may repurchase shares from time to time at its discretion, based on ongoing ~~assessments~~assessments of the capital needs of the Company, the market price of its common stock and general market conditions. The Company will fund the share repurchase program with cash from operations.

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

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

			Less than						Over				Less than						Over
	Total		1 year		1-3 years		3-5 years		5 years		Total		1 year		1-3 years		3-5 years		5 years
Unpaid losses and LAE, direct (1)	$	151,916	$	77,477	$	43,904	$	23,851	$	6,684
Reinsurance payable and multi-year commitments (1)											$	377,409	$	261,133	$	116,276	$	—	$	—
Unpaid losses and LAE, direct (2)												155,667		80,920		45,855		24,911		3,981
Long-term debt		13,561		1,347		5,160		3,237		3,817		13,143		1,346		5,148		3,223		3,426
Total contractual obligations	$	165,477	$	78,824	$	49,064	$	27,088	$	10,501	$	546,219	$	343,399	$	167,279	$	28,134	$	7,407

Other than as disclosed in “Item ~~1 —~~ 1—Note 2 (Significant Accounting Policies),” there have been no material changes during the period covered by this Quarterly Report on Form 10-Q to Critical Accounting Policies and Estimates previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2017.

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

In March 2017, FASB revised U.S. GAAP with the issuance of ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs to amend the amortization period for certain purchased callable debt securities held at a premium. Current U.S. GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. The new ASU shortens the amortization period of certain purchased callable debt securities to the earliest call date. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Under the current U.S. GAAP, you could consider the call dates and estimate if you had a large number of similar securities and you were basing your judgment on actual experience. Our service provider (who processes the accounting for our investment transactions) has many similar securities on their system and can make that type of determination. As a result, we currently account for the amortization under the proposed ASU and there will be no impact to our results of operations, financial condition or liquidity.

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

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

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

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

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

The following table provides information about our fixed income Financial Instruments, which are sensitive to changes in interest rates. The table presents cash flows of principal amounts and related weighted average interest rates by expected maturity dates for Financial Instruments available for sale as of the dates presented (in thousands):

	June 30, 2018																											September 30, 2018
	Amortized Cost																								Fair Value			Amortized Cost																								Fair Value
	2018			2019			2020			2021			2022			Thereafter			Other (1)			Total			Total			2018			2019			2020			2021			2022			Thereafter			Other (1)			Total			Total
Fixed income Financial Instruments	$	12,530		$	77,593		$	54,579		$	66,940		$	23,587		$	179,385		$	254,254		$	668,868		$	656,762		$	8,090		$	83,887		$	60,167		$	73,682		$	21,508		$	239,109		$	287,050		$	773,493		$	760,408
Weighted average interest rate		1.81	%		1.76	%		2.04	%		2.15	%		2.46	%		3.53	%		3.22	%		2.88	%		2.88	%		2.47	%		1.84	%		2.08	%		2.24	%		2.55	%		3.61	%		3.34	%		3.03	%		3.03	%

	December 31, 2017																											December 31, 2017
	Amortized Cost																								Fair Value			Amortized Cost																								Fair Value
	2018			2019			2020			2021			2022			Thereafter			Other (1)			Total			Total			2018			2019			2020			2021			2022			Thereafter			Other (1)			Total			Total
Fixed income Financial Instruments	$	51,846		$	85,309		$	61,215		$	60,968		$	27,832		$	132,530		$	234,015		$	653,715		$	649,334		$	51,846		$	85,309		$	61,215		$	60,968		$	27,832		$	132,530		$	234,015		$	653,715		$	649,334
Weighted average interest rate		1.87	%		1.82	%		2.18	%		2.16	%		2.76	%		4.02	%		3.08	%		2.83	%		2.83	%		1.87	%		1.82	%		2.18	%		2.16	%		2.76	%		4.02	%		3.08	%		2.83	%		2.83	%

The tables above represent average contract rates that differ from the book yield of the available-for-sale debt securities. The fixed income Financial Instruments in our available for sale portfolio are comprised of United States government and agency securities, corporate bonds, municipal bonds, redeemable preferred stock, mortgage-backed and asset-backed securities and certificates of deposit.Duration is a measure of interest rate sensitivity expressed as a number of years. The weighted average duration of the fixed income Financial Instruments in our available for sale portfolio at ~~June~~September 30, 2018 was ~~2.8~~3.1 years.

To a lesser extent, we also have exposure to interest on our debt obligation which is in the form of a surplus note. The surplus note accrues interest at an adjustable rate based on the 10-year Constant Maturity Treasury rate.

