United Insurance

UNITED INSURANCE
HOLDINGS CORP.

To Our Fellow Stockholders…
During 2010, the U.S. economy began to recover from one of
the worst economic downturns since the Great Depression.
Growth continued without interruption throughout the year in
the U.S. and most major economies. Despite this positive
trend, a large percentage of the workforce either could not find
employment or was surviving on part-time jobs. Despite the
lowest interest rates in generations, the housing market
remained stagnant. Florida was no exception and was one of
our nation’s hardest hit by unemployment and residential
foreclosures. United Insurance Holdings Corp. also faced
difficult operating conditions and suffered its first net loss
since its inception in 1999.

2010 RESULTS

Difficult economic conditions, impact from the state
promulgated wind mitigation credits and the high cost of
reinsurance resulted in a net loss of $925,000, or $0.09 per
diluted share.

We remained committed to our conservative underwriting
standards, achieving the appropriate rate for risks taken and
adequate catastrophe reinsurance coverage. We entered into
2010 knowing that we would again incur high reinsurance
costs, and weather forecasts predicting a very active Atlantic
storm season encouraged us to make a more conservative
reinsurance purchase. To mitigate reinsurance costs and to
improve our portfolio, we redistributed risks away from
Florida’s historically higher catastrophe-prone areas. In
addition to implementing rate increases on both our
homeowners’ and dwelling fire products, we non-renewed
policies which contributed excessively to the Probable
Maximum Loss or to our cost of reinsurance. We also
expanded into South Carolina during July by acquiring a $5
million portfolio of homeowners business; consequently,
written premiums grew modestly during 2010 in comparison to
2009. Our continued underwriting improvements have resulted
in a fundamentally stronger portfolio of property risks.

Our gross non-catastrophe loss ratio decreased steadily
throughout the last half of the year as we began to reap the
benefit of the rate increases put in place during the fall of 2009
and the spring of 2010. We received approval for additional
rate adjustments in February of this year, which will result in
an average of an additional 15.9%, to be effective in May.

All levels of our organization exhibit a thoughtful approach to
risk management, by our day-to-day review of policies, our
business-development process and our continued geographic
diversification both inside and outside of Florida.

We continued to improve our strong balance sheet, which
included cash, cash equivalents and total investments of $126.2
million, total assets of $213.6 million and total stockholders’
equity of $45.3 million. Our cash and invested assets decreased
overall because we retired $24.1 million of shareholder notes
and other long-term debt. In the present investment
environment, reducing the cost of our financial resources was
the best use of our excess cash.

CONSERVATIVE INVESTMENT PHILOSOPHY

We take a conservative approach with our investments, an
approach that includes a continued focus on investment-grade
fixed maturities. We prefer to ensure the security of our
principal before we look for additional yield, an approach that
we believe reinforces our position of stability.

LOOKING AHEAD

We look forward to our prospects for profitability and for
growth. We are encouraged by favorable legislative reform
currently under consideration. Whether growth opportunities
present themselves in the form of geographic expansion, policy
assumptions or organic growth, we remain positioned to take
advantage of such opportunities as they arise.

We appreciate the dedication and support of our board,
employees, and agents. We will continue to manage and grow
our organization with prudence and discipline, and we express
our appreciation to you, our stockholders, for your continued
confidence.

Sincerely,

Mr. Donald J. Cronin
Chief Executive Officer
United Insurance Holdings Corp.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
Commission File Number 000-52833

United Insurance Holdings Corp.

Delaware
(State of Incorporation)

75-3241967
(IRS Employer Identification Number)

360 Central Avenue, Suite 900
St. Petersburg, Florida 33701
727-895-7737

Securities registered pursuant to Section 12(b) of the Act:
NONE

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

COMMON STOCK, $0.0001 PAR VALUE PER SHARE

WARRANTS TO PURCHASE SHARES OF COMMON STOCK

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No Í
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes ‘ No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer ‘
Non-accelerated filer ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ‘ No Í
Non-affiliates held common stock issued by the registrant with an aggregate market value of $17,262,335 as of June 30, 2010,
calculated using the closing sales price reported for such date on the Over-The-Counter-Bulletin Board. For purposes of this
disclosure, shares of common stock held by persons who hold more than 10% of the outstanding shares of common stock and
shares held by executive officers and directors of the registrant have been excluded because such persons may be deemed to be
affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes.

‘
Accelerated filer
Smaller reporting company Í

As of March 17, 2011, 10,573,932 shares of common stock, par value $0.0001 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain information from the Proxy Statement for the 2011 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended
December 31, 2010.

TABLE OF CONTENTS

Forward-Looking Statements

PART I

Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Properties
Item 2.
Item 3. Legal Proceedings
Item 4. Reserved

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities
Selected Financial Data

Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.

Financial Statements and Supplementary Data

Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholder’s Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure

Item 9A. Controls and Procedures
Item 9B. Other Information.

PART III

Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services

PART IV

Item 15. Exhibits, Financial Statement Schedules

EXHIBIT INDEX

SIGNATURES

1
12
19
19
20
20

21
22

22
35
35
36
38
39
40
41
43

73
73
74

75
75

75
75
75

76

80

82

Throughout this Form 10-K, we present amounts rounded to the nearest thousand, except for share
amounts, per share amounts, policy counts or where more specific language or context indicates a different
presentation.

FORWARD LOOKING STATEMENTS

Statements in this Form 10-K for the year ended December 31, 2010 or in documents incorporated by

reference that are not historical fact are “forward-looking statements” within the meaning of the Private
Securities Reform Litigation Act of 1995. These forward-looking statements include statements about anticipated
growth in revenues, earnings per share, estimated unpaid losses on insurance policies, investment returns and
expectations about our liquidity. These statements are based on current expectations, estimates and projections
about the industry and market in which we operate, and management’s beliefs and assumptions. Without limiting
the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,”
“would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to
identify forward-looking statements. Forward-looking statements are not guarantees of future performance and
involve certain known and unknown risks and uncertainties that could cause actual results to differ materially
from those expressed or implied by such statements. The risks and uncertainties include, without limitation,
uncertainties related to estimates, assumptions and projections relating to unpaid losses and loss adjustment
expenses and other accounting policies, losses from the hurricanes that occurred in 2005 and 2004 and in other
estimates, assumptions and projections contained in this Form 10-K; inflation and other changes in economic
conditions (including changes in interest rates and financial markets); the impact of new Federal or State
regulations that affect the property and casualty insurance market; the costs of reinsurance; assessments charged
by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain
regulatory approval for requested rate changes and the timing thereof; legislative and regulatory developments;
the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of
our business; dependence on investment income and the composition of our investment portfolio; the adequacy
of our liability for loss and loss adjustment expense; insurance agents; claims experience; ratings by industry
services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency
of storms, hurricanes, tornadoes and hail); acts of war and terrorist activities; and other matters described from
time to time by us in this Form 10-K and in our other filings with the SEC.

We caution you to not place reliance on these forward-looking statements, which are valid only as of the

date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect
new information or the occurrence of unanticipated events or otherwise. In addition, we prepare our financial
statements in accordance with U.S. generally accepted accounting principles (GAAP), which prescribes when we
may reserve for particular risks, including litigation exposures. Accordingly, our results for a given reporting
period could be significantly affected if and when we establish a reserve for a major contingency. Therefore, the
results we report in certain accounting periods may appear to be volatile.

These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us
described in our filings with the SEC. The forward-looking events that we discuss in this Form 10-K are valid
only as of the date of this Form 10-K and may not occur in light of the risks, uncertainties and assumptions that
we describe in our filings with the SEC. A detailed discussion of these and other risks and uncertainties that
could cause actual results and events to differ materially from our forward-looking statements is included in the
section entitled “Risk Factors” in Part I, Item 1A of this Form 10-K. Except as required by applicable law, we
undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

[THIS PAGE INTENTIONALLY LEFT BLANK]

Item 1.

Business

INTRODUCTION

PART I

We incorporated as FMG Acquisition Corp. (FMG) on May 22, 2007 under Delaware law and became a

publicly-traded company during October 2007. We changed our name to United Insurance Holdings Corp.
(UIHC) after we merged with United Insurance Holdings, L.C. (UIH) on September 30, 2008. We describe the
merger transaction in detail below in the MERGER TRANSACTION section.

Through UIH, our wholly-owned subsidiary, and UIH’s three wholly-owned subsidiaries, we write and
service property and casualty insurance policies in Florida and, as of July 1, 2010, South Carolina. The three
subsidiaries of UIH, each incorporated under Florida law, include United Property and Casualty Insurance
Company (UPC), which writes insurance policies; United Insurance Management, L.C. (UIM), the managing
general agent that manages substantially all aspects of UPC’s business; and Skyway Claims Services, LLC
(SCS), a claims adjusting company that provides services to UPC. We operate under one business segment. We
believe our holding company structure provides us flexibility to expand our products and services in the future.
In January 2011, the state regulatory authority in Massachusetts authorized UPC to write in that state, and UPC
has applications pending in four additional states.

Our office is located at 360 Central Avenue, Suite 900, St. Petersburg, FL 33701 and our telephone number

at that location is (727) 895-7737.

MERGER TRANSACTION

On September 30, 2008, we completed a merger whereby United Subsidiary Corp., a wholly-owned
subsidiary of FMG, merged with and into UIH, a Florida limited liability company, with UIH remaining as the
surviving entity. As consideration for the merger, we paid the members of UIH an aggregate of $25,000 in cash,
issued 8,929,819 shares of our common stock and granted warrants to purchase 1,273,569 shares of our common
stock. The cash consideration was funded with cash held in our trust account established in connection with our
initial public offering, as well as the net proceeds from the debt financing which closed on September 29, 2008.

We accounted for the merger as a reverse acquisition and recapitalization because UIH was deemed to be
the acquirer for accounting purposes. Accordingly, our historical consolidated financial statements reflect the
assets, liabilities and operations of UIH prior to the merger date, recorded on a historical cost basis. We then
recorded UIHC’s (formerly FMG’s) assets and liabilities at their fair value on the date of the merger.

NATURE OF THE INSURANCE INDUSTRY

Factors affecting the insurance industry may subject us to significant fluctuations in operating results. These

factors include competition, catastrophe losses and general economic conditions, including interest rate changes
and inflation, as well as legislative initiatives, the regulatory environment, the frequency of litigation, the size of
judgments, severe weather conditions, climate changes or cycles, the role of federal or state government in the
insurance market, judicial or other authoritative interpretations of laws and policies, market conditions for
homeowner insurance and the availability and cost of reinsurance.

Historically, the financial performance of the property and casualty insurance industry has tended to
fluctuate in cyclical patterns of soft markets followed by hard markets. A soft market is typically characterized
by increased competition that results in lower pricing, expanded coverage terms and increased commissions paid
to distribution sources to compete for business. A hard market, generally considered a beneficial industry trend,
is characterized by reduced competition that results in higher pricing, reduced coverage terms and lower
commissions paid to acquire business. Although an individual insurance company’s financial performance is

1

dependent on its own specific business characteristics, the profitability of most property and casualty insurance
companies tends to follow this cyclical market pattern. During 2010, the Florida property and casualty industry
continued to experience a soft market, but the market could harden during 2011 depending on legislative actions,
reinsurance pricing and the financial condition of insurers that write in Florida.

PRODUCT LINES

Policies we issue under our Protector Homeowner Program provide both structure and content coverage,
while our Guardian Dwelling Fire Program allows policyholders to select differing types and levels of coverage.
We use the term homeowners to collectively refer to our homeowner and our dwelling fire lines of business. We
offer standardized policies for a broad range of exposures, and our policies include coverage options for standard
single-family homeowners, tenants (renters), and condominium unit owners. We also write Flood policies, on
which we earn a commission while retaining no risk of loss, in all states in which we write our other products.

Though we have authorization to write a commercial line of business in Florida that includes auto and

multi-peril coverage, we discontinued writing this business after May 31, 2009.

PRICING

We price our product at levels that we project will generate an acceptable underwriting profit. We generally

use actuarial loss costs promulgated by the ISO as a benchmark during the development of pricing for our
products. With assistance from our actuary, we further adjust pricing to account for our historical loss experience
as well as individual risk and coverage characteristics.

As demonstrated during 2009, rate regulation in the states in which we do business, as well as other factors,
can prevent us from increasing our prices until some time after the costs associated with coverage have increased.
How quickly we can change our rates in response to increased costs depends upon the time it takes for us to
submit a rate filing with the state regulatory authority in the appropriate state and upon the length of time the
regulatory authority takes to review and approve the filing. At times, our ability or willingness to raise prices,
modify underwriting terms or reduce exposure may be limited due to considerations of public policy, the
evolving political environment, competition and/or our social responsibilities.

During September 2009, we implemented an average 12.7% rate increase on policies written under our
Protector Homeowner Program and during October 2009, we implemented an average 15% rate increase on
policies written under our Guardian Dwelling Fire Program. We implemented an additional average 14% rate
increase for our Protector Homeowner Program during March 2010, and an additional average 14.7% rate
increase for our Guardian Dwelling Fire Program during April 2010.

The Florida state regulatory authority recently approved our application for an average 15.9% rate increase

that we expect to implement on Florida policies during the second quarter of 2011. Applying a rate increase to all
policies that were in force on the date the increase became effective takes as long as a year, and then we must
recognize the increased premium pro rata over 12 months; therefore, rate increases may take as long as two years
to fully impact net income.

COMPETITION

The property and casualty insurance industry is very competitive both as to rate and service. Except for

certain regulatory considerations, the insurance industry has relatively few barriers to entry. We compete with
large national insurance providers, smaller regional providers and even smaller providers that only write policies
in one particular state. We primarily compete with Universal Insurance Company of North America, Security
First Insurance Company, and other similar companies. Also, due to legislation passed by the Florida legislature

2

in 2007, Citizens Property Insurance Corporation, an insurer supported by the State of Florida, now competes
with private insurers.

We compete primarily on the basis of underwriting criteria, our distribution network and high-quality
service to our agents and policyholders because we believe that we compare favorably in these areas. New
entrants to our markets may arise and create additional competition leading to potentially lower prices and higher
limits offered. Although our pricing is influenced to some degree by the pricing of our competitors, we believe it
is generally not in our best interest to compete on price.

MARKETING AND DISTRIBUTION

To reach a broad range of prospective policyholders, we use more than 300 agency groups representing

approximately 2,000 agents, including strategic partnerships with two national carriers and the Florida Agents
Association who write direct policies for us. We recruit, train and license the full-service insurance agents that
distribute our products. Typically, a full-service agency is small to medium in size and represents several
companies for both personal and commercial product lines. We depend upon our agents to produce new business
for us. Our agents also provide us with valuable marketing information about the homeowners’ insurance needs
in the communities we serve. We compensate our agents primarily with a fixed-rate commission. We do not have
any placement service agreements or other similar arrangements with our agents.

Our marketing representatives monitor and support our agents and also have the principal responsibility for

recruiting and training our new agents. We manage our agents through periodic business reviews using
established benchmarks/goals for premium volume and profitability. We review an agent’s performance and if a
particular agent does not meet its established benchmarks/goals for premium volume and profitability, then we
may terminate that agent.

We also appoint limited-service insurance agents that only service the policies we have assumed from
Citizens. These limited-service agents are an outgrowth of the Consumer Choice amendment passed by the
Florida legislature in 2003. We believe our large network of limited-service agents is valuable for quickly and
effectively completing the transactions involving the policies we occasionally assume from Citizens.

POLICY ADMINISTRATION

We are committed to providing the highest possible level of service to our insurance agents and our
policyholders. We use third-party administrators to manage our information systems and to perform the
administrative duties of processing a policy. Using a third-party administrator allows us to obtain up-to-date
technology at a reasonable cost and to achieve economies of scale without incurring significant fixed-overhead
expenses.

Our third-party policy administrator provides us with integrated policy underwriting, billing, collection and

reporting services. To provide these services, our policy administrator employs Internet-based systems for the
on-line submission of applications, the underwriting of policies and the automated issuance of policies, allowing
us to issue our policies efficiently and quickly and provide our agents with the ability to easily submit periodic
changes for our customers via the Internet.

We monitor the work of our policy administrator by conducting conference calls and monthly meetings, as

well as periodically testing their data through our internal audit function.

During 2008, we contracted with Computer Sciences Corporation to become our new policy administrator.

In early 2010, we completed the transition of all of our policies-in-force, excluding our commercial line and
Flood policies, from our former policy administrator to CSC. As a result, CSC administers all new and renewal
homeowners policies.

3

UNDERWRITING

Our underwriting policies and procedures seek to minimize our risk of loss while maximizing our premium

by optimizing our geographic exposure and diversifying our portfolio with respect to projected maximum loss,
total insured value and average annual losses. To accomplish this optimization of our portfolio, we use our
modeling software to strategically analyze each of our risk exposures, including wind exposures. During the
optimization process, we analyze risk exposures at various levels of detail, such as by zip code or by street
address, to provide us with objective data that we can use to close or re-open certain zip codes or to non-renew
poorly-performing policies.

We establish underwriting guidelines to provide a uniform approach to our risk selection and to achieve

underwriting profitability. After we bind a new policy, with few exceptions, we have the insured property
physically inspected. Our underwriters review the property inspection report during their risk evaluation and if
the policy does not meet our underwriting criteria, we typically cancel the policy within 60 days.

We currently write policies throughout South Carolina and in all Florida counties except Pasco and

Hernando, where sinkhole losses are an increased risk.

We use information provided by Insurance Services Office, Inc.; a national provider of statistical, actuarial,
underwriting and claims information; as well as information resulting from our optimization process to divide the
states in which we write policies into rating territories. Our homeowner rates vary from territory to territory.
While we are required to maintain rates in our rating territories, our underwriting criteria determines in which
territories we would write a policy. Our underwriting criteria can change over time by territory depending on the
circumstances in each territory.

RESERVES FOR UNPAID LOSSES

We generally use the term loss(es) to collectively refer to both loss and loss adjustment expenses. We

establish reserves for unpaid losses that have occurred at or before the balance sheet date for amounts we
estimate we will be required to pay in the future. Our policy is to establish these loss reserves after considering
all information known to us at each reporting period. At any given point in time, our loss reserve represents our
best estimate of the ultimate settlement and administration cost of our insured claims incurred and unpaid. Since
the process of estimating loss reserves requires significant judgment due to a number of variables, such as
fluctuations in inflation, judicial decisions, legislative changes and changes in claims handling procedures, our
ultimate liability will likely differ from these estimates. We revise our reserve for unpaid losses as additional
information becomes available, and reflect adjustments, if any, in our earnings in the periods in which we
determine they are necessary.

Reserves for unpaid losses fall into two categories: case reserves and reserves for claims incurred but not

reported. See our CRITICAL ACCOUNTING POLICIES AND ESTIMATES section under Item 7 of this
Form 10-K for a discussion of these two categories of reserves for unpaid losses and for a discussion of the
methods we use to estimate those reserves.

On an annual basis, our independent actuary issues a statement of actuarial opinion that documents the
actuary’s evaluation of the adequacy of our unpaid loss obligations under the terms of our policies. We review
the actuary’s opinion and compare the projected ultimate losses per the opinion to our own projection of ultimate
losses to ensure that our reserve for unpaid losses recorded at each annual balance sheet date is based upon our
analysis of all internal and external factors related to known and unknown claims against us and to ensure our
reserve is within NAIC guidelines. We compare our recorded reserve to the indicated range provided in the
actuary’s opinion report.

We maintain an in-house claims staff that monitors and directs all aspects of our claims process. We assign

the fieldwork to our third-party claims adjusting companies, none of whom have the authority to settle or pay any

4

claims on our behalf. The claims adjusting companies conduct inspections of the damaged property and prepare
initial estimates. We review the inspection reports and initial estimates to determine the amounts to be paid to the
policyholder in accordance with the terms and conditions of the policy. Our exclusive contract with a particular
claims adjusting company requires us to assign all catastrophe claims to that company through December 31,
2010; however, that particular company may choose to outsource catastrophe claims fieldwork to other claims
adjusting companies. We also maintain strategic relationships with several claims adjusting companies which we
can engage should we need additional non-catastrophe claims servicing capacity. As demonstrated during 2004
and 2005 when we had several catastrophic hurricanes, we believe all of our relationships provide an adequate
level of claims servicing in the event catastrophes affect our policyholders in the future.

RECONCILIATION OF LOSS RESERVES

The table below shows the analysis of our reserve for unpaid losses for each of our last three years on a

GAAP basis:

2010

2009

2008

Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . .
Less: reinsurance recoverable on unpaid losses . . . .

$44,112
23,447

$40,098
20,906

$36,005
14,446

Net balance at January 1 . . . . . . . . . . . . . .

$20,665

$19,192

$21,559

Incurred related to:

Current year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$41,527
1,006

$43,731
(2,976)

$33,040
(4,977)

Total incurred . . . . . . . . . . . . . . . . . . . . . .

$42,533

$40,755

$28,063

Paid related to:

Current year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,065
12,533

$30,637
8,645

$21,005
9,425

Total paid . . . . . . . . . . . . . . . . . . . . . . . . .

$39,598

$39,282

$30,430

Net balance at December 31 . . . . . . . . . . . . . . . . . . .

$23,600

$20,665

$19,192

Plus: reinsurance recoverable on unpaid losses . . . .

23,814

23,447

20,906

Balance at December 31 . . . . . . . . . . . . . .

$47,414

$44,112

$40,098

Composition of reserve for unpaid losses and LAE:
Case reserves . . . . . . . . . . . . . . . . . . . . . . . . . .
IBNR reserves . . . . . . . . . . . . . . . . . . . . . . . . .

22,445
24,969

18,612
25,500

14,431
25,667

Balance at December 31 . . . . . . . . . . . . . .

47,414

44,112

40,098

LOSS RESERVE DEVELOPMENT

The table on the next page displays UPC’s loss reserve development, on a GAAP basis, for business written

in each year from 2000 through 2010; it does not distinguish between catastrophic and non-catastrophic events.
The following explanations of the main sections of the table should provide a better understanding of the
information displayed:

Original net liability. The original net liability represents the original estimated amount of reserves for
unpaid losses recorded at the balance sheet date for each of the years indicated in the column headings, net
of reinsured losses. We record reserves related to claims arising in the current year and in all prior years that
remained unpaid at the balance sheet date for each of the years indicated, including estimated losses that had
been incurred but not reported.

5

Net cumulative paid as of. This section displays the net cumulative payments we have made for losses, as
of the balance sheet date of each succeeding year, related to claims incurred prior to the balance sheet date
of the year indicated in the column heading.
Net liability re-estimated as of. This section displays the re-estimated amount of the previously recorded
liability based on experience as of the end of each succeeding year. An increase or decrease from the
original reserve estimate is caused by a combination of factors, including i) claims being settled for amounts
different than originally estimated, ii) reserves being increased or decreased for claims remaining open as
more information becomes available on those individual claims and iii) more or fewer claims being reported
after the year end than estimated.
Cumulative redundancy (deficiency) at December 31, 2010. The cumulative redundancy or deficiency
results from the comparison of the net liability re-estimated as of the current balance sheet date to the
original net liability, and it indicates an overestimation of the original net liability (a redundancy) or an
underestimation of the original net liability (a deficiency).

It is important to note that the table presents a run-off of balance sheet liability for the periods indicated

rather than accident or policy loss development for those periods. Therefore, each amount in the table includes
the cumulative effects of changes in liability for all prior periods. Conditions and trends that have affected
liabilities in the past may not necessarily occur in the future.
2010

2007

2004

2002

2008

2006

2003

2005

2001

2009

2000

Original net liability . . . . . . . . . $23,600 $20,665 $19,192 $21,559 $23,735 $ 20,447 $ 8,449 $ 3,590 $ 4,513 $2,078 $1,249
Net cumulative paid as of:

One year later . . . . . . . . . .
Two years later . . . . . . . . .
Three years later . . . . . . . .
Four years later . . . . . . . . .
Five years later . . . . . . . . .
Six years later . . . . . . . . . .
Seven years later . . . . . . . .
Eight years later
. . . . . . . .
Nine years later . . . . . . . . .
Ten years later . . . . . . . . . .

Net liability re-estimated as of:

13,028

8,984
13,148

9,707
12,127
14,310

9,047
13,083
14,115
15,395

12,872
14,363
15,582
16,312
17,356

10,962
13,871
14,868
15,021
15,214
15,291

4,549
6,097
6,594
6,382
6,368
6,463
6,664

4,530
6,065
6,779
7,185
6,967
6,929
6,927
6,930

1,707
2,065
2,258
2,260
2,250
2,067
2,067
2,067
2,067

767
963
1,081
1,197
1,197
1,197
1,041
1,041
1,041
1,041

22,169

16,556
17,472

End of year . . . . . . . . . . . . $23,600 $20,665 $19,192 $21,559 $23,735 $ 20,447 $ 8,449 $ 3,590 $ 4,513 $2,078 $1,249
888
One year later . . . . . . . . . .
1,112
Two years later . . . . . . . . .
1,192
Three years later . . . . . . . .
1,257
Four years later . . . . . . . . .
1,197
Five years later . . . . . . . . .
1,198
Six years later . . . . . . . . . .
1,041
Seven years later . . . . . . . .
1,041
. . . . . . . .
Eight years later
1,041
Nine years later . . . . . . . . .
1,041
Ten years later . . . . . . . . . .

2,315
2,279
2,378
2,260
2,259
2,068
2,067
2,067
2,067

5,252
6,523
6,981
7,438
7,066
6,932
6,928
6,931

12,989
15,260
15,586
15,582
15,672
15,409

6,061
6,358
7,051
6,561
6,730
6,794
6,680

18,802
17,675
17,355
17,814
18,052

17,652
16,707
16,337
16,781

16,864
15,759
16,505

Cumulative redundancy

(deficiency) at December 31,
2010 . . . . . . . . . . . . . . . . . . .

$ (1,504) $ 1,720 $ 5,054 $ 6,954 $

2,395 $ (6,960) $(3,090) $(2,418) $

11 $ 208

Cumulative redundancy
(deficiency) as a % of
reserves originally
established . . . . . . . . . . . . . . .

9.0% 23.4% 29.3%
Net reserves . . . . . . . . . . . . . . . . $23,600 $20,665 $19,192 $21,559 $23,735 $ 20,447 $ 8,449 $ 3,590 $ 4,513 $2,078 $1,249
—
Ceded reserves . . . . . . . . . . . . .

11.7% (82.4)% (86.1)% (53.6)% 0.5% 16.7%

153,768

33,440

23,446

23,814

14,445

20,907

(7.3)%

4,100

—

—

—

Gross reserves . . . . . . . . . . . . . . $47,414 $44,111 $40,099 $36,004 $57,175 $174,215 $12,549 $ 3,590 $ 4,513 $2,078 $1,249

Net re-estimated . . . . . . . . . . . .
Ceded re-estimated . . . . . . . . . .

$22,169 $17,472 $16,505 $16,781 $ 18,052 $15,409 $ 6,680 $ 6,931 $2,067 $1,041
—
25,152

135,757

11,059

23,643

19,033

7,477

—

—

—

Gross re-estimated . . . . . . . . . .

$47,321 $36,505 $27,564 $40,424 $153,809 $22,886 $ 6,680 $ 6,931 $2,067 $1,041

6

MANAGEMENT OF EXPOSURE TO CATASTROPHIC LOSSES

As with all property and casualty insurers, we are exposed to potentially numerous insured losses arising out
of one or more natural catastrophes. We expect to and will incur some losses related to catastrophes and with the
approval of the various state regulatory authorities, we will attempt to price our policies accordingly. Our
exposure to catastrophic losses arises principally out of windstorms such as hurricanes. Through the use of
standard industry modeling techniques, we manage our exposure to such losses. As discussed below in the
REINSURANCE section, we also obtain reinsurance coverage to mitigate the financial impact of catastrophe-
related losses.

REINSURANCE

Reinsurance involves transferring all or a portion of the risk exposure on policies we write to another
insurer. We purchase reinsurance to allow us to limit our exposure to the financial impact of catastrophe-related
loss and to reduce our net liability on individual risks. The property and casualty reinsurance industry is subject
to the same market conditions as the direct property and casualty insurance market and, in recent years, the
reinsurance industry has undergone dramatic changes.

We determine the amount of reinsurance coverage to purchase each year based on a number of factors,
including the evaluation of the risks accepted, regulatory and rating bureau requirements, consultations with
reinsurance representatives and a review of market conditions, including the availability and pricing of
reinsurance. See Note 9 in our consolidated financial statements for details on the reinsurance coverage we have
in place at December 31, 2010, and see Item 1A of this Form 10-K for an explanation of risks associated with
catastrophes and reinsurance.

We use per-risk, excess-of-loss agreements for our non-catastrophe homeowner and dwelling programs, and

we used quota share agreements for our commercial line of business prior to voluntarily discontinuing the
commercial line during 2009. We retain no risk of loss with our Flood program.

Each year, we purchase catastrophe reinsurance coverage in an amount up to our estimated 100-year
projected maximum loss at the date of purchase. For the 2010-2011 reinsurance contracts, we retained the first
$15,000 of catastrophe-related losses for the first event and $5,000 for a second or third event. To manage our
reinsurance costs, we analyze our projected maximum loss on a regular basis using a licensed, in-house
catastrophe modeling software program. For our catastrophe reinsurance program, we have excess-of-loss
contracts with a group of private reinsurers and with the Florida Hurricane Catastrophe Fund. The private
contract provides coverage against severe weather events such as hurricanes, tropical storms and tornadoes. The
contract with the FHCF only provides coverage against any storm that the National Hurricane Center designates
as a hurricane at landfall. Our catastrophe reinsurance agreements coincide with the seasonality of Florida’s
hurricane season; therefore, our agreements cover the period from June 1 to May 31.

7

The following table summarizes our reinsurance exposures by reinsurer at December 31, 2010:

AM
Best
Rating

Total
Recoverable

Ceded
Balances
Payable

Net
Recoverable

Letters
of
Credit

Net
Unsecured
Recoverable

$

ACE Tempest Reinsurance Ltd . . . . . . . . . . . A+
Alea London Ltd . . . . . . . . . . . . . . . . . . . . . . —
Allianz Risk Transfer Ltd . . . . . . . . . . . . . . . A+
Amlin Bermuda Ltd . . . . . . . . . . . . . . . . . . . . A
Arch Re Bermuda . . . . . . . . . . . . . . . . . . . . . A
Argo Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A
Axis Reinsurance Company . . . . . . . . . . . . . . A
Catlin Insurance Company Ltd . . . . . . . . . . . A
DaVinci Reinsurance Ltd . . . . . . . . . . . . . . . . A
Everest Re . . . . . . . . . . . . . . . . . . . . . . . . . . . A+
Flagstone Reassurance Suisse SA . . . . . . . . . A-
Florida Hurricane Catastrophe Fund . . . . . . . —
Hanover Ruckversicherungs Ag . . . . . . . . . . A
Harco National Insurance Group . . . . . . . . . . A-
Hartford Steam Boiler Inpection & Ins Co . . A+
Hiscox Insurance Co Ltd . . . . . . . . . . . . . . . . A
Lloyd’s Syndicates . . . . . . . . . . . . . . . . . . . . . As
Markel International
. . . . . . . . . . . . . . . . . . . A
Montpelier Reinsurance Ltd . . . . . . . . . . . . . A-
Munich Reinsurance America Inc . . . . . . . . . A+
National Flood Insurance Program . . . . . . . . —
Odyssey America Reinsurance . . . . . . . . . . . A
Omega Specialty Insurance Co Ltd . . . . . . . . A-
Paris Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A
Platinum Underwriters Bermuda Ltd . . . . . . . A
Platinum Underwriters Reinsurance Inc . . . . A
Renaissance Reinsurance Ltd . . . . . . . . . . . . A+
Scor Reinsurance Company . . . . . . . . . . . . . . A
Tokio Millennium Re Ltd . . . . . . . . . . . . . . . A+
Torus Insurance (Bermuda) Ltd . . . . . . . . . . . A-
Transatlantic . . . . . . . . . . . . . . . . . . . . . . . . . A
WR Berkley Europe Ltd . . . . . . . . . . . . . . . . A
Wurttembergische Versicherung Ag . . . . . . . NR-4

344
262
—
—
—
—
—
18

747 $ — $
262
644
724
480
130
76
64
2,530
1,154
461
29,665
76
1,243
99
201
11,119
102
3,411
291
4,830
433
577
114
874
307
3,795
153
295
444
164
15
131

747 $ 403 $
262
—
183
461
205
519
136
344
37
93
—
92
64
—
839
1,691
328
826
301
160
— 29,665
—
92
864
379
78
21
138
63
7,959
3,160
63
39
1,421
1,990
209
82
4,830
—
273
160
189
388
32
82
248
626
—
307
1,258
2,537
184
—
212
296
118
—
—

—
183
205
136
37
—
46
—
839
328
—
160
—
— 29,665
—
—
864
—
78
—
—
63
7,959
39
275
82
4,830
273
—
—
—
307
—
—
—
—
46
6
53

—
—
1,146
—
—
—
189
32
248
—
1,258
—

83
148
46
15
131

83
148
—

9
78

$65,611 $14,982 $50,692 $5,263 $45,429

Note:

If our ceded balance payable to a reinsurer exceeds our total recoverable from that reinsurer, we reflect
the net recoverable from that reinsurer as “—” in this schedule as we do not have a right of offset with the
other reinsurance carriers.

At December 31, 2010, the net unsecured recoverable amount from the FHCF is $29,665 comprised of a)

$1,396 receivable for claims we paid and will submit to FHCF for reimbursement, b) $15,621 of estimated
unpaid losses and c) $12,648 of prepaid reinsurance premiums we will recognize in the ceded premiums earned
line item on our Consolidated Statements of Income over the remainder of the FHCF contract. The receivable
from the FHCF and the estimated unpaid losses recoverable relate to hurricanes that occurred in 2004 and 2005.

The net unsecured recoverable amount from the FHCF increased from $27,620 at December 31, 2009, to
$29,665 at December 31, 2010. This $2,045 increase is primarily related to an increase in our estimated unpaid

8

losses. We did not incur any losses resulting from hurricanes occurring in 2010; however, our catastrophe losses
related to Hurricane Wilma, which we can recover from the FHCF, have increased.

REGULATION

We are subject to the laws and regulations of the states in which we conduct business, and will become

subject to the laws and regulations of any other states in which we seek to conduct business in the future. The
regulations are generally designed to protect the interests of insurance policyholders, as opposed to the interests
of shareholders. Such regulations relate to authorized lines of business, maintenance of reserves, risk-based
capital, capital and surplus requirements, allowable rates and forms, investment parameters, underwriting
limitations, transactions with affiliates, dividend limitations, changes in control, market conduct, maximum
amount allowable for premium financing service charges, dealings with policyholders and a variety of other
financial and non-financial components of our business. From time to time, states and/or the National
Association of Insurance Commissioners propose new regulations and/or legislation that affect us. We can
neither predict whether any of these proposals in the various jurisdictions might be adopted, nor what effect, if
any, their adoption may have on our results of operations or financial position.

The various state regulatory authorities have broad regulatory, supervisory and administrative powers over

insurance companies. Such powers include, among others, the granting and revocation of licenses to transact
business, the licensing of agents, the creation of solvency standards, the imposition of restrictions on the type,
quality and/or concentration of investments, the approval of policy forms and rates, the review of reinsurance
contracts, the periodic examination of the affairs of insurance companies, and the specification of the form and
content of required financial statements.

UPC provides audited statutory financial statements to the various state regulatory authorities. With regard
to periodic examinations of an insurance company’s affairs, state regulatory authorities, in general, defer to the
regulatory authority in the state in which an insurer is domiciled; however, any state regulatory authority may
conduct examinations at their discretion. Florida’s regulatory authority completed its most recent financial
examination pertaining to our December 31, 2009 Annual Statement in September 2010 and reported no material
adverse findings.

Florida state law requires UPC to maintain adequate statutory capital and surplus such that 90% of written
premiums divided by surplus does not exceed the ratio of 10:1 for gross written premiums or 4:1 for net written
premiums. Our ratio of net written premium to surplus as of December 31, 2010 was 1.3:1, and UPC’s surplus as
to policyholders exceeded the minimum capital required by state laws.

We are subject to various assessments imposed by state agencies or entities, such as the Florida Insurance

Guaranty Association. While we can recover from policyholders any assessments imposed upon us, our payment
of the assessments and our recoveries through policy surcharges may not offset each other in the same fiscal
period in our financial statements. See Note 14 in our consolidated financial statements for additional
information regarding the assessments that we are currently collecting.

RESTRICTIONS ON DIVIDEND PAYMENTS

Under Florida law, a Florida-domiciled insurer like UPC may not pay any dividend or distribute cash or
other property to its shareholders except out of its available and accumulated surplus funds which is derived from
realized net operating profits on its business and net realized capital gains. Additionally, Florida-domiciled
insurers may not make dividend payments or distributions to shareholders without prior approval by the Office of
Insurance Regulation (OIR) if the dividend or distribution would exceed the larger of (i) the lesser of (a) 10% of
UPC’s capital surplus or (b) net income, not including realized capital gains, plus a two-year carryforward,
(ii) 10% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized
capital gains or (iii) the lesser of (a) 10% of capital surplus or (b) net investment income plus a three-year
carryforward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.

9

Alternatively, UPC may pay a dividend or distribution without the prior written approval of the OIR if
(i) the dividend is equal to or less than the greater of (a) 10% of the insurer’s surplus as to policyholders derived
from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net
operating profits and realized net capital gains derived during the immediately preceding calendar year, and
(1) the insurer will have surplus as to policyholders equal to or exceeding 115% of the minimum required
statutory surplus as to policyholders after the dividend or distribution is made, (2) the insurer files a notice of the
dividend or distribution with the OIR at least ten business days prior to the dividend payment or distribution and
(3) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend
or distribution, the insurer will have at least 115% of required statutory surplus as to policyholders. Except as
provided above, a Florida-domiciled insurer may only pay a dividend or make a distribution (i) subject to prior
approval by the OIR or (ii) 30 days after the OIR has received notice of such dividend or distribution and has not
disapproved it within such time.

RISK-BASED CAPITAL REQUIREMENTS

To enhance the regulation of insurer solvency, the NAIC published risk-based capital guidelines for
insurance companies designed to assess capital adequacy and to raise the level of protection statutory surplus
provides for policyholders. The guidelines measure three major areas of risk facing property and casualty
insurers: (i) underwriting risks, which encompass the risk of adverse loss developments and inadequate pricing;
(ii) declines in asset values arising from credit risk; and (iii) other business risks. Most states, including
Florida, have enacted the NAIC guidelines as statutory requirements, and insurers having less statutory surplus
than required will be subject to varying degrees of regulatory action, depending on the level of capital
inadequacy. The state regulatory authorities could require UPC to cease operations in the event it fails to
maintain the required statutory capital. At December 31, 2010, UPC exceeded the risk-based capital
requirements.

INSURANCE HOLDING COMPANY REGULATION

As a holding company of an insurance subsidiary, we are subject to laws governing insurance holding
companies in Florida. These laws, among other things, (i) require us to file periodic information with the OIR,
including information concerning our capital structure, ownership, financial condition and general business
operations, (ii) regulate certain transactions between our affiliates and us, including the amount of dividends and
other distributions and the terms of surplus notes and (iii) restrict the ability of any one person to acquire certain
levels of our voting securities without prior regulatory approval. Any purchaser of 5% or more of the outstanding
shares of our common stock could be presumed to have acquired control of us unless the OIR, upon application,
determines otherwise.

Insurance holding company regulations also govern the amount any affiliate of the holding company may
charge UPC for services (e.g., management fees and commissions). We have a long-term management agreement
between UPC and UIM, which presently provides for monthly management fees. Any changes to this agreement
require OIR approval.

UNDERWRITING AND MARKETING RESTRICTIONS

During the past several years, various regulatory and legislative bodies have adopted or proposed new

laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance
capacity and pricing. These regulations (i) created “market assistance plans” under which insurers are induced
to provide certain coverage; (ii) restrict the ability of insurers to reject insurance coverage applications, to rescind
or otherwise cancel certain policies in mid-term, and to terminate agents; (iii) restrict certain policy
non-renewals and require advance notice on certain policy non-renewals; and (iv) limit rate increases or decrease
rates permitted to be charged. These laws may affect our ability to earn a profit on our underwriting operations.

10

Most states also have insurance laws requiring that rate schedules and other information be filed with the
state regulatory authority, either directly or through a rating organization with which the insurer is affiliated. The
regulatory authority may disapprove a rate filing if it finds that the rates are inadequate, excessive or unfairly
discriminatory.

Most states require licensure or state regulatory authority approval prior to the marketing of new insurance

products. Typically, licensure review is comprehensive and includes a review of a company’s business plan,
solvency, reinsurance, character of its officers and directors, rates, forms and other financial and non-financial
aspects of a company. The state regulatory authorities may prohibit entry into a new market by not granting a
license or by withholding approval.

INVESTMENTS

With respect to our investments, we primarily attempt to preserve capital, maximize after-tax investment
income, maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors
that represent the most attractive relative value and we maintain a moderate equity exposure. We must comply
with applicable state insurance regulations that prescribe the type, quality and concentrations of investments UPC
can make; therefore, our current investment policy limits investment in non-investment-grade fixed maturities
and limits total investment amounts in preferred stock, common stock and mortgage notes receivable. We do not
invest in derivative securities.

An outside asset management company, which has authority and discretion to buy and sell securities for us,
manages our investments subject to (i) the guidelines established by our Board of Directors, and (ii) the direction
of management. We have the ability to direct our asset manager to make changes and to hold, buy or sell
securities in our portfolio. We instructed our portfolio manager to hold securities impaired at December 31, 2010,
because we have the intent to hold the impaired securities until their market value returns to or exceeds their
book value.

The Investment Committee of our Board of Directors reviews and approves our investment policy on a

regular basis. Our cash, cash equivalents and investment portfolio totaled $126,242 at December 31, 2010.

The following table summarizes, by type, our investments at December 31, 2010 and 2009:

December 31, 2010

December 31, 2009

Estimated
Fair Value

Percent of
Total

Estimated
Fair Value

Percent of
Total

U.S. government and agency securities . . . . . . . . . . .
State and municipalities . . . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . .

Total fixed maturities . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . .

$32,895
12,979
4,809

50,683
3,615
300

60.3% $ 74,594
—
23.8%
53,426
8.8%

92.9%
6.6%
0.5%

128,020
4,704
300

56.1%
—
40.2%

96.3%
3.5%
0.2%

Total investments . . . . . . . . . . . . . . . . . . . .

$54,598

100.0% $133,024

100.0%

FINANCIAL STABILITY RATING

Financial stability ratings are important to insurance companies in establishing their competitive position

and such ratings may impact an insurance company’s sales. Demotech maintains a letter-scale financial stability
rating system ranging from A** (A double prime) to L (licensed by state regulatory authorities); they have
assigned UPC a financial stability rating of A, which is the third highest of six rating levels. According to
Demotech, A ratings are assigned to insurers that demonstrate an “exceptional ability to maintain liquidity of

11

invested assets, quality reinsurance, acceptable financial leverage and realistic pricing while simultaneously
establishing loss and loss adjustment expense reserves at reasonable levels.” With a financial stability rating of
A, we expect our property insurance policies will be acceptable to the secondary mortgage marketplace and
mortgage lenders. This rating is intended to provide an independent opinion of an insurer’s financial strength and
is not an evaluation directed at our investors. At least annually, based on year-to-date results as of the third
quarter, Demotech reviews our rating and may revise it upward, downward or revoke it at their sole discretion.

EMPLOYEES

As of March 2011, we had 46 employees, all of which are full-time employees, including three executive
officers. We are not a party to any collective bargaining agreement and have not experienced any work stoppages
or strikes as a result of labor disputes. We consider relations with our employees to be good.

AVAILABLE INFORMATION

We make available, free of charge through our website, our annual report on Form 10-K, annual report to

shareholders, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. You may
view these reports at www.upcic.com.

These reports may also be obtained at the SEC’s Public Reference Room at 100 F Street NE, Washington,

D.C. 20549. Information on the operation of the Public Reference Room is available by calling the SEC at
1-800-SEC-0330. You may also access this information at the SEC’s website (www.sec.gov). This site contains
reports, proxy and information statements and other information regarding issuers that file electronically with the
SEC.

Item 1A. Risk Factors

Many factors affect our business and results of operations, some of which are beyond our control.
Additional risks and uncertainties we are unaware of, or we currently deem immaterial, also may become
important factors that affect us. If any of the following risks occur, our business, financial conditions or results of
operations may be materially and adversely affected. In that event, the trading price of our securities could
decline, and our shareholders could lose all or part of their investment in our securities. This discussion contains
forward-looking statements. See the section entitled FORWARD-LOOKING STATEMENTS for a discussion of
uncertainties, risks and assumptions associated with these statements.

RISKS RELATED TO OUR BUSINESS

As a property and casualty insurer, we may experience significant losses and our financial results may
vary from period to period due to our exposure to catastrophic events and severe weather conditions.

Our property and casualty insurance operations expose us to claims arising from catastrophes. Catastrophes

can be caused by various natural events, including hurricanes, windstorms, earthquakes, hail, severe winter
weather and fires; they can also be man-made, such as terrorist attacks (including those involving nuclear,
biological, chemical or radiological events) or consequences of war or political instability. We may incur
catastrophe losses that exceed the amount of:

1)

2)

catastrophe losses that we experienced in prior years;

catastrophe losses that, using third-party catastrophe modeling software, we projected could be
incurred;

12

3)

4)

catastrophe losses that we used to develop prices for our products; or

our current reinsurance coverage (which would cause us to have to pay such excess losses).

Catastrophes may cause a material adverse effect on our results of operations during any reporting period;

they may also materially harm our financial position, which in turn may materially harm our liquidity and impair
our ability to raise capital on acceptable terms or at all. In addition to catastrophes, the accumulation of losses
from smaller weather-related events in any reporting period may cause a material adverse effect on our results of
operations in that period. The incidence and severity of weather conditions are largely unpredictable, but the
frequency and severity of property claims generally increase when severe weather conditions occur.

Because we conduct the majority of our business in Florida, our financial results substantially depend on
the regulatory, economic and weather conditions present in that state.

Though we expanded into South Carolina during 2010, we still write more than 95% of our premium in
Florida; therefore, prevailing regulatory, legal, economic, political, demographic, competitive, weather and other
conditions in Florida affect our revenues and profitability. Changes in conditions could make doing business in
Florida less attractive for us and would have a more pronounced effect on us than it would on other insurance
companies that are more geographically diversified.

We are subject to increased exposure to certain catastrophic events such as hurricanes, as well as an

increased risk of losses. The occurrence of one or more catastrophic events or other conditions affecting losses in
Florida may cause a material adverse effect on our results of operations and financial position.

Because we depend on two agency groups for a large portion of our revenues, the loss of business provided
by them would adversely effect our results of operations and financial condition.

We utilize a large network of agency groups and individual agencies to distribute our products; however,
two agency groups produce more than 40% of our gross premiums written (exclusive of any premiums assumed).
During 2010, the agency group producing the most business for us generated approximately 23% of our gross
premiums written, while the agency group producing the next largest amount of business for us generated
approximately 21% of our gross premiums written. Loss of all or a substantial portion of the business provided
through these two producing agency groups may cause a material adverse effect on our results of operations.

Actual claims incurred may exceed our loss reserves for claims, which could adversely affect our results of
operations and financial condition.

Loss reserves represent our estimate of ultimate unpaid losses for claims that have been reported and claims

that have been incurred but not yet reported. Loss reserves do not represent an exact calculation of liability, but
instead represent our best estimate, generally utilizing actuarial expertise, historical information and projection
techniques at a given reporting date.

The process of estimating our loss reserves involves a high degree of judgment and is subject to a number of

variables. These variables can be affected by both internal and external events, such as changes in claims
handling procedures, economic inflation, legal trends, legislative changes, and varying judgments and viewpoints
of the individuals involved in the estimation process, among others. The impact of many of these items on our
ultimate losses is difficult to estimate due to the complexity and the volume of claims, the potential severity of
individual claims, the determination of loss occurrence date and reporting lags (the time between the occurrence
of the loss event and when it is actually reported to us).

Because of the inherent uncertainty in estimating loss reserves, including reserves for catastrophes,
additional liabilities resulting from one insured event, or an accumulation of insured events, may exceed our
existing loss reserves and cause a material adverse effect on our results of operations and our financial position.

13

Our financial results may vary from period to period based on the timing of our collection of government-
levied assessments from our policy holders.

Our insurance subsidiary is subject to assessments levied by various governmental and quasi-governmental

entities in the states in which we operate. While we can recover these assessments from policyholders through
policy surcharges, our payment of the assessments and our recoveries may not offset each other in the same
reporting period in our financial statements and may cause a material adverse effect on our results of operations.

Violation(s) of certain debt covenants related to our note payable to the Florida State Board of
Administration could allow the Florida SBA to call the note, which could cause a material adverse effect
on our financial position.

With regard to our note payable to the Florida SBA, we have already incurred additional interest expense
because we violated covenants related to the amount of premiums we write. As a remedy for covenant violations
related to the note payable, the Florida SBA may make the note due and payable upon demand. Any demand by
the Florida SBA for payment related to the note, whether immediate payment of the full balance or some other
amount, is subject to approval by the state regulatory authority. Should the regulatory authority grant approval of
a demand for immediate full payment, such payment could cause a material adverse effect on our results of
operations and financial position.

Our failure to implement and maintain adequate internal controls over financial reporting in our business
could have a material adverse effect on our business, financial condition, results of operations and stock
price.

We have complied with the provisions regarding annual management assessments of the effectiveness of

our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002
during 2009.

If we fail to achieve and maintain the adequacy of our internal controls in accordance with applicable
standards as then in effect, and as supplemented or amended from time to time, we may be unable to conclude on
an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404.
Moreover, effective internal controls are necessary for us to produce reliable financial reports. If we cannot
produce reliable financial reports or otherwise maintain appropriate internal controls, our business, financial
condition and results of operations could be harmed, investors could lose confidence in our reported financial
information, and the market price for our stock could decline.

If we experience difficulties with technology, data security and/or outsourcing relationships, our ability to
conduct our business could be negatively impacted.