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

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

	June 30, 2018					December 31, 2017					September 30, 2018					December 31, 2017
	Fair Value		Percent			Fair Value		Percent			Fair Value		Percent			Fair Value		Percent
Equity Securities:
Common stock	$	22,320		31.5	%	$	18,811		30.2	%	$	20,575		29.8	%	$	18,811		30.2	%
Mutual funds		48,546		68.5	%		43,404		69.8	%		48,533		70.2	%		43,404		69.8	%
Total equity securities	$	70,866		100.0	%	$	62,215		100.0	%	$	69,108		100.0	%	$	62,215		100.0	%

A hypothetical decrease of 20% in the market prices of each of the equity securities held at ~~June~~September 30, 2018 and December 31, 2017 would have resulted in a decrease of ~~$14.2~~$13.8 million and $12.4 million, respectively, in the fair value of those securities.

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that disclosure controls and procedures were effective as of ~~June~~September 30, 2018, to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.

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

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

There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

~~The table below presents our purchases of UVE common stock during the three months ended June 30, 2018.~~

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

In September 2017, our Board of Directors approved a share repurchase program authorizing us to purchase up to $20 million of our outstanding common stock in the open market in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, through December 31, 2018.

Since September 2017, we repurchased 350,941 shares of our common stock pursuant to this program ~~through June 30, 2018~~ at an aggregate cost of approximately $11.3 million. During the three months ended September 30, 2018, no shares of our common stock were repurchased pursuant to this authorization. As of September 30, 2018, there were 178,888 shares available for repurchase under this program. The number of shares available for repurchase was calculated using a closing price at September 28, 2018 of $48.55 per share.

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.

Large accelerated filer	☒	Accelerated filer	☐

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

		Emerging growth company	☐

		Page No.

Item 1.	Financial Statements:	4

	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2018 (unaudited) and December 31, 2017	4

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

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

	Condensed Consolidated Statements of Cash Flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2018 and 2017 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

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

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	4748

Item 4.	Controls and Procedures	49

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 6.	Exhibits	5150

Signatures		5251

	Dividend	Shareholders	Dividend	Cash Dividend
2018	Declared Date	Record Date	Payable Date	Per Share Amount
First Quarter	January 22, 2018	February 28, 2018	March 12, 2018	$	0.14
Second Quarter	April 12, 2018	April 27, 2018	May 4, 2018	$	0.14
Third Quarter	May 29, 2018	July 2, 2018	July 16, 2018	$	0.16

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

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

	Six Months Ended June 30, 2017
	Direct		Loss Ratio			Ceded		Loss Ratio			Net		Loss Ratio
Premiums earned	$	480,998				$	150,430				$	330,568

Loss and loss adjustment expenses:
Weather events*	$	9,000		1.9	%	$	—		—		$	9,000		2.7	%
Prior year adverse/(favorable) reserve development		6,890		1.4	%		5,685		3.8	%		1,205		0.4	%
All other losses and loss adjustment expenses		140,549		29.2	%		—		—			140,549		42.5	%
Total losses and loss adjustment expenses	$	156,439		32.5	%	$	5,685		3.8	%	$	150,754		45.6	%

					Total Number of		Maximum Number
					Shares Purchased		of Shares That
					As Part of		May Yet be
					Publicly		Purchased Under
	Total Number of		Average Price		Announced		the Plans or
	Shares Purchased		Paid per Share (1)		Plans or Programs		Programs (2)
4/1/18 - 4/30/18		40,000	$	32.91		40,000		—
5/1/18 - 5/31/18		200,000	$	33.46		200,000		—
6/1/18 - 6/30/18		10,000	$	35.41		10,000		247,436
Total		250,000	$	33.45		250,000		247,436

Exhibit No.		Exhibit

15.1		Accountants’ Acknowledgment

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

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

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

101.INS-XBRL		Instance Document

101.SCH-XBRL		Taxonomy Extension Schema Document

101.CAL-XBRL		Taxonomy Extension Calculation Linkbase Document

101.DEF-XBRL		Taxonomy Extension Definition Linkbase Document

101.LAB-XBRL		Taxonomy Extension Label Linkbase Document

101.PRE-XBRL		Taxonomy Extension Presentation Linkbase Document

					UNIVERSAL INSURANCE HOLDINGS, INC.

Date: ~~July 27,~~October 31, 2018					/s/ Sean P. Downes
					Sean P. Downes, Chief Executive Officer and Principal Executive Officer

Date: ~~July 27,~~October 31, 2018					/s/ Frank C. Wilcox
					Frank C. Wilcox, Chief Financial Officer and Principal Accounting Officer