While technology can streamline many business processes and ultimately reduce the cost of operations,
technology initiatives present certain risks. Our business is highly dependent upon our contractors’ and third-
party administrators’ ability to perform, in an efficient and uninterrupted fashion, necessary business functions
such as the processing of policies and the adjusting of claims. Because our information technology and
telecommunications systems interface with and depend on these third-party systems, we could experience service
denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. If
sustained or repeated, such a business interruption, system failure or service denial could result in a deterioration
of our ability to write and process new and renewal business, provide customer service, pay claims in a timely
manner or perform other necessary business functions. Computer viruses, hackers and other external hazards
could expose our data systems to security breaches. These increased risks, and expanding regulatory
requirements regarding data security, could expose us to data loss, monetary and reputational damages and
significant increases in compliance costs. As a result, our ability to conduct our business might be adversely
affected.

14

RISKS RELATED TO THE INSURANCE INDUSTRY

Because we are smaller than many of our competitors, we may lack the resources to increase or maintain
our market share.

The property and casualty insurance industry is highly competitive, and we believe it will remain highly

competitive for the foreseeable future. The principal competitive factors in our industry are price, service,
commission structure and financial condition. We compete with other property and casualty insurers that write
coverage in the same territories in which we write coverage; some of those insurers have greater financial
resources and have a longer operating history than we do. Based on legislation passed in 2007, Citizens, an
insurer supported by the State of Florida, is also authorized to compete with us. In addition, our competitors may
offer products for alternative forms of risk protection. Competition could limit our ability to retain existing
business or to write new business at adequate rates, and such limitation may cause a material adverse effect on
our results of operations and financial position.

State regulations limiting rate increases and requiring us to underwrite business in certain areas are
beyond our control and may adversely affect our results of operation and financial condition.

States have from time to time passed legislation, and regulators have taken action, that has the effect of
limiting the ability of insurers to manage catastrophe risk, such as legislation prohibiting insurers from reducing
exposures or withdrawing from catastrophe-prone areas, or mandating that insurers participate in residual
markets. In addition, following catastrophes, there are sometimes legislative initiatives and court decisions which
seek to expand insurance coverage for catastrophe claims beyond the original intent of the policies. Further, our
ability to increase pricing to the extent necessary to offset rising costs of catastrophes requires approval of
regulatory authorities. Our ability or willingness to manage our catastrophe exposure by raising prices, modifying
underwriting terms or reducing exposure to certain geographies may be limited due to considerations of public
policy, the evolving political environment and our ability to penetrate other geographic markets, which may
cause a material adverse effect on our results of operations and financial position. We cannot predict whether and
to what extent new legislation and regulations that would affect our ability to manage our exposure to
catastrophic events will be adopted, the timing of adoption or the effects, if any, they would have on our ability
to manage our exposure to catastrophic events.

The insurance industry is heavily regulated and further restrictive regulation may reduce our profitability
and limit our growth.

The insurance industry is extensively regulated and supervised. Regulatory systems are generally designed
to protect the interests of policyholders, and not necessarily the interests of insurers, their stockholders and other
investors. Regulatory systems also address authorization for lines of business, capital and surplus requirements,
limitations on the types and amounts of certain investments, underwriting limitations, licensing, transactions with
affiliates, dividend limitations, changes in control, premium rates and a variety of other financial and
non-financial components of an insurer’s business.

In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and

some state legislatures have considered or enacted laws that may alter or increase state authority to regulate
insurance companies and insurance holding companies. Further, the NAIC and state insurance regulators
continually reexamine existing laws and regulations, specifically focusing on modifications to holding company
regulations, interpretations of existing laws and the development of new laws and regulations. In addition,
Congress and some federal agencies from time to time investigate the current condition of insurance regulation in
the United States to determine whether to impose federal or national regulation or to allow an optional federal
charter, similar to the option available to most banks. We cannot predict what effect, if any, proposed or future
legislation or NAIC initiatives may have on the manner in which we conduct our business.

Although the United States federal government does not directly regulate the insurance business, changes in

federal legislation, regulation and/or administrative policies in several areas, including changes in financial
services regulation and federal taxation, could negatively affect the insurance industry.

15

As part of ongoing, industry-wide investigations, we may from time to time receive subpoenas and written

requests for information from government agencies and authorities at the state or federal level. If we are
subpoenaed for information by government agencies and authorities, potential outcomes could include
enforcement proceedings or settlements resulting in fines, penalties and/or changes in business practices that
could cause a material adverse effect on our results of operations. In addition, these investigations may result in
changes to laws and regulations affecting the industry.

Changes to insurance laws or regulations, or new insurance laws and regulations, may be more restrictive

than current laws or regulations and could cause material adverse effects on our results of operations and our
prospects for future growth. Additionally, our failure to comply with certain provisions of applicable insurance
laws and regulations may cause a material adverse effect on our results of operations or financial position.

Our inability to obtain reinsurance on acceptable terms may increase our loss exposure or limit our ability
to underwrite policies.

We use, and we expect to continue to use, reinsurance to help manage our exposure to property and casualty
risks. The availability and cost of reinsurance are each subject to prevailing market conditions beyond our control
which can affect business volume and profitability. We may be unable to maintain our current reinsurance
coverage, to obtain additional reinsurance coverage in the event our current reinsurance coverage is exhausted by
a catastrophic event, or to obtain other reinsurance coverage in adequate amounts or at acceptable rates. Similar
risks exist whether we are seeking to replace coverage terminated during the applicable coverage period or to
renew or replace coverage upon its expiration. We provide no assurance that we can obtain sufficient reinsurance
to cover losses resulting from one or more storms in the future, or that we can obtain such reinsurance in a timely
or cost-effective manner. If we are unable to renew our expiring coverage or to obtain new reinsurance coverage,
either our net exposure to risk would increase or, if we are unwilling to accept an increase in net risk exposures,
we would have to reduce the amount of risk we underwrite. Either increasing our net exposure to risk or reducing
the amount of risk we underwrite may cause a material adverse effect on our results of operations and our
financial position.

Our inability to collect from our reinsurers and the Florida Hurricane Catastrophe Fund on our
reinsurance claims could cause a material adverse affect on our results of operation and financial
condition.

Although reinsurers are liable to us to the extent of the reinsurance coverage we purchase, we remain liable

as the direct insurer on all risks that we reinsure; therefore, our reinsurance agreements do not eliminate our
obligation to pay claims. As a result, we are subject to risk with respect to our ability to recover amounts due
from reinsurers. The risk could arise in two situations: i) our reinsurers may dispute some of our reinsurance
claims based on contract terms, and we may ultimately receive partial or no payment, or ii) the amount of losses
that reinsurers incur related to worldwide catastrophes may materially harm the financial position of our
reinsurers and cause them to default on their obligations.

While we will attempt to manage these risks through underwriting guidelines, collateral requirements and

other oversight mechanisms, our efforts may not be successful. As a result, our exposure to credit risk may cause
a material adverse effect on our results of operations and financial position.

Our investments are subject to market risks that may result in reduced returns or losses.

We expect investment returns to contribute to our overall profitability. Accordingly, fluctuations in interest

rates or in the fixed-maturity, equity or alternative-investment markets may cause a material adverse effect on
our results of operations.

Changes in the general interest rate environment will affect our returns on, and the fair value of, our fixed

maturities and short-term investments. A decline in interest rates reduces the returns available on new
investments, thereby negatively impacting our net investment income. Conversely, rising interest rates reduce the

16

fair value of existing fixed maturities. In addition, defaults under, or impairments of, any of these investments as
a result of financial problems with the issuer and, where applicable, its guarantor of the investment could reduce
our net investment income and net realized investment gains or result in investment losses.

We may decide to invest a portion of our assets in equity securities or other investments, which are subject
to greater volatility than fixed maturities. General economic conditions, stock market conditions and many other
factors beyond our control can adversely affect the fair value of our equity securities or other investments, and
could adversely affect the realization of net investment income. As a result of these factors, we may not realize
an adequate return on our investments, we may incur losses on sales of our investments and we may be required
to write down the value of our investments, which could reduce our net investment income and net realized
investment gains or result in investment losses.

The fair value of our investment portfolio is also subject to valuation uncertainties. The valuation of
investments is more subjective when the markets are illiquid and may increase the risk that the estimated fair
value of our investment portfolio is not reflective of prices at which actual transactions would occur.

Our portfolio may benefit from certain tax laws, including, but not limited to, those governing dividends-

received deductions and tax credits. Federal and/or state tax legislation could be enacted that would lessen or
eliminate some or all of these tax advantages and could adversely affect the value of our investment portfolio.
This result could occur in the context of deficit reduction or various types of fundamental tax reform.

The property and casualty insurance industry is historically cyclical and the pricing and terms for our
products may decline, which would adversely affect our profitability.

Historically, the financial performance of the property and casualty insurance industry has been cyclical,
characterized by periods of severe price competition and excess underwriting capacity, or soft markets, followed
by periods of high premium rates and shortages of underwriting capacity, or hard markets. We cannot predict
how long any given hard or soft market will last. Downturns in the property and casualty market may cause a
material adverse effect on our results of operations and our financial position.

The effects of emerging claim and coverage issues are uncertain and may increase our loss exposure under
the policies that we underwrite.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and
unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by
either extending coverage beyond our underwriting intent or by increasing the number or size of claims.
Examples of emerging claims and coverage issues include, but are not limited to:

•

•

•

adverse changes in loss cost trends, including inflationary pressures in home repair costs;

judicial expansion of policy coverage and the impact of new theories of liability; and

plaintiffs targeting property and casualty insurers in purported class-action litigation relating to claims-
handling and other practices.

In some instances, these emerging issues may not become apparent to us for some time after our issuance of
the affected insurance policies. As a result, we may not know the full extent of liability under insurance policies
we issue for many years after the policies are issued.

It is very difficult for us to predict the effects of these and other unforeseen emerging claim and coverage

issues that may cause a material adverse effect on our results of operations and financial position.

A downgrade in our financial strength rating could adversely impact our business volume and our ability
to access additional debt or equity financing.

Financial strength ratings have become increasingly important to an insurer’s competitive position. Rating

agencies review their ratings periodically, and our current ratings may not be maintained in the future. A

17

downgrade in our rating could negatively impact our business volumes, as it is possible demand for our products
in certain markets may be reduced or our ratings could fall below minimum levels required to maintain existing
business. Additionally, we may find it more difficult to access the capital markets and we may incur higher
borrowing costs. If significant losses, such as those resulting from one or more major catastrophes, or significant
reserve additions were to cause our capital position to deteriorate significantly, or if one or more rating agencies
substantially increase their capital requirements, we may need to raise equity capital in the future to maintain our
ratings or limit the extent of a downgrade. For example, a trend of more frequent and severe weather-related
catastrophes may lead rating agencies to substantially increase their capital requirements.

We cannot guarantee that UPC will maintain its current A rating by Demotech. Any downgrade of this

rating could reduce our ability to retain and attract policyholders and agents and our ability to compete, which
may cause a material adverse effect on our results of operations and financial position.

RISKS RELATED TO INVESTING IN UNITED’S COMMON STOCK OR WARRANTS

Trading of our common stock and warrants is limited, which may make it difficult for you to sell these
securities at times and at prices that you find appropriate.

Investors trade our common stock or warrants via the Over-The-Counter Bulletin Board, which provides

less liquidity than national securities exchanges. In addition to the already less liquid market, trading in our
common stock or warrants has been extremely limited, further reducing their liquidity. The lack of liquidity in
our common stock and warrants results not only from limited trading, but also from delays in the timing of
transactions and a dearth in security analysts’ and the media’s coverage of United. As a result, you may obtain
lower prices for our common stock, warrants and units than you might otherwise obtain in more liquid markets
and you may experience a larger spread between the bid and ask prices for our common stock or warrants. In
addition, requirements imposed by the SEC on brokers engaging in “penny stock” transactions may further
reduce the market liquidity of our securities.

Dividend payments on our common stock in the future is uncertain.

We have paid dividends on our common stock in the past; however, we provide no assurance or guarantee

that we will continue to pay dividends in the future. Therefore, investors who purchase common stock and/or
convert their warrants into common stock may only realize a return on their investment if the value of our
common stock appreciates.

The declaration and payment of dividends will be at the discretion of our Board of Directors and will be

dependent upon our profits and financial requirements and other factors, including legal and regulatory
restrictions on the payment of dividends, general business conditions and such other factors as our Board of
Directors deems relevant.

Our warrant holders cannot exercise their warrants unless we have an effective registration statement
covering the issuance of the shares of common stock underlying the warrants.

Holders of our warrants can exercise the warrants only if (i) a current registration statement under the
Securities Act of 1933 relating to the shares of our common stock underlying the warrants (federal registration) is
then effective and (ii) such shares of common stock are registered for sale, or exempt from registration, under the
applicable securities laws of the states in which the various warrant holders reside (state registration).

We cannot assure that our best efforts to maintain a current federal registration will be successful, nor can

we assure that our reasonable efforts to maintain a current state registration, to the extent an exemption is not
available, will be successful; therefore, the value of the warrants may be greatly reduced or the warrants could
expire unexercised.

18

Warrant holders residing in states in which no current state registration exists, and in which there is no
exemption from registration, will be unable to exercise their warrants and would either have to sell their warrants
in the open market or allow them to expire unexercised.

If and when the warrants become redeemable by us, we may exercise our redemption right even if we are

unable to qualify the underlying securities for sale under all applicable state securities laws.

The substantial ownership of our common stock by our officers and directors allows them to exert
significant control over matters submitted to our shareholders.

Our officers and directors beneficially own approximately 40% of UIHC at December 31, 2010. As a result,

they can exert significant influence over the following:

•

•

the nomination, election and removal of our Board of Directors;

the adoption of amendments to our charter documents;

• management and policies; and

•

the outcome of any corporate transaction or other matter submitted to our stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of our assets.

Our officers’ and directors’ interests may conflict with the interests of other holders of our common stock

and our officers and directors may take action affecting us with which other stockholders may disagree.

Provisions in our charter documents and state law may make it harder for others to obtain control of us
even though some shareholders might consider such a development to be favorable.

Our charter and bylaws contain provisions that may discourage unsolicited takeover proposals our

stockholders may consider to be in their best interests. Our Board of Directors is divided into two classes, each of
which will generally serve for a term of two years with only one class of directors being elected in each year. At
a given annual meeting, only a portion of our Board of Directors may be considered for election. Since our
“staggered board” may prevent our stockholders from replacing a majority of our Board of Directors at certain
annual meetings, it may entrench our management and discourage unsolicited stockholder proposals that may be
in the best interests of our stockholders. Moreover, our Board of Directors has the ability to designate the terms
of and issue a new series of preferred stock.

We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change

of control in our company. Together these provisions may make the removal of our management more difficult
and may discourage transactions that otherwise could involve payment of a premium over prevailing market
prices for our securities.

Item 1B. Unresolved Staff Comments

Not applicable

Item 2.

Properties

We currently lease approximately 15,000 square feet of office space at 360 Central Avenue, Suite 900,

St. Petersburg, Florida 33701. We initially made rent payments of $21.50 per square foot, and that amount
increases each year through the final year, in which we will pay rent of $26.16 per square foot, plus our
percentage of increase in the common area maintenance charge. This lease expires in July 2014 with two five-
year renewal options. We consider our current office facility suitable for our business as it is presently
conducted. We do not own any real estate or other physical properties. Our facility is in good condition.

19

Item 3.

Legal Proceedings

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

On August 5, 2010, Synovus Bank (Synovus), a Georgia banking corporation filed a lawsuit in the Circuit
Court of the Sixth Judicial Circuit in and for Pinellas County, Florida against several defendants, including UIHC
and UIH. With respect to UIHC and UIH, the complaint: (1) sought to foreclose on a security interest in
membership units of UIH owned by a UIH shareholder named as a defendant, including the proceeds thereof (the
United Collateral), (2) sought a declaratory judgment requiring UIHC and UIH to deliver proceeds of the United
Collateral to Synovus (including shares of UIHC and warrants to purchase shares of UIHC or the equivalent
value thereof in cash, and a cash distribution), (3) alleged tortious interference with a contract between the UIH
shareholder named as a defendant and Synovus relating to the United Collateral, (4) sought conversion of the
United Collateral, and (5) alleged negligence in connection with the delivery of the United Collateral. Synovus
sought unspecified damages and other relief in connection with the foregoing.

On January 3, 2011, Synovus Bank voluntarily dismissed its case without prejudice against UIH and UIHC.
We did not establish any reserves regarding this action because we were not able to predict the probable outcome
of the action.

Item 4.

Reserved

20

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

MARKET INFORMATION

Our common stock and warrants are each traded on the Over-the-Counter Bulletin Board under the symbols

UIHC and UIHCW, respectively. Our common stock and warrants commenced public trading on November 7,
2007.

The table below sets forth, for the calendar quarter indicated, the high and low bid quotations of our units

(no longer traded), common stock and warrants as reported on the Over-the-Counter Bulletin Board. The
over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily reflect actual transactions.

Over-the-Counter Bulletin Board

Units

Common Stock

Warrants

High

Low

High

Low

High

Low

2010

2009

Qtr 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NB NB $4.15
2.95
Qtr 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NB NB
3.60
Qtr 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NB NB
4.75
2.80
Qtr 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.80

$2.05
1.85
2.95
3.10

$0.05
0.07
NB
0.65

$0.03
0.07
NB
0.16

Qtr 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.00
Qtr 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NB NB
6.00
Qtr 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.50
Qtr 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.00
3.50

3.00

4.30
4.70
5.00
4.95

3.75
4.05
4.20
2.60

NB
0.70
0.84
0.85

NB
0.28
0.36
0.15

NB = No bids during the quarter for this security

HOLDERS OF COMMON EQUITY

As of March 17, 2011, we had 42 holders of record of our common stock, 48 holders of record of our

warrants and 1 holder of record of our units.

DIVIDENDS

In the second quarter of 2010, we paid a quarterly dividend of $0.05 per share that we declared in the first
quarter of 2010. We did not pay any other dividends during the year. We paid a quarterly dividend of $0.05 per
share beginning in the second quarter of 2009 for a total dividend on our common stock of $0.15 per share during
2009. Any future dividend payments will be at the discretion of our Board of Directors and will depend upon our
revenues and earnings, capital requirements, general financial condition and any contractual restrictions on the
payment of dividends.

See Note 14 to our consolidated financial statements for a discussion of restrictions on future payments of

dividends by UPC.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

We have no compensation plans or arrangements under which equity securities are authorized for issuance.

21

RECENT SALES OF UNREGISTERED SECURITIES

During 2010, we did not have any unregistered sales of our equity securities.

REPURCHASES OF EQUITY SECURITIES

During the fourth quarter of 2010, we did not have any repurchases of our equity securities.

Item 6.

Selected Financial Data

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, pursuant to

Regulation S-K we are not required to make disclosures under this Item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and related notes appearing elsewhere in this Form 10-K.
This discussion and analysis contains forward-looking statements that involve risks, uncertainties and
assumptions. The actual results may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including, but not limited to, those which are not within our control.

OVERVIEW

We write property and casualty insurance lines in Florida and South Carolina through our insurance
subsidiary, UPC. We offer standardized policies for a broad range of exposures, and our policies include
coverage options for standard single-family homeowners, tenants (renters), and condominium unit owners. We
also write flood policies, on which we earn a commission while retaining no risk of loss, in all states in which we
write our other products.

Though we have authorization to write a commercial line of business in Florida that includes auto and

multi-peril coverage, we discontinued writing this business after May 31, 2009.

Effective June 1, 2010, the South Carolina state regulatory authority approved UPC to write and service
property and casualty lines in South Carolina. On July 1, 2010, we began writing our policies in South Carolina,
and we also assumed a book of business from Sunshine State Insurance Company representing $5,294 of in-force
homeowner premium in South Carolina. We began operating in South Carolina so that we could begin to reduce
our geographic concentration of exposure to catastrophic losses, and the assumption from Sunshine State and
subsequent renewals of South Carolina policies will also reduce our geographic concentration of credit risk.

To reach a broad range of prospective policyholders, we use numerous agents to produce policies for us, and

we also assume policies from Citizens. We refer to policies produced by our agents as direct policies or direct
business. Direct policies and policies assumed from Sunshine State represent 84% of our homeowner policies in
force at December 31, 2010, and we assumed the remaining 16% from Citizens under assumption programs that
ended prior to 2010. At December 31, 2010, we had approximately 80,500 homeowner policyholders, a decrease
of 13% over the number of policyholders at December 31, 2009. This decrease resulted from our efforts to
mitigate our risk exposure through the non-renewal of selected policies that did not conform to our exposure
management plan.

During the fourth quarter of 2007, the Florida legislature implemented a program allowing homeowners to

qualify for insurance premium discounts called wind-mitigation credits if their insured home meets certain
required standards. At December 31, 2010 and 2009, state-imposed wind-mitigation credits depressed our

22

premium in force by $71,732 and $83,108, respectively. To offset the significant impact of the wind-mitigation
credits on our underwriting profitability, we implemented an average 12.7% rate increase for policies written
under our Protector Homeowner Program in September 2009, and an average 15% rate increase for policies
written under our Guardian Dwelling Fire Program in October 2009. We believe that our continuing process of
optimizing our risk exposures, which includes shifting policies into areas with less risk of wind peril, will
continue to minimize the impact of wind-mitigation credits.

We purchase reinsurance to mitigate the financial impact of catastrophe-related losses. The premium for our
2010-2011 catastrophe reinsurance contracts decreased only slightly from the cost of our 2009-2010 catastrophe
reinsurance contracts. See Note 9 in our consolidated financial statements for a more detailed discussion of our
reinsurance coverage.

During the fourth quarter of 2009, we filed for an additional rate increase to partially offset our higher
reinsurance costs. The Florida state regulatory authority approved an overall 14% rate increase for our Protector
Homeowner Program that became effective in March 2010, and an overall 14.7% rate increase for our Guardian
Dwelling Fire Program that became effective in April 2010.

The Florida state regulatory authority recently approved our application for an average 15.9% rate increase

that we expect to implement on Florida policies during the second quarter of 2011. Applying a rate increase to all
policies that were in force on the date the increase became effective takes as long as a year, and then we must
recognize the increased premium pro rata over 12 months; therefore, rate increases may take as long as two years
to fully impact net income.

As noted previously, we discontinued our commercial line of business, which represented approximately 1%

and 4% of our gross premiums written for 2009 and 2008, respectively. After May 31, 2009, we did not write
new, or renew any existing, commercial line policies; however, policies in force as of May 31, 2009 continued in
force until they expired on various dates through May 31, 2010.

On January 6, 2011, the Massachusetts state regulatory authority approved UPC to write and service

property and casualty lines in Massachusetts.

MERGER TRANSACTION

On September 30, 2008, we completed a merger whereby United Subsidiary Corp., a wholly-owned

subsidiary of FMG Acquisition Corp., merged with and into UIH with UIH remaining as the surviving entity. As
consideration for the merger, we paid members of UIH an aggregate of $25,000 in cash, issued 8,929,819 shares
of our common stock and granted warrants to purchase 1,273,569 shares of our common stock.

We paid the cash consideration for the merger with cash held in our trust account established in connection
with our initial public offering, as well as with the net proceeds from the five unsecured notes payable we issued
on September 29, 2008 in relation to the merger. We issued the merger notes with a total face amount of $18,280
and, in exchange, we received $10,000 in cash and 869,565 shares of our common stock, valued at $6,878 at the
time the notes were issued, from certain accredited investors including two of our former stockholders. We
recorded a discount on these notes of $1,401 which we amortized to interest expense through May 5, 2010, the
date on which we paid these notes plus accrued interest in full. See Note 12 in our Notes to Consolidated
Financial Statements for a further discussion.

We accounted for the merger as a reverse acquisition and recapitalization since UIH was deemed to be the

acquirer for accounting purposes. Accordingly, our historical consolidated financial statements reflect the assets,
liabilities and operations of UIH prior to the merger date, recorded on a historical cost basis. We then recorded
UIHC’s (formerly FMG’s) assets and liabilities at their fair value on the date of the merger.

23

The following additional transactions occurred in connection with the merger:

• We paid cash of $15,740 pursuant to agreements to repurchase 1,980,671 shares of our common stock

on September 29, 2008.

• As discussed above, we borrowed $10,000 from certain accredited investors and then used this cash to
pay $10,039 to holders of 1,267,863 shares of our common stock who did not vote in favor of the
merger and elected to have their shares of common stock converted to cash.

•

FMGI surrendered 179,819 shares of UIHC common stock it owned. No consideration was paid for
these surrendered shares and the shares were cancelled. FMGI also surrendered 179,819 of the
common stock warrants it owned.

• The underwriter for our initial public offering surrendered 100,000 of the 450,000 unit purchase

options it owned. They also agreed to accelerate the expiration date of their remaining 350,000 unit
purchase options to October 4, 2010. The unit purchase options expired unexercised.

• UIH paid to UIHC $5,707 of cash, which was primarily used to repurchase certain shares of our

common stock as described above.

• UIH paid a non-tax related distribution of $2,000 to its members as permitted in the Amended and

Restated Agreement and Plan of Merger.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

When we prepare our consolidated financial statements and accompanying notes in conformity with GAAP,
we are required to make estimates and assumptions about future events that affect the amounts reported. Certain
of these estimates result from judgments that can be subjective and complex; therefore, our actual results may
differ, perhaps substantially, from the estimates.

RESERVES FOR UNPAID LOSSES

General Discussion of Loss Reserving Process

Reserves for unpaid losses represent the most significant accounting estimate inherent in the preparation of
our financial statements. These reserves represent management’s best estimate of the amount we will ultimately
pay for losses and we base the amount upon the application of various actuarial reserve estimation techniques as
well as considering other material facts and circumstances known at the balance sheet date.

We establish two categories of loss reserves as follows:

• Case reserves – When a claim is reported, we establish an automatic minimum case reserve for that claim
type that represents our initial estimate of the losses that will ultimately be paid on the reported claim. Our
initial estimate for each claim is based upon averages of loss payments for our prior closed claims made for
that claim type. Then, our claims personnel perform an evaluation of the type of claim involved, the
circumstances surrounding each claim and the policy provisions relating to the loss and adjust the reserve as
necessary. As claims mature, we increase or decrease the reserve estimates as deemed necessary by our
claims department based upon additional information we receive regarding the loss, the results of on-site
reviews and any other information we gather while reviewing the claims.

• Reserves for loss incurred but not reported (IBNR reserves) – We estimate IBNR reserves by projecting

the ultimate losses using the methods discussed below and then deduct actual loss payments and case
reserves from the projected ultimate losses. We review and adjust our IBNR reserves on a quarterly basis
based on information available to us at the balance sheet date.

When we establish our reserves, we analyze various factors such as our historical loss experience and that of

the insurance industry, claims frequency and severity, our business mix, our claims processing procedures,

24

legislative enactments, judicial decisions and legal developments in imposition of damages, and general
economic conditions, including inflation. A change in any of these factors from the assumptions implicit in our
estimates will cause our ultimate loss experience to be better or worse than indicated by our reserves, and the
difference could be material. Due to the correlated nature of the aforementioned factors, there is no precise
method for evaluating the impact of any one specific factor in isolation, and an element of judgment is ultimately
required. Due to the uncertain nature of any projection of the future, the ultimate amount we will pay for losses
will be different from the reserves we record.

We determine our ultimate loss reserves by selecting a point estimate within a relevant range of indications
that we calculate using generally accepted actuarial techniques. Our selection of the point estimate is influenced
by the analysis of our paid losses and incurred losses since inception. For each accident year, we estimate the
ultimate incurred losses for both known and unknown claims. In establishing this estimate, we calculate high,
low, and expected values from the distribution of ultimate loss estimates compiled from the results of the paid
and incurred loss development models discussed below.

Estimation of the Reserves for Unpaid Losses

We use all of the following actuarial models to estimate our loss reserves.

•

Incurred Loss Development – This model estimates ultimate losses based on the historical development
patterns of incurred losses by accident year. Incurred losses are defined as paid losses plus case reserves.

The strength of this method is its ease of use and comparability to industry benchmarks while its weakness
is the potential for volatility in the calculated factors as well as an element of subjectivity in the selected
factors. The volatility can arise from a number of factors such as inflation, changes in reserving practices,
changes in underwriting criteria and geographic concentration.

• Paid Loss Development – This model estimates ultimate losses based on the historical development

patterns of paid losses by accident year.

The strengths and weaknesses of this method are identical to the Incurred Loss Development model,
although changes in claim disposal rates are more relevant than changes in reserving practices.

•

•

Incurred Bornhuetter-Ferguson Severity – This model estimates ultimate losses as the sum of cumulative
incurred losses and estimated IBNR losses. The model estimates IBNR losses based on expected average
severity, estimated ultimate number of claims and the historical development patterns related to incurred
losses. We adjust historical loss severities to current levels using severity on-level factors which include a
provision for notable changes in average claim costs between accident years 2003 and 2004.

Incurred Bornhuetter-Ferguson Pure Premium – This model estimates ultimate losses based on earned
exposures, expected pure premium and the historical development patterns of incurred losses. We use
earned exposures as a proxy for the number of risks insured, and we calculate pure premium as the amount
of incurred losses divided by earned exposures.

The Bornhuetter-Ferguson models are generally more stable than the incurred and paid development

models, but this relative strength comes at the cost of less responsiveness to real changes in loss experience.

During 2010, we used the estimated ultimate number of claims closed with payment for sinkhole claims in
the Incurred Bornhuetter-Ferguson Severity model rather than the estimated ultimate number of claims; making
the change prevents the number of sinkhole claims closed without payment from skewing the model’s output.
Also during 2010, we replaced the Incurred Bornhuetter-Ferguson Loss Ratio model with the Incurred
Bornhuetter-Ferguson Pure Premium model. Earned premium affects the results of the Incurred Bornhuetter-
Ferguson Loss Ratio model, and changes in premium rates affect earned premium; therefore, we decided that the
results of the model would be unnecessarily skewed by the several recent rate increases we have implemented.
Additionally, we believe that pure premium provides a better basis for estimating ultimate losses than does
earned premium.

25

The main drivers in the Loss-Development models are the selected development factors. Development

factors are calculated by age period (i.e., 12-24 months, 24-36 months, etc.), by taking the current year’s total
incurred or paid losses for the particular accident year and dividing by the prior year’s total incurred or paid
losses for the particular accident year. Averages of the resulting development factors in each age period are
calculated, such as the three-year average, five-year average, cumulative average, and cumulative average
excluding the high and low. An evaluation of the calculated development factors and their resulting averages is
performed and judgment is used to select a particular development factor per age period. The selected
development factors are used to project expected ultimate losses by accident year.

Reliance and Selection of Methods. Though all four of the models described above produce substantially

similar results in our case, we rely heavily on our loss-development models when calculating our estimate of
ultimate losses. Our focus on the two loss-development models is justified because of the relative responsiveness
of those, the fact that the Bornhuetter-Ferguson models are not expected to produce materially different results,
and the short-tailed nature of our book of business. (A “short-tailed” line of business is one in which claims are
reported and settled quickly following the occurrence of a loss). Ultimately, this means the main assumptions of
the loss-development models, the selected loss development factors, represent the most critical aspect of our loss
reserving process. We use the same set of loss development factors in the models during our loss reserving
process that we also use to calculate the premium necessary to ensure we are always earning enough premiums to
pay expected ultimate losses.

Reasonably-Likely Changes in Variables. As previously noted, we evaluate several factors when

exercising our judgment in the selection of the loss development factors that ultimately drive the determination of
our loss reserves. The process of establishing our reserves is complex and necessarily imprecise, as it involves
using judgment that is affected by many variables. We believe a reasonably-likely change in almost any of these
aforementioned factors could have an impact on our reported results, financial position and liquidity. However,
we do not believe any reasonably likely changes in the frequency or severity of claims would have a material
impact on us.

FAIR VALUE OF INVESTMENTS

As discussed in Note 3(c) in our Notes to Consolidated Financial Statements, we value our investments at

fair value using quoted prices from active markets, to the extent available. For securities for which quoted prices
in active markets are unavailable, we use observable inputs such as quoted prices in inactive markets, quoted
prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs.
We do not have any investments in our portfolio which require us to use unobservable inputs. The fair value for
our fixed-maturities is calculated by a third-party pricing service using price evaluations and/or matrix pricing.
Any change in the estimated fair value of our securities could impact the amount of unrealized gain or loss we
have recorded, which could change the amount we have recorded for our investments and other comprehensive
income on our Consolidated Balance Sheets.

INVESTMENT PORTFOLIO IMPAIRMENTS

Quarterly, we perform an assessment of our available-for-sale investments to determine if any are other-

than-temporarily impaired. See Note 3(b) in our Notes to Consolidated Financial Statements for further
information regarding our impairment testing.

The assessment of whether an other-than-temporary impairment (OTTI) exists involves a high degree of
subjectivity and judgment, and we base our assessment on the information available to us at a given point in
time. Significant changes in the factors we consider when evaluating investments for impairment losses could
result in a significant change in impairment losses reported within our consolidated financial statements if future
events, information and the passage of time cause us to determine that a decline in value is other-than-temporary.
Any change in the determination of whether the impairment is temporary or other-than-temporary would affect

26

the amount of OTTI charges we record within our Consolidated Statements of Income and the amount of
unrealized loss we record in other comprehensive income within our Consolidated Balance Sheets.

RECENT ACCOUNTING PRONOUNCEMENTS

As discussed in Note 4 in the Notes to Consolidated Financial Statements, ASU No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures About Fair Value Measurements, added new
disclosures related to activity in investments that require Level 3 inputs to estimate their fair value, which
become effective for fiscal years beginning after December 15, 2010, and interim periods within those fiscal
years. Since we do not generally maintain investments that require Level 3 inputs to estimate fair value, we do
not expect that our adoption of this portion of ASU No. 2010-06 will have a material effect on our consolidated
financial statements.

In October 2010, the FASB issued ASU No. 2010-26, Financial Services—Insurance (Topic 944):
Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The amendments in ASU
No. 2010-26 address diversity in practice regarding the interpretation of which costs relating to the acquisition of
new or renewal insurance contracts qualify for deferral; they clarify which costs should be deferred and which
costs should be expensed when incurred. The amendments in ASU No. 2010-26 become effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2011. Since we already record
deferred acquisition costs as specified by the amendments, we do not expect that our adoption of ASU
No. 2010-26 will have a material effect on our consolidated financial statements.

ANALYSIS OF FINANCIAL CONDITION 2010 COMPARED TO 2009

TOTAL INVESTMENTS

We classify all of our investments as available-for-sale. Our investments at December 31, 2010 and 2009,
consist mainly of U.S. government and agency securities and securities of high-quality corporate issuers. Most of
the corporate bonds we hold were issued by companies in the consumer products, telecommunications and
finance industries. At December 31, 2010, approximately 98% of our fixed-maturities are U.S. Treasury or
corporate bonds rated “A” or better and 2% are corporate bonds rated “BBB”. Our equity holdings reflect a
similar diversification, as most of our holdings were issued by companies in the energy, healthcare, industrial,
consumer products and technology sectors.

During the fourth quarter of 2010, we recorded an impairment charge of $97, after determining that

impairments related to three of our equity securities were other-than-temporary. During the first quarter of 2009,
we recorded an impairment charge of $1,878 after determining that impairments related to 29 of our equity
securities were other-than-temporary. During 2009, after recording the OTTI charge related to the 29 securities,
we sold 25 of those securities for a gain of $807; we had recorded a total impairment charge of $1,582 on the 25
securities sold.

In December 2010, we sold $52,570 of fixed maturities to realize the gains related to those securities. We

made the decision to recognize the gains now rather than in the future because of the uncertainty regarding
capital gains taxes and whether the Federal government would increase such taxes. We also believe that interest
rates on fixed maturities will begin to increase; therefore, we wanted to have more cash on hand to buy what we
expect will be securities with higher interest rates than the interest rates on the securities we sold.

The overall change in our net unrealized holding gains (losses) primarily resulted from the realizing of gains

on sales of our fixed maturities in December 2010. At December 31, 2010, we had gross unrealized losses of
$128 for a period of twelve months or greater. Approximately $47 of gross unrealized losses were related to six
fixed maturities for which we have no plan to sell and for which we expect to fully recover our cost basis. The
other eight securities are equity securities with total unrealized losses of $81. We reviewed these securities and
determined that we did not need to record impairment charges on them at December 31, 2010.

27

As required by various state regulatory authorities, we have placed securities on deposit with those

regulatory authorities to secure the payment of our claims. We placed a $300 certificate of deposit, which
automatically renews every twelve months and which we recorded in our other long-term investments at
December 31, 2010 and 2009, on deposit with the Florida state regulatory authority. We placed a $1,008 fixed
maturity and a $98 fixed maturity on deposit with the South Carolina and the Massachusetts state regulatory
authorities, respectively, and we recorded these securities in our fixed maturities at December 31, 2010.

REINSURANCE PAYABLE

Effective June 1, 2010, we entered into the following reinsurance contracts:

•

•

•

•

Property Catastrophe Excess of Loss Reinsurance Agreement (Private Agreement) between United
Property & Casualty Insurance Company and Various Reinsurance Companies

Property Catastrophe Second Event Excess of Loss Reinsurance Agreement (Second Event Agreement)
between United Property & Casualty Insurance Company and Various Reinsurance Companies

Property Catastrophe Third Event Excess of Loss Reinsurance Agreement (Third Event Agreement)
between United Property & Casualty Insurance Company and Various Reinsurance Companies

Florida Hurricane Catastrophe Fund Reimbursement Contract (FHCF Agreement) between United
Property & Casualty Insurance Company and the State Board of Administration of Florida

• Reinstatement Premium Protection Reinsurance Agreement (RPP Agreement) between United

Property & Casualty Insurance Company and Various Reinsurance Companies

• Multi-Line Per Risk Excess of Loss Reinsurance Agreement (Per Risk Agreement) between United

Property & Casualty Insurance Company and Various Reinsurance Companies

Our catastrophe reinsurance contracts provide us coverage against severe weather events. For our

catastrophe reinsurance program, the premiums on our Private Agreement, the Second Event Agreement and the
Third Event Agreement totaled $37,366, and the premium on our FHCF Agreement totaled $30,574. The Private
Agreement provides coverage against severe weather events such as hurricanes, tropical storms and tornadoes.
The FHCF Agreement provides coverage only against storms that are designated as hurricanes by the National
Hurricane Center. The premium on our RPP Agreement totaled $12,030 and the premium on our Per Risk
Agreement totaled $737. See Note 9 for additional information regarding our reinsurance program.

At December 31, 2010, we owed $14,398 on our 2010-2011 reinsurance agreements, an amount we paid in

January 2011. The decrease in the reinsurance payable resulted from two factors: i) an acceleration in the
payment schedule of reinsurance premiums on our catastrophe contracts (imposed by reinsurers on all their
customers beginning in 2010) from equal quarterly payments to three equal payments, one every four months,
and ii) the effect of contractually-allowed reductions we made in October 2010 to our 2010-2011 reinsurance
premium totaling $3,921 as compared to adjustments we had to make in October 2009 to increase our 2009-2010
reinsurance premium by $1,737.

NOTES PAYABLE

The decrease in notes payable resulted from our effort to reduce our outstanding debt and recognize savings

in interest costs. During February 2010, we paid in full the remaining $4,327 principal balance of our note
payable to CB&T when the note matured. In May 2010, we paid in full the outstanding $18,280 principal balance
on our merger notes that were due to mature in September 2011; we also recognized a loss totaling $726 on the
early extinguishment. By extinguishing the merger notes early, we recognized a $409 improvement in our 2010
net income and we expect to realize a $1,006 improvement in our 2011 net income.

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RESULTS OF OPERATIONS 2010 COMPARED TO 2009

GROSS PREMIUMS WRITTEN

Two factors primarily caused the increase in our gross premiums written: (i) an increase in average in-force

premium per policy, partially offset by (ii) a decrease in policies-in-force.

Our average in-force premium per policy increased from $1,663 for 2009, to $1,878 for 2010. The

implementation of the rate increases in late 2009 and in early 2010 contributed to the per policy increase of $215,
or 12.9%. See the PRICING section in Item 1 of this Form 10-K for a more detailed discussion of the rate
increases that we implemented. The rate increases did not have a significant effect on our policy retention rate.

The number of our homeowner policies-in-force at December 31, 2010, decreased to approximately 80,500

from approximately 93,000 at December 31, 2009, as a result of our actions to reduce risk exposures.

GROSS PREMIUMS EARNED

Two factors caused the decrease in our gross premiums earned: (i) a $3,833 increase in gross unearned
premiums that resulted from our writing $4,066 more during the fourth quarter of 2010 compared to the fourth
quarter of 2009, offset by (ii) an increase in gross written premiums discussed above.

The impact of wind-mitigation credits continued to suppress the amount of gross premiums we would
otherwise have earned, but had less of an effect than it did in the prior year. By the end of 2010, 63% of our
policies in force reflected wind-mitigation credits with an impact on premium in force totaling $71,732, while
61% of our policies in force at the end of 2009 reflected the credits with an impact on premium in force totaling
$83,108. As we continue to redistribute our policies into areas in which the premium associated with wind peril
is less, the impact of wind-mitigations credits on gross premiums earned will also continue to decrease.

CEDED PREMIUMS EARNED

Ceded premiums earned increased because the cost of our 2008-2009 contracts was $34,528 lower than the

cost of our 2009-2010 contracts. As a result, for the first five months of 2009, our reinsurance costs were
substantially less than our reinsurance costs for the first five months of 2010. The effect of the increase described
was partially offset because we made contractually-allowed reductions to our 2010-2011 reinsurance premium
totaling $3,921, while we had to make adjustments to increase our 2009-2010 reinsurance premium by $1,737.

NET INVESTMENT INCOME

The decrease in our net investment income primarily resulted from a $556 decrease in bond interest income.
Also contributing to the overall decline was a $242 decrease in interest income related to our cash and short-term
securities due to lower investment yields.

Bond interest income decreased because we sold fixed maturities or allowed them to mature in an amount
totaling $155,616 throughout the year. As noted earlier, $52,570 of the $155,616 originated from sales during
December, and at December 31, 2010, we were still holding a portion of the proceeds from those December sales
and from earlier sales and maturities to reinvest in what we expect will be securities with higher interest rates
than the interest rates on the securities we sold.

NET REALIZED INVESTMENT GAINS

For the reasons discussed in the TOTAL INVESTMENTS section, we sold a large portion of our investment

portfolio to realize gains from those investments. In 2009, we did not sell securities on the scale that we did in
the current year.

29

OTHER-THAN-TEMPORARY IMPAIRMENTS

Other-than-temporary impairments decreased because we only recorded an impairment charge of $97
related to three equity securities in 2010 compared to an impairment charge of $1,878 related to 29 equity
securities in 2009.

LOSSES

The increase in losses incurred during 2010 primarily resulted from $1,006 adverse loss development on
prior year claims. The adverse development resulted from claims payments that exceeded prior year estimations
and from increases we made to our estimates of ultimate losses on prior year claims. We also increased our
estimates of ultimate losses on current year claims as a result of the adverse development described. During
2009, we experienced positive development of $2,976 on prior year claims, mostly related to our homeowners
policies.

Although we experienced adverse development on prior accident years, our losses incurred in the current

accident year improved. In addition to accident-year decreases in our claims frequency, claims severity and loss
incurred per exposure, a decrease in homeowners exposures, coupled with the premium rate increases, impacted
the current accident year incurred losses.

POLICY ACQUISITION COSTS

Policy acquisition costs decreased primarily for two reasons. We amortized less agents’ commissions in

2010 as a result of the reduction in premiums written in late 2009 and early 2010. Also, we incurred additional
fees from Computer Sciences Corporation in 2009 related to their conversion and processing of data from our
former policy administrator; we incurred no such fees during 2010.

OPERATING EXPENSES

The decrease in our operating expenses primarily resulted because we incurred a $1,045 assessment during

2009 that we did not incur during 2010, offset by various changes in other operating expenses.

GENERAL AND ADMINISTRATIVE EXPENSES

The increase in our general and administrative expenses primarily resulted from a $234 increase in

professional fees and from $159 of amortization related to the intangible asset that resulted from the assumption
of South Carolina policies. The remaining increases were in expense categories that were individually not
significant.

OTHER INCOME (EXPENSES)

We recorded a $726 loss on the early extinguishment of our $18,280 merger-related notes during the second

quarter of 2010. The $726 represents the unamortized original issue discount that we wrote off upon
extinguishing the notes.

PROVISION (BENEFIT) FOR INCOME TAXES

Due to our operating loss for the current year, we recorded a benefit for income taxes for 2010 compared to

recording tax expense for 2009. Our effective tax rate for 2010 was 34.3%, compared to 35.9% for 2009.

RESULTS OF OPERATIONS 2009 COMPARED TO 2008

GROSS PREMIUMS WRITTEN

Two factors caused the increase in our gross premiums written: (i) an increase in policies-in-force, partially

offset by (ii) a decrease in average premium per policy.

30

The number of our homeowner policies-in-force at December 31, 2009, increased to approximately 93,000

from approximately 80,400 at December 31, 2008, as a result of the retention rate for our policies-in-force
increasing from 81% for 2008, to 90% for 2009. The increase in our policies-in-force primarily caused the
increase in our gross premiums written during 2009.

Our average premium per policy decreased from $1,930 for 2008, to $1,663 for 2009. The state-imposed

wind-mitigation credits primarily caused the decrease per policy of $267, or 14%. In 2008, approximately 45%
of our policies included wind-mitigation credits, and that percentage increased to 61% in 2009. See the
OVERVIEW section for a more detailed discussion of wind-mitigation credits.

GROSS PREMIUMS EARNED

The increase in our gross premiums earned primarily resulted from an increase in policies in force and is

closely correlated to the 10% increase in gross premiums written in 2009 compared to 2008.

Though gross premiums earned increased by 12%, the impact of wind-mitigation credits continued to
suppress the amount we would otherwise have earned. By the end of 2009, 61% of our policies in force reflected
wind-mitigation credits with an impact on premium in force of $83,108, while only 45% of our policies in force
at the end of 2008 reflected the credits with an impact on premium in force of $47,852. The wind-mitigation
credits impacted us so significantly because our underwriting profile focuses on newer homes that would more
likely include construction characteristics that would generate wind-mitigation credits. Additionally, our
portfolio of risks is skewed towards areas of the state where the policy premium related to wind peril is high.

Our underwriting results were further negatively impacted because the increase in our gross premiums
earned was less than that in our homeowners exposures, which increased by 37.9% during 2009. See below for a
further explanation of the change in losses incurred.

CEDED PREMIUMS EARNED

Our adjusted catastrophe reinsurance costs increased $34,528 for several reasons: (i) our September 30,
2009 total insured value, on which catastrophe reinsurance premium is largely based, increased by approximately
46% over our September 30, 2008 value, (ii) the FHCF increased the attachment point of its mandatory layer;
therefore, we purchased more expense private reinsurance up to that revised FHCF attachment point to avoid a
gap in coverage, and (iii) the rate reinsurers charged us for certain layers of our catastrophe contracts increased
from the prior contract year.

NET INVESTMENT INCOME

Our net investment income decreased because the interest rates on our cash and cash equivalents were

lower; therefore, we earned less interest income.

NET REALIZED INVESTMENT GAINS

Prompted by the severe declines in the securities markets in 2008, we decided to begin shifting amounts
invested in equity securities to fixed maturities. As a result, we sold more equity securities during 2009, resulting
in a change in net realized gains of $517. The remaining change in our net realized gains resulted from routine
sales of fixed maturities.

OTHER-THAN-TEMPORARY IMPAIRMENTS

Quarterly during 2009, we performed an assessment of our investment portfolio using the criteria discussed

in Note 3(b) in the Notes to Consolidated Financial Statements, and we determined that certain of our equity
securities were other-than-temporarily impaired; therefore, we recorded an impairment charge of $1,878 during
2009. We recorded no impairment charge during 2008.

31

POLICY ASSUMPTION BONUS

During 2008, we received a bonus from Citizens related to policies we assumed during 2004 and 2005. We

did not assume any policies from Citizens during 2006 and 2007, and the agreement we entered into with
Citizens during 2008 does not include a bonus provision; therefore, we did not receive any bonuses from Citizens
during 2009.

LOSSES

Several factors contributed to the increase in our total incurred losses. Our homeowners exposures grew by

37.9% in 2009, and we also experienced increases, on an accident-year basis, in claim frequency totaling 9.4%
and in claim severity totaling 8.1%. The noted increases resulted in a 65.7% increase in direct incurred loss on an
accident-year basis, which in turn drove the overall change. The impact of wind-mitigation credits, discussed
earlier, suppressed our gross premiums earned and the increase in our reinsurance costs further affected our net
premiums earned.

POLICY ACQUISITION COSTS

Policy acquisition costs consist of agents’ commissions, policy administration fees and premium taxes. The
increase in policy acquisition costs resulted from the increase in policies written during late 2008 and early 2009.

OPERATING EXPENSES

During 2009, we were assessed $1,045, but had no such assessments during 2008; this primarily contributed

to the increase in operating expenses. The remaining increases were in operating and underwriting expense
categories that were individually not significant.

OTHER (INCOME) EXPENSES

During the third quarter of 2008, we recorded $2,564 of other income when we reversed a liability related to

a put option associated with UIH membership units. We reversed the put option liability because it ceased to
exist by operation of law as a result of our merger.

PROVISION FOR INCOME TAXES

During 2009, our effective tax rate was 35.9%, compared to 19.7% for the same period in 2008. The 82.2%

increase in our effective tax rate primarily resulted from recording corporate taxes on all of our entities during
2009; whereas, until the merger, only UPC recorded a provision for income taxes as the other subsidiaries were
treated as partnerships for income tax purposes. Effective October 1, 2008, we recorded a provision for income
taxes for all of our subsidiaries because we included all of our subsidiaries in our consolidated corporate income
tax return.

During 2009, we recorded our deferred tax assets and liabilities at a combined tax rate of 38.6% as that is
the rate we expect to incur when the related temporary differences reverse and become deductible or taxable in
future periods. We recorded our 2009 current taxes receivable at a combined tax rate of 37.6%. For the fourth
quarter of 2008, we recorded our taxes at a combined tax rate of 37.6%.

See our Consolidated Statements of Income for a pro forma calculation of the estimated corporate income

taxes, based upon a tax rate of 38.6%, which we may have recorded for 2008 if all of our subsidiaries had
recorded corporate income tax provisions during that period.

LIQUIDITY AND CAPITAL RESOURCES

We generate cash through premium collections, reinsurance recoveries, investment income and the sale or

maturity of invested assets. We use our cash to pay claims and related costs, policy acquisition costs, salaries and
employee benefits, other expenses and stockholder dividends, as well as to purchase investments.

32

We do not conduct any business operations of our own; UPC, UIM and SCS conduct the business operations

of the consolidated group. As a result, we rely on cash dividends or intercompany loans from UIM to pay our
general and administrative expenses. State regulatory authorities in the states in which we operate heavily
regulate UPC, including restricting any dividends paid by UPC and requiring approval of any management fee
UPC pays to UIM for services rendered; however, nothing restricts our non-insurance company subsidiaries from
paying us dividends other than state corporate laws regarding solvency. Our non-insurance company subsidiaries
may therefore pay us dividends from any positive net cash flows that they generate. UIM pays us dividends
primarily using cash from the collection of management fees from UPC, pursuant to a management agreement in
effect between those entities.

Our operations used cash totaling $7,943 during 2010, compared to generating cash totaling $6,447 during
2009. Our operations used $14,390 more during 2010 than during 2009 primarily because we paid $20,559 more
in premiums to our reinsurers and we collected $1,349 less in reimbursements related to catastrophe losses from
our reinsurers during 2010 than during 2009. The increase in premium payments primarily resulted from an
acceleration in the payment schedule from equal quarterly payments to three equal payments, one every four
months. We collected $8,858 more in premiums from our policyholders during 2010 than during 2009, partially
offsetting the uses of cash related to our reinsurance, while we experienced no change in the amount of loss
payments to our policyholders.

In June, we recorded a reinsurance premium payable of $84,628 related to our 2010-2011 reinsurance
contracts, and we reduced the total amount to be paid to $80,707 after adjusting our private reinsurance contracts
for the difference between the actual amount of total insured value at September 30, 2010 and the amount of total
insured value we projected we would have at September 30, 2010; we also recorded a reduction in our FHCF
contract premium once we received final data from the FHCF. Though our reinsurance premiums remained
relatively flat in relation to the 2009-2010 contracts, we secured more coverage. Our current contracts exclude
our participation in any catastrophe losses in excess of our initial retained loss, up to the aggregate limits of
coverage, and the contracts include coverage for each of a second and third catastrophic event with lower
amounts of retained loss on those events. We paid reinsurance premium totaling $28,209 during the third quarter
of 2010, $38,100 during the fourth quarter of 2010 and $14,398 in the first quarter of 2011.

For additional information regarding our reinsurance coverage, please see Note 9 in the Notes to

Consolidated Financial Statements included herein.

During 2010, we generated $160,648 of proceeds from sales and maturities of securities. The increase in the

proceeds from dispositions of securities resulted from several factors that we discuss in more detail in the
TOTAL INVESTMENTS section above when explaining the decrease in investments. We only used $80,343 of
cash to purchase securities available for sale; we did not reinvest all of the remaining proceeds from our sales of
securities in December because, as noted previously, we are holding some of the proceeds to reinvest in what we
believe will be fixed maturities with higher interest rates than the interest rates on the securities we sold.

The table below summarizes our fixed maturities at December 31, 2010, by contractual maturity periods.

Actual maturities may differ as issuers may have the right to call, with or without penalties, prior to the
contractual maturity of those obligations.

December 31, 2010

Fair Value

%

Due in one year or less . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . .
Due after five years through ten years . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,821
30,033
3,095
12,035

11.42%
58.91%
6.07%
23.61%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$50,984

100.00%

33

During February 2010 our note with CB&T matured, so we paid the remaining principle of $4,327 plus
accrued interest. During May 2010, we chose to pay off the $18,280 of merger notes. See Note 12 in our Notes to
Consolidated Financial Statements for more information regarding our retirement of the two obligations in early
2010.

Our SBA note, which has an interest rate of 2.8% at December 31, 2010, requires us to remit quarterly
principal payments of $294 plus accrued interest. During 2010, we paid interest payments of $837. Our SBA note
matures on September 30, 2026 and is our only outstanding note payable at December 31, 2010.

The SBA note requires UPC to maintain statutory surplus equal to or greater than $50,000 less repayments

of principal on the SBA note and less payments of catastrophic losses. We monitor the surplus as to
policyholders at UPC each quarter and, for various reasons, we occasionally provide additional capital to UPC.
During 2010, we recorded $4.9 million of capital contributions to UPC. We currently do not foresee a need for
any further material contributions of capital to UPC; however, any future contributions of capital will depend on
circumstances at the time.

Our SBA note requires that we maintain a 2:1 ratio of net written premium to surplus (the SBA note

agreement defines surplus as the $20,000 of capital contributed to UPC under the agreement plus the outstanding
balance of the note) or a 6:1 ratio of gross written premium to surplus to avoid additional interest penalties. At
December 31, 2010, our net writing ratio was 1.7:1 and our gross writing ratio was 4:1, resulting in a default on
the note. Since we did not meet either writing ratio established by the SBA, we must pay additional interest of 25
basis points during the first quarter of 2011. Should we fail to exceed either a net writing ratio of 1.5:1 or a gross
writing ratio of 4.5:1, our interest rate will increase by 450 basis points above the stated rate of the note. Any
other writing ratio deficiencies result in an interest rate penalty of 25 basis points above the stated rate of the
note.

Our SBA note further provides that the SBA may, among other things, declare its loan immediately due and

payable for all defaults existing under the SBA note; however, any payment is subject to approval by the state
regulatory authority. At December 31, 2010, except as noted above, we were in compliance with the covenants of
the SBA note.

During 2010, we paid $529 of dividends to our shareholders. Our Board of Directors will need to declare

any future dividends and authorize payment.

In accordance with Florida law, UPC may pay dividends or make distributions out of that part of statutory

surplus derived from its net operating profit and its net realized capital gains. The law further provides
calculations to determine the amount of dividends or distributions that can be made without the prior approval of
the state regulatory authority and the amount of dividends or distributions that would require prior approval of
the regulatory authority. The risk-based capital guidelines published by the NAIC may further restrict UPC’s
ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause
surplus as to policyholders to fall below minimum RBC guidelines. Most states, including Florida, have adopted
the NAIC requirements, and insurers having less surplus as to policyholders than required will be subject to
varying degrees of regulatory action, depending on the level of capital inadequacy. State regulatory authorities
could require us to cease operations in the event we fail to maintain the statutory capital required. At
December 31, 2010, UPC’s surplus as to policyholders exceeded minimum RBC requirements.

We record our financial statements in accordance with GAAP; which differs in some respects from
reporting practices prescribed or permitted by state regulatory authorities. To retain our certificate of authority,
Florida law requires UPC to maintain surplus as to policyholders equal to the greater of 10% of our total
liabilities or $4,000. At December 31, 2010, UPC’s surplus as to policyholders was $48,495, and exceeded the
minimum requirements. Florida law also requires UPC to adhere to prescribed premium-to-capital surplus ratios,
with which we were in compliance at December 31, 2010.

34

We believe our current capital resources, together with cash provided from our operations, will be sufficient

to meet currently anticipated working capital requirements. We cannot provide assurance, however, that such
will be the case in the future.

OFF-BALANCE SHEET ARRANGEMENTS

At December 31, 2010, we have no off-balance sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, pursuant to

Regulation S-K we are not required to make disclosures under this Item.

Item 8.

Financial Statements and Supplementary Data

35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
United Insurance Holdings Corp.

We have audited the accompanying consolidated balance sheets of United Insurance Holdings Corp. and
subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of
income, stockholders’ equity, and cash flows for the years then ended. Our audits also included the financial
statement schedules of United Insurance Holdings Corp. listed in Item 15. These consolidated financial
statements and financial statement schedules are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements and schedules based on our
audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not required to have, nor
were we engaged to perform an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of United Insurance Holdings Corp. and subsidiaries as of December 31, 2010 and 2009, and
the results of its operations and its cash flows for years then ended, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly in all material respects the
information set forth therein.

/s/ McGladrey & Pullen, LLP

Kansas City, MO
March 17, 2011

36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Members
United Insurance Holdings Corp.

We have audited the accompanying consolidated balance sheet of United Insurance Holdings Corp. and
subsidiaries (the “Company”), a Delaware corporation, as of December 31, 2008 and the related consolidated
statements of income, consolidated statements of stockholders’ equity, and consolidated statements of cash flows
for the year ended December 31, 2008. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our audit included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of United Insurance Holdings Corp. and subsidiaries as of December 31, 2008, and the results of its
operations and its cash flows for the year ended December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.

/s/ De Meo, Young, McGrath, CPA

Fort Lauderdale, Florida
March 23, 2009

DYM
MEMBERS OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS: MANAGEMENT
CONSULTING SERVICES DIVISION; SEC PRACTICE SECTION;
PRIVATE COMPANIES PRACTICE SECTION; TAX DIVISION • FLORIDA INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS • INSTITUTE OF BUSINESS APPRAISERS

37

UNITED INSURANCE HOLDINGS CORP.
Consolidated Balance Sheets

December 31,

2010

2009

ASSETS
Investments available for sale, at fair value:

Fixed maturities (amortized cost of $50,984 and $125,920, respectively) . . . . . . . . . .
Equity securities (adjusted cost of $3,666 and $5,000, respectively) . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 50,683
3,615
300

$128,020
4,704
300

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54,598

133,024

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance recoverable on paid and unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71,644
414
7,825
27,304
38,307
9,342
4,187

27,086
1,119
7,544
25,477
40,285
9,256
3,967

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$213,621

$247,758

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:

Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 47,414
77,161
14,982
10,536
18,235

$ 44,112
73,831
28,162
12,154
41,428

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

168,328

199,687

Commitments and contingencies (Note 15)
Stockholders’ Equity:

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or

outstanding for 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.0001 par value; 50,000,000 shares authorized; 10,573,932 issued
and outstanding for 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

1
75
(216)
45,433

1
75
1,108
46,887

48,071

Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,293

Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . .

$213,621

$247,758

See accompanying Notes to Consolidated Financial Statements.

38

UNITED INSURANCE HOLDINGS CORP.
Consolidated Statements of Income

Year Ended December 31,

2010

2009

2008

REVENUE:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Decrease (increase) in gross unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

158,637 $
(3,330)
155,307
(88,452)

155,840 $
553
156,393
(78,212)

Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy assumption bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXPENSES:

Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

OTHER COMPREHENSIVE INCOME (LOSS):

66,855
3,879
4,346
(97)
—
5,008
79,991

42,533
21,712
7,155
7,506
1,767
80,673
(682)
726
(1,408)
(483)
(925) $

78,181
4,831
1,837
(1,878)
—
5,498
88,469

40,755
23,482
7,696
7,032
3,177
82,142
6,327
—
6,327
2,270
4,057 $

Change in net unrealized holding gain on investments . . . . . . . . . . . . . . . .
Reclassification adjustment for net realized investment gains . . . . . . . . . . .
Reclassification adjustment for recognized other-than-temporary

impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense related to items of other comprehensive income . . . . .

Total comprehensive income (loss)

. . . . . . . . . . . . . . . . . . . . . . . . . . . $

2,093
(4,346)

4,152
(1,837)

97
832
(2,249) $

1,878
(1,595)
6,655 $

141,556
(1,333)
140,223
(59,079)

81,144
6,632
1,116
—
6,493
5,677
101,062

28,063
17,616
6,337
7,196
2,811
62,023
39,039
(2,564)
41,603
8,184
33,419

(2,465)
(1,116)

—
1,347
31,185

Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,573,932

10,568,247

10,548,932

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,573,932

10,568,247

10,854,743

Earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(0.09) $

(0.09) $

0.05 $

0.38 $

0.38 $

0.15 $

3.17

3.08

—

PRO FORMA COMPUTATION OF INCOME TAXES FOR THE PERIOD PRIOR

TO THE MERGER (Unaudited):

Historical income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pro forma earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

$

$

41,603
16,048
25,555

2.42

2.35

See accompanying Notes to Consolidated Financial Statements.

39

UNITED INSURANCE HOLDINGS CORP.
Consolidated Statements of Stockholders’ Equity

Common Stock

Shares

Amount

Members’
Certificates
of Interest

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Income (loss)

Retained
Earnings

Total
Stockholders’
Equity

Balance at January 1, 2008 . . . . . . 10,548,932 —

7,464

—

744

37,891

46,099

Retroactive effects on equity
due to reverse acquisition
transaction effective
September 30, 2008 . . . . . .

—

Balance at January 1, 2008,

restated . . . . . . . . . . . . . . . . . . . 10,548,932

1

1

Net Income . . . . . . . . . . . . . .
Exercise of ownership UIH

option . . . . . . . . . . . . . . . . .

Net unrealized change in
investments, net of tax
effect of $1,347 . . . . . . . . .

Distributions to UIH
members prior to
Merger . . . . . . . . . . . . . . . .

Recapitalization as result of

Merger . . . . . . . . . . . . . . . .

Costs associated with

— —

— —

— —

— —

— —

Merger . . . . . . . . . . . . . . . .

— —

Balance at December 31, 2008 . . . 10,548,932

1

Net Income . . . . . . . . . . . . . .
Net unrealized change in
investments, net of tax
effect of $1,595 . . . . . . . . .
Issuance of common stock to
officers . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . .

— —

— —

25,000 —
— —

Balance at December 31, 2009 . . . 10,573,932

1

Net Loss . . . . . . . . . . . . . . . .

— —

Net unrealized change in

investments, net of tax effect of
$832 . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . .

— —
— —

Balance at December 31, 2010 . . . 10,573,932

1

(7,464)

7,463

—
—

—

—

—

—

—

—
—

—

—
—

—
—

—
—

—

7,463
—

63

—

—

(4,635)

(2,891)

—
—

—

75
—

75

—

—
—

75

—

744
—

—

—

—

37,891
33,419

46,099
33,419

—

63

(2,234)

—

(2,234)

—

—

—

(8,998)

(8,998)

(17,896)

(22,531)

—

(2,891)

(1,490)
—

44,416
4,057

42,927
4,057

2,598

—

2,598

—
—

1,108
—

—
(1,586)

46,887
(925 )

75
(1,586)

48,071
(925 )

(1,324)
—

—
(529 )

(1,324)
(529 )

(216 )

45,433

45,293

See accompanying Notes to Consolidated Financial Statements.

40

UNITED INSURANCE HOLDINGS CORP.
Consolidated Statements of Cash Flows

Year Ended December 31,

2010

2009

2008

OPERATING ACTIVITIES

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by (used

$

(925) $ 4,057

33,419

in) operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment (gains) losses . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of discount on notes payable . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for uncollectible premiums . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance recoverable on paid and unpaid losses . . . . . . . . . .
Prepaid reinsurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred policy acquisition costs, net . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES

Proceeds from sales and maturities of investments available for sale . . . .
Purchases of investments available for sale . . . . . . . . . . . . . . . . . . . . . . . .
Cost of property and equipment acquired . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of capitalized software acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES

Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash paid by UIH to FMG prior to Merger . . . . . . . . . . . . . . . . . . . . . .
Payment of Merger costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributions by UIH members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to UIH members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplemental Cash Flows Information

1,106
(4,249)
159
726
42
352
—
—

705
(323)
(1,827)
1,978
(86)
(398)
3,302
3,330
(13,180)
1,345
(7,943)

160,648
(80,343)
(73)
(311)
79,921

1,188
41
419
—
83
1,255
75
—

273
2,589
(2,873)
(13,767)
958
(3,047)
4,014
(553)
11,468
267
6,447

81,931
(85,124)
(108)
(206)
(3,507)

781
(1,116)
98
—
442
3,336
—
(2,564)

(7)
(692)
(5,788)
(173)
(1,700)
3,624
4,093
1,333
5,842
(529)
40,399

56,160
(72,386)
(256)
(1,285)
(17,767)

(24,078)
—
—
—
—
(529)
(2,813)
(27,420)
44,558
27,086
$ 71,644

(19,506)
(294)
(5,703)
—
(2,891)
—
—
63
— (18,225)

(1,586)
(3,468)
(5,348)
(2,408)
29,494
$ 27,086

—
1,123
(45,139)
(22,507)
52,001
29,494

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

2,298

$ 2,592 $ 2,276

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $ 3,987

$ 4,795

See accompanying Notes to Consolidated Financial Statements.

41

UNITED INSURANCE HOLDINGS CORP.
Supplemental Cash Flows Information (Continued)

Non-cash activity:

During 2008, we sold an available-for-sale investment for $1,133 in exchange for a note receivable in the

same amount. We recorded an unearned gain of $133 on the sale.

During 2008, we reclassified ($17,896) of additional paid-in capital to retained earnings to eliminate the

negative additional paid-in capital balance.

On September 30, 2008, we acquired United Insurance Holdings, L.C. (UIH) and accounted for the
transaction as a reverse acquisition and recapitalization since UIH was deemed to be the accounting acquirer.
Accordingly, the Consolidated Statements of Cash Flows do not reflect certain transactions that occurred during
2008 prior to the effective date of the Merger. Such transactions include:

• We issued 8,929,819 shares of our common stock to the members of UIH, as well as warrants to

purchase 1,273,569 shares of our common stock. Each common stock warrant allows the holder to
purchase one share of our common stock at an exercise price of $6.00 per share. The warrants became
exercisable beginning October 4, 2008, and expire on October 4, 2011.

• We paid cash of $15,740 to repurchase 1,980,671 shares of our common stock on September 29, 2008.

• We repurchased 869,565 shares from two former stockholders by exchanging notes payable for the

shares. The notes have a face value of $7,527 and bear interest at 11% per year [these notes were repaid
in full during 2010; see Note 12(c)].

• We paid cash of $10,039 to holders of 1,267,863 shares of our common stock who did not vote in favor

of the Merger and elected to have their shares of common stock converted to cash.

•

FMG Investors, LLC (FMGI) surrendered 179,819 shares of UIHC common stock it owned. We gave
no consideration in exchange for the surrendered shares, which we canceled. FMGI also surrendered
179,819 of the common stock warrants that it owned. See Note 17 for a further discussion of FMGI
being a related party.

• The underwriter for our initial public offering surrendered 100,000 of the 450,000 unit purchase

options it owned. They also agreed to accelerate the expiration date of their remaining 350,000 unit
purchase options to October 4, 2010. The unit purchase options expired unexercised.

During the first quarter of 2009, we issued a total of 25,000 shares of common stock to two of our officers in

exchange for services performed. We recorded $75 of expense related to the transaction.

See accompanying Notes to Consolidated Financial Statements.

42

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

1. ORGANIZATION AND BUSINESS

United Insurance Holdings Corp. (UIHC, we, us, our), formerly known as FMG Acquisition Corp. (FMG),
incorporated under the laws of the State of Delaware. On September 30, 2008, UIHC, United Subsidiary Corp.
(merger sub) and United Insurance Holdings, L.C. (UIH) completed a merger whereby merger sub was merged
into UIH, with UIH remaining as the surviving entity.

Through UIH, our wholly-owned subsidiary, and UIH’s three wholly-owned subsidiaries, we write and

service property and casualty insurance policies in Florida and South Carolina. The three subsidiaries of UIH,
each incorporated under Florida law, include United Property & Casualty Insurance Company (UPC), United
Insurance Management, L.C. (UIM) and Skyway Claims Services, LLC (SCS). We operate under one business
segment.

The Florida and South Carolina state regulatory authorities have authorized UPC to write homeowner and

dwelling property and casualty lines, as well as flood coverage under the National Flood Insurance Program.
Though the state regulatory authority has authorized UPC to write a commercial line of business in Florida that
includes auto and multi-peril coverage, we voluntarily discontinued writing that line as of May 31, 2009.

Through June 30, 2010, we operated exclusively in Florida, which subjected us to geographic concentrations
of credit risk and risk of catastrophic loss. On July 1, 2010, we began writing our policies in South Carolina, and
we also assumed a book of business from Sunshine State Insurance Company representing $5,294 of in-force
homeowner premium in South Carolina. We began operating in South Carolina so that we could begin to reduce
our geographic concentration of exposure to catastrophic losses, and the assumption from Sunshine State and
subsequent renewals of South Carolina policies will also reduce our geographic concentration of credit risk.

We write our own policies throughout both states utilizing our agency network. We occasionally supplement
those writings by assuming policies from Citizens Property Insurance Corporation (Citizens), a insurer supported
by the State of Florida.

UIM, a managing general agent, manages all aspects of UPC’s operations, including underwriting, policy

administration, collections and disbursements, accounting and claims processes.

SCS provides claims appraisal services, one of several companies that currently provide such services to UPC.

2.

PRESENTATION AND CONSOLIDATION

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

43

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

We include all of our subsidiaries in our consolidated financial statements, eliminating all significant
intercompany balances and transactions during consolidation. We have reclassified certain amounts in the prior
years’ financial statements and footnotes to conform to the current year presentation. These reclassifications had
no impact on our consolidated financial position, results of operations or cash flows as previously reported.

Since we accounted for the merger as a reverse acquisition and recapitalization, we have retroactively restated

certain equity accounts for the period prior to the merger.

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

(a) Cash and Cash Equivalents

Our cash and cash equivalents include demand deposits with financial institutions and short-term, highly-liquid

instruments with original maturities of three months or less when purchased.

(b)

Investments

We currently classify all of our investments in fixed maturities and equity securities as available-for-sale, and
report them at fair value. Subsequent to our acquisition of available-for-sale securities, we record changes in value
through the date of disposition as unrealized holding gains and losses, net of tax effects, and include them as a
component of accumulated other comprehensive income included in stockholders’ equity. We include realized gains
and losses, which we calculate using the specific-identification method for determining the cost of securities sold, in
net income. We amortize any premium or discount on fixed maturities over the remaining maturity period of the
related securities using the effective interest method, and we report the amortization in Net Investment Income. We
recognize dividends and interest income when earned.

Quarterly, we perform an assessment of our investments to determine if any are other-than-temporarily impaired.
An investment is impaired when the fair value of the investment declines to an amount less than the cost or amortized
cost of that investment. As part of our assessment process, we determine whether the impairment is temporary or other-
than-temporary. We base our assessment on both quantitative criteria and qualitative information, considering a number
of factors including, but not limited to: how long the security has been impaired; the amount of the impairment; whether,
in the case of equity securities, we intend to hold, and have the ability to hold, the security for a period sufficient for us
to recover our cost basis, or whether, in the case of debt securities, we intend to sell the security or it is more likely than
not that we will have to sell the security before we recover the amortized cost; the financial condition and near-term
prospects of the issuer; whether the issuer is current on contractually-obligated interest and principal payments; key
corporate events pertaining to the issuer and whether the market decline was affected by macroeconomic conditions.

If we determine that an equity security has incurred an other-than-temporary impairment, we permanently
reduce the cost of the security to fair value and recognize an impairment charge in our Consolidated Statements
of Income. If a debt security is impaired and we either intend to sell the security or it is more likely than not that
we will have to sell the security before we are able to recover the amortized cost, then we record the full amount
of the impairment in our Consolidated Statements of Income. If we determine that an impairment of a debt
security is other-than-temporary and we neither intend to sell the security nor it is more likely than not that we
will have to sell the security before we are able to recover its cost or amortized cost, then we separate the
impairment into (a) the amount of impairment related to credit loss and (b) the amount of impairment related to
all other factors. We record the amount of the impairment related to the credit loss as an impairment charge in
our Consolidated Statements of Income, and we record the amount of the impairment related to all other factors
in accumulated other comprehensive income.

44

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

A large portion of our investment portfolio consists of fixed maturities, which may be adversely affected by
changes in interest rates as a result of governmental monetary policies, domestic and international economic and
political conditions and other factors beyond our control. A rise in interest rates would decrease the net
unrealized holding gains of our investment portfolio, offset by our ability to earn higher rates of return on funds
reinvested. Conversely, a decline in interest rates would increase the net unrealized holding gains of our
investment portfolio, offset by lower rates of return on funds reinvested.

(c) Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants (an exit price). When reporting the fair values of our financial
instruments, we prioritize those fair value measurements into one of three levels based on the nature of the
inputs, as follows:

• Level 1 – Valuations based on quoted prices in active markets for identical assets and liabilities;

• Level 2 – Valuations based on observable inputs that do not meet the criteria for Level 1, including
quoted prices in inactive markets and quoted prices in active markets for similar, but not identical
instruments; and

• Level 3 – Valuations based on unobservable inputs, which are based upon the best available

information when external market data is limited or unavailable.

We estimate the fair value of our investments using the closing prices on the last business day of the
reporting period, obtained from active markets such as the NYSE, NASDAQ, and AMEX. For securities for
which quoted prices in active markets are unavailable, we use observable inputs such as quoted prices in inactive
markets, quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and
other relevant inputs. We do not have any investments in our portfolio which require us to use unobservable
inputs. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on
December 31, 2010, and 2009. Changes in interest rates subsequent to December 31, 2010, may affect the fair
value of our investments.

The carrying amounts for the following financial instrument categories approximate their fair values at
December 31, 2010 and 2009 because of their short-term nature: cash and cash equivalents, accrued investment
income, premiums receivable, reinsurance recoverable, reinsurance payable, and accounts payable and accrued
expenses. The carrying amount of our note payable also approximates its fair value as it is variable in nature.

(d) Premiums

We record premiums as revenue, net of ceded amounts, on a daily pro rata basis over the contract period of

the related policies that are in force. For any portion of premiums not earned at the end of the reporting period,
we record an unearned premium liability.

Premiums receivable represents amounts due from our policyholders for billed premiums and related policy

fees. We perform a policy-level evaluation to determine the extent to which the balance of premium receivable
exceeds the balance of unearned premium. We then age any resulting exposure based on the last date the policy
was billed to the policyholder, and we establish an allowance for credit losses for any amounts outstanding for

45

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

more than 90 days. When we receive payments on amounts previously charged off, we credit bad debt expense in
the period we receive the payment. The balances of our allowance for uncollectible premiums totaled $61 and
$370 at December 31, 2010 and 2009, respectively.

When we receive premium payments from policyholders prior to the effective date of the related policy, we
record an advance premiums liability. On the policy effective date, we reduce the advance premium liability and
record the premiums as described above.

(e) Policy Acquisition Costs

We incur policy acquisition costs that vary with, and are directly related to, the production of new business.

Policy acquisition costs consist primarily of the following three items: i) commissions paid to outside agents at
the time of policy issuance and commissions paid to Citizens for policies assumed, net of commissions refunded
for cancelled policies; ii) policy administration fees paid to a third-party administrator at the time of policy
issuance; and iii) premium tax. We capitalize policy acquisition costs to the extent recoverable, then we amortize
those costs over the contract period of the related policy.

At each reporting date, we determine whether we have a premium deficiency. A premium deficiency would
result if the sum of our expected losses, deferred policy acquisition costs, and policy maintenance costs (such as
costs to store records and costs incurred to collect premiums and pay commissions) exceeded our related
unearned premiums plus investment income. Should we determine that a premium deficiency exists, we would
write off the unrecoverable portion of deferred policy acquisition costs.

(f) Long-lived Assets

i)

Property and Equipment

Because the total net amount ($296 at December 31, 2010) is not material to our financial statements, we
classify our property and equipment, which we record at cost less accumulated depreciation and amortization,
within other assets on our consolidated balance sheets. We use the straight-line method of calculating
depreciation over the estimated useful lives of the assets, which are three to five years. We also use the straight-
line method to calculate amortization of leasehold improvements over the estimated useful lives of the assets or
the term of the lease, whichever is shorter. We periodically review estimated useful lives and, where appropriate,
we make changes prospectively. We charge maintenance and repair costs to expense as incurred.

ii) Capitalized Software

We capitalize certain direct development costs associated with internal-use software related to our policy

administrator and, because the total amount ($1,214 at December 31, 2010) is not material to our financial
statements, we classify it within other assets on our consolidated balance sheets. We amortize capitalized
software costs over the unexpired portion of the contract term. The contract term at the time we put the software
into use, which is six years, is the minimum period of time we expect the software to be useful to us.

46

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

iii)

Impairment of Long-lived Assets

We annually review our long-lived assets, including intangible assets, to determine if their carrying amounts

are recoverable. If the non-discounted future cash flows expected to result from the use and eventual disposition
of the assets are less than their carrying amounts, we reduce their carrying amounts to fair value and recognize an
impairment loss.

(g) Unpaid Losses and Loss Adjustment Expenses

Our reserves for unpaid losses represent the estimated ultimate cost of settling all reported claims plus all
claims we incurred related to insured events that have occurred as of the reporting date, but that policyholders
have not yet reported to us (incurred but not reported, or IBNR, claims).

We estimate our reserves for unpaid losses using individual case-basis estimates for reported claims and

actuarial estimates for IBNR claims. Trends in loss severity and frequency may affect our estimated losses, and
we continually review and adjust our estimated losses as necessary based on our historical experience and as we
obtain new information. If our unpaid loss reserves prove to be inadequate or excessive, we increase or decrease
the liability in the period in which we identify the difference, thereby impacting net income. Though our estimate
of the ultimate cost of settling all reported and unreported claims may change at any point in the future, a
reasonable possibility exists that our estimate may vary significantly in the near term from the estimated amounts
included in our consolidated financial statements.

On our Consolidated Balance Sheets, we report our reserves for unpaid losses gross of the amounts related
to unpaid losses recoverable from reinsurers. On our Consolidated Statements of Income, we report losses net of
amounts ceded to reinsurers. We do not discount our loss reserves for financial statement purposes.

(h) Managing General Agent Fees and Policy Fees

Our policy fees consist of the managing general agent fee and a pay-plan fee. Florida law allows managing

general agents to charge policyholders a $25.00 fee on each policy written; we defer such fees as unearned
revenue and then include them in income on a pro rata basis over the term of the underlying policies. We record
our pay-plan fees, which we charge to all policyholders that pay their premium in more than one installment, as
income when collected. We report all policy-related fees in other revenue on our Consolidated Statements of
Income.

(i) Reinsurance

Our reinsurance agreements are short-term, prospective contracts. We record an asset, prepaid reinsurance
premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new
reinsurance agreements. We amortize our prepaid reinsurance premiums over the 12-month contract period.

We record amounts recoverable from our reinsurers on paid losses plus an estimate of amounts recoverable

on unpaid losses. The estimate of amounts recoverable on unpaid losses is a function of our liability for unpaid
losses associated with the reinsured policies; therefore, the amount changes in conjunction with any changes to
our estimate of unpaid losses. Though our estimate of amounts recoverable from reinsurers on unpaid losses may
change at any point in the future because of its relation to our reserves for unpaid losses, a reasonable possibility
exists that our estimate may change significantly in the near term from the amounts included in our consolidated
financial statements.

47

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

We estimate uncollectible amounts receivable from reinsurers based on an assessment of factors including
the creditworthiness of the reinsurers and the adequacy of collateral obtained, where applicable. We recorded no
allowance for uncollectible reinsurance during the years ended December 31, 2010, 2009 or 2008.

We pay commissions to Citizens for any policies that we assume. We amortize our assumed commissions

on a pro rata basis over the 12-month period from the date of assumption, and we amortize any subsequent
changes in the amount of commission over the months remaining in the original 12-month period. The assumed
commission amounts are recorded as an expense in policy acquisition costs on our Consolidated Statements of
Income.

(j) Assessments

We record guaranty fund and other insurance-related assessments imposed upon us as an expense in the

period the regulatory agency imposes the assessment. To recover the assessment, we use a process, created by
Florida statute, known as Use and File (South Carolina has not yet imposed any assessments upon us). We
calculate and begin collecting a policy surcharge that will allow us to collect the entire assessment over a
12-month period, based on our estimate of the number of policies we expect to write. We then submit a filing to
the state regulatory authority requesting formal approval of the policy surcharge. The process may be repeated in
successive 12-month periods until we collect the entire assessment. We record the recoveries as revenue in the
period that we collect the cash. While current regulations allow us to recover from policyholders the amount of
assessments imposed upon us, our payment of the assessments and our recoveries may not offset each other in
the same fiscal period in our financial statements.

We collect assessments imposed upon policyholders as a policy surcharge and we record the amounts

collected as a liability until we remit the amounts to the regulatory agency that imposed the assessment.

(k)

Income Taxes

Prior to consummation of the merger, UIH had elected to be treated as a partnership for income tax
purposes; therefore, the members of UIH reported all taxable income and tax credits attributable to UIH and its
two limited liability company subsidiaries, UIM and SCS, on the members’ individual tax returns. Our UPC
subsidiary has recorded income taxes since its inception.

Effective October 1, 2008, we entered into a tax sharing agreement with each of our subsidiaries and we
began filing consolidated tax returns. Under the tax sharing agreement, we allocate taxes to each subsidiary in
proportion to the amount of taxable income that each subsidiary contributes to the consolidated taxable income.
The income tax provision included in these statements is attributable to UPC for periods through the merger date
and to all entities after the merger date.

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences

between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the
years in which we expect to recover or settle those temporary differences. Should a change in tax rates occur, we
recognize the effect on deferred tax assets and liabilities in operations in the period that includes the enactment
date. Realization of our deferred income tax assets depends upon our generation of sufficient future taxable
income.

48

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

We record any income tax penalties and income-tax-related interest as income tax expense in the period

incurred. We did not incur any tax penalties or income-tax-related interest during the years ended
December 31, 2010, 2009 or 2008.

(l) Advertising Costs

We expense all advertising costs when we incur those costs. For the years ended December 31, 2010, 2009

and 2008, we incurred advertising costs of $783, $712, and $484, respectively.

(m) Earnings Per Share

We report both basic earnings per share and diluted earnings per share. To calculate basic earnings per

share, we divide net income by the weighted-average number of common stock shares outstanding during the
period. We calculate diluted earnings per share by dividing net income by the weighted-average number of
common stock shares and common stock equivalents outstanding during the period. We use the treasury stock
method to calculate common stock equivalents.

(n) Concentration of Credit Risk

Though we now operate in Florida and South Carolina, we still write more than 95% of our business in

Florida, which subjects us to a geographic concentration of credit risk. We are also subject to a group
concentration of credit risk with regard to our reinsurance recoverable, since all of our reinsurers engage in
similar activities and have similar economic characteristics that could cause their ability to repay us to be
similarly affected by changes in economic or other conditions. We mitigate both risks by entering into
reinsurance contracts with financially-stable reinsurers, and by securing irrevocable letters of credit from
reinsurers when necessary.

Additionally, all of our cash is on deposit at two financial institutions, one of which is a subsidiary of a
company that is our largest shareholder. Consequently, we are subject to a concentration of credit risk with
regard to our cash. We had $55,443 in excess of federal government insured limits at December 31, 2010. Our
cash deposits were fully insured at December 31, 2009.

4. RECENT ACCOUNTING STANDARDS UPDATES

In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting

Standards (SFAS) No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement
No. 140. In SFAS No. 166, the FASB improves the relevance, representational faithfulness, and comparability of
the information that a reporting entity provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. In December 2009, the FASB issued Accounting Standards
Update (ASU) No. 2009-16, Accounting for Transfers of Financial Assets, which incorporated SFAS No. 166
into the Accounting Standards Codification (ASC). We adopted ASU No. 2009-16 as of January 1, 2010, and our
adoption of the changes to the ASC made by ASU No. 2009-16 did not have a material effect on our consolidated
financial statements.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). In SFAS
No. 167, the FASB replaces the quantitative-based risks and rewards calculation for determining whether an
enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative,

49

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity, and
requires additional disclosures about an enterprise’s involvement in variable interest entities. In December 2009,
the FASB issued ASU No. 2009-17, Consolidations (Topic 810), which incorporated SFAS No. 167 into the
ASC. We adopted ASU No. 2009-17 as of January 1, 2010, and our adoption of the changes to the ASC made by
ASU No. 2009-17 did not have a material effect on our consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures About Fair Value Measurements. The amendments in ASU 2010-06 add some new
disclosures regarding fair value measurements, including information regarding transfers into and out of Level 1
and Level 2, and information about purchases, sales, issuances and settlements of investments that require Level
3 inputs to estimate their fair value. The amendments also clarify certain existing disclosure requirements. The
amendments related to the activities in Level 3 measurements shall be effective for fiscal years beginning after
December 15, 2010, and interim periods within those fiscal years; we adopted all other amendments as of
January 1, 2010. Our adoption of the portions of ASU No. 2010-06 that have already become effective did not
have a material effect on our consolidated financial statements, though it expanded our associated disclosures.
Since we do not generally maintain investments that require Level 3 inputs to estimate fair value, we do not
expect that our adoption of this portion of ASU No. 2010-06 will have a material effect on our consolidated
financial statements.

In October 2010, the FASB issued ASU No. 2010-26, Financial Services—Insurance (Topic 944):
Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The amendments in ASU
No. 2010-26 address diversity in practice regarding the interpretation of which costs relating to the acquisition of
new or renewal insurance contracts qualify for deferral; they clarify which costs should be deferred and which
costs should be expensed when incurred. The amendments in ASU No. 2010-26 become effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2011. Since we already record
deferred acquisition costs as specified by the amendments, we do not expect that our adoption of ASU
No. 2010-26 will have a material effect on our consolidated financial statements.

5. MERGER

On September 30, 2008, we completed the acquisition of, and merger with, UIH. Since UIH was deemed the

acquirer for accounting purposes, we accounted for the merger as a reverse acquisition and recapitalization with
UIH being the surviving entity. Accordingly, our historical consolidated financial statements reflect the assets,
liabilities and operations of UIH prior to the merger date, recorded on a historical cost basis. We then recorded
and consolidated UIHC’s (formerly FMG’s) assets and liabilities at their fair value on the date of the merger.

In exchange for 100% of the membership units in UIH, we paid the members of UIH $25,000 cash, we
issued 8,929,819 shares of our common stock at a quoted market value of $7.91 per share on September 29,
2008, and we granted warrants to purchase 1,273,569 shares of our common stock at a quoted market value of
$0.35 per warrant on September 29, 2008. The warrants are exercisable at $6.00 per share beginning October 4,
2008, and expire on October 4, 2011.

Since the transaction costs did not exceed the $25,000 cash received in the transaction, we recorded the

$2,891 of transaction costs associated with the merger as a reduction of Additional Paid-in Capital on our
Consolidated Balance Sheets.

50

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

We did not present in our footnotes any pro forma information regarding the effects of the merger as if the

merger occurred on January 1, 2007, because UIHC was a blank-check company with no material operations
prior to the merger.

6.

INVESTMENTS

The following table details the difference between cost or amortized cost and estimated fair value, by major

investment category, at December 31, 2010, and 2009:

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

December 31, 2010

U.S. government and agency securities . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 32,841
13,305
4,029
809

$ 119
10
18
—

Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . .

Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . .

50,984
3,061
605

3,666
300

147
47
—

47
—

$ 65
336
—

47

448
60
38

98
—

Fair Value

$ 32,895
12,979
4,047
762

50,683
3,048
567

3,615
300

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 54,950

$ 194

$546

$ 54,598

December 31, 2009

U.S. government and agency securities . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . .

Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . .

$ 74,578
—
48,742
2,600

125,920
3,790
1,210

Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . .

5,000
300

$ 193
—
2,482
5

2,680
93
—

93
—

$177
—
257
146

580
252
137

389
—

$ 74,594
—
50,967
2,459

128,020
3,631
1,073

4,704
300

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . .

$131,220

$2,773

$969

$133,024

51

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price

(fair value) to the cost, amortized cost or adjusted cost of the security sold. We determine the cost or amortized
cost of the security sold using the specific-identification method. The following tables detail our realized gains
(losses) by major investment category for the years ended December 31, 2010, 2009 and 2008:

2010

2009

2008

Gains
(Losses)

Fair Value
at Sale

Gains
(Losses)

Fair Value
at Sale

Gains
(Losses)

Fair Value
at Sale

Fixed maturities . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . .
Total realized gains . . . . . .
Fixed maturities . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . .
Total realized losses . . . . . .
Net realized investment gains . .

4,278
149
4,427
(43 )
(38 )
(81 )
4,346

105,637
2,731
108,368
15,700
1,310
17,010
125,378

1,545
1,165
2,710
(51 )
(822)
(873)
1,837

40,418
4,977
45,395
1,574
1,111
2,685
48,080

1,386
45
1,431
(96 )
(219)
(315)
1,116

31,055
378
31,433
2,249
1,211
3,460
34,893

In the first quarter of 2008, we sold one of our investments in common stock back to the issuing company, a
related party known as Prime Holdings Insurance Services, Inc., in exchange for a note receivable in the amount
of $1,133. We recorded $133 of unearned gain at the time of the sale. When Prime Holdings paid the first
installment in 2008, we recognized $45 of gain and when they paid the second installment in 2009, we
recognized $44 of gain. We recognized the remaining $44 of unearned gain when Prime Holdings paid the final
installment in May 2010. See Note 17 for additional information.

The states in which we operate require us, by statute, to maintain deposits to secure the payment of claims.

In Florida, we have assigned a twelve-month, automatically renewing certificate of deposit in the amount of $300
to the state regulatory authority to satisfy the Florida requirement. In South Carolina, we have assigned a U.S.
Treasury Note with a book value of $1,004 and a fair value of $1,008 to the state regulatory authority to satisfy
the requirement. We report the certificate of deposit in Other Long-Term Investments, while we report the U.S.
Treasury Note in Fixed Maturities. To obtain the approval of our application to write policies in Massachusetts,
we purchased a Massachusetts municipal bond with a par value of $1,000 and assigned a tranche with a $100 par
value to the state regulatory authority during 2010. At December 31, 2010, the book value of the assigned tranche
was $104 and the fair value was $98. We expect to begin writing policies in Massachusetts during 2011.

The investments held at the end of the year were comprised mainly of U.S. government and agency

securities, securities of states and municipalities, and securities of high-quality corporate issuers.

The table below summarizes our fixed maturities at December 31, 2010, by contractual maturity periods.
Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties,
prior to the contractual maturity of those obligations.

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52

Cost or
Amortized
Cost

$ 5,821
30,033
3,095
12,035
$50,984

Fair Value

$ 5,793
30,039
3,060
11,791
$50,683

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

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

Year Ended December 31,

Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and short-term investments . . . . . . . . . . . . . . . . .

$3,551
203
125

$4,168
293
370

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,879
(147 )

4,831
(164 )

2010

2009

2008

5,066
266
1,300

6,632
(143 )

Net investment income, less investment expenses . . . . . . . . . . . . . .

$3,732

$4,667

$6,489

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

Less Than Twelve Months

Twelve Months or More

Number of
Securities*

Gross
Unrealized
Losses

Fair Value

Number of
Securities*

Gross
Unrealized
Losses

Fair Value

December 31, 2010

U.S. government and agency securities . . .
States, municipalities and political

7

$ 65

$ 9,611

subdivisions . . . . . . . . . . . . . . . . . . . . . .

13
Corporate securities . . . . . . . . . . . . . . . . . . —
Redeemable preferred stocks . . . . . . . . . . . —

Total fixed maturities . . . . . . . . . . . .

20

Common stocks . . . . . . . . . . . . . . . . . . . . .
19
Nonredeemable preferred stocks . . . . . . . . —

Total equity securities . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . .

December 31, 2009

U.S. government and agency securities . . .
States, municipalities and political

19

39

12

subdivisions . . . . . . . . . . . . . . . . . . . . . . —

Corporate securities . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . —

1

Total fixed maturities . . . . . . . . . . . .

13

Common stocks . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . —

1

Total equity securities . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . .

1

14

336
—
—

401

17
—

17

11,951
—
—

21,562

810
—

810

—

—
—

6

6

4
4

8

$—

$ —

—
—
47

47

43
38

81

—
—
763

763

423
567

990

$418

$22,372

14

$128

$1,753

$177

$32,991

—
14
—

191

15
—

15

—
1,038
—

34,029

87
—

87

$206

$34,116

—

—

2
12

14

14
6

20

34

$—

$ —

—
243
146

389

237
137

374

—
1,793
1,836

3,629

2,338
1,073

3,411

$763

$7,040

* This amount represents the actual number of discrete securities, not the number of shares of those securities.

The number is not presented in thousands.

53

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

During the years ended December 31, 2010 and 2009, we recorded other-than-temporary impairment
charges of $97 and $1,878, respectively, after determining that impairments related to certain of our equity
investments were other-than-temporary. Since we incurred the impairment charges on our equity securities, we
recorded the impairment amount in our Consolidated Statements of Income. We have never recorded an other-
than-temporary impairment charge on our debt-security investments. We did not record any other-than-
temporary impairment charges in 2008.

During our quarterly evaluations of our securities for impairment, we determined that none of our

investments in debt and equity securities that reflected an unrealized loss position were other-than-temporarily
impaired. For both the debt and equity securities we own, we noted at December 31, 2010, that many of those for
which we did not recognize an impairment charge in prior periods had experienced increases in value resulting
from a recovery in the securities markets, and that the issuers had stable financial histories and remained
financially stable in the current economic environment. With regard to our debt securities, we neither intend to
sell nor is it likely that we would be required to sell the debt securities before we recover our amortized cost
basis, and all issuers continue to make interest payments on a timely basis. All the issuers of the equity securities
we own, and on which we did not record an impairment charge, had promising near-term prospects that indicated
we could recover our cost basis; we also had the ability and the intent to hold these equity securities until their
value exceeds their cost. Additionally, most of the securities have recovered to a fair value near our cost.

The following table presents the fair value measurements of our financial instruments by level at

December 31, 2010:

December 31, 2010

Total

Level 1

Level 2

Level 3

U.S. government and agency securities . . . . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 32,895
12,979
4,047
763

Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50,684

Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . .

3,047
567

3,614
300

$ — $ 32,895

—
—
763

763

3,047
567

3,614
300

$—
12,979 —
4,047 —
—

—

49,921 —

—
—

—
—

—
—

—
—

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 54,598

$ 4,677

$ 49,921

$—

December 31, 2009

U.S. government and agency securities . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 74,595
50,966
2,459

$24,958
—
2,459

$ 49,637

$—
50,966 —
—

—

Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

128,020

27,417

100,603 —

Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . .

3,631
1,073

4,704
300

3,631
1,073

4,704
300

—
—

—
—

—
—

—
—

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$133,024

$32,421

$100,603

$—

54

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

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

7. EARNINGS PER SHARE

The table below reflects the diluted weighted-average number of common stock shares outstanding using

the treasury stock method:

Weighted-average shares – basic . . . . . . . . . . . .
Effect of dilutive common stock equivalents:

Year ended December 31,

2010

2009

2008

10,573,932

10,568,247

10,548,932

Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

305,811

Weighted-average shares – diluted . . . . . . . . . . .

10,573,932

10,568,247

10,854,743

On October 4, 2010, the previously-outstanding unit purchase option expired.

We have 7,077,375 warrants outstanding; each warrant can be exercised for one share of common stock. For

the year ended December 31, 2010, the warrants were anti-dilutive; therefore, we did not include the shares
associated with the warrants in the diluted weighted-average shares outstanding reported in the table above. See
Note 20 for additional information.

8. DEFERRED POLICY ACQUISITION COSTS

We anticipate that our deferred policy acquisition costs will be fully recoverable in the near term. The table

below depicts the activity with regard to deferred policy acquisition costs:

Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy acquisition costs deferred . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,256
23,407
(23,321)

$ 10,214
23,719
(24,677)

Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,342

$ 9,256

2010

2009

55

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

9. REINSURANCE

We follow industry practice of reinsuring a portion of our risks. Reinsurance involves transferring (ceding),

all or a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent
that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain
liable for the entire insured loss.

Our catastrophe reinsurance agreements provide us coverage against severe weather events. We entered into

excess-of-loss agreements with a group of private reinsurers and with the Florida Hurricane Catastrophe Fund
(FHCF). The private agreements provide coverage against severe weather events such as hurricanes, tropical
storms and tornadoes. The agreement with the FHCF only provides coverage against storms that the National
Hurricane Center designates as a hurricane at landfall.

For the policy year beginning June 1, 2010, we have a private catastrophe reinsurance agreement structured

into layers. The coverage provided by one layer picks up (attaches), at the point where coverage under the
previous layer ends. Our agreement with the FHCF divides our coverage into three layers: the Limited-
Apportionment Company layer, the Mandatory layer and the Temporary-Increase-in-Coverage-Limit layer. The
FHCF estimates the amount of coverage provided by their agreement until they are able to determine how many
insurers are participating and at what amounts of coverage; they must also verify the data on exposures to be
reinsured as submitted by participating insurers. The amount of coverage provided by the FHCF agreement
usually changes slightly in the fourth quarter, when the FHCF completes the necessary validations.

For a single hurricane catastrophe, we have chosen to pay, or “retain”, the first $15,000 of catastrophe losses

before our reinsurance contracts provide coverage. For a second and a third hurricane catastrophe, we would
retain the first $5,000 of catastrophe losses for each event. Our agreements will reimburse us as much as
$513,200 for the first event.

For a single non-hurricane catastrophe, we would retain the first $25,000 of catastrophe losses. For a second

and a third non-hurricane catastrophe, we would retain the first $5,000 of catastrophe losses for each event. Our
agreements will reimburse us as much as $127,200 for the first event.

With regard to all of our reinsurance agreements, we retain aggregate catastrophe losses, from all events,

exceeding our reinsurance coverage.

Our agreement with the FHCF allows for one reinstatement of coverage provided by the limited-
apportionment company layer should losses resulting from one hurricane exhaust that coverage, while our
agreement with the private reinsurers allows for one reinstatement of coverage on all the private layers should
losses resulting from one or more severe weather events exhaust that coverage. Our agreement with the FHCF
does not provide for reinstatement of the coverage provided by the other layers. The FHCF limited-
apportionment company layer provides for reinstatement of coverage at no additional premium; however, our
private agreement requires us to pay 100% additional premium to reinstate the coverage it provides. To protect us
in the event a reinstatement of coverage under our private agreement becomes necessary, we purchased a
reinsurance premium protection policy. Our reinsurance premium protection policy reimburses us 100% of the
amount of any reinstatement premium that we would have to pay to reinstate coverage on the first private layer.

Our non-catastrophe reinsurance agreement provides excess-of-loss coverage for losses arising out of
property business up to $1,700 in excess of $1,000 per risk. Should a loss recovery, or series of loss recoveries,

56

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

exhaust the coverage provided under the agreement for losses arising out of property business, one reinstatement
of the $1,700 of coverage limit is included at 50% additional premium. The agreement, including reinstatements,
provides aggregate coverage of $3,400 for losses arising out of property business, while any single occurrence is
limited to $1,700. The agreement also provides coverage for losses arising out of a combination of property and
casualty business up to $2,200 in excess of $1,000 per occurrence, subject to a maximum recovery on any one
loss occurrence, regardless of the number of risks involved for property or the number or type of insureds for
casualty, of $2,200.

For our discontinued commercial line of business, we entered into quota share reinsurance agreements for

policy years prior to the 2009-2010 policy year, but we did not enter into a new quota share agreement after
July 31, 2009. We recognized commission revenue on our previous quota share agreements totaling $924, $405
and $606 for the years ended December 31, 2010, 2009 and 2008, respectively.

We write flood insurance under an agreement with the National Flood Insurance Program. We cede 100% of

the premiums written and the related risk of loss. We earn commissions for the issuance of flood policies based
upon a fixed percentage of net written premiums and the processing of flood claims based upon a fixed
percentage of incurred losses, and we can earn additional commissions by meeting certain growth targets for the
number of in-force policies. We recognized commission revenue from our flood program of $516, $436 and $337
for the years ended December 31, 2010, 2009 and 2008, respectively.

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

Excess-of-loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quota share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ceded premiums written . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in ceded unearned premiums . . . . . . . .

Year Ended December 31,

2010

2009

2008

(77,202)
(140)
(9,132)

(86,474)
(1,978)

(82,402)
(1,039)
(8,538)

(91,979)
13,767

(49,210)
(2,758)
(7,283)

(59,251)
172

Ceded premiums earned . . . . . . . . . . . . . . . . . . . . . . . .

(88,452)

(78,212)

(59,079)

57

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

The following table depicts written premiums, earned premiums and losses, showing the effects that our

reinsurance transactions have on these components of our Consolidated Statements of Income:

Year ended December 31,

2010

2009

2008

Premium written:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$155,875
2,762
(86,475)

$154,339
1,501
(91,979)

$135,887
5,669
(59,251)

Net premium written . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 72,162

$ 63,861

$ 82,305

Change in unearned premiums:

Direct
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (2,603)
(727)
(1,977)

$ (3,699)
4,252
13,767

$

2,977
(4,310)
172

Net decrease (increase) . . . . . . . . . . . . . . . . . . . . . . . . .

$ (5,307)

$ 14,320

$ (1,161)

Premiums earned:
Direct
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$153,272
2,035
(88,452)

$150,641
5,752
(78,212)

$138,864
1,359
(59,079)

Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 66,855

$ 78,181

$ 81,144

Losses and LAE incurred:

Direct
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 60,508
1,436
(19,411)

$ 58,447
4,423
(22,115)

$ 45,019
5,822
(22,778)

Net losses and LAE incurred . . . . . . . . . . . . . . . . . . . .

$ 42,533

$ 40,755

$ 28,063

Ceded losses incurred decreased by $2,704 during the year ended December 31, 2010 compared to the year

ended December 31, 2009 primarily for two reasons: i) losses related to our terminated commercial line of
business continue to significantly decline and ii) we have reached or significantly passed the end of the statute of
limitations on the filing of claims related to the 2005 and 2004 storm years, so policyholders are neither reporting
as many new claims as in the prior year nor are they reopening as many previously-closed claims as in the prior
year. The losses we incurred in 2010, 2009 or 2008 related to storms that occurred in those same years did not
exceed our retained loss.

58

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

The following table highlights the effects that our reinsurance transactions have on unpaid losses and loss

adjustment expenses and unearned premiums in our Consolidated Balance Sheets:

December 31,

2010

2009

Unpaid losses and LAE, net:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 43,999
3,415
(23,814)

$ 39,134
4,978
(23,447)

Net unpaid losses and LAE . . . . . . . . . . . . . . . . . . . . . . . .

$ 23,600

$ 20,665

Unearned premiums, net:

Direct
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 76,376
785
(38,307)

$ 73,773
58
(40,285)

Net unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 38,854

$ 33,546

Reinsurance recoverable at December 31, 2010 and 2009, consists of the following:

Reinsurance recoverable on unpaid losses and LAE . . . . . . . . . . . . . . . . . . . . . .
Reinsurance recoverable on paid losses and LAE . . . . . . . . . . . . . . . . . . . . . . . .

$23,814
3,490

$23,447
2,030

Reinsurance recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,304

$25,477

December 31,

2010

2009

During the years ended December 31, 2010, 2009 and 2008, we recognized recoveries totaling $17,447,

$18,938 and $16,606, respectively, under our reinsurance agreements.

10. POLICY ASSUMPTIONS

We are not a reinsurance entity by charter or by strategy; however, we occasionally supplement the natural

growth of our book of business by assuming policies.

As part of an assumption agreement with Citizens that ended in 2006, we received bonuses for policies
assumed from Citizens during multiple assumptions in 2004 and 2005. During the year ended December 31,
2008, we recognized policy assumption bonus income of $6,493, which included $791 of interest income, from
the 2005 assumptions.

We conducted three policy assumptions under a 2008 assumption agreement with Citizens that terminated

during the first quarter of 2010. For the years ended December 31, 2010, 2009 and 2008, we recorded ($17),
$1,501 and $5,669 of written premium assumed, respectively, and $23, $240 and $907 of assumed commissions
incurred, respectively, on those policies. The amount of written premium assumed and assumed commissions
expense we record related to our policy assumptions from Citizens can be affected by policyholder “opt-outs”,
policy endorsements and cancellations.

59

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

On July 1, 2010, we assumed all of Sunshine State’s in-force homeowners policies in South Carolina. For

the year ended December 31, 2010, we recorded $2,779 of written premium assumed and $293 of assumed
commissions incurred on those policies. Unlike the assumptions we made from Citizens, policyholders cannot
“opt out” of our assumption from Sunshine State. For the right to assume and renew their in-force homeowners
policies in South Carolina, we agreed to pay Sunshine State $300, plus as much as an additional $700 depending
upon the renewal rate of the policies we assumed. Based on an analysis of our historical renewal rates for similar
policies, we initially recorded an intangible asset of $860, representing the amount we ultimately expected to pay
Sunshine State for the renewal right. At December 31, 2010 , we increased the value of the intangible asset from
$832 at the end of the third quarter to $839 after our quarterly evaluation of renewal rates indicated that the
actual renewal rate was better than we estimated at the end of the third quarter. We determined that we will
amortize the intangible asset over five years, representing the amount of time we expect the assumed policies to
provide us a benefit. During the year ended December 31, 2010, we recorded amortization totaling $159.

11. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

We determine the reserve for unpaid losses on an individual-case basis for all incidents reported. The

liability also includes amounts for IBNR claims as of the balance sheet date.

The table below summarizes the activity related to our reserve for unpaid losses:

Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: reinsurance recoverable on unpaid losses . . . . . . . . .
Net balance at January 1 . . . . . . . . . . . . . . . . . . .

Incurred related to:

Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total incurred . . . . . . . . . . . . . . . . . . . . . . . . . . .

Paid related to:

Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . .
Plus: reinsurance recoverable on unpaid losses . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . . . . .

2010

2009

2008

$44,112
23,447
$20,665

$41,527
1,006
$42,533

$27,065
12,533
$39,598
$23,600
23,814
$47,414

$40,098
20,906
$19,192

$36,005
14,446
$21,559

$43,731
(2,976)
$40,755

$33,040
(4,977)
$28,063

$30,637
8,645
$39,282
$20,665
23,447
$44,112

$21,005
9,425
$30,430
$19,192
20,906
$40,098

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

As reflected by our losses incurred related to prior years, we had a reserve deficiency in 2010 compared to a

reserve redundancy in 2009. The deficiency resulted from increases we made to our estimates of ultimate losses
on prior year claims because payments on prior year claims exceeded our estimates.

The redundancies in 2009 than 2008 resulted from reductions to our estimates of ultimate losses because of

favorable loss development on our homeowner line of business.

60

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

12. LONG-TERM DEBT

Long-term debt consists of the following:

(a) State Board of Administration (SBA) of Florida note . . . . . . . . . . . . . . .
(b) Columbus Bank & Trust (CB&T) note . . . . . . . . . . . . . . . . . . . . . . . . . . —
(c) Notes payable related to the merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

2.77% $18,235
3.61% $19,706
3.47% 4,327
—
— 11.00% 18,280

Less: note discount

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18,235
—

18,235

42,313
(885)

41,428

December 31,
2010

December 31, 2009

(a) SBA Note

We executed a 20-year, $20,000 note payable to the SBA under the SBA’s Insurance Capital Build-Up
Incentive Program, effective October 1, 2006. The stated rate for the SBA note is a rate equivalent to the 10-year
U.S. Treasury Bond rate. We made quarterly interest-only payments for the first three years, then, as of
October 1, 2009, we began making quarterly principal and interest payments. On November 7, 2008, the SBA
amended the note, effective July 1, 2008, to make it easier for companies participating in the program to meet the
minimum writing ratio covenant discussed below.

We agreed to certain covenants, the violation of which could cause an event of default. Among others, these
covenants include: 1) maintaining statutory surplus greater than or equal to $50,000 less repayments of principal
on the SBA note and less payments of catastrophic losses, 2) refraining from the payment of dividends when
principal and/or interest payments related to the note are past due, and 3) maintaining a minimum writing ratio.
The amended note permits us to meet either of the following ratios:

•

•

a writing ratio based on net written premium to surplus of 2:1 ratio for the year beginning
January 1, 2010 and thereafter for the remaining term of the note agreement, or

a writing ratio based on gross written premium to surplus of 6:1 ratio for the year beginning
January 1, 2010 and thereafter for the remaining term of the note agreement.

As part of the program, the SBA required that we contribute an equivalent amount of capital to UPC;
therefore, UIM made a $20,000 capital contribution to UPC at the time we executed the note in 2006. For
purposes of calculating the writing ratio on a quarterly basis, the amended note defines surplus as the sum of the
$20,000 matching contribution of capital to UPC and the outstanding principal balance of the note. Should we
fail to exceed either a net writing ratio of 1.5:1 or a gross writing ratio of 4.5:1, our interest rate will increase by
450 basis points above the stated rate of the note. Any other writing ratio deficiencies result in an interest rate
penalty of 25 basis points above the stated rate of the note.

The SBA note states that if we fail to exceed either a net writing ratio of 1:1 or a gross writing ratio of 3:1
for three consecutive quarters, we will be obligated to repay a portion of the SBA note such that the appropriate
minimum writing ratio will be obtained for the following quarter. Our SBA note further provides that the SBA
may, among other things, declare its loan immediately due and payable for all defaults existing under the SBA
note; however, the state regulatory authority in Florida would only authorize a payment to the SBA if such
payment did not create a hazardous financial condition at UPC.

61

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

At December 31, 2010, our net writing ratio was 1.7:1 and our gross writing ratio was 4:1, resulting in a
default on the note. Since we did not meet either writing ratio established by the SBA, we must pay additional
interest of 25 basis points during the first quarter of 2011.

During the first three quarters of 2008, we incurred an additional 450 basis points of interest expense as we

did not meet the writing ratio as stated in the initial note agreement with the SBA during the fourth quarter of
2007 and the first two quarters of 2008. From the third quarter of 2008 through the end of 2009, we complied
with the required writing ratios; however, since the increase in the required writing ratios beginning in January
2010, we have not met the required writing ratios and have incurred a 25 basis point interest penalty each quarter.

At December 31, 2009, UIH agreed to contribute $2,000 to UPC to ensure that UPC remained in compliance

with the minimum surplus covenant. On February 23, 2010, UIH funded the capital contribution. We also
complied with each of the other loan covenants at December 31, 2010.

As of December 31, 2010, the annual maturities of our long-term debt are as follows:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$ 1,176
1,176
1,177
1,176
1,176
12,354

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18,235

(b) Note Payable to CB&T

In February 2007, we entered into a $33,000 loan agreement with CB&T, a related party. On February 16,

2010, we paid the final installment of $4,327 plus accrued interest that was due on the CB&T note. Therefore, we
no longer have any amounts outstanding related to the CB&T note.

(c) Merger Notes

On August 15, 2008, we entered into a note purchase agreement with five noteholders. Upon approval of the

merger on September 29, 2008, we issued unsecured notes payable with a total face amount of $18,280. On
May 5, 2010, we paid the notes in full by remitting $18,475, inclusive of principal plus accrued interest of $195,
to the noteholders. We recognized a $726 loss on the extinguishment of the notes due to the write off of the
unamortized original issue discount.

(d) Other Debt-Related Items

On September 10, 2006, UIH and York Enhanced Strategies Fund, LLC entered into a $20,000 loan
agreement. In connection with the transaction, York received a 4.75% equity interest in UIH and entered into a
redeemable Put Agreement with UIH. When the merger between FMG and UIH became effective, York
exchanged its ownership interest in UIH, including the ability to exercise the put option, for the merger
consideration. To account for the fact that the put option no longer represented a liability to us as of the close of
the merger, we reversed the liability of $2,564 we had recorded prior to the merger and recorded it in Other
Income on our Consolidated Statements of Income.

62

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

13. Income Taxes

The following table summarizes the Provision for Income Taxes:

Year Ended December 31,

2010

2009

2008

Federal:

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(843)
423

868
1,058

Provision for (benefit from) Federal income tax expense . . . . . . . .

(420)

1,926

State:

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Provision for (benefit from) State income tax expense . . . . . . . . . .

8
(71)

(63)

148
196

344

Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(483)

2,270

4,187
2,805

6,992

661
531

1,192

8,184

The actual income tax expense differs from the “expected” income tax expense computed by applying the

combined applicable effective federal and state tax rates to income before the provision for income taxes as
follows:

Year Ended December 31,

2010

2009

2008

Expected income tax expense (benefit) at federal rate . . . . . . . . . . . . . . . . .
State tax expense (benefit), net of federal deduction benefit . . . . . . . . .
Dividend received deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income of limited liability companies . . . . . . . . . . . . . . . . . . . . . . . . . . —
127
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(479)
(71)
(60)

2,151
287
(83)
—
(85)

14,145
788
(79)
(6,685)
15

Reported income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(483)

2,270

8,184

Deferred income taxes, which is included in other assets or other liabilities as appropriate, reflect the net tax

effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

63

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

The table below summarizes the significant components of our net deferred tax asset:

Deferred tax assets:

Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-related discount on loss reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired deferred tax asset
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Unrealized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisitions costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2010

2009

2,998
179
499
23
140
172
178

4,189

2,588
607
597
143
114
172
51

4,272

136
(3,264)
(323)
(192)

(3,643)
(172 )

(696)
(3,149)
(320)
(41)

(4,206)
(172 )

Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

374

(106)

In assessing the net realizable value of deferred tax assets, we consider whether it is more likely than not
that we will not realize some portion or all of the deferred tax assets. The ultimate realization of deferred tax
assets depends upon the generation of future taxable income during the periods in which those temporary
differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment.

The statute of limitations related to our consolidated Federal income tax returns and our Florida income tax
returns expired for all tax years up to and including 2006; therefore, only the 2007 through 2010 tax years remain
subject to examination by taxing authorities. No taxing authorities are currently examining any of our Federal or
Florida income tax returns.

As of December 31, 2010, we have not taken any uncertain tax positions with regard to our tax returns.

On our Consolidated Statements of Income, the pro forma computation of income taxes for the year ended
2008 represents the tax effects we would have reported had all of our subsidiaries reported U.S. federal and state
income taxes on a consolidated tax return. We based our pro forma estimate upon the statutory income tax rates
and adjustments to income for estimated permanent differences occurring during each period. Our actual rates
and expenses may have differed had all our subsidiaries actually been subject to U.S. federal and state income
taxes for all periods presented. Therefore, we included the pro forma amounts for informational purposes only;
we do not intend for the pro forma amounts to be indicative of our results of operations had we been required to
file a consolidated tax return that included all of our subsidiaries for all periods presented.

64

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

14. REGULATORY REQUIREMENTS AND RESTRICTIONS

The insurance industry is heavily-regulated. State laws and regulations, as well as national regulatory
agency requirements, govern the operations of all insurers such as UPC. The various laws and regulations require
that insurers maintain minimum amounts of statutory surplus and risk-based capital, they restrict insurers’ ability
to pay dividends, they specify allowable investment types and investment mixes, and they subject insurers to
assessments.

Florida law requires that UPC maintain capital and surplus equal to the greater of 10% of its total liabilities

or $4,000. Our statutory capital surplus was $48,495 at December 31, 2010. State law also requires UPC to
adhere to prescribed premium-to-capital surplus ratios, with which we were in compliance at December 31, 2010.

The National Association of Insurance Commissioners published risk-based capital guidelines for insurance

companies that are designed to assess capital adequacy and to raise the level of protection that statutory surplus
provides for policy holders. Most states, including Florida, have enacted the NAIC guidelines as statutory
requirements, and insurers having less statutory surplus than required will be subject to varying degrees of
regulatory action, depending on the level of capital inadequacy. State regulatory authorities could require an
insurer to cease operations in the event the insurer fails to maintain the required statutory capital. At
December 31, 2010, UPC exceeded the minimum risk-based capital requirements.

Florida law permits an insurer to pay dividends or make distributions out of that part of statutory surplus

derived from net operating profit and net realized capital gains. The law further provides calculations to
determine the amount of dividends or distributions that can be made without the prior approval of the state
regulatory authority and the amount of dividends or distributions that would require prior approval of the
regulatory authority. Statutory risk-based capital requirements may further restrict UPC’s ability to pay dividends
or make distributions if the amount of the intended dividend or distribution would cause statutory surplus to fall
below minimum risk-based capital requirements.

Florida law limits an insurer’s investment in equity instruments and also restricts investments in medium to
low quality debt instruments. We were in compliance with all investment restrictions at December 31, 2010, and
2009.

We are subject to various assessments in the states in which we write policies. See Note 3(j) for a

description of how we recover assessments imposed upon us.

State agencies can also levy assessments upon policyholders, and we collect the amount of the assessments

from policyholders as surcharges for the benefit of the assessing agency.

65

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

The table below summarizes the activity related to assessments imposed upon UPC:

Expected recoveries of assessments, January 1 . . . . . . . . . . . . . . . . . . . . .
Assessments expensed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assessments recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assessments not recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,525
—
(1,103)
(9)

2,235
1,045
(1,688)
(67)

4,918
—
(2,552)
(131)

Expected recoveries of assessments, December 31 . . . . . . . . . . . . . . . . . .

413

1,525

2,235

2010

2009

2008

We expense assessments when they are imposed upon us; therefore, expected recoveries in the table above

are not assets and we will record the amounts as income when collected from policyholders. We are also
currently collecting assessments upon policyholders on behalf of Citizens in the amount of 1.4%, and on behalf
of FHCF in the amount of 1.0%. We multiply the premium written on each policy, except our flood policies, by
these assessment percentages to determine the additional amount that we will collect from the policyholder and
remit to the assessing agencies.

Because UPC issued a surplus note as defined by statutory accounting principles, as discussed in Note 12(a),
we are subject to the authority of the Insurance Commissioner of the State of Florida with regard to our ability to
repay principal and interest on the surplus note. Any payment of principal or interest requires permission from
the state regulatory authority.

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

•

•

•

•

•

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

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

Statutory accounting requires that we calculate deferred income taxes differently than we would
under GAAP.

Statutory accounting requires that we record certain investments at cost or amortized cost, while
we record other investments at fair value; however, GAAP requires that we record all investments
at fair value.

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

Our insurance subsidiary must file with the various state regulatory authorities an “Annual Statement”

which reports, among other items, net income (loss) and surplus as regards policyholders, which is called
stockholder’s equity under GAAP.

66

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

The table below reconciles our consolidated GAAP net income to the statutory net income (loss) of UPC:

Year Ended December 31,

2010

2009

2008

Consolidated GAAP net income (loss)
Increase (decrease) due to:

. . . . . . . . . . . . . . . . . . . . . . . . .

(925)

4,057

33,419

Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest accrued on takeout bonus income . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Operations of non-statutory subsidiaries . . . . . . . . . . . . . . . . . . . .

(11)
247
(310)
(309)
(1,110)
—
(275)
—
—
(3,489)

(225)
667
652
64
(884)
—
3
—
—
(12,383)

5
438
(681)
145
(2,652)
443
(92)
1,238
517
(23,869)

Statutory net income (loss) of UPC . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6,182)

(8,049)

8,911

The table below reconciles our consolidated GAAP stockholders’ equity to the surplus as regards

policyholders of UPC:

Consolidated GAAP stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) due to:

Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-admitted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surplus debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-in surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity of non-statutory subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net

December 31,

2010

2009

45,293

48,071

(3,354)
(471)
165
(109)
18,235
—
(696)
(12,978)
1,868
380
463
(364)
63

(3,044)
(809)
(1,457)
(711)
19,706
2,000
(663)
(16,862)
1,879
689
1,573
(89)
62

Statutory surplus as regards policyholders of UPC . . . . . . . . . . . . . . . . . . . . . . . .

48,495

50,345

67

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

15. COMMITMENTS AND CONTINGENCIES

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

On August 5, 2010, Synovus Bank (Synovus), a Georgia banking corporation filed a lawsuit in the Circuit
Court of the Sixth Judicial Circuit in and for Pinellas County, Florida against several defendants, including UIHC
and UIH. With respect to UIHC and UIH, the complaint: (1) sought to foreclose on a security interest in
membership units of UIH owned by a UIH shareholder named as a defendant, including the proceeds thereof (the
United Collateral), (2) sought a declaratory judgment requiring UIHC and UIH to deliver proceeds of the United
Collateral to Synovus (including shares of UIHC and warrants to purchase shares of UIHC or the equivalent
value thereof in cash, and a cash distribution), (3) alleged tortious interference with a contract between the UIH
shareholder named as a defendant and Synovus relating to the United Collateral, (4) sought conversion of the
United Collateral, and (5) alleged negligence in connection with the delivery of the United Collateral. Synovus
sought unspecified damages and other relief in connection with the foregoing.

On January 3, 2011, Synovus Bank voluntarily dismissed its case without prejudice against UIH and UIHC.
We did not establish any reserves regarding this action because we were not able to predict the probable outcome
of the action.

See Note 12 for information regarding commitments related to long-term debt, and Note 14 for

commitments related to regulatory actions.

16. LEASES

We lease office space and office equipment under operating leases. In June 2008, we entered into a six-year

operating lease agreement for office space for our corporate headquarters. The lease provides us with an option
for two renewal periods of five years each. The office equipment leases have various expiration dates. Lease
expense amounted to $433, $433, and $241 for the years ended December 31, 2010, 2009 and 2008, respectively.
At December 31, 2010, our minimum future lease payments under non-cancellable operating leases are:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$420
405
416
285
—

68

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

17. RELATED PARTY TRANSACTIONS

Prior to consummation of the merger on September 30, 2008, the owner of two independent insurance

agencies that write our policies, Alpha Insurance Management and Comegys Insurance Corner, served on the
Board of Directors (Board or BOD) of UIH. During 2008, we incurred board fees and agents’ commissions
related to the aforementioned agencies totaling $616. We paid commissions to these agencies based upon
standard industry rates. After September 30, 2008, the owner of the aforementioned insurance agencies no longer
served as a director, but remains a common stockholder.

We place private reinsurance through BMS Group, Ltd., a broker that employs a person that served as a UIH

director until the close of the merger. The reinsurers pay commissions to the broker determined in accordance
with industry rates. After September 30, 2008, the aforementioned person no longer served as a director, but
remains a common stockholder.

Effective October 8, 2003, we entered into an investment-management agreement with Synovus Trust

Company, N.A.. The agreement remains in effect until terminated by either party. Synovus Financial
Corporation, our largest shareholder, owns Synovus Trust, which provides discretionary investment management
services for the investment accounts of our subsidiaries. Synovus owned 14.6% of our outstanding common stock
at December 31, 2010, 2009 and 2008. During the years ended December 31, 2010, 2009 and 2008, our
subsidiaries incurred combined fees under the agreement of $101, $109, and $104, respectively.

At December 31, 2009, we owed $4,327 to CB&T under a secured loan agreement executed in February
2007; we repaid the $4,327 in February 2010. Synovus owns CB&T. Under the loan agreement, we incurred
interest of $19, $147, and $754 for the years ended December 31, 2010, 2009 and 2008, respectively. CB&T
charged us standard industry rates.

In March 2008, we amended our letter agreement with Raymond James Financial, Inc., our investment
banking advisor; the agreement that remained in effect until consummation of the merger. A person that served
as a director of UIH prior to the merger, and who remains a common stockholder after the merger, works for
Raymond James as a managing director. During 2008, we incurred fees of $1,646 under the agreement that were
related to the merger; therefore, those fees were a portion of the amount by which we reduced equity for direct
costs of the merger. We incurred no fees in 2007 under the agreement.

In March 2008, we forgave notes receivable from certain officers in the amount of $100, plus accrued

interest of $15.

During the first quarter of 2008, UIH’s Chairman of the Board exercised an option for $63 to purchase 258

additional membership units of UIH. No further UIH equity purchase options exist.

Our Chairman of the Board is also a director of Prime Holdings. Prime Holdings issued us a note receivable

in exchange for their common stock that we owned, as discussed in Note 6. During March 2009, we agreed to
modify the note receivable from Prime Holdings by delaying the next payment date from May 1, 2009 to July 15,
2009; we received the $452 payment as scheduled on July 15, 2009. We received the final payment of $402 in
May 2010.

Two of our directors are among the owners of FMGI, which purchased warrants from us in a private

placement prior to our initial public offering. As part of the merger transaction, FMGI surrendered to us warrants

69

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

to purchase 179,819 shares of our common stock, as well as 179,819 of our common stock shares it owned. We
gave no consideration in exchange for the surrendered shares, which we cancelled.

On September 29, 2008, we issued notes payable to two of our former stockholders as well as a note payable

to United Noteholders, LLC, which is owned in part by one of our directors and is managed by two of our other
directors. All three notes are part of the merger notes we issued on September 29, 2008. At December 31, 2009,
these notes totaled $7,674, net of $390 discount. As described in Note 12, we repaid the merger notes in full in
May 2010. For the years ended December 31, 2010, 2009 and 2008, total interest incurred related to these notes
was $308, $892 and $222, respectively, and total discount amortized related to these notes was $70, $185 and
$43, respectively. We also recognized a loss on the extinguishment of $726.

FMGI made available to us a limited-recourse, revolving line of credit totaling $250. The revolving line of

credit terminated upon the completion the merger.

18. EMPLOYEE BENEFIT PLAN

We provide a 401(k) plan for substantially all of our employees. We match 100% of the first 5% of

employees’ contributions to the plan. For the years ended December 31, 2010, 2009 and 2008, our contributions
to the plan on behalf of the participating employees were $87, $81, and $80, respectively.

19. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

We report changes in other comprehensive income items within comprehensive income on the Consolidated

Statements of Income, and we include accumulated other comprehensive income as a component of
stockholders’ equity on the Consolidated Balance Sheets.

The table below details the components of accumulated other comprehensive income (loss) at year end:

Balance at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in net unrealized gain (loss) on investments . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in net unrealized gain (loss) on investments . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for recognized other-than-temporary

Before-Tax
Amount

$ 1,192
(2,465)
(1,116)

(2,389)
4,152
(1,837)

impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,878

Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in net unrealized gain (loss) on investments . . . . . . . . . . . . . . . . .
Reclassification adjustment for realized gains . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for recognized other-than-temporary

1,804
2,093
(4,346)

Tax
(Expense)
Benefit

$ (448)
928
419

899
(1,580)
699

(714)

(696)
(807)
1,676

Net-of-Tax
Amount

744
$
(1,537)
(697)

(1,490)
2,572
(1,138)

1,164

1,108
1,286
(2,670)

impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

97

(37)

60

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (352)

$

136

$ (216)

70

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

20. CAPITAL TRANSACTIONS

Our Articles of Incorporation authorize us to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as the BOD may determine from time to time. As of
December 31, 2010, we had not issued any shares of preferred stock.

During the first quarter of 2008, UIH’s Chairman of the Board exercised an option for $63 to purchase 258

additional membership units of UIH.

On September 29, 2008, we amended our Articles of Incorporation to increase the number of authorized

shares of our common stock from 20,000,000 to 50,000,000 with a $0.0001 par value per share.

See the section entitled Supplemental Cash Flows Information on our Consolidated Statements of Cash
Flows regarding transactions relating to our capital stock that occurred in connection with the merger with UIH.

On March 25, 2009, the Compensation Committee of our Board voted to award 12,500 shares of our

common stock each to our CEO and our then CFO as a bonus for services performed. We valued the 25,000 total
shares at $3.00 per share, which was the closing price of UIHC common stock on March 25, 2009, when the
shares were authorized. As a result, we recorded $75 of compensation expense during the year ended
December 31, 2009. We do not have a formal stock compensation program as of December 31, 2010.

We have a right to redeem outstanding warrants if the last sales price of the common stock equals or

exceeds $11.50 per share, for any 20 trading days within a 30 trading day period ending on the third business day
prior to the notice of redemption to warrant holders. If we call the warrants for redemption, our management will
have the option to require any holder that wishes to exercise his, her or its warrant to do so on a “cashless basis.”
If our management takes advantage of this option, all holders of warrants would pay the exercise price by
surrendering his, her or its warrants for that number of shares of common stock equal to the quotient obtained by
dividing (x) the product of the number of shares of common stock underlying the warrants, multiplied by the
difference between the exercise price of the warrants and the “fair market value” by (y) the fair market value.
The right of redemption does not apply to the private warrants held by FMGI, as discussed below.

FMGI holds warrants to purchase 1,070,181 shares of our common stock. As long as FMGI, or certain
permitted assigns, hold these warrants, we cannot redeem the warrants and FMGI, or certain permitted assigns,
can exercise the warrants on a “cashless” basis.

At December 31, 2010, we had 7,077,375 warrants outstanding to purchase shares of our common stock.

The warrants have an exercise price of $6.00 and they expire on October 4, 2011.

21. DIVIDENDS AND DISTRIBUTIONS

We are a legal entity separate and distinct from our subsidiaries. As a holding company, we rely on cash

received in the form of distributions, dividends and other permitted payments from our subsidiaries to meet our
obligations. While there are no restrictions on distributions from UIHC, dividends from UPC have certain
restrictions (see Note 14).

Prior to the merger, and in accordance with the UIH Members Agreement, UIH provided cash distributions
to each of its members on an annual basis to allow each member to pay any federal income tax which may have

71

UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements

$000, except share and per share amounts

been owed on the taxable income attributable to the person/entity as a member of UIH. During 2008, UIH paid
tax distributions to its members totaling $16,225. Also during 2008, UIH declared and paid a $2,000
non-tax-related distribution to UIH members; the merger agreement specifically authorized the $2,000
distribution.

On May 6, 2009, our Board declared a $0.05 per share dividend. We paid the $528 dividend on June 15,

2009 to shareholders of record on May 31, 2009.

On August 13, 2009, our Board declared a $0.05 per share dividend. We paid the $529 dividend on

September 15, 2009 to shareholders of record on August 31, 2009.

On November 11, 2009, our Board declared a $0.05 per share dividend. We paid the $529 dividend on

December 15, 2009 to shareholders of record on November 30, 2009.

On March 25, 2010, our Board declared a $0.05 per share dividend. We paid the $529 dividend on April 15,

2010 to shareholders of record on March 31, 2010.

See our Statements of Income and our Statements of Cash Flows for information regarding dividends

declared and dividends paid, respectively.

22. SUBSEQUENT EVENTS

On March 8, 2011, we assumed 5,912 policies from Citizens, representing in-force premium totaling

approximately $10,556. We will record approximately $5,000 of written premium assumed, as well as
approximately $800 of assumed commissions incurred once we receive final data from Citizens at the end of
March. The amount of written premium assumed and assumed commissions expense we record related to our
policy assumptions from Citizens can be affected by policyholder “opt-outs”, policy endorsements and
cancellations; however, under current regulations, policyholders have more limited conditions under which they
can opt-out when compared to previous assumption programs. As was the case with the assumptions we
conducted under the 2008 assumption agreement with Citizens, this current assumption agreement does not allow
for any bonuses related to policies assumed.

The Company evaluates all subsequent events and transactions for potential recognition or disclosure in our

financial statements. Beside those noted above, there are no additional matters which require disclosure.

72

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Dismissal of DeMeo, Young, McGrath; Appointment of McGladrey & Pullen, LLP

Effective April 20, 2009, the Audit Committee of our Board dismissed DeMeo, Young, McGrath as our

independent registered public accounting firm.

As described below, the change in independent registered public accounting firms is not the result of any
disagreement with DeMeo; their audit report dated March 23, 2009 (which was included in our Form 10-K/A for
the year ended December 31, 2008, filed with the SEC on March 31, 2009) on our consolidated financial
statements as of and for the years ended December 31, 2008 and December 31, 2007, did not contain an adverse
opinion or a disclaimer opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting
principles.

During the years ended December 31, 2008 and December 31, 2007 and through the date of DeMeo’s
dismissal on April 20, 2009, we had no disagreements with them on any matter of accounting principles or
practices, financial statement disclosures, or auditing scope or procedure that, if not resolved to their satisfaction,
would have caused them to make reference to the subject matter thereof in connection with its report on our
consolidated financial statements for either of such years. During the years ended December 31, 2008 and
December 31, 2007, and through the date of DeMeo’s dismissal on April 20, 2009, there were no “reportable
events” as defined in Item 304(a)(1)(v) of Regulation S-K.

Effective April 27, 2009, the Audit Committee of our Board engaged McGladrey & Pullen, LLP as our

independent registered public accounting firm beginning with our fiscal year ending December 31, 2009.

During the fiscal year ended December 31, 2008, and the subsequent interim period prior to the engagement

of McGladrey, we did not consult with McGladrey regarding any of the matters or events set forth in
Item 304(a)(2)(i) and (ii) of Regulation S-K.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Under the supervision and with the participation of our management, including our principal executive

officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and
operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of the period covered by
this report. Based on our evaluation, our principal executive officer and principal financial officer concluded our
disclosure controls and procedures were effective, as of the end of the period covered by this report, to ensure
that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial

reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial statements for external purposes in

73

accordance with generally accepted accounting principles in the United States. Internal control over financial
reporting includes those policies and procedures that: (a) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect our transactions and dispositions of our assets; (b) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principals, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (c) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2010. In making this assessment, our management used the criteria set forth in the Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on the criteria set forth in the Internal Control-Integrated Framework, our management
believes that as of December 31, 2010, our internal control over our financial reporting is effective.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended December 31, 2010, our management made changes in our internal control
over financial reporting to enhance the controls related to claims adjudication and payment. Management made
the enhancements in response to control deficiencies they identified during their testing of internal controls over
financial reporting during the fourth quarter. Other than the described remediations, there were no changes in the
Company’s internal control over financial reporting that occurred during the fourth quarter that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on Controls

Because of the inherent limitations of internal controls, we do not expect our disclosure controls and
procedures or our internal control over financial reporting will prevent or detect all errors and fraud. Any control
system, no matter how well designed and operated, is based upon certain assumptions and can provide only
reasonable, not absolute, assurance that our objectives will be met. Further, no evaluation of controls can provide
absolute assurance that we will prevent all misstatements due to error or fraud or that we will detect all control
issues and instances of fraud, if any, within our company.

Item 9B. Other Information

None

74

PART III

Item 10. Directors, Executive Officers, and Corporate Governance

Other than the information regarding our Code of Conduct and Ethics set forth below, all information
required by this Item is incorporated herein by reference to our definitive Proxy Statement for the 2011 Annual
Meeting of our Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended
December 31, 2010.

CODE OF CONDUCT AND ETHICS

We have adopted a code of ethics (our Code of Conduct and Ethics) that applies to our officers, directors
and employees, including our principal executive officer and our principal financial and accounting officer, in
accordance with applicable federal securities laws. We have filed a copy of our Code of Conduct and Ethics with
the SEC and it is listed as exhibit 14.1 to this Annual Report on Form 10-K. This document may be reviewed by
accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of our Code of Conduct
and Ethics will be provided without charge upon written request submitted to us via regular mail or via electronic
mail to investorrelations@upcic.com. We intend to disclose any amendments to or waivers of provisions of our
Code of Conduct and Ethics in a Current Report on Form 8-K.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to our definitive Proxy Statement

for the 2011 Annual Meeting of our Stockholders to be filed with the SEC within 120 days after the end of our
fiscal year ended December 31, 2010.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

Information regarding our equity compensation plans is incorporated herein by reference to Item 5 of Part II

of this Form 10-K. All other information required by this Item is incorporated herein by reference to our
definitive Proxy Statement for the 2011 Annual Meeting of our Stockholders to be filed with the SEC within
120 days after the end of our fiscal year ended December 31, 2010.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated herein by reference to our definitive Proxy Statement

for the 2011 Annual Meeting of our Stockholders to be filed with the SEC within 120 days after the end of our
fiscal year ended December 31, 2010.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference to our definitive Proxy Statement

for the 2011 Annual Meeting of our Stockholders to be filed with the SEC within 120 days after the end of our
fiscal year ended December 31, 2010.

75

Item 15.

Exhibits, Financial Statement Schedules

The following documents are filed as part of this Report:

PART IV

(1) Consolidated Financial Statements. In Part II, Item 8, we have included our consolidated
financial statements, the notes thereto and the reports of the Independent Registered Public
Accounting Firms.

(2) Financial Statement Schedules. Schedule I – Summary of Investments, Schedule IV –
Reinsurance, and Schedule V – Valuation and Qualifying Accounts are filed as a part hereof along
with the related reports of the Independent Registered Public Accounting Firms included in Part
II, Item 8. All other schedules have been omitted because the information required to be set forth
therein is not applicable or is included in the consolidated financial statements or notes thereto.

(3) Exhibits. We hereby file as part of this Annual Report on Form 10-K the Exhibits listed on the
attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected and
copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580,
Washington D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov.

76

SCHEDULE I. Summary of Investments

December 31, 2010

Cost or
Amortized
Cost

Fair Value

Amount
Shown in
Consolidated
Balance
Sheet

Bonds:

U.S. government, government agencies and authorities . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . . . . . . . . . . . . . . . .
All other corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$32,841
13,305
4,029
809

$32,895
12,979
4,047
762

$32,895
12,979
4,047
762

Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50,984

50,683

50,683

Common stocks:

Industrial, miscellaneous and all other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,061
605

3,666
300

3,048
567

3,615
300

3,048
567

3,615
300

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$54,950

$54,598

$54,598

77

SCHEDULE IV. Reinsurance

Property and Casualty Insurance

Direct
Premium
Written

Premiums
Ceded to
Other
Companies

Premiums
Assumed
from
Other
Companies

Percentage
of
Premiums
Assumed
to Net

Net
Premiums
Written

Years Ended December 31,

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$155,875
154,339
135,887

86,475
91,979
59,251

2,762
1,501
5,669

$72,162
63,861
82,305

3.8%
2.4%
6.9%

78

SCHEDULE V. Valuation and Qualifying Accounts

Uncollectible Premium Liability

Balance
at
Beginning
of Period

Charged
to Costs
and

Expenses Deductions

Balance
at End
of
Period

Years Ended December 31,

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$370
305
160

42
83
442

$(351)
(18)
(297)

$ 61
370
305

79

Exhibit

Description

EXHIBIT INDEX

3.1

3.2

4.1

4.2

4.3

4.4

4.5

10.1

10.2

10.3

10.4

10.5

10.6

10.7

Second Amended and Restated Certificate of Incorporation (included as exhibit 3.1 to the Form 10-Q,
filed November 14, 2008, and incorporated herein by reference).

Bylaws (included as exhibit 3.3 to the Form S-1 (Registration No. 333-143466), filed June 4, 2007,
and incorporated herein by reference).

Specimen Unit Certificate (included as exhibit 4.1 to the Form S-1/A (Registration No. 333-143466),
filed July 12, 2007, and incorporated herein by reference).

Specimen Common Stock Certificate (included as exhibit 4.2 to the Form S-1/A (Registration
No. 333-143466), filed July 12, 2007, and incorporated herein by reference).

Specimen Warrant Certificate (included as exhibit 4.3 to the Form S-1/A (Registration
No. 333-143466), filed July 12, 2007, and incorporated herein by reference).

Warrant Agreement dated October 4, 2007 between Continental Stock Transfer & Trust Company and
the Registrant (included as exhibit 4.1 to the Form 8K, filed October 12, 2007, and incorporated
herein by reference).

Registration Rights Agreement, dated October 4, 2007, by and among FMG Acquisition Corp. and the
investors named therein (included as exhibit 10.4 to the Form 8K, filed October 12, 2007, and
incorporated herein by reference).

Investment Management Agreement between United Property & Casualty Insurance Company and
Synovus Trust Company, dated October 8, 2003 (included as exhibit 10.18 to the Form S-4/A
(Registration No. 333-150327), filed June 13, 2008, and incorporated herein by reference).

Insurance Capital Build-up Incentive Program Surplus Note between United Property & Casualty
Insurance Company and the State Board of Administration of Florida dated September 22, 2006
(included as exhibit 10.31 to the Form S-4/A (Registration No. 333-150327), filed June 13, 2008, and
incorporated herein by reference).

Master Business Process Outsourcing Services Agreement between United Insurance Management,
LLC and Computer Sciences Corporation, dated March 11, 2008 (included as exhibit 10.24 to the
Form S-4/A (Registration No. 333-150327), filed June 13, 2008, and incorporated herein by
reference).

Master Business Process Outsourcing Services Agreement between United Insurance Management,
LLC and Computer Sciences Corporation, dated March 11, 2008 (included as exhibit 10.24 to the
Form S-4/A (Registration No. 333-150327), filed June 13, 2008, and incorporated herein by
reference).

Addendum Number One to Insurance Capital Build-Up Incentive Program Surplus Note, dated
November 7, 2008 and effective July 1, 2008, between the State Board of Administration of Florida
and United Property & Casualty Insurance Company (included as exhibit 10.1 to the Form 8-K, filed
November 12, 2008, and incorporated herein by reference).

Federal Income Tax Allocation Agreement between United Insurance Holdings Corp., United
Insurance Holdings, L.C., United Insurance Management, L.C., Skyway Claims Services, LLC, and
United Property & Casualty Insurance Company, dated October 1, 2008 (included as exhibit 10.32 to
the Form 10-K/A, filed March 31, 2009, and incorporated herein by reference).

Form of Property Catastrophe Excess of Loss Reinsurance Agreement between United Property &
Casualty Insurance Company and Various Reinsurance Companies, effective June 1, 2010 and
including Addendum No. 1 (included as exhibit 10.1 to the Form 10-Q, filed August 9, 2010, and
incorporated herein by reference).

80

Exhibit

Description

10.8

10.9

10.10

10.11

10.12

10.13

14.1

16.1

21.1

23.1

23.2

24.1

31.1

31.2

32.1

32.2

Florida Hurricane Catastrophe Fund Reimbursement Contract between United Property & Casualty
Insurance Company and the State Board of Administration of Florida, effective June 1, 2010 and
including Addenda 1 and 2 (included as exhibit 10.1 to the Form 8-K filed on June 9, 2010, and
incorporated herein by reference).

Form of Multi-Line Per Risk Excess of Loss Reinsurance Agreement between United Property &
Casualty Insurance Company and Various Reinsurance Companies, effective June 1, 2010 (included
as exhibit 10.3 to the Form 10-Q, filed August 9, 2010, and incorporated herein by reference).

Form of Reinstatement Premium Protection Reinsurance Agreement between United Property &
Casualty Insurance Company and Various Reinsurance Companies, effective June 1, 2010 (included
as exhibit 10.4 to the Form 10-Q, filed August 9, 2010, and incorporated herein by reference).

Form of Property Catastrophe Second Event Excess of Loss Reinsurance Agreement between United
Property & Casualty Insurance Company and Various Reinsurance Companies, effective June 1, 2010
(included as exhibit 10.5 to the Form 10-Q, filed August 9, 2010, and incorporated herein by
reference).

Form of Property Catastrophe Third Event Excess of Loss Reinsurance Agreement between United
Property & Casualty Insurance Company and Various Reinsurance Companies, effective June 1, 2010
(included as exhibit 10.6 to the Form 10-Q, filed August 9, 2010, and incorporated herein by
reference).

Assumption Agreement between Sunshine State Insurance Company and United Property & Casualty
Insurance Company, effective July 1, 2010 (included as exhibit 10.7 to the Form 10-Q, filed
August 9, 2010, and incorporated herein by reference).

Code of Conduct and Ethics (included as exhibit 14 to the Form S-1 (Registration No. 333-143466),
filed June 4, 2007, and incorporated herein by reference).

Letter of DeMeo, Young, McGrath dated April 24, 2009 (included as exhibit 16.1 to the Form 8-K,
filed April 24, 2009, and incorporated herein by reference).

Subsidiaries of United Insurance Holdings Corp.

Consent of McGladrey & Pullen LLP.

Consent of DeMeo, Young, McGrath.

Power of Attorney (included on Signature Page).

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

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

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

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

81

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly

caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.

Date: March 17, 2011

UNITED INSURANCE HOLDINGS CORP.

/s/ Donald J. Cronin

By:
Name: Donald J. Cronin
Title: Chief Executive Officer, President and Director

(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on our behalf and in the capacities and on the dates indicated.

/s/ Donald J. Cronin

Donald J. Cronin

/s/ Joseph R. Peiso

Joseph R. Peiso

/s/ Gregory C. Branch

Gregory C. Branch

/s/ Gordon G. Pratt

Gordon G. Pratt

/s/ Alec L. Poitevint, II

Alec L. Poitevint, II

/s/ Larry G. Swets, Jr.

Larry G. Swets, Jr.

/s/ Kent G. Whittemore

Kent G. Whittemore

/s/ James R. Zuhlke

James R. Zuhlke

Chief Executive Officer, President and Director
(principal executive officer)

Chief Financial Officer
(principal financial and accounting officer)

March 17, 2011

March 17, 2011

Chairman of the Board and Director

March 17, 2011

Vice Chairman of the Board and Director

March 17, 2011

March 17, 2011

March 17, 2011

March 17, 2011

March 17, 2011

Director

Director

Director

Director

82

[THIS PAGE INTENTIONALLY LEFT BLANK]

EXHIBIT 31.1

CERTIFICATIONS PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT

I, Donald J. Cronin, certify that:

1. I have reviewed this Form 10-K of United Insurance Holdings Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.

/s/ Donald J. Cronin

Donald J. Cronin
President and Chief Executive Officer
(principal executive officer)

March 17, 2011

EXHIBIT 31.2

CERTIFICATIONS PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT

I, Joseph R. Peiso, certify that:

1. I have reviewed this Form 10-K of United Insurance Holdings Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.

/s/ Joseph R. Peiso

Joseph R. Peiso
Chief Financial Officer
(principal financial officer)

March 17, 2011

CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT

EXHIBIT 32.1

In connection with the Form 10-K of United Insurance Holdings Corp. for the year ended December 31, 2010, as
filed with the Securities and Exchange Commission (the “Report”), I, Donald J. Cronin, the Chief Executive
Officer (principal executive officer) of United Insurance Holdings Corp. hereby certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange

Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition

and results of operations of United Insurance Holdings Corp.

By: /s/ Donald J. Cronin
Donald J. Cronin
President and Chief Executive Officer
(principal executive officer)

March 17, 2011

CERTIFICATION PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT

EXHIBIT 32.2

In connection with the Form 10-K of United Insurance Holdings Corp. for the year ended December 31, 2010, as
filed with the Securities and Exchange Commission (the “Report”), I, Joseph R. Peiso, the Chief Financial
Officer (principal financial officer) of United Insurance Holdings Corp. hereby certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange

Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition

and results of operations of United Insurance Holdings Corp.

By: /s/ Joseph R. Peiso
Joseph R. Peiso
Chief Financial Officer
(principal financial officer)

March 17, 2011

[THIS PAGE INTENTIONALLY LEFT BLANK]

Corporate Headquarters

Transfer Agent

Counsel

Independent Auditors

Investor Relations

Stock Listing

Annual Meeting

Directors

United Insurance Holdings Corp.
360 Central Avenue
Suite 900
St. Petersburg, FL 33701

Continental Stock Transfer & Trust Company
17 Battery Place
New York, NY 10004

Foley & Lardner LLP
100 N Tampa St
Suite 2700
Tampa, FL 33602

McGladrey & Pullen, LLP
4801 Main Street, Suite 400
Kansas City, MO 64112

The Equity Group, Inc.
800 Third Ave
36th Floor
New York, NY 10022

Our common stock shares are traded via the Over-the-Counter Bulletin
Board under the symbol UIHC.

The 2011Annual Meeting of the stockholders will be held on
Wednesday, June 15, 2011 at 11:00 a.m. Eastern Daylight Time in the
corporate headquarters of United Insurance Holdings Corp.

Gregory C. Branch, Chairman – Chairman and owner of Branch
Properties, Inc., a manufacturer and distributor of equine feed

Gordon G. Pratt, Vice Chairman – Managing Director of Fund
Management Group, an owner, operator and investor in insurance-related
business

Alec L. Poitevint, II – Chairman and President of Southeastern
Minerals, Inc., a manufacturer and distributor of mineral ingredients

Larry G. Swets, Jr. – Chief Executive Officer of Kingsway Financial
Services, Inc., a property and casualty insurance company

James R. Zuhlke – Executive Chairman of Avalon Risk Management
Insurance Agency LLC, which specializes in insuring importers,
exporters, third party logistics providers and related transportation risks

Kent G. Whittemore – President and a shareholder of The Whittemore
Law Group, P.A.

Executive Officers

Donald J. Cronin – President, Chief Executive Officer and Director

Joseph R. Peiso – Chief Financial Officer

Melvin A. Russell Jr. – Senior Vice President and Chief Underwriting
Officer

UNITED INSURANCE
HOLDINGS CORP.